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SOUTH AFRICA

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Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki

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Update No: 33 - (04/10/04)

President Thabo Mbeki, has been leading calls for reforms of UN bodies such as the security council, and said the UN had so far failed to achieve its objectives of "human dignity, equality and equity at the global level" as outlined in the Millennium Declaration. South Africa has put forward its case for a permanent position on the United Nations (UN) Security Council as representative for Africa, but it must lobby extensively to ensure the post does not go to Egypt or Nigeria if there is only one post allocated. Five new permanent seats are likely to be allocated on a regional basis. The Reserve Banks benign outlook on inflation in its latest Quarterly Bulletin could prompt its monetary policy committee to cut interest rates again in October. Bank officials said September 22 that low producer inflation, a relatively stable rand and low global inflation should help restrict consumer inflation, although there were risks to the outlook, mainly from surging oil prices, high pay settlements, strong domestic demand and rising administered prices. The Bank's monetary policy committee meets on October 13 and 14. Hundreds of thousands of South African public sector workers went on strike September 16, in the largest industrial action witnessed in the last decade. The workers, including teachers, nurses and policemen from eight public sector unions, had rejected a six percent wage increase offer by the government, demanding a seven percent rise. A final agreement on pay was finally reached allowing for a 6.2% wage increase, with one per cent more for "satisfactory work". The deal came after the government increased its previous offer by a further 0.2%. Pay increases for 2005 and 2006 will be 0.4 percent above the projected inflation increase for the relevant financial year. Free trade talks between the five members of the Southern African Customs Union (SACU) and the US have reached a dead end. SACU and US negotiators are unlikely to meet again before the end of the year, the original date set for completion of the process. South Africa's chief negotiator Xavier Carim said that due to the complex nature of trade negotiations, periods of difficulty in which the process slowed down could be expected. With regard to the rand Reserve Bank governor Tito Mboweni insisted volatility has "normalised" this year, and the currency has settled into a range of R6,50 to R6,70 against the dollar. The rand is one of the most volatile world currencies, with SA having the largest currency market of any developing country. Mboweni, speaking to international financial traders September 20, said the rand had depreciated "moderately" after the Bank cut interest rates by 0.5 of a percentage point in August, but "appears to have settled at the same level as at end of last year. What is not clear is how the rand would react to another rate cut by the Bank. Its losses in the wake of the August cut were fairly mild, despite the widespread shock and accusations of political interference. At that stage, the currency moved from around R6.20/$ to just over R6.70/$, but has since clawed its way back below the R6.50/$ level. As stated a further cut is not out of the question.

Economics - Positive Outlook
A Record 31% of managers feel the South African economy will get "a lot stronger" over the next 12 months, a Merrill Lynch fund manager survey for September shows. This is the highest score since mid-2000, and is supported by data over the past two months indicating an improvement in the local economy. Low interest rates and inflation have lifted consumer sentiment and strengthened business confidence, boosting gross domestic product, which posted a record 3,9% growth in the second quarter of the year, its best for nearly two years. A net 69% of managers said the economy would improve over the next 12 months. The survey also showed that inflation fears continued to abate. Absa senior economist John Loos said September 16 that if there were no exogenous shocks caused by the rand, food or oil for instance, it could be "possible that inflation expectations could be reduced on a more permanent basis". "The strong possibility thus exists of interest rates being able to remain at the current level until 2006," he said. Following the last surprise interest rate cut by the Reserve Bank, the managers' repo rate forecast has eased 50 basis points. Thirty-one percent of managers expected the repo rate would be at 7,5%, or lower, in 12 months, compared with 13% last month. Only one manager expected a rate cut in the fourth quarter of this year, while 23% said the next move would be higher, down from 60%. Merrill Lynch economist Nazmeera Moola said the rand would be the major determinant of interest rates going forward. "If the rand is below R6,40 to the dollar, this will probably see the Bank cutting rates a further 50 basis points. Conversely, if the rand is above R6,70 to the dollar, then we would think they stay on hold." Merrill Lynch has factored in a further 50 basis points rate cut at the October Monetary Policy Committee meeting. The rand was expected to trade in the R6,63- R7,63 range, slightly higher than last month's range of R5,95 to R7,50. Managers said the JSE Securities Exchange SA's all share index earnings growth remained steady at a conservative 17%. Over 12 months, 94% of managers were equity bulls and remain bond and cash bears. Nearterm, more managers wanted to invest cash. Financials continued to be the favoured sector, with banks still favourite. Domestic sectors, including general retailers and diversified industrials, were still preferred. There was limited interest in the resource sector, with 27% of managers saying it was their least favoured sector. Merrill Lynch said it was currently overweight on mineral extractors and select financials mainly life assurers forestry and select domestic industrial sectors, including general retailers.

Economics - IMF supports SA's fiscal, monetary policies
International Monetary Fund (IMF) MD Rodrigo Rato ended a two-day visit to SA September 7 with an upbeat assessment of the country's growth outlook The IMF says through its fiscal and monetary policies, South Africa has made impressive strides in rebuilding its economy since the country attained democracy. Briefing the media at the conclusion of his visit to South Africa September 7, IMF Managing Director Rodrigo de Rato said the country's average growth rate had more than doubled to around three percent, with inflation brought firmly under control. He said public finances had been strengthened and more resources allocated to the social sectors, adding it was also possible for South Africa to achieve its targets of halving unemployment by the year 2014. On his two-day visit in the country, Mr de Rato met with President Thabo Mbeki, Finance Minister Trevor Manuel, Reserve Bank Governor Tito Mboweni and the private sector. He said after the meetings it appeared that South Africa's fiscal and monetary policies could sustain the country's economic growth. "South Africa has made inroads in reducing poverty and improving the delivery of basic amenities, but much remains to be done. "South Africa has strengthened its international reserve position and is now much more resilient to external shocks," said Mr de Rato. However he also said the country's economic growth would need to be elevated to a higher level if there was to be a significant fall in unemployment. "This will involve strengthening South Africa's ability to attract investment by continuing efforts to improve productivity and competitiveness. "It will also require pushing ahead with introducing labour market flexibility. Mr Mbeki and I agreed more work needs to be done to gain a better understanding of the causes and extent of unemployment," he said. He said the IMF supported privatisation especially on electricity. Referring to HIV and AIDS, Mr de Rato said the epidemic had taken a devastating toll on human life in the country. He however complimented the government's response saying it was forceful and positive. Mr de Rato is expected to hold discussions with a number of African leaders at the African Union summit on employment and poverty scheduled to commence in Ouagadougou, Burkina Faso, today to get deeper appreciation of the problems facing the continent.

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AUTOMOBILES

Renault eyes 7% slice of SA car cake

Europe's leading vehicle manufacturer now has 5% of the passenger car market, and is well on its way to selling 14000 units this year, up from 9000 in 2003. Renault's sales have been growing in a buoyant vehicle market in SA, where sales have been growing by just short of 20% so far this year. Renault SA MD Roland Bouchara said recently his group had noticed an increasing number of black consumers entering the new car market. Bouchara said the upswing in the new-car market was a clear sign that policies such as affirmative action were starting to broaden the consumer base of SA, as many of Renault's first-time car buyers were black consumers. Before Renault took control of its South African operation from the Imperial group a year ago, this country was seen as a having a stable market of about 250000 cars a year. Now some industry players have predicted new car sales to rise to 300000 units for this year. Bouchara said the low-interest-rate environment and no real price increases in the past two years had supported the sharp growth in vehicle sales over the past few months. Bouchara said expanding its dealership network, which now numbers 45 outlets, would be vital to increasing sales. It also planned to increase the size of existing dealerships. Bouchara said Renault's partnership with transport and logistics company Imperial was instrumental to its success in SA. When Renault returned to the country in 1996, it needed a strong local partner to help in setting up a dealership network, and its deal with Imperial had been the key to rapid growth, he said.

Possible cut in state support

There are growing fears in the local automotive industry that Trade and Industry Minister Mandisi Mpahlwa may give in to demands to terminate or water down government's most successful industrial support mechanism the Motor Industry Development Programme (MIDP). Australia has argued that the MIDP which rewards successful South African exporters of vehicles and parts by giving them credits to reduce import tariffs is in breach of World Trade Organisation rules, and is seeking changes to the programme. Were the MIDP to be terminated when it expires in 2012, or its benefits reduced, there is a chance SA would struggle to secure new manufacturing business, and that existing exports worth billions of rand might be under threat. The MIDP has been instrumental in attracting multinational vehicle manufacturers including Volkswagen, Daimler Chrysler, Toyota, BMW and Ford to build plants in SA, often geared to the export business. There has also been a healthy growth of exports by the automotive component sector, although this has taken a knock from the strong rand. "There have been discussions between representatives of the automotive sector and minister Mpahlwa," said a senior automotive industry executive, who asked not to be identified. "We have detected a shift of policy between this minister and his predecessor Alec Erwin." He said that Erwin had been a champion of the automotive industry, had personally lobbied hard to win new investment in export-based manufacturing plants, and had appeared prepared to oppose Australia's challenge. "We are not getting the same message from Mpahlwa, and that is very worrying," the executive said. Another industry official said there was an anti-MIDP faction within the trade and industry department, which believed the programme runs contrary to WTO rules. "There is a review about to start on details of the final phase of the programme, from 2008 through to 2012, and in that context we may well see it being altered and made less attractive for the car makers." Econometrix economist Tony Twine said the MIDP "has been highly instrumental in making the sector as successful as it has been over the past eight years. The sector contributed 6,6% of gross domestic product in 2003, making it one of the largest manufacturing sub-sectors." Last year, exports of vehicles and components were worth R42bn, with imports worth R44bn "and the trade gap is now virtually closed", he said. Automotive component maker Dorbyl's CE, Bill Cooper said the MIDP had been important for industry and it would "not be delighted" if it were to be weakened. However, he said, government also had to try and resolve its dispute with the Australians. SA's chief trade negotiator, Xavier Carim, said that there was widespread recognition in cabinet of the importance of the automotive industry to SA "and there has been no change in understanding" following the departure of Erwin.

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AVIATION 

Aerosud Airbus deal

Aerosud, the South African aircraft components maker, has secured a R650m contract to supply wing components to European aircraft maker Airbus. The export order, announced by global defence systems manufacturer BAE Systems during the Africa Aerospace and Defence show held in Pretoria September 22, could set the local defence industry on a major recovery path following years of tough spells, especially with regard to penetrating the lucrative US and UK markets. BAE Systems says it has contracted Aerosud as the exclusive supplier of wing leading-edge components for the new Airbus A320 jetliners. Together with its partners such as Sweden's Saab, BAE Systems says it is committed to seeking to place more work with Aerosud in the future. BAE Systems SA's CE Mike O'Callaghan said: "Our objective is to place additional manufacturing work with Aerosud and this initial Airbus contract should be seen as an endorsement of Aerosud's management and production expertise. It also speaks volumes for the level of competence and capability that resides within SA's aerospace industry." In terms of the contract Aerosud will supply 240 sets of wing components a year to meet Airbus's output, "but this could increase as market demand for new aircraft continues to firm and grow," says O'Callaghan. To date, Airbus has firm orders for more than 3100 A320 aircraft, of which more than 2000 have already been delivered to numerous airlines across the world. National carrier South African Airways has also ordered 15 of the A320 aircraft. BAE Systems' partnership with a number of local aerospace and defence companies such as Aerosud and Denel forms part of its defence industrial participation obligations tied to SA's purchase of new Hawk and Gripen fighter jets for the South African Air Force. In terms of the arms deal offset agreement, BAE Systems and its partners have to provide 8,7bn of new economic benefits to the country through investment facilitation and exports. Through the alliance, BAE Systems is expected to transfer technology, equipment and skills to Aerosud. The Centurion-based company will then be in a better position to expand.

African Airlines gain control

For more than 70 years European airlines have been allowed to dominate the African skies with the assistance of the continent's governments. Now plans are in place to change this by cutting red tape and easing bureaucracy to allow business among neighbours. European airlines are hardly ever met with resistance in Africa or made to pay hefty levies. But fledgling African airlines have been discriminated against by neighbouring countries, who put in place crippling restrictions that have inhibit ed their business. Transport Minister Jeff Radebe says that the African Union (AU) has realised that the continent has done itself a great disservice with these restrictions in recent decades. The few air links existing between African nations have been negotiated through special agreements while maintaining non-African airlines' dominance of flights into and out of the continent. "They (European airlines) have been making a killing and recently we have seen an increased number of privately owned airlines entering the industry and taking advantage of the vacuum that exists by covering certain routes that have not been well serviced," he says. The AU has set up an aviation commission to assist collaboration between governments to open the skies and to promote their airlines. "There is no doubt that there is huge African capital to render these airlines economically viable," says Radebe, "especially now that the continent subscribes to New Partnership for Africa's Development (Nepad) goals and objectives of intercontinental trade." Radebe says that countries have already started reducing the levies and restrictions that inhibited African airlines from operating on the continent. For instance, bilateral agreements have increased the number of flights between states and this has brought in revenue that enables governments to improve their airport infrastructure, Radebe says. He says a recent cabinet meeting undertook to make accessible and affordable public transport a priority in SA, within the Southern African Development community and on the continent. "We share the concerns of our counterparts on the continent that all the bureaucratic red tape must go, because it has stifled economic development in our continent," Radebe says. He says that without the liberalisation of rail, road and air transport, the economic objectives envisaged by Nepad would remain "a pipe dream". Competitive and quality public transport between states can be a pillar of economic development, he says. 

Comair profit surges for year

Aviation group Comair, which owns British Airways in SA and budget airline kulula.com, reported a 250% surge in operating profit for the year to June on September 7, but its attributable loss more than tripled to R96,7m. The loss was largely due to a revaluation of the group's fleet against rand appreciation, leading to an impairment charge of R115m. Comair, whose headline earnings almost doubled to 12c a share, was pleased with its performance in what it described as a year of unprecedented competition. The year was characterised by overcapacity and aggressive pricing, it said. Comair MD Pieter van Hoven said the number of passengers carried by the group's two airlines grew 31% to 2,2-million and capacity increased 19% in the year. Both British Airways and kulula.com achieved growth in market share, he said. This was despite the entry of 1Time as a rival to low-fare airline kulula.com. Van Hoven said 1Time's entry in the domestic market, launched in March, had not hurt kulula.com. Instead, pricing pressure came mainly from state-owned South African Airways, which dropped prices in an attempt to compete with kulula.com, said Van Hoven. Aggressive pricing saw a significant decline in yields, but the increase in the number of seats sold helped Comair post an 8% rise in revenue to R1,47bn over the previous financial year. The jump in operating profit to R40,7m was helped by the stronger rand's reduction of operating costs in the second half of the year. The rand benefit was partially offset by an increase in the dollar price of fuel over the same period and lower rand yields from foreign currency sales, the group said. Comair also said it might have to increase the $6 fuel surcharge on British Airways ticket sales by about 12%. Fuel accounted for 25% of Comair's costs. Kulula.com tickets did not carry a surcharge. Van Hoven said none of the low-fare airlines that Comair monitored in other countries had implemented a surcharge. Van Hoven said cash generated by operations remained strong, resulting in a cash balance of R210m at year end. Part of this would be used to replace older aircraft. Comair does not provide separate figures for British Airways and kulula.com. Van Hoven last night said in due course it would have to start doing this. The group expected "reasonable prospects for a further improvement in operating profit for the 2005 financial year."

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BANKING 

Investment Banks and Empowerment

Black economic empowerment is likely to continue driving merger and acquisition deal-flow in SA for the foreseeable future. According to Ken Costa, new chairman of UBS's investment banking department for Europe, the Middle East and Africa, investment banks such as UBS are positioning themselves to advise on the growing number of transactions likely to take place as companies move to empower themselves. "We have a big presence in SA. It is an important and growing part of our investment banking business," Costa said. South African-born Costa was chosen for the job because of his strong relationship with clients in Europe, the Middle East and Africa. He has been a merger and acquisitions specialist for the past 25 years. Costa is currently advising on the Barclay brothers' takeover of the UK's Telegraph group as well as Spanish bank Santander Central Hispano's takeover of British Abbey National. In SA, Costa advised on Dutch group SHV Investment's sale of its 30,9% in Massmart, BoE's takeover by Nedcor, the delisting of De Beers and Nedcor's failed bid to buy Standard Bank. Costa said SA was well positioned for increased foreign direct investment because of a long period of stability. He said UBS was well placed in SA and was ready to participate in growing transaction flow. "I think we will see increasingly a flow of interest that will make mergers and acquisitions attractive and people will be looking for advice," he said. "But at the moment the key is empowerment and its financing." Costa said while the financial sector had dominated the larger deals internationally recently, the buyout markets had seen the most merger and acquisition activity as a result of low interest rates, which made it cheaper to finance leveraged buyouts. With declining interest rates in SA, Costa said the buyout market may well come alive. "I think the way in which empowerment is being approached has been one that has been very sensitive to capital markets. There is great opportunity that continues in that area and the transformation that empowerment is helping to achieve is becoming evident," Costa said. "The shifting towards a greater participation of a growing black group of entrepreneurs is a very healthy development," he said. "We are active in the advisory field." Deal flow in Africa was also likely to be led from SA, Costa said.

Barclays Absa acquisition 

The UK's third-largest bank, Barclays, confirmed it intended launching a bid to buy at least 50,1% of SA's largest retail bank Absa September 24, a stake valued at about R20bn.This would be the largest single injection of foreign direct investment in post-apartheid SA, eclipsing the $1,3bn that came into the country when a foreign consortium bought into Telkom in 1997. This would mark a return to South Africa 18 years after pulling out because of apartheid. The bank is ready to spend about £1.8bn in cash on a majority stake in ABSA, the country's biggest retail bank with 670 branches. The UK bank is on the lookout for more overseas takeovers in countries where it already has a presence. Talks are at an early stage and face regulatory approval from Finance Minister Trevor Manuel and political opposition from trade unions and community groups, including the ANC's alliance partners, the Congress of South African Trade Unions (Cosatu) and the South African Communist Party. Cosatu expressed fears that government would lose the ability to influence policy in the bank and that a foreign-owned bank could move investments out of the country with potentially disastrous effects on job creation. However, The South African Society of Banking Officials, a Cosatu affiliate, held a different view. Deputy general secretary Ben Venter said they saw the mooted deal as a positive move unlikely to have a negative impact on jobs. If approved, Barclays' R20bn buyout of Absa would give the British bank the premier banking offering of both retail and corporate products in Africa's strongest markets of SA and Egypt entrenching its position as a continental heavyweight. Although one of the largest pan-African banks Barclays Africa is still small within the bank's overall structure. Last year, Barclays Africa contributed a negligible 2% to 3% of Barclays' £1,36bn group earnings last year. Barclays bought shares in the National Bank of SA (NBSA) in 1919. Barclays Bank (Dominion, Colonial and Overseas) was formed in 1925, with the amalgamation of NBSA, the Colonial Bank, and the AngloEgyptian Bank. By 1926 Barclays (DCO) had 110 offices in Cape Province, 40 in Natal, 62 in the Orange Free State, 109 in Transvaal and 29 outside the Union. However, companies with commercial interests in SA, including Barclays, were threatened during protests in the 1960s. The bank chose to oppose apartheid from within SA, maintaining its presence as a more influential means of supporting change. In 1971 Barclays National Bank was incorporated in Johannesburg to take over the business of Barclays (DCO) in SA and South West Africa. It was a wholly owned subsidiary of Barclays Bank International (the name changed from Barclays Bank (DCO) in 1971) and had 856 offices. Barclays gradually reduced its shareholding in Barclays National Bank from 100% in 1971, to 84% in 1975, 55% in 1983 and 50,4% in 1984. In 1985 Barclays had reduced its stake to 40,4% after it raised capital through a share issue, and Barclays National Bank became an associate rather than a subsidiary of Barclays Bank plc. In 1986 Barclays announced the sale of its remaining stake of 40,4% in Barclays National Bank. A substantial proportion of the 29-million shares were sold to Anglo American and affiliates De Beers and Southern Life at a price of R18 a share, a discount of 20% on the prevailing market price. The name of the bank was changed to First National Bank of Southern Africa on September 30 1987. In 1995 Barclays reopened in SA as a fully licensed subsidiary, Barclays Bank of SA In March last year it was announced that Barclays Africa would open its new headquarters in Johannesburg to concentrate all its functions in one location.

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DEFENCE 

Saab-BAE 'on target' to meet offset terms

SAAB and BAE Systems, two of the largest contractors for the multibillion-rand arms deal, say they are on track to meet their 8,7 billion commitment in offset sales and investment. To date the Saab-BAE consortium has generated more than 600 million in investment from 67 projects in SA of the $2,2-billion required by the arms deal's terms on national industrial participation. The consortium must also generate more than $5-billion in sales from SA under the industrial participation programmes. And its commitment under the defence industrial participation programme for both investment and sales is $1,5-billion. This target has proved easier to meet than the national industrial component, as Denel is making parts of the fuselage and landing gear for the Gripen fighter aircraft. Government is due to report to Parliament on progress made towards meeting the arms deal's offset obligations. Speaking September 21 at the African Aerospace and Defence show at Waterkloof air force base, the newly appointed CEO of Saab in SA, Per Erlandsson, said it would be a "big challenge" for his company to meet its remaining offset terms. He said Saab was looking into acquisitions and further investments in the country through Grintron and Grintek, in which it holds stakes. UK defence procurement minister Lord Bach said on Tuesday at Waterkloof that the British government was looking to encourage South African companies to tap into the average £9-billion awarded annually in British defence contracts. Awarding defence contracts to South African companies could help the Saab-BAE Systems consortium meet its offset targets. The consortium and the UK government are particularly seeking local companies that are operating at the leading edge in military communications, an area of fast-rising investment for most defence forces. Saab said it was hoping to play a bigger role in the market for "netcentric command and control" technology, which involved improving the co-ordination of military forces.

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EXPORT

SA wine growth

South African wine exports have doubled over the past four years, from R1.6-billion to R3.2-billion, according to a new study. Commissioned by South African Wine Industry Information and Systems, the study found that, excluding wine tourism, the industry generated R10.7-billion last year, up from R7.4-billion in 1999, the last time research was done. Incorporating wine tourism, the industry generated R14.87-billion last year. Wine tourism includes industries that have a direct relationship with wine, such as sales on wine routes. But it's not the market leaders, such as Distell and KWV that are at the forefront of the move overseas. The biggest-selling South African brand in Britain is Kumala, from the Western Wines stable. Launched in 1995, the brand is a classic case of marketing driving the process. Ben Jordaan, the winemaker who oversees the process, from the sourcing to the bottling of Kumala, says when the product was launched in Britain it was done in conjunction with the major supermarkets to ensure it met the needs of consumers. The company approached chains, including Tesco, met wine buyers and formulated a product to suit the needs of the market. Growth was rapid from 1997 to 2003, with sales doubling in 1997 and 2000. This year sales are expected to be up 8% at 2.6 million nine- litre cases from a year ago. The international wine industry is faced with a glut across the market. "New World" products from the US, Chile, Australia and South Africa are taking on traditional wine-making territories. According to A C Nielsen, Kumala was in July ranked the fourth-biggest wine brand selling in Britain. The other top sellers are mostly Australian and US brands. Jordaan says Australians get the biggest shelf space, distribution and deals "because they can push bigger volumes". "We need Distell and KWV to become more serious players in the UK to support the growth in the South African category." Last year, Kumala spent £2-million on marketing the wine in Britain. More than 2.4 million nine-litre cases of Kumala were sold in Britain last year. The biggest-selling South African wine in the US is "Goats Do Roam", a play on the name of the French wine-growing region Côtes du Rhône. Last year, 1.2 million bottles of Goats Do Roam were sold in the US. Charles Back, owner of the Fairview wine estate, says: "It's a playful brand, it's tongue-in-cheek." He attributes the success to good packaging, clever design and a good product. "I was making a Rhône blend because it's something I thought we could do well. A friend in the UK liquor business suggested we call it Goats Do Roam because we also farm with goats. "When my goats got out of the tower and ran to the vineyards and got stuck in the grapes, I put the two elements together. It gave legitimacy to the brand because we have a real story. "Back registered the name and then started making the wine. When he took the brand to the US and applied for trademark registration it was opposed by the French bureau that oversees naming rights. "We staged a demonstration in Cape Town at the French attaché, with placards saying 'Don't buck with us' and workers composed struggle songs," says Back. "They backed off and the case is in limbo."

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FOOD & DRINK

SABmiller offers R3.7bn for 27% of ABI

Amalgamated Beverage Industries (ABI) looked set to exit the JSE Securities Exchange SA September 22, after majority shareholder SABMiller offered to buy out minority stakeholders for R91 a share. This constituted a 32% premium on the closing price ahead of SABMiller's July statement that it was considering a bid, and was substantially higher than the R78 a share the brewing giant initially signalled it would pay for the outstanding 41-million shares or 26.5% stake. It also added another R500m to the original R3.2bn price tag. SABMiller CEO Graham MacKay said that the group in recent years had sold its non-core businesses to focus on core local and international brewing and beverage interests. The disposal in July of its remaining interest in retailer Edcon was in line with this strategy. The group has also expanded its Coca-Cola bottling franchises around the world and now has facilities in central America and Africa, other than SA. The proposed purchase of SA's largest bottler of Coca-Cola gave SABMiller the opportunity to simplify and consolidate its South African holding structure interests, while allowing management "the opportunity to investigate possible areas of synergy." The move would also eliminate two potential conflicts of interest arising from the current shareholding structure. Currently ABI cannot invest outside SA and as a SABMiller subsidiary is held to group borrowing restrictions.

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FOREIGN ECONOMIC RELATIONS

South Africa, Croatia sign trade agreement

South Africa and Croatia on August 20th signed a trade agreement to facilitate business relations between companies in the two countries, New Europe reported.
Speaking during the signing ceremony in Pretoria, South Africa's Trade and Industry Minister, Mandisi Mpahlwa, described the trade agreement as a significant step towards strengthening bilateral trade relations between South Africa and Croatia.
Mpahlwa expressed the determination by the two countries to use the bilateral engagements to strengthen the multilateral trading system.
"The agreement broadly commits the two countries to raise the profile of South Africa-Croatia relations as well as to establish an inter-governmental committee on trade for the effective implementation of the agreement," Mpahlwa stated.
He said the two countries would grant Most Favoured Nation (MFN) treatment to each other in accordance with the principles contained in the World Trade Organisation agreement.
Meanwhile, the Croatian Foreign Minister, Miomir Zuzu, said his country and South Africa were relatively newly established democracies with similar developmental challenges.
According to him, it is in these new economies where opportunities for growth are very high and the development of modern technologies is inevitable, as more and more of the multinational corporations relocate to their markets.

South Africa's recognition of 'SADR' 

Pretoria announced on September 15 its decision to establish diplomatic relations with the alleged "SADR," that lays claim to Moroccan southern provinces, known as the Sahara. The move will is at the expense of Pretoria's bilateral relations with Morocco and possibly with the Arab League and was described as "biased, surprising and ill-timed" by Morocco which recalled its ambassador to South Africa for consultation. Its recognition of the puppet "Sahrawi republic," proclaimed by the Polisario secessionists that claim the separation of Morocco's southern provinces, will harm Pretoria's own interests, said the British daily The Guardian. "Relations between Rabat and Pretoria, never warm, will become frostier at the expense of South African firms which had an eye" on Morocco's "opening economy." According to the paper, which quotes South Africa's Institute of International Affairs, the row will not help Pretoria's bid for a permanent seat on the UN security council" either. Following South Africa's move, Morocco lashed out at Algeria's campaign to dispute the Kingdom's sovereignty over its southern provinces known as the Sahara. The Algerian newspaper "Le Soir d'Algerie" pointed out, in last weekend's edition, to Algiers' "contribution" to South Africa's recognition of the self-proclaimed Sahrawi Republic "SADR." Algeria is the main supporter of Polisario separatists in their claims for the secession of Moroccan Sahara, that was formerly occupied by Spain and retrieved by Morocco in 1975 under accords with Nouakchott and Madrid. The decision might prove costly as Morocco is a substantial ally to lose. Until this recent development, the lowest ebb in SA-Morocco relations perhaps came this May with Morocco and SA in a bitter face-off for the 2010 World Cup bid. Trade between the countries is worth about R1bn today, skewed 40-to-one in SA's favour, with SA now Morocco's second-largest African trade partner (after Nigeria). SA-based companies are present, including Eskom, Econet, Protea Hotels and Sun International. The decision will probably kill any prospect of rekindling the bilateral joint Morocco-SA forum, the second meeting of which had already been delayed by more than five years despite Rabat issuing several invitations. Also, progress in concluding a number of key agreements on double taxation and agricultural cooperation is likely to be frozen. In particular, recognition reflects Pretoria's failure to establish a bilateral dialogue with the Moroccans and to organise reciprocal visits. While Nelson Mandela has regularly visited, Mbeki has not, apart from a flying appearance at King Hassan's funeral in 1999. Now Morocco looks set to continue to prioritise its relations with Europe and the Arab world, widening the gulf across the Sahara.

Zuma cements links with Nigeria

South Africa and Nigeria wrapped up their annual Bi-National Commission (BNC) in Durban September 10 with a commitment to strengthen co-operation in a range of topical issues. The two-day meeting, attended by high-level government and business delegates from both nations, was an opportunity for people to update themselves on the progress of the six working groups. The commission is seeking closer working ties between the continent's two most powerful nations in the areas of foreign affairs; defence; immigration, justice and fighting crime; public enterprises and infrastructure; trade, industry and finance; social and technical matters; minerals and energy; and agriculture, water resources and the environment. In closing the session, Deputy President Jacob Zuma said that the successful meeting had provided a platform for the consultation between the countries. The commission would also explore and agree on actions to fully implement the New Partnership for Africa's Development. The session noted that the African Union budget was "inadequate" when it came to dealing with the developmental challenges facing the continent and resolved to call a financial meeting to "find innovative ways of raising money". However, the partners would consider joint peace-making efforts for strife torn African regions. The session further reviewed the status of conflict situations, including those in Zimbabwe, Côte d'Ivoire and Sudan. Abubakar said the session had provided both countries with the opportunity to explore further trade opportunities. Last year, trade between SA and Nigeria totalled R4,9bn, of which SA's export share was R2,3bn. The session appreciated the trade initiatives that had boosted market access and other trade-related benefits to Africa, including the Africa Growth and Opportunity Act in the US. However, the session stressed that long-term international trade required a rules-based system that promoted the development agenda agreed on at the Doha round of trade discussions. The South Africa-Nigerian BiNational Commission was established in 1999, and Zuma said it recognised the "special relationship and partnership" that existed between the two nations. "The fact that we are celebrating the fifth anniversary of the commission, and holding the sixth session" indicated the seriousness that both countries attached to it, Zuma said.

India, SA discussions

Discussions between the South African and Indian Presidents on September 15 focused on common challenges such as poverty and economic development. Indian President Abdul Kalam made the first official visit by an Indian Head of State since 1994. President Thabo Mbeki received Dr Kalam at Tuynhuys for a meeting set to endorse the long relationship between the two countries. "It gives us that opportunity to reaffirm the cooperation in areas of science, education, health," Mr Mbeki said. The two countries signed a Memorandum of Understanding on Information and Communication Technology during the visit. India is known for its superb work in satellite communications, which could assist Africa in, amongst others, its quest to advance e-education at schools across the continent. President Mbeki explained that this tied in with South Africa's plans in the field of information and communication technology. "What we want to do is get schools across the continent access to the best teachers. India's satellite capacity can speed up that process," he added. The two countries have also agreed to set up a joint commission on business and trade relations. Trade between South Africa and India continues to grow. In 2003, total bilateral trade approached a level of R6.5 billion, with imports from India at R3.12 billion and exports to India at R3.35 billion. India currently ranks as South Africa's 20th most important export market and 20th most important import market. A group of Indian business leaders are scheduled to arrive in South Africa next month to meet with their local counterparts. The Indian State President reflected on the friendship shared by the two countries and said his visit was part of celebrating with South Africa the achievement of ten years of democracy. "Both countries have a tough enemy, we want to see how we can fight poverty," President Kalam said. He also pledged his country's support for Africa's development plan, the New Partnership for Africa's Development (Nepad) and touched on other challenging issues such as HIV and AIDS, a pandemic that medics in his country are hard at work to develop a vaccine for. President Kalam said Indian scientists were optimistic about the ongoing research, as medical developments had shown some good results. Mr Mbeki has also accepted an invitation from Dr Kalam to pay a state visit to India. President Mbeki visited India as Deputy President in 1996 and undertook a successful State Visit in October 2003. In recent years, a number of South African Ministers have paid official visits to India.

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INFORMATION TECHNOLOGY

SADC launches new website

The Southern Africa Development Community (SADC) has launched a new website which has a capacity to allow access to six hundred million people to information on trade in the SADC region. Speaking in an interview after the launch, website coordinator Mike Aston urged SADC member countries to display information regarding their products on the website if they were to attract foreign markets. Mr Aston, who is a SADC representative from Botswana, also urged the Zambian Government to extensively advertise the Victoria Falls on the website, as it embarks on the 2005 'Visit Zambia Campaign'. He said the move would enable Zambia to register an increase in tourists' in-flow." Millions of people all over the world will have access to the website and if Zambia advertises its tourist attractions it will register growth in tourists' in-flow." Aston said. And editor of the launched SADC website Sammy Were urged various Zambian industries to extensively advertise their products on the website to enable more SADC countries to be aware of the numerous Zambian products. Mr Were said that the website if fully exploited would also attract foreign investment in SADC member states. He said the SADC delegation which was in Zambia to launch the website would also launch the same websites in Mozambique and Malawi. 

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TELECOMMUNICATIONS

Market liberalisation 

Telkom's share price dropped sharply as the market awoke to the realisation that the telecoms operator would no longer have a stranglehold on the South African market. This followed an announcement by Communications Minister Ivy MatsepeCasaburri September 2 in which she spelled out sweeping liberalisation of the industry that would effectively put an end to Telkom's monopoly. From February value-added network service providers would be allowed to carry voice calls through an internet platform, which would lower the cost of international calls. Operators would be able to set up their own networks or use satellite services, rather than lease Telkom networks. Some analysts saw Telkom's dip as a knee-jerk reaction to the news and expected that the stock would continue its upward trend. President Thabo Mbeki's International Advisory Council on Information Communication and Technology lauded the opening of SA's telecoms market, saying the announcement would result in increased investment in SA's telecommunications industry. The president's advisory council which met with Mbeki and senior government ministers September 5 includes HP CEO Carly Fiorina, Cisco systems vice-president Reza Mahdavi, Oracle vice-president Sergio Giacoletto and HBD Venture Capital director Mark Shuttleworth. Matsepe-Casaburri said there was "great excitement" among council members about her announcement. She said government had now created an enabling environment for foreign and local businesses to invest in the country's telecommunications industry. She brushed aside criticism that her announcements were long overdue, saying that government did not want to "upset" the market with too many policy changes. "People were going to say we cannot rely on this government with our investments because it introduces rapid changes," the minister said. She said government was not worried that Telkom, in which it holds a majority stake, will be squeezed in the new market because of competition.

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TRADE 

Coega development project difficulties

The cash-strapped Eastern Cape government has threatened to withdraw up to R220-million annually from Coega Development Corporation -- the national Department of Trade and Industry's flagship infrastructure development project -- in a move which could plunge it into financial crisis. Coega is at the heart of President Thabo Mbeki's broader economic strategy to transform South Africa into a competitive export-driven economy. Mbeki highlighted the investment initiative in his State of the Nation address this year. The corporation describes itself as South Africa's primary location for new investment. Launched in 1999, the R7.4-billion Coega Development Corporation is owned by the national government through the Eastern Cape Development Corporation. It comprises a duty-free industrial zone and a deep-water port on which the National Ports Authority is lavishing R2,65-billion. Management has blamed the project's failure to attract investors on declining foreign direct investment globally and on a lack of investment by local companies. The deep-water port and industrial zone will open for trade in the second quarter of next year, but is unlikely to have any large tenants. Its critics have predicted that it will become a white elephant, saying it is a political project not driven by economic needs. Talks between government and P&O Nedlloyd and TCI Infrastructure on the development of the container terminal and an industrial hub collapsed recently. Coega's failure to attract investors comes despite management's intensified promotion efforts over the past year. But Silinga said Canadian company Alcan's $2bn aluminium smelter was one of seven possible investments currently being considered. Others included a $1bn ferronickel and ferromanganese operation, a $10m collapsible stainless steel packaging plant, a $20m polyester recycling plant and three Italian investments in the clothing and textiles sector worth about $30m. Silinga was "cautiously optimistic that a smelter will be built at Coega". Public Works Minister Alec Erwin said recently that there "will" be an aluminium smelter at Coega. His remark came amid fears that Alcan might scrap the project, which it inherited when it merged with Pechiney last year. Government initially reserved comment, but has now admitted that it is talking to at least one other potential investor Brazilian resources giant Companhia Vale do Rio Doce in the aluminium project. Silinga defended the absence of investors at Coega, saying management competed for investments in an environment where foreign direct investment was declining significantly. He cited United Nations Conference on Trade and Development data showing that global foreign direct investment had remained stagnant at $563bn last year, after two years of decline. He highlighted that Africa featured poorly in terms of new foreign direct investment. 

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