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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: 043 - (01/08/05)
Baling out Zimbabwe
South Africa is hoping to use its financial leverage over Zimbabwe to force
President Robert Mugabe to effect political and economic change in his country.
The proposal is a bale-out of the cash-strapped Zimbabwean economy, and comes
after Mugabe asked South Africa for a loan to help his country stave off
expulsion from the International Monetary Fund for failing to service its debt.
Pressure has mounted on President Thabo Mbeki to refuse Zimbabwe's request
unless Harare agrees to sweeping reforms. Critics of the Mbeki government are
slamming plans after Mr Mbeki said June 24 that it would be necessary to prevent
an economic collapse in Zimbabwe that would leave South Africa with a much
larger problem. Mr. Mbeki confirmed that his cabinet is contemplating a loan to
ZImbabwe to allow Harare to catch up on its arrears to the International
Monetary Fund, and to purchase fuel and food, increasingly scarce commodities in
the country. Unofficial reports have set the amount of the loan sought by Harare
at $1 billion.
Economic Chaos in Zimbabwe Not in South Africa's Interests
Mugabe's government has appealed to South Africa for a $1bn bale-out as The
International Monetary Fund (IMF) called in the country's $900m debt, prompting
fears that Zimbabwe is on the verge of being expelled as a member of the
international lending institution. President Thabo Mbeki says South Africa is
willing to throw its troubled neighbour Zimbabwe a lifeline, but urged the
international community to play a more active role in resolving Zimbabwe's
problems. Mbeki said any help would be conditional on Zimbabwe committing to a
stable monetary system, Zimbabwe's dual currency market would have to be
reviewed. Mbeki also reiterated that a solution would only follow after dialogue
between Mugabe and the opposition Movement for Democratic Change. Mbeki's stance
appeared to be a direct challenge to calls for South Africa to take a tougher
line against Mugabe. It is also indicative of a growing confidence in government
that Zimbabwe's economic meltdown has created an opportunity for SA to use its
leverage to secure a settlement there. Finance Minister Trevor Manuel confirmed
that South Africa is discussing a possible loan with Zimbabwe July 28, but he
dismissed media reports that the credit could amount to $1 billion. Zimbabwe is
reeling from its worst economic crisis since independence from Britain 25 years
ago, triggered by government seizures of white-owned farms for resettlement of
landless blacks and allegations of vote rigging. The issue of a possible rescue
package for Harare has sparked heated debate, with most South Africans either
opposed or demanding tough conditions for any loan agreement. But Manuel said it
was in South Africa interests to ensure stability in its neighbour. South Africa
is Zimbabwe's main trade partner. "As part of the responsibility we have,
we need to ensure that all African countries remain in the family of nations.
The worst thing we can have is a failed or rogue state on our border. Clearly we
have a responsibility." He said any deal with Zimbabwe would have to be
presented before South Africa's parliament. "We are not at a point where we
are signing off billions of dollars. What you have to understand is that we have
a huge responsibility and we will not be reckless in the way we exercise that
responsibility," said Manuel. "Peace and stability in our
neighbourhood is a struggle worth taking." Mugabe, who denies ruining a
once prosperous Zimbabwe, won financial and diplomatic support from China July
26, signing a deal on economic and technical co-operation, though neither side
said what it contained. The situation is far from simple as many are voicing
concern that South Africa, as a leading nation on the continent, needs to ensure
that it is unequivocal in its position on Zimbabwe and that it makes it clear
that undemocratic practices will not be tolerated. Such a stance would clearly
preclude SA affording a "loan" to Zimbabwe, as there is every chance
that the money will be used to prop up an illegitimate government and that it
will be interpreted as yet another expression of solidarity with a pariah state.
World focus on Africa will wane if South Africa continues to act in such a
manner. Africa's future prosperity will not be determined by how much aid is
afforded to largely inefficient governments, but rather by how many economic
opportunities are created for individuals to improve their circumstances.
African states, and South Africa in particular, have a special responsibility to
help to ensure that Africa does not fall off the world agenda.
G8
At the July G8 summit, US President George Bush vowed to eventually lift farm
subsidies. However, African nations will have to await a global trade deal
before the US will cut farm export subsidies. Failure to secure a global deal at
the World Trade Organisation meeting in December could see subsidies extended
for years, trade chiefs have warned while addressing member countries of the
African Growth and Opportunity Act (Agoa) at a forum in Senegal. Agoa, signed in
2000 by Bill Clinton, gives exports of Africa's member countries duty-free
status in the US market. President Bush has extended their duty-free status
through to 2015. Since the act was signed, the value of African exports to the
US has risen to $26bn, while African countries import $8bn worth of US goods.
Petroleum products make up the bulk of African exports to the US, but exports of
textiles, minerals and agricultural goods have increased. However, agricultural
subsidies favouring US farmers have dealt severe blows to African efforts to
compete in the food market.
G8 Leaders Agree $50bn Aid Boost
The G8 summit ended with an agreement to boost aid for developing countries by
$50bn (£28.8bn). The debt of the 18 poorest nations in Africa is also being
cancelled. On trade, there was a commitment to work towards cutting subsidies
and tariffs. On climate change, Prime Minister Tony Blair said an agreement had
always been unlikely, but that the US now accepted global warming was an issue.
But reaction was mixed, with some calling it "vastly disappointing".
"The people have roared but the G8 has whispered," said Kumi Naidoo,
chair of the Global Call to Action against Poverty. But Live 8 organiser Bob
Geldof spoke of a "great day". "Never before have so many people
forced a change of policy onto a global agenda. If anyone had said eight weeks
ago will we get a doubling of aid, will we get a deal on debt, people would have
said 'no'," Mr Geldof said. He added that he gave the G8 summit "10
out of 10 on aid, eight out of 10 on debt". Summing up the G8 meeting, Mr
Blair acknowledged: "It isn't all everyone wanted, but it is
progress." UN Secretary General Kofi Annan said the G8 deal represented a
"good day", but that it was only "a beginning". Earlier the
UK Prime Minister had said that in the wake of Thursday's attacks, the
communique was the "definitive expression of our collective will to act in
the face of death". "It has a pride and a hope and a humanity that can
lift the shadow of terrorism," he added. Non-Governmental Organisations
(NGOs) remained critical of the G8 deal. Some described the talks on climate
change as a "significant lost opportunity". G8 leaders have indicated
the statement represents progress but Stephen Tindale, a spokesperson for
Greenpeace, said: "The G8 has committed to nothing new but at least we
haven't moved backwards on the environment."
British High Commissioner Paul Boateng said aid alone was not enough for Africa
but fair trade and debt relief underpinned by good governance will help rebuild
the continent. Speaking at the Africa Dialogue Lecture Series at the University
of Pretoria July 19, Mr Boateng said Africa was on the right track as most
countries in the sub-Sahara now had democratic elections. Mr Boateng was
speaking on the Commission for Africa and the recently held G-8 summit at
Gleneagles at the lecture. Referring to the G-8 summit outcomes that they would
provide Africa $25 billion per year and $50 billion globally, the High
Commissioner said these were the hard commitments. He said the Commission for
Africa report assisted the leaders at the Gleneagles to take the decision adding
that the majority of the Commission was drawn from Africa. He said the report
was rooted in the totality of the African experience.
Airline problems
South African Airways (SAA) has suffered the most crippling strike in its
history. The six-day action by ground and cabin staff saw SAA cancel domestic
and international flights from July 22. The troubles at SAA did prove beneficial
to other airlines operating in South Africa, which have long flown under its
shadow. SAA enlisted the help of some of its competitors to carry stranded
passengers. Unions were seeking an 8% wage increase, rather than the 5% they had
been offered The SAA Pilots Association said a number of its 800-strong members
have already indicated their intention to leave for other airlines, both locally
and internationally. Association chairman Piet Taljaard said "The morale is
the lowest I have ever seen and I have been with the airline for nearly 30
years." The strike snarled travel across the continent, where the South
African airline is the dominant regional carrier.
Terrorism
A man arrested in Zambia late July on suspicion of involvement in the attempted
July 21 terror attacks in London had earlier been sought by the U.S. in South
Africa. The British press has dismissed reports linking him directly to the bomb
attacks. The case however, highlights South Africa's position as a potential
haven for terrorists and international criminals. Richard Cornwell, a security
analyst, said that it is not surprising that someone who wants to avoid the
notice of international intelligence and police would choose South Africa.
"Basically South Africa's ports and harbours, including the airports, are
badly under policed, and the security is fairly easily penetrated and this is
not lost on the people who would be inclined to come in to this country, either
people who would be involved in organized crime or in terrorism for that
matter," he said. Mr. Cornwell, a senior research fellow at the independent
Institute for Security Studies, said the widely held view that terrorist cells
would choose to base themselves in failed states such as Somalia is fallacious.
He said instead it is much easier for such groups to set up unnoticed in open
societies, which have large numbers of immigrants such as South Africa. He also
said such groups prefer countries which have a good infrastructure, particularly
in finance and communications.
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AUTOMOBILES
Car sales reach peak
More vehicles were sold in SA in May than in any other month in the past 10
years, but the figures show further signs of a slowdown in the rate of sales
growth. New vehicle sales were up 33,5%, at 45867, on the previous May's total,
according to data released June 2 by the National Association of Automobile
Manufacturers of SA (Naamsa). This increase was lower than the 41% increase in
sales this April on the previous April's. This April's sales were 7% down on
March's, prompting McCarthy Motor Holdings to say last month that this could be
the first sign of the market starting to flatten out. Absa transport industry
analyst John Loos said June 2 the industry was at the beginning of a gradual
slowing in new car sales growth. He said real disposable income would decline as
the economy slowed and inflation showed no major downward movement; also
interest rate cuts were less frequent; and the cost of household debt servicing
was rising. Loos said he expected vehicle price increases in the remainder of
the year to come from a weaker rand. However, price hikes would be
"mild". Substantial interest-rate cuts in 2003, together with
virtually stable vehicle prices over the past two years, were the primary
drivers of the boom in vehicle sales over the preceding 12 months. Ford Motor
said this week's Competition Commission finding that there was anticompetitive
behaviour in the automotive industry was not expected to have a significant
effect on sales. It is still generally expected that this will be a record year
for the industry, following unprecedented sales last year, when more vehicles
were sold - by Naamsa members and nonmembers - than at any time before in SA.
Absa said sales this year would be "a healthy 16,7%" ahead of last
year. It is now certain that the market will break the 500000 mark this year.
Growth is occurring across the spectrum of vehicles, including passenger cars
and commercial vehicles. Most estimates point to sales of 550000 units. WesBank,
whose forecast is among the most optimistic, expects sales of 573000 units this
year. Meanwhile, it appears that the used-car market is improving. Used car
values depreciated steeply over the past year or so as more consumers opted to
buy new cars. McCarthy chairman Brand Pretorius June 2 said used vehicle
inventory levels and depreciation trends were returning to normal, which meant
dealers now could trade with more confidence. Naamsa reported vehicles exported
rose 1,2% to 30732 in the first four months of this year, compared with the
corresponding period last year. Exports are expected to rise substantially this
year as Ford's first export programme and Toyota's new Hilux export programme
come on stream. Toyota president and CEO Johan van Zyl said SA was "riding
a wave of economic confidence" based on the lowest interest rates in
decades, combined with stable and favourable economic fundamentals. The economy
appeared to be moving towards a point of critical mass that could take it to a
new level. Van Zyl said that with total vehicle sales reaching 213441 in the
first five months of the year, the motor industry was on track to exceed sales
of 250000 units for the period from January to June for the first time in its
history. WesBank said it had a record month, generating R3,8bn in new business
last month. The bank - which financed about one in every four cars in SA - said
it had seen a steady increase in the number of private vehicle sales from 15,8%
in January to 23,4% last month.
Car makers in price-collusion allegations
Competition authorities, having accused most of SA's car makers of
anticompetitive behaviour, should be careful not to destabilise an industry that
was a major contributor - almost 7% of gross domestic product - to the economy.
The warning was issued by industry body the National Association of Automobile
Manufacturers of SA (Naamsa) in its monthly car sales commentary June 2. The
Competition Commission, which said that it had found evidence of anticompetitive
behaviour by most of SA's car makers, said that the biggest culprit when it came
to high car prices might be the Motor Industry Development Programme (MIDP). The
programme, which is under review, affords car makers substantial benefits by
offsetting the costs of imports, and is credited with saving the industry from
collapse when it was introduced 10 years ago. The commission is not the first to
criticise the programme - Australia threatened to challenge its compliance with
global trade rules before the World Trade Organisation last year. The
commission's "implied criticism" of the MIDP should be taken up with
the trade and industry department and the national treasury, said Naamsa head
Nico Vermeulen. There was a significant and growing disconnection between
industrial policy and competition policy in SA, he said. This required
"urgent attention at the highest level of government", Vermeulen said.
Car makers have been vexed by the commission's findings of anticompetitive
behaviour earlier this week, and by the way in which the outcome of the
investigation was communicated. Car makers, including Volkswagen,
DaimlerChrysler and General Motors, said they could still not comment on the
commission's findings as they had not yet seen them. BMW, among others,
described the commission's communication of the outcome of the investigation
through a press release as disappointing. Several car makers said the
announcement was rushed so as to afford commissioner Menzi Simelane another big
notch in his belt before his departure. Simelane left the commission on the day
of the announcement. The commission released findings in relation to issues such
as collusion, but had yet to complete an investigation into allegations of
excessive pricing. Simelane said on the day the announcement was made that the
commission had a lot on its plate and that he wanted to help finish what he
could.
Fiat car part export contract
Fiat Auto SA is expected to announce a third major component export contract in
July, following two substantial export orders during June. Fiat said that it had
landed a contract potentially worth R250m to supply catalytic converter
components to customers in Germany. This follows a R200m contract to export
exhaust heat shields to Italy. An industry commentator said yesterday that Fiat
was about to land another contract, which would be bigger than the previous two
combined. Fiat would not confirm this June 21. The company said the contracts
announced to date made it one of the largest component exporters in the country,
and marked a deeper integration of the South African arm into Fiat's global
supply chain. It also boosted the company's export revenue and enabled it to
earn more export credits through government's Motor Industry Development
Programme (MIDP). The industry commentator said Fiat may be ramping up its
component export business in preparation for a possible switch from local car
production in SA to importing cars into the country. Fiat, like other local car
makers, can use MIDP credits generated through its component exports to reduce
the cost of importing cars.
Fiat was considering its options after Nissan SA's recent decision not to renew
an agreement whereby it shares its car-production facilities north of Pretoria
with Fiat. The agreement ends in 2008. Fiat, which sells a relatively low number
of vehicles in the country, could try to strike a production-sharing agreement
with another car maker, or decide to invest in a new car factory. Meanwhile,
Fiat said that under the first phase of the new catalytic converter components
contract, which would start immediately, 100000 units would be shipped to
Germany every year for sub-assembly before being sent to various plants in
Italy. The catalytic converter components would be made for Fiat Auto SA by
Western Cape manufacturer Arvin Meritor. The converters would be used in the
latest models from the Fiat and Alfa Romeo stables. The company said recently
that the exhaust heat shields contract would boost its annual export turnover by
more than 12%.
Renault To Launch New Model Next Year
French car manufacturer Renault is set to add the newly launched
third-generation Clio to the South African small car market early next year.
Renault, which imports its vehicles into SA, launched the Clio III in France,
saying the car would be on the French market in September. Renault
vice-president for the "B" product range programme said the car would
be available in the rest of Europe by year-end and in other parts of the world
by April next year. The addition could see Renault increase its share in the
small-car segment. Clio accounted for 4700 of the 78199 units sold in the
segment last year. Renault has spent à953m on the new Clio and à630m of this
was for production-related investment. The new Clio will be manufactured at
plants in Flins and Dieppe in France and Bursa in Turkey. The costs were spread
among the three plants. Renault vice-president Jacques Prost said the company
saved money by re-using existing manufacturing resources such as equipment. He
said the company also reduced costs because Clio III's development time was 28
months, compared with 49 months in the previous version. "This is the
shortest development time ever achieved for a Renault. The reduction made
significant contribution to cutting costs," he said. Prost said the Flins
plant, which specialises in small cars, would be used as a pilot site. Annual
production there would be aimed at about 325000 vehicles. Renault is also likely
to consolidate its position in the South African market through the Logan, also
known as the à5000 vehicle. The company has concluded a joint venture with
Indian automotive manufacturer Mahindra that will see the production of
right-hand drive Logans in India. According to Renault, the low-cost sedan would
be sold through the Mahindra Renault brand and also distributed in SA through
Renault dealerships. It was "too early" to put a price on the new
Clio, company officials said.
Fiat production threatened as Nissan ends deal
Fiat Auto SA may be forced to stop producing cars in SA and switch to imports,
after Nissan decided against renewing an agreement that has seen Fiat sharing
Nissan's production facilities for the past seven years. The agreement would end
in July 2008, Fiat said June 8. The car maker said it was now evaluating a
number of long-term production alternatives, as it considered SA an important
market. Fiat is a small producer in SA, but any erosion of the domestic
production base will be a setback for the country's ambitions to double
production to about 1-million units a year in order to become a serious global
player. Fiat was likely to approach other car makers to negotiate a similar deal
to that with Nissan, said a commentator who would not be named. Fiat could also
consider building its own plant, but the commentator said Fiat's volumes were
probably too low to justify investment in a greenfields facility. Fiat sold
about 8000 vehicles last year, down from about 11600 in 2002. Its market share
has declined from 3,3% to 1,8% over this period. If Fiat opted for the
importation route, it would still be able to offset the cost of vehicle imports
through the Motor Industry Development Programme, as it exports vehicle
components from SA. Fiat said that since the inception of the agreement with
Nissan in 1998, more than 55000 vehicles -- Uno, Palio and Siena -- had been
produced. It said that, of the current product range, only three Fiat models
were manufactured locally. These were the Palio, Siena and the
soon-to-be-launched, three-quarter-ton Strada bakkie.
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AVIATION
Comair in operating profit rise
BA/Comair has learned well from sister airline kulula.com on cutting overheads,
and recent load factors have put the companies' parent, Comair Ltd, firmly on
the road to profitability. Stuart Cochrane, executive manager of BA/Comair said
mid-June that the combined BA/Comair-kulula.com operating profit for the year
ended June 2005 would be "substantially higher" than the R11-million
posted last year. Comair Ltd is due to report its results in September and some
insiders say the figure could be as high as R80-million. "We have taken a
leaf from our sister airline kulula's book on cutting costs without impairing
our full service, and it's paying handsomely," said Cochrane. "Through
our volume strategy we have been able to keep fares on BA/Comair competitive,
which has boosted load factors considerably," he said. For the past six
months kulula has been operating in excess of 90% occupancy and BA/Comair at an
average 75%. Cochrane says BA/Comair will continue to reduce overheads without
compromising its service, by: Introducing newer, more fuel-efficient aircraft
with lower maintenance costs; Reviewing distribution costs by driving online
sales and reviewing commissions to travel agents; Removing inefficiencies from
the business through steps that will reduce no-show passenger losses; and
Renegotiating contracts with catering companies and other suppliers with a view
to lowering costs. Asked why BA/Comair did not give up the costly British
Airways (BA) franchise and throw in its lot with the obviously more profitable
kulula, Cochrane said the current set-up offered the best of both worlds.
"Through BA/Comair we have the high end of the market and through kulula
the low end," he said. Cochrane said that its corporate accounts -- such as
Anglo American, Nampak and Barloworld -- comprised 60% of passengers. BA and
other foreign carriers fed in another 15%, with the balance of
"discretionary" business from small and medium enterprises, as well as
ordinary passengers who did not mind paying higher fares for a superior service.
"On top of this we have benefited from passenger growth generated by kulula
and other low-cost carriers," Cochrane said. Were it to join kulula, BA/Comair
would also lose its corporate accounts and foreign connecting passengers to
opposition. "We would not have enough passengers to fill our combined fleet
of 20 aircraft," of which BA/Comair has 12 and kulula eight, Cochrane
explained. He said the only negative factor was the oil price, which was being
managed by the introduction of levies.
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EXPORT - FREE TRADE
Deals to extend free trade for South Africa
Trade negotiations, aimed at giving exporters improved access to foreign
markets, are advancing slowly. This may frustrate some of the country's
potential free trade partners, but government's focus -- supported by the
private sector -- is on securing the best deals, rather than meeting deadlines.
But given SA's limited capacity, ambitious agenda and the race to secure free
trade agreements around the world, it cannot afford to move too slowly. Free
trade talks with India are expected to commence in August and a challenging
round with China is likely to follow. SA and its customs partners also hope to
identify a free trade partner in Africa before year end, and there are numerous
requests for partnerships from other countries, such as Singapore. Arguably the
most pressing issue that has to be dealt with is free trade talks with the US,
which ground to a halt a year ago. The Southern African Customs Union (Sacu) and
the US have been struggling to agree on a date to resuscitate the talks. In a
recent report on trade between the US and sub-Saharan Africa, the US blames
negotiating capacity constraints in Sacu -- comprising SA, Botswana, Lesotho,
Namibia and Swaziland -- and divergent views on key issues for the delay in the
talks, which both sides had hoped to conclude in December last year. SA's chief
negotiator, Xavier Carim concedes limited capacity is an issue, but says this is
not the fundamental stumbling block. The main obstacle, he says, is different
approaches to key issues. The negotiations with the US are the most important
talks on SA's bilateral trade agenda, as the US is SA's largest single trading
partner. The free trade deal is expected to lock in and expand on the benefits
South African exporters enjoy under the US's temporary African Growth and
Opportunity Act, which allows duty-free access to the US for a wide range of
products. The completion of a free trade deal with the European Free Trade
Association (Efta) -- Switzerland, Norway, Liechtenstein and Iceland -- is
imminent, according to Carim. The scheduled deadline for these talks was also
December last year. Minor issues remain outstanding and the negotiations could
be completed on June 21, says Carim. Once the deal is ratified, South African
exporters will enjoy duty-free and quota-free access for industrial goods in
Efta countries. Sacu inked a preferential trade deal with Mercosur -- Brazil,
Argentina, Paraguay and Uruguay -- in December last year, but the ratification
process has not yet started as several technical details are yet to be finalised.
Carim expects these details to be finalised soon, and ratification to start in
August. A preferential trade deal allows for lower tariffs on a limited range of
products and is typically used as a foundation for a free trade deal. China is
eager to conclude a free trade agreement with SA, but business has put the
brakes on this. Companies have concerns about the effect of a free trade
agreement with China, where exporters enjoy the benefits of subsidies and a
currency pegged to the dollar. Recently an extensive study was launched, led by
the National Economic Development and Labour Council, to assess the effects of a
deal with China. A report is expected at the end of the year. The Doha
Development Round of world trade talks remains the highest priority on SA's
trade agenda, as it can potentially yield large-scale benefits by opening up
rich markets to developing country products. The Doha round, being negotiated by
the 148 members of the World Trade Organisation (WTO), is expected to overrun
its December 2004 deadline by almost two years, as negotiators battle their way
through sensitive and complex issues such as agricultural subsidies. WTO members
aim to produce a draft agreement for the sixth WTO ministers meeting in Hong
Kong in December by next month. Many countries are hoping the appointment of
Pascal Lamy as the new director-general of the WTO will help lubricate progress.
Carim, who will not say whether SA voted for Lamy, expects him to make "a
positive contribution" to the talks. "The general sense is that he
will be a good director-general. He has vast experience in the multilateral
trading system," he says.
Call centres can employ 100,000
Up to 100,000 new jobs could be created in the outsourcing market if government,
industry and labour make a concerted effort to polish SA's international image,
says a McKinsey survey issued June 7. So many foreign companies are outsourcing
business processes or placing call centres offshore that SA has a golden
opportunity to grab a slice of the market. But government must provide tax
incentives, unions must allow workers to run round-the-clock centres, and the
private sector must fund heavy investment in training, say analysts at McKinsey.
If that happens, the sector could attract US$90m to US$175m in foreign
investment and boost economic growth, the report says. Research highlighting the
huge potential for SA to win foreign outsourcing deals is nothing new. The
difference this time is that the report will be used by the Business Trust, a
body dedicated to job creation, to draft a blueprint to turn opportunities into
firm action. "SA has an extraordinary opportunity for 100 000 more people
to be employed over the next five years," said Business Trust CE Brian
Whittaker. A blueprint being prepared for the trade and industry department
would propose tax incentives and programmes for training matriculants, and
pressure had to be applied for telecoms costs to fall. SA's competitive
advantage lay in handling processes for the financial services market, Whittaker
said.
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FOOD & DRINK
SABMiller to invest US$125m in India
Global brewer SABMiller will invest about US$125m in capital projects and
marketing in India over the next five years to expand its existing operations
and develop its brands, it said June 14. SABMiller has operated in India for
almost five years, beginning with the purchase of the Narang Brewery in Utter
Pradesh. Two years ago it entered into a joint venture with the Shaw Wallace
Group. Recently it said it would buy out Shaw Wallace. The group is now India's
second-largest brewer, with 10 breweries making brands like Haywards 5000, Royal
Challenge Premium Lager and Knock Out. BJM Securities analyst Grant Swanepoel
said SABMiller's increased investment in India is not immediately share price
enhancing, but it is a long-term strategy. Although liquor consumption in India
at present is more weighted towards spirits than beer, beer consumption is
growing at 7%-10% a year, and this is expected to continue for the next few
years. Apart from SABMiller, the only other international brewer with a
significant presence in India is Scottish & Newcastle, which has tied up
with United Breweries. But in 10 years' time India could prove as desirable a
market for the international brewers as China had now become, Swanepoel said.
SABMiller Africa and Asia MD André Parker said while the Indian market had been
growing at about 6%-7% annually, SABMiller's brewing operations have grown 12%
in the past year. The additional investment would go towards upgrading and
expanding breweries, developing brands and improving the standard of barley
growing through co-operative ventures.
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FINANCIAL NEWS
Reserves soar seven per cent as bank buys dollars
SA's foreign exchange reserves rocketed 7% in May as the Reserve Bank stepped up
its activity in the market and started managing the financial inflows from the
proposed US$4,9bn Barclays-Absa deal. Gross foreign exchange and gold reserves
surged by US$1,15bn to US$17,2bn, despite a US$72m drop in the value of gold
reserves brought about by a 10% decline in the value of the rand against the
dollar last month. This is because the Bank increased foreign exchange reserves
by US$1,23bn, nearly 10 times as much as it bought the previous month and its
biggest acquisition of dollars in six months. Efficient Group economist Nico
Kelder said reserves "breached the R100bn level for the first time"
last month, increasing the import-cover ratio to 16,8 weeks from 13,9 weeks in
April. "This ratio is expected to increase further in coming months,
especially after the Barclays transaction boosts reserves by approximately
R33bn," he said. The Bank said June 7 that the reserves increase reflected
"a combination of foreign exchange operations conducted by the Bank for own
account, as well as on behalf of customers, including foreign exchange purchases
arising from a foreign direct investment transaction". It did not identify
the transaction, but economists said it was most likely to be the deal approved
by Finance Minister Trevor Manuel last month, in which Barclays seeks to buy up
to 60% of Absa. National treasury officials have said the Bank will manage the
inflows from the deal to avoid an unwelcome strengthening of the rand that a
sudden increase in demand for the currency would cause. It is thought the Bank
would do this by buying dollars from Barclays and issuing it with the local
currency it needs to pay for the stake. However, the sharp increase in reserves
also comes against the backdrop of calls for the Bank to be more active in the
foreign exchange market to weaken the rand, something it has repeatedly said it
is not prepared to do. The strong rand has been blamed for job losses and
sluggish growth in the manufacturing sector, with the African National Congress
suggesting recently that one way of ensuring the desired "competitive"
exchange rate was to buy dollars more aggressively in the market.
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HIV/AIDS
National Aids Conference
The United States government made their presence felt at South Africa's second
AIDS conference June 7 with a delegation led by US Ambassador to South Africa
Jendayi Frazer presenting an overview of the local US response to the pandemic.
South Africa is one of the beneficiaries of the US President's Emergency Plan
for AIDS Relief (PEPFAR) - a US US$15 billion programme launched by President
George W Bush in 2003 to tackle HIV/AIDS in 12 African countries and the
Caribbean region over five years. Many AIDS activists have criticised PEPFAR,
regarding it as a slight to the Global Fund to fight AIDS, Tuberculosis and
Malaria, set up in 2002. The US has committed US$200-million a year to the Fund,
which falls far short of its expected contribution. A third of PEPFAR's money
goes to programmes promoting sexual abstinence, and prevention efforts aimed at
promoting fidelity are also favoured. South Africa received almost US$90 million
from PEPFAR in fiscal 2004, and is expected to obtain another US$149 million
during the period from 1 October 2005 to 20 September 2006. About 12 percent of
the US$149 million will be given to the South African government, while 48
percent will go to local NGOs, universities and private partners. American and
international NGOs, universities and private partners will receive 40 percent of
the projected funds. During a satellite session before the official opening of
the conference, being held in the east-coast city of Durban, representatives of
the US Embassy confirmed that all PEPFAR funds allocated to South Africa in the
current financial year had been disbursed, and noted that the US government had
modified its bureaucratic procedures "so that the money could reach the
field as quickly as possible." Gray Handley, health attaché of the US
Embassy in Pretoria, said the lack of human and institutional capacity was of
"central concern", as a large number of healthcare professionals had
left South Africa, and some had even left the profession. Under PEPFAR, the US
government had supported the training of 40,000 local healthcare professionals.
Inadequate access to antiretroviral (ARV) treatment was another major problem,
and more than 25,000 people had so far received ARV treatment (ART). Handley
noted that during implementation of the programme, PEPFAR representatives
discovered "that in resource-poor countries, adherence rates are higher
than anywhere else in the world." Tuberculosis care had also been provided
to 27,500 individuals. Currently in its second year of implementation, PEPFAR
has given support and care to 72,000 orphans and vulnerable children. By
September 2005, the US campaign hopes to be providing prevention of
mother-to-child transmission services to 50,000 South African women, care to
110,000 orphans, and to have reached 40,000 people with tuberculosis treatment.
Its goals for 2006 are even more ambitious. About 70,000 South Africans are
expected to receive PEPFAR-funded ART, while 50,000 people should be able to
access combined HIV and tuberculosis treatment. One of PEPFAR's most pressing
objectives was to expand paediatric treatment, which Handley described as being
"critically important" to the success of any AIDS relief programme.
Nevertheless, Frazer stressed that "real results cannot be seen in
statistics - they are [shown] in how people's lives have changed through the
services provided". Although PEPFAR was originally designed as a five-year
programme, Frazer reassured conference delegates that "we are not going to
turn our backs" on South Africa after this period, and President Bush would
re-evaluate the programme in 2008.
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INDUSTRY
Sugar industry welcomes EU reform plans
The local sugar industry June 23 welcomed proposed reforms to the decades-old
European Union (EU) sugar policy, saying they gave "direction and
impetus" to further deregulation of the international sugar trade. South
African Sugar Association executive director Trix Trikam said the proposals
mirrored the calls the industry had been making for years. The policy has
survived virtually every attempt of reform since its implementation in the 1960s
and has been criticised for distorting trade and harming growers in the
developing world. The planned changes go some way towards meeting South African
calls to eliminate export subsidies and to reduce domestic support in a bid to
level the international playing field in trade. "The proposed reform will
provide direction and impetus for further deregulation of international sugar
trade through the World Trade Organisation (WTO)," Tongaat-Hulett Sugar MD
Bruce Dunlop said. The proposals aim to cut the price from à497 a ton to à319,50
over four years, after which it would remain level until 2016. This would remove
the subsidies European farmers receive for sugar and pave the way for an
increased world sugar price. The proposals must still be debated by EU members
and the least developed countries, as well as African, Caribbean and Pacific
beneficiary countries that receive preferential prices for their sugar exports
to Europe. The outcome is expected by November with the EU committed to
presenting a finalised reform package to the WTO in December. The reforms will
not directly affect South African access to the EU market, but the industry will
benefit from a rising world price. Some southern African operations, such as
those owned by Illovo, supply sugar to the EU in terms of the least developed
countries agreement for developing nations. Illovo MD Don MacLeod said the group
would, pending the finalisation of reforms, continue supplying European markets
at US$400 a ton from its operations in countries such as Tanzania and
Mozambique. It also intends to continue with expansion plans to take advantage
of the increased European access once the duties were eliminated. SA's local
industry supports calls for the least developed countries to continue exporting
to Europe with less of a price reduction than is being mooted. This would limit
the effect the reforms would have on the less developed economies. Dunlop said
the proposals had to be seen in the context of a broad consensus from WTO
members for improving market access, eliminating export subsidies and reducing
trade-distorting domestic support to the benefit of poorer countries.
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INTERNATIONAL ECONOMIC RELATIONS
South Africa signs trade cooperation with EC
South Africa and the European Commission (EC) have signed an additional protocol
on trade cooperation to continue the existing relations between the two. The
additional protocol to the Trade, Development and Co-operation Agreement (TDCA)
provides for customs unions and free trade areas; extending the agreement to ten
more European Union (EU) member states to bring the total to 25. The signing by
Trade and Industry Minister Mandisi Mpahlwa and his counterparts from the
Netherlands and EC took place at a meeting President Thabo Mbeki held with EC
President Jose Manuel Barroso June 25. Presidents Mbeki and Barroso engaged in
discussions "on critical matters" such as the outcome of the
forthcoming G-8 Summit in Gleneagles in Scotland next month, the situation in
Zimbabwe and peace and security in Africa. Mr Mbeki said he indicated to Mr
Barroso what the African community expected from the G-8 summit. "We are
counting much on the support of the European Commission and the European
Union," said Mr Mbeki. He added that Africa relied much on the EU's
experience in addressing issues of poverty and development. He mentioned that
bilateral relations were working very well between South Africa and the EU,
adding that they were looking at ways of expanding them. Mr Mbeki said he
briefed Mr Barroso on progress made on peace initiatives in war torn countries
in Africa, adding, delegations from the Democratic Republic of Congo and Ivory
Coast would be coming here for further discussions. Commenting on the recent
"domestic tribal squabbles" regarding the EU's budget and French and
Dutch rejection of the body's constitution, Mr Mbeki said he did not think the
problems would impact on Africa. "President Barroso is committed to
progress and development of Africa regardless of issues of trade, I have
maintained a regular contact with heads of states who are part of the EU, so
whatever might be happening within EU, I do not think it will have an impact on
Africa," said Mr. Mbeki. President Barroso said the union was re-affirming
its commitment to Africa adding that they would continue supporting Africa.
"South Africa is a very essential partner of the EU, we will closely
support South Africa in its efforts to fight poverty," said Mr Barroso. Mr
Barroso said they discussed issues in a "frank and friendly" manner;
however the issues of Zimbabwe were a huge concern to the EU. The concern
followed the Zimbabwean government's "clean up" campaign "to rid
urban areas of criminality" The campaign dubbed "Operation
Murambatsvina" [Drive out Trash] has reportedly left 1.5 million people
homeless, causing indignation around the world. "Questions of human rights
should be the concern of all people. They are universal values and everybody
should respect these values," said Mr Barroso. Responding on the Zimbabwe
issue, Mr Mbeki said he had discussed this with the United Nations Secretary
General Kofi Annan and both had agreed to send the head of the UN Habitat to
that country. "The delegation should prepare a report and make
recommendations, we must wait and respect that," said Mr Mbeki.
South Korea trade deal possible
South Korea is investigating the feasibility of a free-trade agreement with SA.
Researchers from the Korea Institute for International Economic Policy are
planning a visit to SA this year to identify the benefits of an agreement.
"Africa and the Middle East are areas where we currently lack
knowledge," said Won-Ho Kim, director of the Centre for Regional Economic
Studies at the institute, mid-June. "We don't know what kind of
opportunities there are for trade and investment." The creation of a
free-trade agreement could pave the way for SA to increase its current low level
of trade with South Korea. Trade and industry department figures show that in
2003 SA accounted for 0,29% of Korea's total exports and 0,33% of its imports.
Kim said SA's reputation for political and economic stability as well as its
natural resources were attractive to Korea, which has no raw materials but a
thriving manufacturing sector. Michael McDonald, head of economic and commercial
services at the Steel and Engineering Industries Federation of SA, said while
SA's raw materials were attractive to countries such as China and Korea,
business was cautious about getting into trade deals with such highly
competitive economies due to the effect it could have on SA's manufacturing
sector. "I'm not so sure it is a good fit," McDonald said. "We
don't just want to sell raw materials and allow our manufacturing sectors to go
down the drain."
SA-Thailand trade booms
SA's annual trade with Thailand breached the US$1bn mark for the first time last
year after a 65% increase over 2003. SA was now Thailand's largest trading
partner in Africa, and Thailand was SA's largest trading partner in southeast
Asia, according to the Royal Thai embassy in Pretoria. Trade between the two
countries was expected to rise a further 30% this year from US$1,063bn last
year, Thai Commercial Affairs Minister Adisai Dhummakupt said. The Thai embassy
attributed last year's rapid growth in trade to Thailand's promotional efforts
through initiatives. Thailand's products were also competitive and of good
quality, the embassy said. The stronger rand was also expected to have
stimulated Thai exports to SA, which jumped 74% to US$658m last year. These
comprised mainly vehicle products, rice, machinery, plastic products, clothes,
textiles and household and beauty products. SA's exports to Thailand rose 53% to
US$490m and consisted mainly of nickel and nickel products, tools, cutlery and
organic chemicals, the embassy said. The embassy said that the Thai prime
minister would visit SA in the second half of the year in a move that was
expected to strengthen political and economic ties between the two countries.
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MINERALS & METALS
Demand for steel falls
South Africa sold almost 6% less steel in the first quarter of the year compared
with the same period last year, underlining concerns about the slow down in the
local manufacturing sector. Local steel producers sold 5,8% less steel in the
country during the first quarter and steel imports into SA declined 4%,
according to the latest quarterly report by the South African Iron and Steel
Institute. Local steel makers were also selling less steel abroad. Exports
dropped 15% in the quarter under review. The institute attributed the decline in
domestic sales partly to the poor performance by SA's manufacturing sector,
which has been affected by import replacement. SA's largest steel maker, Mittal
Steel SA, said in its own quarterly review earlier the decline in domestic sales
was mainly due to de-stocking, but that real consumption grew "in line with
the economy". Its parent company and the world's largest steel maker,
Mittal Steel, has also attributed the global decline in steel prices to an
inventory overhang, rather than a softening in demand. Average monthly
consumption in SA peaked at about 400000 tons last year, according to the iron
and steel institute. This came down to about 370000 tons in the first quarter of
this year. These levels were last seen about 14 years ago. The institute said
government's more expansive approach should boost steel consumption. The
institute did not give a reason for the 15% fall in exports, but local steel
makers have been increasing sales in the more lucrative domestic market at the
expense of exports for some time. The largest export markets in the quarter
under review were the European Union, Far East, Africa and North America.
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MINING
Norilsk to join Gold Fields board
Gold Fields June 2 signalled the formal end of a long feud with its largest
shareholder Norilsk Nickel of Russia, by announcing that two Norilsk directors
were to join the board of the South African gold company. This closed the saga
of more than seven months during which Norilsk had sided with Harmony in a
hostile takeover bid for Gold Fields. "Gold Fields is pleased to announce
that Norilsk Nickel has accepted Gold Fields' invitation to nominate two
non-executive directors to the board of Gold Fields," said the gold miner.
"The names of the two new directors will be announced in due course."
Gold Fields' CE Ian Cockerill said: "We are delighted to have Norilsk
Nickel on board, and we look forward to working with them to grow the value of
our company to the benefit of all Gold Fields shareholders. "We have a
common vision of turning Gold Fields into the leading gold company in the
world," said Cockerill. A mining analyst said: "There has been much
talk of some future merger between Gold Fields' offshore assets and Norilsk's
gold interests, and it now seems that the two are singing from the same hymn
sheet." However, Gold Fields spokesman Willie Jacobsz played down the
announcement. "This is a sign that the relationship between Gold Fields and
Norilsk Nickel has been normalised and that the two companies share a common
vision for the future of Gold Fields," he said. "This vision is
premised on maximising value for all shareholders of both Norilsk Nickel and
Gold Fields. "The fact that Norilsk Nickel has agreed to join the Gold
Fields board does not, per se, indicate specific future transactions between
Gold Fields and Norilsk Nickel." Analysts do not believe that Harmony CE
Bernard Swanepoel is in any hurry to dispose of the 11,5% stake in Gold Fields
his company acquired in its unsuccessful takeover bid.
South Africa left out of global mining boom
While the world was in the grip of a mining boom last year, it passed SA by, a
recent report by PricewaterhouseCoopers shows. In fact, South African companies
had a tough 2004, with lower returns and a squeeze on profits - due to higher
costs and the strong rand. The PricewaterhouseCoopers report was based on data
from 40 mining companies that accounted for 80% of global total market
capitalisation in mining. "We called the report Enter The Dragon - but an
earlier draft was called Enter the Dragon; Exit the Springbok," said Hugh
Cameron, the PricewaterhouseCoopers partner in charge of mining. He was at the
local launch of the report, which was released in London early June. Cameron
said last year was "spectacular" for the global mining industry, with
a 19% rise in market capitalisation, revenue up 39%, and profits doubling for a
second year in a row. By contrast, it was "a tough year for the industry in
SA". The market capitalisation of South African mining firms fell 9%,
revenue was up just 3% in rand terms and profits in rand terms tumbled 42%.
Return on equity slumped to 9,7% from 17,5% the previous year. Cameron said the
problems of local mining companies were due largely to significant cost
pressures in rand terms, combined with the effect on earnings from the stronger
local currency. Cameron said the most recent weakening of the rand had brought a
dramatic improvement for local gold producers, with the rand gold price shooting
up from R82000/kg to R92000/kg in the space of a fortnight. "If the rand
settles at R7 to R7,50 to the dollar, and commodity prices remain where they
are, we will see some very good results," said Cameron. He said the global
mining industry had outperformed both the Dow Jones and the Standard &
Poor's 500 stock market indexes for the last three years, due to base metals and
energy stocks "and this trend is likely to continue this year".
Cameron said commodity prices had been performing well in dollar terms, but were
"pretty flat" in rand terms - meaning that SA producers had been
unable to cash in on the commodities boom being led by China. He said those
global companies that had achieved the best return for shareholders last year
had all been in the base metals, uranium and coal sectors. The
PricewaterhouseCoopers report noted that said mining companies had large cash
reserves and Cameron said this represented "quite a big war chest" to
fund acquisitions. He said junior mining companies were exploring more,
"and when they find something, the majors buy them out".
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