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Books on South Africa
REPUBLICAN REFERENCE
Area (sq.km)
1,219,912
Population
43,586,097
Capital
Pretoria
Currency
rand
President
Thabo Mbeki
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Update No: 38 - (03/03/05)
Optimism for the economy, pessimism for the Security
Council
In his "State of the Nation" address to Parliament February 11
President Thabo Mbeki highlighted various positive trends within the continent,
saying they offered inspiration to Pretoria's efforts in achieving a peaceful
and prosperous Africa. He said the country would continue with its continental
programmes towards the renewal of Africa. Mbeki said South Africa would continue
playing a significant role to ensure the success of the African Union and its
programme, the New Partnership for Africa's Development (NEPAD). He also praised
the country's optimistic domestic situation. Mbeki quoted a report saying South
Africa was enjoying its longest upward business cycle since World War II.
Fifteen African foreign ministers have agreed that the continent should press
for two permanent and five temporary seats on the United Nations (UN) Security
Council. However, South Africa is not a front runner to take a permanent seat on
the UN security council, facing competition on account of Nigeria's size and
natural resources and Egypt's political relevance in relation to the Arab world.
Furthermore there are proposals to relocate The New Partnership for Africa's
Development (Nepad) secretariat from South Africa to the Ethiopian capital Addis
Ababa.
Government put tax cuts and increased social spending at the centre of its
latest budget. Aiming to both stir economic growth and aid the country's poor,
finance minister Trevor Manuel said the focus of the 2005 budget was "more
for all" February 23. Government is projecting to raise R11 billion more
than budgeted this year, thanks to the strength of the country's economy coupled
with "excellent work" by the tax and customs team. On speculation over
the true unemployment figure Manuel commented that If 40% of South Africans were
really unemployed, "there'd be a revolution". The figure was
inaccurate and it was unhelpful to keep bandying it about to drum up support for
an income grant that would "bankrupt" South Africa and fail to secure
sustainable economic growth. South Africa's trade surplus of R16bn in 2003 swung
into a deficit of R12,5bn last year. The rand's strength, coupled with buoyant
consumer spending, boosted import demand, especially for products such as
electronic goods, clothing and footwear. Economists said the trade deficit was
likely to persist throughout this year, increasing the likelihood of another
current account deficit.
The outlook for foreign direct investment for SA this year has improved, says
research organisation the BusinessMap Foundation. BusinessMap director Reg
Rumney said about $8bn in foreign investment had been announced for this year in
January alone. BusinessMap tracked investment at about $5,8bn for last year in
its preliminary calculations - up from about $2,7bn in 2003 - and the think-tank
does not expect the rate of investment from abroad to slow down. Rumney said the
amount of foreign investment announced tended to rise as the year drew to a
close. Interest rates were once again kept on hold but there are hopes they
could move again in April.
Vehicle sales set fresh records after the number of vehicles sold in one year
hit a record high last year. Domestic passenger car sales were the highest they
have been in any January, surging 22,2% on the level for the previous January.
Car part manufacturers were less successful feeling the strong rand squeezing
them out of some export markets. February 1 2005 saw Telkom's monopoly finally
came to an end. Private companies can now offer many of the services that Telkom
has had the sole right to supply. Indian group Tata plans to invest heavily to
run the Second National Operator.
United Nations Security Council - South African Prospects
The start of the race between Egypt, South Africa and Nigeria for two
permanent United Nations (UN) Security Council seats that may become available
in the next few years was hardly dignified, and signs are that the public
insults could worsen in the months ahead. All indications are that the race will
be long and hard, and that South Africa, while deserving, is the outsider
because of the realities of power. The choice of who will represent the
continent will not be Africa's alone. With 53 members of the UN, Africa can give
an indication of who it wants in the seat, but new members of the security
council must be approved by two-thirds of the 191-member general assembly. Then
the council's five permanent members - the US, UK, France, China, and Russia -
must ratify the decision. When the decision will be made in the UN, and the
model by which the choice will be made, are far from clear. UN Secretary-General
Kofi Annan has suggested that two models came out of the report of the
high-level panel he appointed on threats, challenges and change. But the panel
could not agree on a model and said "no change in the composition of the
security council should itself be regarded as permanent or unchallengeable in
the future" and that the matter of reform should be reviewed in 2020. Model
A provides for six new permanent members with no veto power, and for 13
two-year, non-renewable seats. Model B provides for no new permanent seats, but
for eight four-year renewable seats, and 11 two-year non-renewable seats.
Neither model suggests that any countries other than the existing five with
permanent seats should have veto rights. The battle in Africa, however, is being
fought on the assumption that there will be two permanent seats for the
continent. SA's position is not strong in this fight. It has diplomatic stature
as a regional power, because of its peacekeeping operations in Africa and
attempts at ending conflicts, and was the first country to disarm its nuclear
arsenal. But these are insufficient to count as decisive factors for obtaining a
permanent security council seat. In global terms, SA lacks the population size
and strategic importance of the two other African contenders. Its population of
about 45-million is well below Egypt's 70-million and Nigeria's 130-million.
Both competitors have larger military forces and considerable weight in the
world. Nigeria is an oil producer and a giant in its region, which is of
considerable importance to the US; Egypt is a large and moderate Arab power
close to the US. SA and Nigeria have free and fair elections, while Egypt is a
highly autocratic state that has been under the rule of one man for nearly 30
years. It is under mounting pressure from the US to democratise, and one of the
prizes could be US approval for a permanent seat. There is an imperative by the
permanent five on the security council to reach out to the Arab and Muslim
world, particularly after the Iraq war. The fact that more than 90% of Egyptians
and more than half of Nigerians are Muslim will count heavily in their favour.
Pretoria's loud rhetoric against the Iraq war compared with the quieter approach
taken by Egypt and Nigeria could be held against SA by the US and the UK.
However, Egypt has taken minimal interest in sub-Saharan Africa and would
probably not be representative of wider African interests. President Hosni
Mubarak has not attended an African Union meeting since 1995, when an attempt
was made to assassinate him, and has not attended many meetings of the New
Partnership for Africa's Development steering committee. If the race for
membership of the council hangs over African politics for years, it would be
disruptive and push other issues off the agenda. SA's quiet diplomacy toward
Zimbabwe may enjoy a longer lifespan because SA may view it as counterproductive
to be seen to be pushy by its neighbours. But its case for membership of the
security council would probably be all the more convincing if it played a
successful role in building peace and stability in the region. SA favours model
A and wants veto rights, but that may mean it has little chance of anything but
two-year non-renewable stints on the council. That may be an opening gambit, but
SA's interests may be better served by favouring a model that could allow for
longer, non-permanent terms for more countries.
Nepad May Relocate to Addis
The New Partnership for Africa's Development (Nepad) secretariat could be
relocated from South Africa to Ethiopia by the end of the year as part of a
strategy to accelerate its integration into African Union structures. A move
widely criticised by political commentators who fear that the continent's
recovery plan will be subsumed into AU bureaucracy. Analysts fear that the AU,
already battling with its own heavy structures, will not pay the requisite
attention to Nepad and that incorporation could scare off already wary investors
and donors. Ross Herbert of the South African Institute of International Affairs
said the AU does not have adequate machinery to handle Nepad and would make it
less effective. He said those proposing its move could be motivated by
"national jealousy" and were taking a "pointless swipe" at
South Africa. "South Africa takes a lot more interest in Nepad than other
countries and it is only fair that they host its offices. The AU needs to get
its own house in order and show its effectiveness first before taking more
responsibility. "Already Nepad is under pressure to deliver and moving it
would cause disarray, which would result in some period of inactivity. The
debate should not be about moving it from one place to the other but about how
to make it more effective." A senior South African government official said
that Nepad was the socio-economic programme of the AU and should not be seen to
compete with it.
Budget - R11bn Tax Payback
The South African government has put tax cuts and increased social spending
at the centre of its latest budget. Aiming to both stir economic growth and aid
the country's poor, finance minister Trevor Manuel said the focus of the 2005
budget was "more for all" February 23. In a budget that reflected the
mood of optimism sweeping the South African economy, it showed the government's
intention to spread the benefits of SA's growth a decade after apartheid ended.
Taking centre stage were tax cuts amounting to R11bn designed to steer economic
growth on a higher path. Manuel predicted a 4,3% economic growth rate this year
and 4,2% over the next three years, which was "a significant step-change in
the pace of economic growth", Manuel told Parliament. Economists welcomed
the broad outline of Manuel's measures, but some warned that even a growth rate
of about 4,5% was not sufficient to significantly reduce SA's roughly 30%
unemployment rate. Revenue overruns of R11bn gave Manuel room to manoeuvre, as
he stayed true to a tradition of fiscal constraint while simultaneously boosting
spending. Manuel gave the surprise surplus straight back, with companies
benefiting by a one percentage-point cut in the corporate tax rate to 29%, which
will cost the fiscus R2bn, and small businesses getting R1,4bn in tax relief.
After a series of budgets focusing on administrative and structural changes,
Manuel focused on immediate tax issues this time, also announcing an
across-the-board cut in personal income tax of R6,8bn for mainly low- and middle
-income earners. Manuel announced measures to ease the administrative and tax
burden strangling small business, including scrapping the training levy for
small businesses. At the same time, substantial sums were earmarked for social
expenditure, with R55,4bn for social benefits for the elderly, poor, disabled
and children. Manuel said that in total social security programmes now
represented 14% of SA's non-interest expenditure. "The 2005 budget is
strongly re-distributive, channelling significantly more resources to the poor
through rising social grants, higher spending on municipal and social services
and community infrastructure such as water and sanitation, schools, clinics,
multipurpose centres, police stations and roads," the budget review said.
CPIX (consumer inflation excluding mortgages) is expected to average 4% this
year, rising to 5,1% next year and 5,4% in 2007, while the deficit increases
from the 2,3% to 3,1% of gross domestic product (GDP). Real growth in public
spending rises 9% in 2005-06 and will average 5,5% over the next three years. An
additional R74,4bn has been allocated over the medium-term expenditure
estimates. Budget revenue after the tax proposals grows a hefty 9,4% to R370bn,
translating into a higher budget deficit of 3,1% of GDP in 2005-06 from this
year's lower-than-expected 2,3%. Manuel expects the deficit to fall to 3% in
2006-07 and 2,7% in 2007-08. The net borrowing requirement has been estimated at
R53bn, or 3,1% of GDP, up from the previous R37bn (2,8% of GDP). Although this
might seem like a chunky increase for the bond markets to digest, the overall
deficit estimate is actually less that predicted last year. Highlights on the
expenditure side include R6bn for land restitution, R7bn over three years to
improve teachers' salaries, and R2bn to provide housing. In addition, Manuel
announced that R3bn received in levies from the forex amnesty and the taxation
of declared amounts would be used for investment in community infrastructure.
Tobacco and alcohol products were once again hit with tax increases, ranging
from 7% to almost 16% in real terms.
Interest Rates on Hold
The Reserve Bank disappointed financial markets February 10 by keeping its
repo rate steady at 7,5%, despite painting a benign inflation outlook. Bank
governor Tito Mboweni said CPIX (consumer inflation excluding mortgages) would
peak at just above the midpoint of the 3%-6% inflation target this year, and
ease after that. This was only slightly higher than the latest inflation
figures, which put CPIX at 4,3%, the 16th consecutive month that inflation was
within the target range. The decision to hold rates steady appeared to be a
compromise between committee members, with Mboweni acknowledging that the
committee had "deliberated extensively on the appropriate policy
stance". Markets had priced in a two-thirds chance that rates would drop
0,5 percentage point, given the benign inflation outlook. However, the committee
did not appear to rule out an interest rate cut in future, saying that it would
"stand ready to adjust the stance in either direction if necessary
depending on the outlook for inflation". Econometrix chief economist Azar
Jammine said yesterday that the committee appeared to be holding open the door
to a possible easing in rates at the April meeting. "They obviously wanted
to cut, but in the wake of the rand's fall recently, the decision doesn't come
as a surprise. "The environment might be more conducive for a rate cut in
April. CPIX could fall close to 3% over the next three months, and the Bank may
come under more pressure to cut," Jammine said. The rand has plunged 6,5%
against the dollar since the committee's previous meeting in December. A weaker
rand could boost inflation by raising the costs of imported goods and increasing
the likelihood of a hike in petrol costs. However, the outlook for the rand
remained uncertain, with the committee stating that it was unclear how far
adjustments to "global imbalances" would proceed. The dollar's slump
helped to boost the rand 19% against the US currency last year, eroding export
competitiveness. The committee said it would continue to assess the effect this
had on the rand, inflation and the "need for SA to have a competitive and
stable exchange rate".
Mbeki Snubbed in Côte d'Ivoire Talks
President Mbeki's peace bid in Côte d'Ivoire has been dealt an apparent
setback by President Laurent Gbagbo bringing in Morocco's King Mohammed to
revive the peace talks. Gbagbo's decision might have been motivated by the
deadlock in which peace talks have found themselves after Mbeki's four-month
mediation. The west African state has been facing a rebellion since September
2002, following an aborted coup. The move came as a surprise to many observers,
especially as Gbagbo had not expressed any discontent with the way Mbeki had
conducted peace talks so far. Mbeki was mandated by the African Union (AU) to
act as a mediator in Côte d'Ivoire last November. Since then, he has held
extensive meetings with different stakeholders in the crisis. His efforts,
however, hit a snag last month at the AU peace and security council meeting in
Libreville, Gabon. A report from Mbeki on the progress of the peace talks
recommended the country hold a referendum on the constitution's provision that
only native Ivorians are eligible to run for president. Gbagbo's main rival
Alasane Ouattara is an Ivorian, but has Burkina Faso origins. The AU statement
caused an outcry among rebel and opposition leaders who saw it as a concession
to Gbagbo. However, Pretoria remains determined to continue to be a peacemaker
in Ivory Coast, other hotspots and beyond. This will include helping out with
post-conflict reconstruction in Somalia, Sudan, Burundi and the Democratic
Republic of Congo, where government under the African Union (AU), is playing an
influential role.
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AUTOMOBILES
DaimlerChrysler to spend R2bn C-Class facility
DaimlerChrysler, South Africa's biggest luxury car maker, and its suppliers,
will invest R2bn - double the initial estimation - in expanding and retooling
production facilities in preparation for the start of production of the next
Mercedes-Benz C-Class in 2007. The company's new chairman, Hansgeorg Niefer, has
also announced that the car maker will start producing left-hand drive units in
addition to right-hand ones. Niefer, who replaced Christoph Köpke as head of
the company in February, says left-hand drive units will enable the company to
export to many more markets, including the US, which offers preferential rates
to South African suppliers of automotive products in terms of the African Growth
and Opportunity Act. The company exports 44% of its production to the UK at the
moment, while 25% is sold locally. Production of the new C-Class will go hand in
hand with an expansion that will see production at the company's East London
plant almost double to 80000 units a year from 2007, creating an additional 2000
direct and indirect permanent jobs. The expansion could see between five and 10
foreign suppliers establishing operations in SA, says Niefer. Niefer February 24
reported a 9,8% increase in revenue to R24,7bn last year on the back of SA's
booming vehicle market, driven by low interest rates and stable car prices over
the past two years. Output reached an all-time record of 52274 vehicles.
Strong growth was recorded across the group's product range, which includes
passenger cars and commercial vehicles. Brands include Jeep, Mercedes-Benz,
Mitsubishi, Freightliner and others. The company, which is not listed in SA,
also recorded a considerable rise in profits as it increased productivity and
cut costs per unit, finance manager Stefan Fischer said. The South African
operation could have broken through the R25bn revenue mark, had it not
underestimated market growth by a factor of four. Vehicle sales grew in excess
of 22% last year, while DaimlerChrysler, like many others, projected growth of
about 5%. Sales and marketing manager Fritz van Olst said the incorrect forecast
hampered the company's performance on market share, which declined slightly. Van
Olst said he expected the domestic vehicle market to grow 6%-8% this year.
Niefer said the outlook for DaimlerChrysler in SA was positive. Niefer also said
that the benefits of the Motor Industry Development Programme must not be
eroded. The programme enters its mid-term review this year. The Australian
government has threatened to challenge the programme at the World Trade
Organisation.
Ford gears up for mass export drive
In another move towards its goal of stepping up vehicle exports, Ford Motor
Company of Southern Africa's new CEO and group MD, Robert Graziano, said
February 7 the company could consider producing left-hand drive cars in SA. This
follows the company's earlier announcement that it would embark on its first
major export programme later this year. Graziano, who arrived in SA two weeks
ago from Brazil, said in an interview that he had appointed a team to
investigate potential new export markets. These would include left-hand drive
markets "in the longer term". He said Ford would consider producing
left-hand drive vehicles if there was a market that offered critical mass, which
he estimated at between 15000 and 20000 units of one type of vehicle a year.
Ford, as is the case with most other car makers in SA, produces only right-hand
drive vehicles. The production of left-hand drive vehicles would open up
significant opportunities for the company, as the bulk of foreign markets are
left-hand drive countries. Ford is among SA's smallest car makers and exporters
at the moment, producing about 40000 vehicles a year, compared with Volkswagen's
88000 and Toyota's 112000. It exports fewer than 2000 units a year, and these
are destined only for Africa. The company is, however, one of the seven large
multinational car makers that form the basis of SA's thriving automotive
industry, which generates more than 6% of gross domestic product. Ford Motor
Company of Southern Africa will enter the export market beyond Africa this year
when it starts exporting to Australia and New Zealand. Graziano said that Ford
and its suppliers' combined R1bn investment programme to facilitate its first
export drive was well under way. The investment programme would enable the
company to double its production capacity at the company's plant in Pretoria to
about 80000 units a year within the next two to three years. Ford's export
programme would form part of a 15,5% increase in vehicle exports from SA to
about 126800 units this year.
Car-parts exports: France wooed
New export markets for motor vehicle components are opening up as French car
makers follow Germany's lead in sourcing high-quality components at competitive
prices from SA, Clive Williams, executive director of the National Association
of Automotive Component and Allied Manufacturers (Naacam), said February 14.
"There are major opportunities to develop stronger trade with France as we
compete with manufacturers in South America, Eastern Europe and the Far
East," he said. SA's total automotive components exports accounted for
about R21,3bn in 2003, while vehicle exports generated about R19,4bn in that
year. The combined automotive sector contributes about 6% of SA's gross domestic
product. SA's automotive component makers experienced possibly their worst year
last year, despite booming demand for vehicles in the country. A number of
component manufacturers, most recently brake maker Hudaco Friction, closed last
year as the strong rand reduced profit on already thin margins. Williams will
lead a delegation of component manufacturers to Paris in October to expand trade
with French companies. He said SA's links with Germany and Japan were stronger
than those with France which, unlike Germany and Japan, did not have car
manufacturing operations in SA. Williams said about 29% of component imports
came from Germany, 15% from Japan and only 4% from France in 2003. In turn, SA
exported about 35% of all its component exports to Germany, 3% to Japan and
close to 9% to France. French vehicles, which are all imported at the moment,
are carving a niche in SA helped by the strong rand. "In the past two
years, sales of Renault cars have really taken off, breaking the 1 000-a-month
barrier," he said. Peugeot was making attempts to follow that benchmark and
was growing rapidly. Citroen had just started, he said. Williams said it was
unlikely that French car makers would establish car production facilities in SA
at current volumes. "However, as the market grows, this would be a logical
step."
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BANKING
Standard Chartered targets SA, Nigeria
South Africa and Nigeria remain Standard Chartered's key growth areas in Africa,
as the emerging-market bank seeks to further expand its presence on the
continent. Results from the group late February show that Africa contributed
about 10% of revenue and operating profit last year. This is likely to shrink in
the current year, following the $3,3bn acquisition of South Korea's Korea First
Bank, which will increase revenue and profit from the Asia Pacific region.
However, John Kivits, CEO of Standard Chartered SA, says the group wants to grow
Africa's contribution, particularly in consumer banking, which currently makes
up only 8% of business on the continent. When Standard Chartered re-entered the
South African market it focused on wholesale banking, but the purchase of online
bank 20twenty has altered its course to include consumer banking. Standard
Chartered bought 20twenty in 2003 after it was placed under curatorship along
with the online bank's original parent, Saambou. "Ultimately I would expect
consumer banking to be bigger than wholesale banking in SA," Kivits says.
Although 20twenty has fewer customers now than it did when Saambou went into
liquidation, Standard Chartered is using the online bank as the base for its
consumer banking offering in SA. Despite the tight grip the four largest banks
have on the South African market, Kivits says it is possible to grow its
consumer banking operation without making an acquisition. Standard Chartered has
successfully been growing its retail operations in Nigeria, even though that
market is dominated by two large banks, First Bank of Nigeria and Union Bank of
Nigeria. The bank has opened five branches in Nigeria so far, with a further two
planned for this year. Although Standard Chartered is locally incorporated in
most of the African markets it operates in, with secondary listings in many of
them, Kivits says the group will not change its branch status in SA at present.
By remaining a branch of the UK bank, Standard Chartered SA will be able to
leverage off its parent's balance sheet for large transactions. It will also
have greater access to international capital markets. While Standard Chartered's
focus has broadened to incorporate consumer banking, Kivits says a lot of
opportunity exists in wholesale banking. "A lot of South African companies
are going where we are the strongest, the growth markets of Asia. I think we are
very well positioned to take advantage of that growth." As the biggest
foreign bank operating in India, as well as having markets such as China and
South Korea, Kivits says the bank is in the unique position of being at both
ends of any transaction in the biggest growth markets in the world.
Rothschild picks Spicer to pave way to SA's big league
Merchant banking group Rothschild has hired Anglo American director Michael
Spicer as senior adviser, in a bid to propel itself into the top tier of foreign
banks in SA by wooing state and corporate business. Already the largest
corporate finance house in Europe last year, Rothschild was the first to sell an
equity stake to black investors by selling 49% of its South African business to
Kagiso in 1996 - pre- empting Deutsche Bank's recent empowerment deal.
Rothschild SA CEO Steven Gorven said February 7 that the company planned to
bolster its South African business, using its empowerment credentials and its
contacts to propel itself into the top three foreign banks in SA, rivalling
JPMorgan and Deutsche Bank. Although Rothschild had bided its time in launching
its business, it worked on deals worth R40bn last year. Considering that Ernst
& Young said that Rothschild facilitated deals worth R8,8bn in 2003, this
appears a substantial increase although the auditing firm may come up with a
slightly different figure for Rothschild. Gorven said its deal-flow last year
was boosted by Rothschild's role in advising Gold Fields on its aborted deal
with Canadian company IAMGOLD, the FirstRand empowerment deal, the 18-month long
Afrox Healthcare merger, and Kagiso Trust Investment's purchase of 10% of
Metropolitan. The Ernst & Young report for 2003 said that Rothschild was
sixth among the foreign banks when it came to brokering deals in a list headed
by JPMorgan, Deutsche Bank and UBS Warburg.
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EXPORTS
SA looks beyond EU for agricultural exports
South Africa has deliberately been reducing its "over reliance" on the
European Union (EU) as a destination for local agricultural exports, department
of agriculture director-general Bongi Njobe said February 22. Figures placed
before Parliament's agriculture and land affairs committee showed that while the
EU was still SA's major agricultural trading partner, in 1988 61% of SA's
agricultural exports went to the EU, but by 2001 this had been reduced to 38%.
This was due to increased exports to the Far East, the Southern Africa
Development Community (SADC) and Africa generally. Njobe said that to reduce the
over reliance on the EU, SA had turned to the East with offices being opened in
China and India and also use being made of the India, Brazil, SA forum IBSA.
"The idea was the same period. MPs on the committee expressed strong
concern at the levels of subsidy that were giving European and American farmers
a competitive advantage over local products. Senior manager for international
trade at the agriculture department Gerda van Dijk said a substantial reduction
in the subsidies paid to farmers in the developed world was a target for SA. She
said the only way this could be achieved was through negotiations with
individual countries and through multilateral bargaining in forums such as the
World Trade Organisation (WTO). Van Dijk said a review of the trade development
and co-operation agreement with the EU was underway and the issue of increased
market access for SA and a reduction of domestic support in the EU were on the
agenda. Van Dijk said that free trade talks with the US were "in
limbo" at the moment but both the US and SA were committed to completing
the agreement. SA was waiting for a US response to SA's proposals and for a date
for the next meeting. She said that in the next two years, SA would be
negotiating with SADC for a review of the free trade agreement, with the SA
Customs Union, with the USA, the EU, India, China and other African countries.to
diversify more and move away from the EU to minimise the risk of exporting so
much to one single trading partner," she said. In 1988 only about 10% of
agricultural trade went into Africa but in 2001 this had increased to 25%, the
committee was told. Agricultural exports to the USA had also increased from 1%
to about 8% over
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FOOD & DRINK
Sabmiller completes purchase of Italian brewer
Brewer SABMiller plc will buy the 39,8% of Birra Peroni it does not own for
$212,6m, a move that an analyst suggests could indicate lower-than-expected
profitability at the Italian brewing group. SABMiller bought a 60% stake in the
group for $246m in May 2003. The Italian company, whose two main beer labels are
Birra Peroni (the best selling beer in Italy) and Nastro Azzurro, is Italy's
second-largest brewer, with a 25% market share and two breweries. At the time of
the acquisition, SABMiller entered into put and call arrangements with the
vendors that envisaged its interest rising to 99,8% over a three- to six-year
period, with the price being determined by Peroni's equity value, plus interest
and earn-out arrangements dependent on its domestic and international
performance. Earn-out arrangements mean the seller accepts less money up front
and earns the rest of the purchase price over time as the business achieves
specified profit levels. SABMiller February 23, said it and Peroni's other
shareholders had agreed to accelerate the share transfer at a price prescribed
by the original agreement, and to terminate the earn-out arrangements. SABMiller
has funded the purchase from its existing resources.
An analyst said the deal would have little effect on SABMiller's earnings or its
freedom to make decisions at Birra Peroni, as it already exercised management
control. He said he suspected the agreement had been accelerated because the
beer market in Italy had "gone backwards". As the earn-out
arrangements were unlikely to kick in during the agreed period, the former
controlling shareholders had decided to take the cash sooner. SABMiller said
when reporting interim results in November last year that it had closed Peroni's
brewery in Naples at a cost of $23m, and that further costs relating to the
closure and a wider operational review would bring the total charge for the year
to between $40m and $50m. The overall Italian beer market declined in the six
months to September last year by 7% compared with 2003 when there was a hot
summer and consumer spending was more buoyant. However, Peroni's volumes
declined by 12% after it lost its licence to brew Budweiser. SABMiller
introduced Miller Genuine Draft into Italy in November 2003 after the
termination of the Budweiser contract. Last month SABMiller said it would
relaunch the Nastro Azzurro brand globally as Peroni Nastro Azzurro. In Italy,
however, the beer will retain its original name. The Economic Times of India
speculated last week that SABMiller planned to buy out its 50-50 joint venture
partner in India, Shaw Wallace and Company. In 2003 the two formed a company
housing the interest of SABMiller India, Mysore Breweries and those of Shaw
Wallace. The report has not been confirmed.
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FOREIGN INVESTMENT
Businessmap paints rosy picture of foreign investment
The outlook for foreign direct investment for SA this year has improved, says
research organisation the BusinessMap Foundation. BusinessMap director Reg
Rumney said about $8bn in foreign investment had been announced for this year in
January alone. BusinessMap's tracked investment at about $5,8bn for last year in
its preliminary calculations - up from about $2,7bn in 2003 - and the think-tank
does not expect the rate of investment from abroad to slow down. Rumney said the
amount of foreign investment announced tended to rise as the year drew to a
close. BusinessMap researcher Michel Hanouch said SA's stable political and
economic outlook had played some part in encouraging foreign companies to invest
here. Hanouch said a large portion of the investment coming through this year
was from brewer SABMiller's commitment to invest R5bn in SA. As SABMiller has
its primary listing in the UK, it is seen as a foreign company. Apart from the
brewer, international vehicle manufacturers have announced plans to increase
their investments in SA. Volkswagen and Toyota have both said they plan to
invest more than R1bn this year. Further investment is expected to come from
independent power producers invited to supplement Eskom's electricity-generation
plan. BusinessMap uses the United Nations Conference on Trade and Development
definition of foreign direct investment - investment in which a resident in one
economy obtains a lasting interest in an enterprise resident in another. While
it includes Reserve Bank figures in its calculations, it also includes
companies' announcements of investment. Rumney said investment that was
announced but had not come through was removed from its calculation. These
include Pechiney's investment in Coega and the $2bn disinvestment of Thintana
consortium, which houses the holding of SBC Communications of the US and Telekom
Malaysia from Telkom. While the outlook is good, there are some factors that can
limit investment in SA. BusinessMap said confidence could be knocked if rand
volatility returned along with a fall in commodity prices and a slowdown in
world economic growth. Traditionally the mining sector has attracted high levels
of foreign direct investment but the flow of investment in the sector in the
third quarter of last year was poor.
Nasdaq pitches itself as home from home for SA companies
NASDAQ, the largest US electronic stock market, said February 7 that it was
actively persuading South African companies to list on the exchange. Nasdaq said
that SA's steady economic progress and growth potential were attractive to
international investors. Head of Nasdaq International, Charlotte Crosswell, said
the bourse was currently in talks with several local companies, from a variety
of economic sectors, and had received a "positive response" to the
possibility of them listing on Nasdaq. "With the South African economy
steadily strengthening and exchange regulations easing, we expect more companies
to expand internationally, and we would like to be their growth engine of
choice," Crosswell said. Nasdaq's global focus this year was on emerging
markets such as China, India and Russia, since companies in these regions were
more active than non-US countries in established economies such as western
Europe, Crosswell said. "South African firms can benefit from listing on
Nasdaq, as they will have access to more investors, and more visibility and
credibility." The US was the world's dominant equity marketplace, Crosswell
said, and had the world's largest pool of investment capital. Higher disclosure
standards in US markets also led to increased investor confidence, she said. The
maximum initial fee for a Nasdaq listing is $150000. The listing process takes
about six months, and there are three main options for initial listing. The
combined market cap of listed US companies is more than $16-trillion. Annual
share trading amounts to about $20,8-trillion. Capital raised through initial
public offerings (IPOs) in the US is about $31bn annually, compared with $6,5bn
in London. Nasdaq accounts for more than 83% of the IPO market. Crosswell said
South African companies already listed on Nasdaq had a good track record, which
could persuade other potential companies to consider listing. Local companies
listed on the Nasdaq are Highveld Steel & Vanadium, Naspers, Randgold
Resources, Randgold & Exploration and DRDGOLD. These companies account for
1,5% of the combined market cap of the 340 international companies listed on the
exchange. International companies make up 10% of Nasdaq, and have a total
market cap of $574bn.
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FOREIGN RELATIONS
SA, Angola sign pacts
South Africa and Angola have signed four agreements aimed at strengthening
economic and bilateral relations between the two countries. The agreements
signed by ministers of both countries in Cape Town February 17, formed part of a
visit by Angola's Prime Minister Fernando De Piedade Dias Dos Santos to this
country. The Prime Minister and his delegation arrived in the country February
15 in reciprocation of Deputy President Jacob Zuma's visit to Angola in August
last year. Social Development Minister Zola Skweyiya and Social Assistance and
Reintegration Minister Joao Baptista Kussuma signed an agreement of co-operation
in the field of social protection and re-integration. South Africa's Trade and
Industry Minister Mandisi Mpahlwa and Angolan Transport Minister Andre Luis
Brandao signed an agreement for the Reciprocal Promotion and Protection of
Investments. Defence Minister Mosiuoa Lekota and his Angolan counterpart Kundy
Pahyama signed a Protocol on defence cooperation while Minerals and Energy
Minister Phumzile Mlambo-Ngcuka and Angolan Energy and Water Minister Jose M
Botelho de Vasconcelos signed an agreement on co-operation in the field of
electricity. Before signing the agreement, Deputy President Zuma and Prime
Minister De Piedade Dias Dos Santos had bilateral discussions and discussed a
wide range of issues. These included the expansion and consolidation of
strategic bilateral political and economic relations between the countries;
reconstruction programmes in Angola; trade and investment issues; regional and
continental peacekeeping efforts; regional elections; and conflict prevention,
management and resolution in Africa. According to a statement, Angola has a
considerable natural resource base in the form extensive reserves of oil, gas,
diamonds and other minerals. "It has the potential for significant exports
of coffee and other agricultural products. It also possesses fertile highlands
with a favourable climate and plenty of water," said the statement. Various
companies in South Africa, including Eskom, Gauteng Economic Development Agency,
Protea Hotels, and ABSA visited Angola recently to explore the possibilities of
investing in that country. In addition, some NGO's and churches are involved in
Angola to contribute towards rebuilding that country after decades of protracted
civil war. "These organisations as well as the government are providing
humanitarian assistance," the statement said.
Mugabe snubs and threats
Zimbabwe is resisting attempts by the Southern African Development Community to
gauge conditions in the country ahead of the general election scheduled for
March 31. Official sources said Harare was unwilling to sanction a visit by a
team of lawyers from the SADC organ on politics, defence and security whose duty
it is to inspect the electoral legislation and conditions on the ground. Despite
several appeals, the government has failed to give the team the necessary
written invitation. Sources said the Zimbabwe government had not responded to
approaches. The latest foot-dragging follows Mugabe's cancellation of a visit by
SADC leaders, comprising President Thabo Mbeki, outgoing Namibian Presi dent Sam
Nujoma and Lesotho Prime Minister Phakalitha Mosisili, scheduled for January 17,
on the grounds that he was preparing for the poll.
Government's failure to stand up for the property rights of South African
nationals in Zimbabwe was indefensible, the Democratic Alliance (DA) charged
February 10. "This saga has been running for years and the government's
inaction is clear evidence that it is not serious about holding the Zimbabwean
government to its legal obligations," said DA foreign affairs spokesman
Douglas Gibson. The Zimbabwean government was currently fast-tracking the
expropriation of 15 South African-owned farms while simultaneously doing
everything in its power to avoid signing an important bilateral
investment-protection agreement that would serve to secure the property rights
of South African-owned property in Zimbabwe, he said. Some local mining
investors in Zimbabwe have been reluctant to commit to new expansions without
the degree of certainty the new agreement would provide. South African trade and
industry official George Monyemangene said the bilateral agreement between SA
and Zimbabwe was "agreed and initialled, and only logistical matters are
delaying it." The signing of the agreement was postponed because the
relevant Zimbabwean minister was not available to sign it. It is now not known
when it will be signed.
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HIV/AIDS
South Africa: Aids "indirectly" blamed for rise in deaths
HIV/AIDS emerged as one of the main killers in South Africa's 15 to 49 age
bracket. South African government statistics show that the number of reported
deaths rose by a dramatic 57 percent between 1997 and 2002, mostly as a
consequence of tuberculosis, influenza and pneumonia - often the immediate
causes of the deaths of Aids patients. The government statistics service,
Statistics South Africa (Stats SA), said February 18 that reported deaths in
South Africa between 1997 and 2003 indicated a jump, from 318,287 in 1997 to
499,268 in 2003. Stats SA's acting deputy director-general for population
statistics, Dr Liz Gavin told the UN news service, PlusNews, that data garnered
from around three million death certificates provided "indirect
evidence" that the HIV epidemic was raising the mortality levels of
prime-aged adults. However, officials say the exact causes of death remained
difficult to ascertain as, in many cases, AIDS-related diseases such as
tuberculosis, influenza or pneumonia were recorded on the certificate. Although
part of the increase is a result of population growth and better notification,
the Statistician-General, Pali Lehohla, said in a statement accompanying the
report that the numbers provide "indirect evidence that the HIV epidemic in
South Africa is raising the mortality levels of prime-aged adults." The
report was released as Health Minister Manto Tshabalala-Msimang assertively
defended the government's "Comprehensive Plan for Management, Care and
Treatment of HIV and Aids" at a media briefing at Parliament.
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INDUSTRY
Sasol expects 45% increase in earnings a share
Petrochemicals group Sasol expects a hefty rise in earnings on the back of a
better performance in its chemicals businesses for the half year to December
last year. Sasol said February 22, in a trading statement it expected earnings a
share to rise 45% and headline earnings a share to increase 60% for the period.
This could see earnings a share rising from R4,08 to R5,97 and headline earnings
a share jumping from R3,97 to R6,35. Sasol said improved margins and a
heightened focus on its core chemicals businesses were behind the expected rise
in earnings. Andisa Securities analyst David Brennan said the rise in earnings
was in line with his expectations for the half-year. Sasol said earnings a share
in the second half of the financial year should be "more or less
equal" to those of the first half should prevailing exchange rates, oil
prices and chemical margins remain the same. An I-Net Bridge forecast of nine
analysts said it expected the company to grow earnings a share from R9,25 to
R13,32 for the full year. Brennan said he was not too worried about a currency
hedge costing the group R1bn in lost earnings as he had factored this into his
forecast. While Sasol's chemicals businesses are doing well, "adverse
currency effects" put its synthetic fuels business under pressure despite
it enjoying the benefits of a higher oil price, he said. The strong rand was
given as a reason for Sasol producing lower-than-expected earnings in the
half-year to December 2003. Turnover dropped 9,5% to R29,86bn. The group plans
to release its results on March 7.
Eskom's power stations to create 26 000 jobs
South Africa's electricity supplier Eskom is expected to create 26 000 new jobs
in Mpumalanga once three power stations are re-opened. The three power stations
at Camden near Ermelo, Grootvlei near Balfour and Komati near Middelburg were
shut down in the late 1980s and 1990s because Eskom was generating more
electricity than needed. But the company has announced that it would spend about
R12 billion to re-open the power stations as part of its investment drive in
Mpumalanga and to meet a growing national need for electricity. "These
stations were closed down in such a way that they could still be
re-opened," said Eskom spokesperson Fani Zulu February 16. "There are
also plans to build new power stations in the country," he added. The
Camden Power Station is expected to start operating by June, while the other two
power stations will reopen in 2008. The number of jobs would, however, drop
after renovations and some construction work is completed, according to the
company commissioned to do the feasibility study, Econometrix. The power
stations are expected to contribute R4.2 billion to Mpumalanga's Gross Domestic
Product (GDP). Eskom has also budgeted R1.5-billion to build a railway line for
heavy coal trucks that supply its power stations in Mpumalanga. The line will
ease pressure on a 100km stretch of the N11 between Ermelo and Eskom's Majuba
Power Station near Amersfoort, which costs R12 million a year to repair. The
project will be completed in 2008.
Kumba concerns over high iron ore prices
Steel mill bosses should be worried about suggestions from Kumba management that
iron-ore prices could almost double this year. Strong demand, led by China, is
pushing up prices, and while steel producers will be able to recover the raw
material cost increases from customers, it is unnerving to have to deal with
high input-cost inflation. However, the managers of SA's Ispat Iscor must be
laughing all the way to the bank. When the old Iscor group was unbundled a few
years ago, to create the Iscor steel business and mining house Kumba, an
agreement was put in place whereby Ispat Iscor would get iron ore at cost from
the Sishen mine. Iron-ore prices are hurtling ahead a lot faster than the costs
of mining the iron ore. The supply deal is providing a very comfortable buffer
for the South African steel producer from the cost inflation afflicting most, if
not all, of its global competitors. There is even a provision for Ispat Iscor to
invest in future Kumba expansion projects if it needs to raise its allocation of
affordable iron ore. No doubt some of Ispat Iscor's customers will be pouncing
on this benefit to the South African steel maker when they pursue their case
against the company's import-parity pricing before the competition authorities.
Meanwhile, Kumba executives can just watch the world price of their iron ore
soaring, and wonder how much more profit they would be making if not for their
sales agreement with their largest local customer.
De Beers, government talk about move to SA
Gareth Penny, the head of De Beers' sales and marketing arm, the Diamond Trad
ing Company, Gareth Penny said February 8 that the company would discuss with
the SA government whether more of its activities could be conducted in southern
Africa. This followed a call on Monday by SA'S Minerals and Energy Minister
Phumzile Mlambo-Ngcuka for the Diamond Trading Company DTC to move from its
London base to southern Africa. Her call was made following a conference in Cape
Town of more than a dozen African mining ministers. Penny confirmed at the
Mining Indaba conference in Cape Town that the marketing operation - the Diamond
Trading Company - had been "looking for some time" at how it might do
more business in Africa. "We are looking to expand the full range of
diamond sorting in SA," he said. But he said there were clearly there are
inter national marketing campaigns where it makes the most that made more sense
to market run from out of London. "Quite properly, it's a case of having
local activities where it is most applicable," Penny said. SA already
derived "considerable benefit" from the company's DTC's activities.
Diamond firm De Beers should move the headquarters of its London-based sales
division to Africa, South Africa's mining minister said Feb 7. Phumzile
Mlambo-Ngcuka said the shift would help develop the region's economy and
infrastructure. "Fifty percent of the diamonds that are produced and
consumed by the world are coming from southern Africa," Ms Mlambo-Ngcuka
explained. "We think we are just as competent in southern Africa to provide
the services that are provided in London," she said. "It's not just
about getting DTC, it's about increased infrastructure". The minister said
that South Africa would co-operate with Angola and Namibia in order to expand
the region's diamond polishing industry. Botswana is the region's biggest
producer, followed by South Africa, Namibia, Angola and Lesotho. Ms
Mlambo-Ngcuka said that South Africa's new legislation, which would require a
certain percentage of diamonds to be processed locally, should be finalised by
the end of 2005.
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TELECOMMUNICATIONS
Indian group to invest 'billions' in second national operator
Communications minister Ivy Matsepe-Casaburri expects Tata to invest
"billions" of rand in the second national operator (SNO). She
announced the SNO finally has a full complement of shareholders, with
Indian-based Tata Group being awarded the remaining 26% shareholding. The Tata
Group, represented in SA by Tata Africa Holdings, has investments including Tata
Infotech, which operates in India, SA and several other countries, while the
organisation also owns Tata Technologies and has shares in dual-listed
telecommunications giant VSNL. In reply to a question February 18 during her
parliamentary press briefing on the Department of Communications' activities,
the minister said while she does not yet know exactly how much the Indian
industrial group will invest in the SNO, the investment will include technology
and other expertise.
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UNIONS
Labour proposal infuriates Cosatu
Government is heading for a major conflict with labour if it persists on
giving in to business lobby groups, the Congress of South African Trade Unions (Cosatu)
warned February 17, following a proposal by President Thabo Mbeki to exempt
small businesses from aspects of the Labour Relations Act. "We are
absolutely incensed by these renewed attacks on workers' rights and wish to warn
that we are heading for a major conflict if the government persists on kowtowing
to employer blackmail," Cosatu secretary-general Zwelinzima Vavi said. The
federation fears Mbeki's undertaking to reduce costs and to ease conditions for
entrepreneurs to start small businesses and create jobs is a move that would
open an even wider chasm between the poor and the rich. Vavi said the body's
central executive committee has resolved to mobilise members "to resist
this new threat". "We have become increasingly alarmed at the growth
of the casual and temporary sectors of workers and the terrible conditions in
which most of them exist," he said. Workers were increasingly losing their
previously secure and better-paid jobs, as the positions were out-sourced and
subcontracted to small firms that government wanted to exempt from aspects of
labour laws and collective bargaining agreements, the secretary-general said.
Vavi said further concessions would come on the back of recent changes to exempt
small businesses from being bound by the decisions of central bargaining
councils. "It appears that even before the ink dried on paper signing off
the last amendments, the employers began to lobby government for more
concessions," he said. Cosatu said attempts to exempt small businesses from
existing labour laws and collective bargaining agreements would be government's
fourth attempt to weaken unions. "This is a naked attempt to reverse huge
gains workers have made in the past years to transform the apartheid labour
market," Vavi said.
Cosatu date for Zimbabwe blockade
The daily News in Harare, Zimbabwe reported that the Congress of South African
Trade Unions (Cosatu) has set March 9 as the date on which it will start its
mass action against the Zimbabwe government. Zwelinzima Vavi, Cosatu's secretary
general, announced this in an interview with Sapa, a South African news agency,
February 24. Cosatu's planned blockade of the border post at Beitbridge and
picketing of other Zimbabwean interests are in protest against the refusal by
Harare authorities to allow a delegation from the labour union to enter Zimbabwe
last month. Cosatu sent a 20-member delegation to Harare on a fact finding
mission after allegations that the Zimbabwean government was violating human and
workers' rights, harassing supporters of opposition political parties and
suppressing freedom of the press. The delegation was unceremoniously kicked out
of the country moments after touching down at Harare International Airport.
Angered by the ill-treatment by the Zimbabwean government, Cosatu promised to
launch a blockade against President Mugabe's regime. Vavi told a Zimbabwe
solidarity conference that the aim of the picket would be to tell the Southern
African Development Community (SADC) it had to act to enforce its own
guidelines. This included ensuring that its observer mission to the Zimbabwe
election March 31 was invited to the county three months in advance. "It is
now only five weeks away," he said. The picket will start at the Zimbabwe
High Commission in Pretoria and will continue until the election, Vavi said.
"We invite all who are fighting to highlight the Zimbabwe plight to
participate." The Democratic Alliance (DA), an opposition political party
in South Africa, also sent its own delegation on a fact finding mission to
Harare, only to be sent back at the airport.
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