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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: 37 - (01/02/05)
At a time when the international community is preoccupied with
crises in Iraq, the Middle East, post-war reconstruction in Afghanistan and aid
to countries hit by the Asian tsunami disaster, many commentators have
justifiably concluded that Africa would be off the radar screens of donor
countries save for limited military and humanitarian interventions in a few
countries. However, 2005 could go down as a milestone for the still-unfolding
New Partnership for Africa's Development (Nepad). There is evidence of unfolding
new realities that could help position Africa for economic regeneration. There
is the reluctant acceptance by rich nations of their historical contribution to
Africa's current sorry state of affairs. It is hoped that The Commission for
Africa will act to do something about the well-known ills tormenting the
continent. The commission, set up by British Prime Minister Tony Blair last year
to formulate an action plan for the poverty-stricken continent, is due to
publish its report in March. UK Chancellor of the Exchequer Gordon Brown,
Finance Minister Trevor Manuel, 12 African finance ministers and commissioners
and representatives of African institutions such as the African Development
Bank, African Union and the New Partnership for Africa's Development, met over
January 17 and 18 to discuss the commission's draft economic proposals. They
welcomed the broad approach adopted in the draft report, which covered peace and
security, governance, human development, accountability, growth, poverty
reduction, trade and financing development. The meeting urged Group of Seven
finance ministers to agree on 100% multilateral debt relief at their March
meeting.
The rand has defied all odds for the third year running, ending 2004 far
stronger than many market watchers had predicted. After record performances in
2002 and 2003, the rand was the world's second best performing currency last
year, beaten only by Poland's zloty. Figures show that at R5,61 to the dollar,
the rand gained 18% last year, while the zloty strengthened 24,6%. The currency
could also maintain its current strength well into the new year, with the dollar
expected to continue testing new lows against the euro and other major
currencies. Although a strong rand is good news for consumers, as interest rates
are likely to remain low, it is bad news for the country's exporters, who are
already battling under the rand's strength. Falling food and petrol costs drove
inflation lower in December, prompting calls for the Reserve Bank to avoid
delaying cutting interest rates when its monetary policy committee meets
February 9-10. Statistics SA data showed a slowdown in the Bank's targeted
inflation measure, CPIX (consumer inflation less mortgage costs), to 4,3% year
on year, compared with November's growth of 4,6%.
Expressing condolences to former South African President Nelson Mandela on the
recent death of his only surviving son, the Executive Director of the Joint
United Nations Programme on HIV/AIDS (UNAIDS) said his candour in disclosing
that his son had died in the pandemic was vital in the fight against
stigmatising AIDS victims. "Mr. Mandela's public acknowledgement that his
son, Makgatho Mandela, had died from an AIDS-related illness is a demonstration
of the practical leadership that Mr. Mandela gives to the international efforts
to fight stigma and discrimination," Mr. Mandela's son died early January
at the age of 54. Mr. Buthelezi helped to break South Africa's silence on the
disease last year when he announced that two of his children had died from
AIDS-related causes.
There was strong criticism of the plea bargain secured by Sir Mark Thatcher. He
was convicted January 13 of financing an attempted coup as part of a plea
bargain that allowed him to leave the country with a suspended four-year jail
term, a R3m fine, and an undertaking to assist prosecutors in prosecuting the
masterminds of the abortive bid to remove Equatorial Guinea President Obiang
Nguema from power. Public reaction to the plea bargain has been fierce. The
African National Congress Youth League said Thatcher had effectively got
"nothing more than a slap on the wrist" in what was a
"miscarriage of justice". Others, including legal experts, suggested
the trial should have run its course. Thatcher admitted to bankrolling a
helicopter that was to be used in the coup, but claimed he believed it was to be
used for commercial activity.
NEPAD and The Commission for Africa
The Commission for Africa set up by British Prime Minister Tony Blair
represents the strongest endorsement of Nepad from the west so far. Britain has
promised to make substantial progress on Africa a top priority of its presidency
this year of the Group of Eight (G-8) industrialised nations. This deserves an
immediate endorsement by SA and others striving to secure for Africa a bigger
slice in the rapidly integrating global economy. Sceptics will question the
substance of pledges that have so far failed to keep pace with rhetoric at
recent G-8 summits. After five years of warmly welcoming President Thabo Mbeki
and other African leaders to G-8 summits and reiterating their support for the
vision of the New Partnership for Africa's Development, these encounters risk
becoming ritualistic. The commission proactively identifies Britain's
presidencies this year of the Group of Eight (G-8) and the European Union, as
well as the United Nation's review of the millennium development goals, as a
rare chance to propel Africa to the centre of the world's political agenda. In
particular, it would lobby the richest countries to do three things. First, to
agree on a comprehensive financing programme: persuading other developed
countries to declare their timetables on increasing development aid to 0,7% of
national income; work towards achieving 100% debt relief; and double development
assistance to fight poverty by immediately raising an additional $50bn a year
through a new international finance facility. Second, through the facility make
progress towards the millennium development goals on health, education and
halving poverty. Third, to ensure that the Doha multilateral round of trade
talks is in the interests of poor countries.
Notwithstanding the commission's indisputably noble objectives, there are
suspicions about the real motives behind it. Conspiracy theories abound as
Africans ask themselves if this is about Africa's development or a mere ploy by
Blair to regain popularity after the Iraq misadventure. The prevailing view,
however, is an encouraging one: undisclosed motives (whatever they are) are not
an issue as long as Africa gets the advantage. The extent to which the plan can
work is perhaps the most disturbing issue. A challenge the commission
acknowledges is that of coming up with programmes of action that are ambitious
enough to make a difference to Africans, but that are not so radical to be
considered politically undeliverable by donor countries. Consensus on the
proposed financing programme would at best not be easy to strike. It is highly
unlikely all G-8 countries (or the key ones for that matter) would commit to the
0,7% gross domestic product target or total debt cancellation any time soon. The
UK itself will reach that level only in 2013, just two years before the
millennium development goal deadline. Only Denmark, the Netherlands, Luxembourg,
Sweden and Norway have made good on that promise. To compound the situation,
some key G-8 members, such as France and Germany, are experiencing budget
constraints with their deficits going beyond limits imposed by the European
Commission's growth and stability pact. It would take a great deal of political
will for these countries to make binding commitments of a resource-intensive
nature. The US is not in a better position. With Iraq war spending and last
year's $412bn budget deficit to worry about, it is unlikely to prove generous.
Personal vanities of world leaders could prove another obstacle. This also
applies to domestic politics. For instance, some commentators have cited the
much- rumoured rivalry between Blair and Brown as potentially disastrous to the
commission's vision. Moreover, donor countries sometimes prefer unilateral aid
programmes predicated on their strategic interests, and not the needs of poor
countries. Considerable progress may, however, be realised in the area of trade.
Sustainable development efforts in Africa are to a large extent undermined by
many donor countries' domestic economic policies, such as agricultural
subsidies, tariff escalation and dumping. Commission proposals on global trade
reform might resonate with Africa's position and consequently curtail scepticism
about the Doha round.
World Economic Forum Meeting
President Olusegun Obasanjo and South Africa President Thabo Mbeki joined UK
Prime Minister Tony Blair, former U.S. President Bill Clinton and other world
leaders in Davos, Switzerland January 27 to call for emergency assistance for
Africa. Obasanjo spoke at the World Economic Forum in the Swiss ski resort where
2,250 political and business leaders have gathered to address key issues facing
the world economy. In a lively discussion, Obasanjo said, "Unless we have
peace and security we don't have the ability to do anything else." He said
that "the situation in Africa must be seen worldwide as an emergency"
which requires urgent global assistance. Obasanjo added that African nations
need a critical mass of funds to make a difference for their people. He said
Africa's current priority was ensuring continued peace and security for
sustainable development to be assured. Noting that assistance to Africa often
tended to be linked to disasters, the President told the audience that Africa
had come of age and pledged that funds raised to solve Africa's problems
"will be faithfully utilised." The issue of the membership of the
United Nations (UN) Security Council dominated the meeting of the Executive
Council of African Union (AU) January 27 as African countries position
themselves for the would-be position as a result of UN planned reform to expand
the security council. Speaking in Abuja at the on-going mid-term summit of AU,
the Acting Head of Communications to the continental body, Mr. Desmond Orjiako,
said part of the 20 recommendations made by the Permanent Representative
Committee for the consideration of the Executive Council of the union include
the need for a common position on representation for Africa at UN. Other
recommendations include the drafting of legal instruments by legal experts for
the establishment of an African Court of Justice, HIV/AIDS/ polio eradication
among others.
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AUTOMOBILES
Car Sales Race to New Peak in 2004
South Africa's automotive industry is toasting a bumper 2004, with total sales
of about 481,000 vehicles smashing all records. South Africans flocked to
dealerships as new cars became more affordable, thanks to lower interest rates,
stable car prices over the past two years and rising disposable incomes. Last
year's total vehicle sales figure surpassed the previous record of 453,541
units, achieved in 1981. Vehicle sales last year surged 26% over 2003's figures,
far exceeding industry forecasts of a 5%-10% hike. The figures include sales by
members of industry body, the National Association of Automobile Manufacturers
of SA (Naamsa), as well as those of importers that are not Naamsa members. The
growth, which occurred across the board of vehicle types, was an accurate
barometer of SA's economic health, McCarthy Motor Holdings chairman Brand
Pretorius told a media briefing January 6. "The tide has turned in
SA," Pretorius said. He predicted that sales would breach the half- million
mark next year, ending at about 535,000 units, as the outlook for macroeconomic
fundamentals remained positive. This would represent an 11% rise on the record
base that was established last year. Naamsa also forecast double-digit growth.
Vehicles had become significantly more affordable over the past two years,
mainly as a result of the six-percentage-point decrease in interests rate since
2002, said Pretorius. On average, it took South Africans 208 weeks' earnings to
purchase a vehicle in 2002, said Pretorius. This figure was now down to 174
weeks. Pretorius said there was "still a long way to go" in terms of
vehicle affordability . He said it was possible that vehicle prices might
increase this year as input costs such as labour and steel had risen
significantly, among other factors. There was a substantial increase in the
number of black people buying new vehicles last year, although there were no
data to illustrate this, said Pretorius. Broad analysis showed that about 15% of
all new vehicles and almost one out of every three used cars were being
purchased by black people. Strong economic growth and low interest rates have
driven demand, and analysts expect the trend to continue. NAAMSA said it expects
sales to top 500,000 in 2005. During 2004 "South Africa was one of the best
performing markets internationally" for car sales, NAAMSA said. While
domestic demand is set to continue to enjoy rapid growth, foreign sales could
come under pressure, analysts said. The vehicle industry accounts for about 13%
of South Africa's total exports. However, the world auto market has its problems
and analysts warn that overcapacity and the strength of the rand could hit
exports.
Car Makers Set to Boost Export
South Africa's vehicle exports are set for a huge boost with Toyota SA saying it
intends increasing its exports tenfold annually to 100 000 units by 2010. This
compares with vehicle exports of just more than 100 000 last year by SA's entire
vehicle industry, which accounts for about 6,4% of gross domestic product and
generates about R40-billion in annual export revenue. These figures are set to
rise substantially over the next few years as Toyota's exports ramp up, as
Ford's new export programme kicks off, and with other major car manufacturers
consistently increasing exports. General Motors' purchase this month of a large
tract of land in Port Elizabeth also fuelled fresh speculation that the car
maker, the world's largest, will start a substantial export programme in the
near future. Vehicle exports declined last year as a result of the strong rand,
dropping to an estimated 109 450 units. This was down from 126 661 in the year
before and 125 306 in 2002. The National Association of Automobile Manufacturers
of SA (Naamsa) was not concerned about the decline, saying earlier that SA's
role as a manufacturer and supplier of car components and vehicles was firmly
established. It expected exports to pick up this year as new export programmes
were implemented. Toyota's export plans amplify the vote of confidence in the
domestic market that Japanese parent company Toyota Motor Corporation displayed
two years ago when it increased its stake in Toyota SA to 75%. The company's
export growth plans have spurred a host of investments and potential investments
at Toyota and its suppliers. Toyota SA president and CEO Johan van Zyl named six
Japanese companies as among several global suppliers that had committed to
"coming to SA". These include Takata Petri, Denso, Yazaki and
Sumitomo, among others. Toyota is investing R1-billion to install a paint plant
at its Durban factory as part of a R3,5-billion programme to expand and upgrade
production facilities. The investment will enable Toyota to almost double
production to 200 000 units a year. Only at these levels would Toyota SA have
the economies of scale that would render it globally competitiveness, said Van
Zyl.
Indian Car Maker in South Africa for Long Term
Indian car maker Mahindra & Mahindra is committed to a long term operation
in South Africa , says Vijay Nakra, CEO of Mahindra SA . Nakra said recently
that this commitment was illustrated by the local Mahindra operation's 35000
spare parts in storage, and by the fact that each of the car-maker's customers
received an Automobile Association membership when buying a vehicle. The
company, which entered the South African market late last year, is now setting
up a dealership network that will give it coverage in the major metropolitan
areas. Nakra said the group had dealerships in Pretoria, Johannesburg, Cape Town
and Durban, and planned to set up outlets in Bloemfontein, East London and Port
Elizabeth this year. The group has teamed with Bosch Service Centres to provide
nationwide vehicle maintenance and Berco Express to provide parts to any
licensed service outlet countrywide within 24 hours. Mahindra is in partnership
with Arelco, a local company run by entrepreneurs Moeletsi Mbeki and Ivor
Ichikowitz. Mahindra was not afraid of competing against established players in
an already crowded market that had seen the arrival of rival Indian car maker
Tata in the past year, he said. Nakra said that Mahindra 's decision to come
here was not influenced by Tata's decision to do so. He said the group was not
troubled at the prospect of a market with more than 20 competing manufacturers,
as it was already competing against some of these companies in India and its
other export markets in Europe, Latin America and the Middle East. "SA is
one of the key export markets of the future," Nakra said.
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BANKING
Buyout Talk in Bank Sector
South Africa's banking sector has started the year on a frenzied note, with
rumours of more foreign banks making a play for local banks sending share prices
soaring. However, a speedy conclusion to Barclays' bid for a majority stake in
Absa is unlikely; its offer seen as a litmus test for other foreign entrants is
now unlikely to be made before March. In the face of growing speculation that
Barclays is poised to walk away from the deal, Absa renewed its cautionary
notice January 10, saying discussions with Barclays were progressing. Barclays
applied formally to the registrar of banks for permission to proceed with an
offer in December. "Timing of the approval process by the regulatory
authorities is not known," said Absa. Absa CEO Steve Booysen, who is still
on leave, said earlier it would be in the interests of all stakeholders if the
process "moved swiftly". Head of legal services at the Reserve Bank
supervision department Michael Blackbeard said his department was "aiming
to have a submission ready for the minister by mid-February", and they were
"working at full steam." Since Barclays first announced it would make
an offer for Absa, the local bank's share price has gained 20%, rising a further
1,21% yesterday to close at R72,67. With the share price soaring, a report in
London's Financial Times newspaper speculated that Barclays would walk away from
any deal with Absa if it would be dilutive to shareholders. However, a local
bank analyst said Absa's share price would have to rise much higher than it was
now before it became unattractive to Barclays. He said one issue that could
complicate the deal would be if the latest speculation about a merger between
Barclays and US bank Wells Fargo proved to be true. The Guardian reported
January 10 that the two banks had held talks to create the world's fourth-
biggest bank worth $100bn. "That could delay the process, which could
irritate Absa as well as the regulators," the analyst said. "Nobody
knows what Wells Fargo's attitude would be to an emerging market
franchise." Meanwhile, Standard Chartered CE Mervyn Davies has played down
rumours that it could make a bid for FirstRand's banking unit, First National
Bank. Davies was announcing a 3,3bn deal to buy South Korea's Korea First Bank.
The analyst said Standard Chartered was unlikely to make two
"material" acquisitions in such a short time.
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BLACK EMPOWERMENT
Wine Industry Focuses On Equity
The first draft of an empowerment charter for the wine industry should be
published by March, with the final document presented to the industry in
October, Gavin Pieterse, chairman of the industry's new Wine-BEE steering
committee, said January 25. Announcing the formation of the steering committee,
Pieterse said it had been created as an independent industry body "with
maximum legitimate representation of all stakeholders". The grouping of the
highly fragmented industry's major elements under one umbrella committee is seen
by many as a major step towards creating stability in a sector plagued by
problems such as seasonal redundancies and widespread alcohol abuse. The
15-member committee includes Vinpro, the representative body of wine producers,
the wholesale merchant forum, the black business wine sector, nongovernmental
organisations, women's groups, labour and municipal district councils. An
initial goal is to create a wine industry scorecard. This will develop
guidelines for ownership through equity, asset ownership, land reform,
shareholding, employment equity through training and skills development support.
Other aspects include preferential procurement and business development support.
Targets for the scorecard will be decided after industry-wide consultation.
Pieterse said that to achieve the goal of a "representative sustainable,
profitable and durable industry" and eliminate current backlogs, the
creation of benchmarks and scorecards would lay out for the industry exactly
what each farmer, cellar owner, retailer was required to do. "Capacity
requirements to be delivered by the charter have been well thought
through," Pieterse said.
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FINANCIAL NEWS
Interest Rates
The Reserve Bank missed the boat by not cutting interest rates last month and
should make up for it at next month's meeting of its monetary policy committee,
economists have said amid further signs of slowing inflation. With producer
inflation feeding through to consumer prices with a two- to three-month lag,
lower factory gate prices bode well for consumer inflation. Economists said
there was nothing preventing Reserve Bank governor Tito Mboweni cutting rates
when the monetary policy committee meets again from February 9-10. Wiphold
Treasury's group economist, Craig Zaayman, said the committee was likely to
realise that it was falling behind if it did not cut rates soon. "In
retrospect, the committee should perhaps have cut rates in December, but I can
understand why they didn't, given the fears about spending. That is all the more
reason why they should act now." Zaayman said inflationary concerns about
rising credit demand and consumer spending were misplaced, since spending had
gone into increasing the asset base in the economy. There had also been
significant productivity and efficiency gains in the economy, which taken
together with rising domestic demand, were not necessarily inflationary. Zaayman
said there was enough room for the Bank to slash rates by two percentage points
this year. The Bank kept its repo rate steady at 7,5% last month, citing strong
domestic spending and a volatile rand, as reasons for its cautious stance. Eskom
Treasury economist Mandla Maleka also criticised the Bank for not easing rates
last month, saying it had missed a "golden opportunity". However, it
may be too late for the Bank to cut now, given the stimulatory spending
environment and further hikes in US interest rates, which could weaken the rand.
Rising US rates could narrow the interest rate differential between SA and the
US, making local interest-bearing assets less attractive to foreign investors,
thereby putting pressure on the rand. A weaker rand would boost inflation as
import prices rise. "The Bank may surprise us and cut interest rates next
month, but then they would have to hike again in nine months' time," Maleka
said. However, Old Mutual Asset Managers believes the Bank will not hike rates
in the face of rand weakness. "Given government's focus on job growth, we
think there is a shift of emphasis in the Bank to be more
growth-supportive," said Old Mutual's head of asset allocation and strategy
Charles de Kock. "If the rand weakens, we don't expect the Bank to jump on
the brakes." With real interest rates sitting at 7%, there was still room
for the Bank to cut rates, De Kock said, but he did not expect a move at next
month's meeting.
Moody's Gives SA Economy Thumbs Up
South Africa's equity and bond markets received a welcomed boost January 12 when
leading ratings agency Moody's raised SA's sovereign rating one notch higher to
Baa1. Moody's cited the marked improvement in SA's foreign exchange reserves and
faster economic growth as justifying a higher grade. SA joins other key emerging
market countries in the Baa1 category, such as Chile, Mexico and Thailand. The
upgrade puts SA one level below the coveted A category ratings. The Baa1 rating
is also one notch above the BBB rating of rival agencies Standard & Poor's
and Fitch. Treasury director-general Lesetja Kganyago said the improved rating
would allow SA to borrow on international markets at cheaper rates. He said the
gap between the yields on SA and US government bonds had declined sharply since
last year, reflecting the attractiveness of South African debt to foreign
investors. Kganyago said the improvement in SA's forex levels, which now stand
at $14,9bn, made the country less of an outlier compared with its peers. The
country's growth performance, which was being driven by domestic spending, was
also sustainable. Moody's noted that the current account deficit the widest
measure of SA's trade with other countries was likely to widen as imports
continued to rise and an "overvalued rand" impeded export
competitiveness.
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FOOD & DRINK
SABMiller Growth Continues
Global brewer SABMiller released a trading update for the nine months to
December showing it was sustaining trends in growth and profitability that were
evident at its half-year stage. For the six months to September the group
reported total organic growth in lager beer volumes of 5%, which it said
yesterday had continued into the third quarter. At the interim stage, turnover
grew 14% and adjusted earnings 38%. An analyst said the investment community had
been bracing itself for a deceleration in growth in the US as Miller Brewing was
coming off higher comparative numbers for last year, but the deceleration was
less than expected. The latest trading update was broadly in line with trends at
halfyear, he said, although the mix was a little different. SABMiller said
volumes of beer sold in SA rose 4% in the third quarter and the nine-month
period. Subsidiary Amalgamated Beverage Industries grew volumes 6% in the
December quarter and 7% compared with the corresponding ninemonth period in the
previous year. Good weather and robust consumer spending had contributed to the
growth. According to a separate presentation by management on the group's Africa
and Asia businesses yesterday, SA accounted for 18% of global lager sales
volumes in the 12 months to September, and 39% of earnings before interest, tax,
depreciation and amortisation. In the US, Miller Brewing's domestic sales to
retailers fell 0,3% for the December quarter, in a weak trading environment, but
it gained market share. For the nine-month period, domestic sales to retailers
rose 1,5% over last year. Shipments to wholesalers performed similarly, both in
the quarter and the year to date. Brewer Anheuser-Busch said two weeks ago that
its wholesaler sales to retailers fell 0,3% last year and 3,2% in the fourth
quarter. It increased its US beer shipments to wholesalers 0,4% to 103million
barrels last year, over 2003, based on continuing growth of brands such as
Michelob Light and Bud Lite. But its fourth-quarter shipments to wholesalers
fell 1,5%. SABMiller said beer volumes in central America rose 3% in the third
quarter and 2% in the year to date, while sales of carbonated soft drinks fell
8% in the quarter and 6% in the year to date because of tough market conditions
in El Salvador. In Europe, organic growth in lager volumes rose 6% in the third
quarter and 5% in the nine months, while the Africa and Asia region, which
includes operations in India and China, grew volumes 10% in the quarter and the
nine months. The analyst said yesterday's presentation on Africa and Asia showed
that SABMiller's strategy in Africa was moving from being driven primarily by
volume and efficiency to encouraging consumers to move up the value chain from
sorghum beer to mainstream and then to premium beers.
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FOREIGN ECONOMIC RELATIONS
South Africa and Sudan Agree to Joint Oil Exploration
President Mbeki and Sudanese President Omer Hassan Ahmed al-Bashir have agreed
to encourage co-operation in exploring Sudan's vast oil reserves.
The agreement was reached during a three-day visit by Mbeki to Sudan late
December and signals SA's growing interest in expanding its African oil
exploration activities. SA has expressed similar interest in the Equatorial
Guinea and Angolan oilfields. Oil multinationals, eager to secure as much of
their oil outside the volatile Middle East region have also been scrambling to
reach exploration deals with African governments. Large Asian oil companies from
China, Malaysia and India are already active in southern Sudan. The South
African and Sudanese governments committed themselves to expanding and
consolidating relations between the two nations. Mbeki was accompanied on the
trip by Foreign Affairs Minister Nkosazana Zuma, Defence Minister Mosieuia
Lekota, Trade and Industry Minister Mandisi Mphalwa and Deputy Minerals and
Energy Minister Lulu Xingwana. The two presidents discussed the work of the
African Union committee on the post-conflict reconstruction of Sudan, which is
chaired by SA, as well as African, regional and international issues.
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FOREIGN INVESTMENT
South Africa Favoured for US Investment
South Africa remained the top beneficiary in 2003 of US foreign direct
investment of all countries in sub-Saharan Africa not exporting petroleum, a new
US investment report shows. Oil-rich countries Equatorial Guinea and Nigeria
attracted the largest sums of US foreign direct investment flows in that year,
with $823m and $340m respectively, according to a US International Trade
Commission report released January 24. At $89m SA saw substantially less US
investment than its oil-producing counterparts. Cameroon, a country that does
not export petroleum, was not far behind SA, garnering US foreign direct
investment worth 73m in 2003. But SA still led the pack comfortably in terms of
net inward portfolio equity flows in sub-Saharan Africa. The report says that as
in previous years, SA accounted for virtually all foreign portfolio investment
flows into the region, which totalled $500m in 2003. Meanwhile, total exports
from sub-Saharan Africa to the US jumped almost 40% to about 25,5bn in 2003,
compared with 18,2bn in the previous year, the report says. The report is the
fifth annual report in a series on trade and investment flows between
sub-Saharan Africa and the US. The big jump in sub-Saharan exports was
attributed largely to a rise in oil exports to the US. Sub-Saharan Africa's
nonenergy-related exports to the US also rose solidly. The report noted an
increase of 20% in these exports to $7,8bn. According to the report, the bulk of
goods exported to America from sub-Saharan Africa remained basic materials to
which little or no value was added. The US report attributes growth in
sub-Saharan exports in part to the benefits, such as duty free access, that
certain African countries enjoy under the US's African Growth and Opportunity
Act (Agoa). It says exports from sub-Saharan African countries that are eligible
for Agoa benefits increased 36,3% to $14bn in 2003. While exports from
sub-Saharan Africa grew strongly, US exports to the region rose 13% in 2003 to
about $6,7bn, from 5,9bn in 2002. The US exported far more services to
sub-Saharan Africa than the other way around, however. The report attributes the
increase in US exports to the region mainly to increased exports of
transportation equipment, agricultural products, and electronic products.
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FOREIGN RELATIONS
DRC: Mbeki in Talks With Congolese Political Leaders
President Mbeki has held talks with key political leaders of the Democratic
Republic of Congo in a bid to lessen tension within its government and save the
democratic transitional process from collapse. Mkebi arrived in the Congolese
capital, Kinshasa, on January 12 for meetings with President Joseph Kabila and
his four four-vice presidents. One vice-president, Jean-Pierre Bemba, had
threatened to pull his movement out of the country's transitional institutions
if by 31 January preconditions for elections are not met. Bemba heads the
Mouvement pour la liberation du Congo, one of the main former rebels groups now
represented in the transitional government. Some of the preconditions to which
he referred come under the South-African sponsored all-inclusive accord signed
in December 2002 by Congo's belligerents, unarmed political groups and civil
society. The cornerstone of the accord is for power-sharing within the current
transitional government and its institutions, including the diplomatic corps,
the police, secret and other security services. Bemba, and another former rebel
movement, the Rassemblement Congolais pour la Democrtaie (RCD), have accused
President Kabila and his family of blocking this process. The delays are
threatening the elections due by 30 June. The president of the Independent
Electoral Commission, Apollinaire Malu Malu, announced that elections might have
to be pushed back, although they would still be held this year. His announcement
led to a demonstration in Kinshasa in which four people were killed and several
others injured.
Cote D Ivoire: Mbeki Gets More Time to Mediate
President Mbeki briefed African leaders January 10 on his efforts to prevent
Cote d'Ivoire relapsing into full-scale civil war as opposition leaders in the
country accused President Laurent Gbagbo of preparing to resume hostilities.
Leaders gave Mbeki more time to negotiate peace in Cote d'Ivoire, but his
mediation initiative ran into trouble hours later when rebels boycotted a
special cabinet meeting January 11 at which he was guest of honour. A rebel
spokesman accused Mbeki, who has been trying to broker a peace deal for the past
two months, of "betrayal." The African Union's Peace and Security
Council wrapped up a summit in the Gabonese capital, Libreville, with a plea to
all the Ivorian factions to overcome political sticking points and proceed with
disarmament to pave the way for elections in October. It also recommended that
the UN Security Council delay imposing travel bans and asset freezes on key
individuals seen as blocking the peace process in order to give Mbeki more time.
But rebel leaders failed to turn up for a planned meeting with Mbeki in Cote
d'Ivoire's official capital Yamoussoukro saying they would prefer to see him
later in South Africa. The rebels, who have occupied the northern half of Cote
d'Ivoire since civil war erupted in September 2002, may have been irked by the
AU's refusal to call for further UN sanctions on the country. Shortly before the
Libreville summit, the G7 coalition, which groups Cote d'Ivoire's New Forces
rebel movement and the four main opposition parties in parliament, issued a
statement accusing President Laurent Gbagbo of preparing for an imminent return
to war. It urged the United Nations to impose a second round of sanctions
immediately. An 18-month ceasefire between Gbagbo and the rebels was broken in
early November, when government forces launched an abortive offensive to try and
recapture the north. The flare-up in violence prompted the AU to call in Mbeki,
a seasoned mediator, to try and put Cote d'Ivoire's flagging peace process back
on track. A key step would be to get the country's power-sharing government of
national reconciliation working again. A former agriculture minister in the
government of the Ivory Coast's founding father, Felix Houphouët-Boigny, Konan
and fellow opposition leader Alassane Ouattara were in South Africa late January
for talks with Mbeki. The president also met Guillaume Soro, leader of the New
Forces rebel group.
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FREE TRADE
Looking Ahead in Hope After Trade-Deal Flops of 2004
Last year was meant to be a landmark year for South Africa's trade agenda as
four deals heralding a significant change in the way SA trades with the world
were due to be signed. However, only one of the deals was in fact signed.
Whether the three remaining deals will be concluded this year remains to be
seen. Further delays in these negotiations, however, will have a knock-on effect
on the start of talks with new free trade partners such as India and China. The
deal that was concluded last year after three years of talks was a preferential
trade arrangement between the Southern African Customs Union (Sacu) and trade
bloc Mercosur, which comprises Brazil, Argentina, Paraguay and Uruguay. It forms
the basis of a more comprehensive deal yet to be negotiated. The agreement now
in place will allow companies operating in the Sacu zone to pay lower tariffs on
1000 products exported to the Mercosur zone, whose exporters will, in turn,
enjoy lower tariffs on 1000 products exported to the Sacu zone. Sacu's
negotiators are now able to focus on faltering talks on a free-trade deal with
the US. Talks virtually came to a halt last year when serious differences
emerged over issues such as investment and agriculture. Efforts to set a date
for the next negotiations session between Sacu and the US have not been
successful so far. The process was hampered by the US elections and the holiday
season in SA. SA's chief trade negotiator, Xavier Carim, says that a few
meetings with US negotiators will have to be held before he can say whether the
deal can in fact reach finality this year. Peter Draper of the South African
Institute of International Affairs says the deal will probably not be concluded
this year as positions are "pretty far apart on a number of significant
issues". The other important deal SA hopes to seal by December will stem
from the world trade talks under the Doha Development Round banner, although its
progress or lack of it is entirely beyond SA's control. SA and other developing
countries are hoping for a successful conclusion of the Doha round, as it will
allow them to increase their share of world trade. The deadline last month for
the Doha round has been moved to December this year. It is hoped that talks will
be completed before the sixth ministerial meeting of the World Trade
Organisation, scheduled to take place in Hong Kong. Carim and Draper are not
confident that the Doha round will be finalised by December. Draper estimates it
will take another two years before this deal is ready to be signed. The third
deal earmarked for conclusion by December is a free-trade agreement between Sacu
and the European Free Trade Association (Efta), which consists of Switzerland,
Norway, Liechtenstein and Iceland. The deal came very close to being signed last
month, says Carim, but there was not enough time to tie up all the issues.
Negotiators now hope to conclude the deal in February. Sacu companies will be
able to export as many industrial goods duty free to the Efta zone as they
please once the deal is signed.
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MANUFACTURING
Textile Industry 'In Need of Rescue'
Government should urgently devise a rescue package to pull the textile industry
out of its job-shedding crisis, the opposition Democratic Alliance (DA) said
January 24. DA spokesmen Mark Lowe and Enyinna Nkem-Abonta said such a package
should include assistance for enterprises compelled to move into more
competitive niche markets as well as reskilling programmes for employees
affected. The crisis has been caused by the influx of cheap Chinese imports and
the strong rand, which undermine the local industry's ability to compete in
domestic and international markets. The Southern African Clothing and Textile
Workers' Union estimates that about 16 000 jobs were lost in the past year alone
in the clothing, textile, footwear and leather industries. Lowe and Nkem-Abonta
also said over-regulation of the labour market was also to blame. The market
should be deregulated, so that minimum wage and other regulations were relaxed
to lower production costs. The trade and industry department should investigate
whether China still subsidised its textile industry, and whether it was applying
unethical employment practices. If it was engaging in unfair trade practices,
the department should act, the DA said. The department should also negotiate
with China to explore the possibility of phasing in the liberalisation of
textile imports more slowly, "to reduce the impact on the local textile
industry and allow it time to adapt". Ways should also be sought to reduce
the cost of imported raw materials, and reduce or remove import duties on these
materials, the two said. They said the department's task team on the crisis had
not produced any results, having met only twice last year.
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MINERALS & METALS
No New Mines Says Gold Fields
Gold Fields CE Ian Cockerill says South African gold producers are struggling to
benefit from record gold prices because the rand's rally against the dollar is
wiping out earnings needed to invest in new mines. The value of the rand against
the dollar has more than doubled in the past three years, raising costs for Gold
Fields, AngloGold Ashanti, and Harmony, SA's biggest gold miners. The companies
pay most costs at local mines in rands and get dollars for the metal, whose
price jumped 8,1% to an average $435/oz in the latest quarter, a 16-year high.
"The challenge for all of us is not only to make profit at an operating
level, but to make enough to reinvest," Cockerill said. Gold output in SA,
the world's largest producer, has plunged about 60% since 1971 to 376 tons in
2003, the Chamber of Mines said. Costs are rising as companies dig deeper for
gold and unions push for higher wages, which make up about half of mining costs.
The gold industry accounts for 13% of SA's export earnings and employs 195000
people, government statistics show. Mineworkers' pay rose 7% in July after a 10%
increase in 2003, exceeding SA's inflation rate of 4,4% a year. Mining gold in
SA cost $349/oz in the third quarter, 40% more than the global average, says
Bruce Alway, an analyst at GFMS in London. Gold Fields may report next week that
earnings before items and goodwill have risen to R157,5m in the three months
through December, from R102m the previous quarter, according to a survey of four
analysts.
Bullish Global Outlook for Steel
The bullish outlook that emerged from an international steel conference in Paris
mid-January for the steel market this year and into next year supports local
forecasts for continued good performances by SA's primary steel producers, Ispat
Iscor and Highveld Steel & Vanadium. But it also means that there is little
hope for relief, at least this year, for steel users whose margins have been
battered by sharp increases in steel prices. World steel demand should continue
to grow about 5%, the Organisation for Economic Co- operation and Development (OECD)
said after the conference organised by it and the International Iron and Steel
Institute. Crude steel production last year passed the 1-billion-ton mark for
the first time amid strong demand, mainly from China. Both Ispat Iscor and
Highveld's half-year profits have soared on the back of the buoyant steel
market, which prompted steel price hikes. Both companies are expected report
solid profits for their full financial years early February. In addition to the
bullish global outlook, steel demand in SA is expected to continue growing
solidly as government increases fixed investment, particularly in electricity
and rail infrastructure. Good short-term global prospects are, however,
tempered, with a caveat from the OECD saying that a crisis may arise in several
years' time, should capacity expansion exceed market needs by a significant
amount. The OECD says that global crude-steel-making capacity is being raised
from 1,18-billion tons a year last year to an estimated 1,3billion tons next
year. Ispat Iscor, which is to be renamed Mittal Steel SA, is also raising
capacity, and 1-million more tons will come on line by next year. The OECD also
says the sharp price increases and, in some instances, shortages that occurred
in three key raw materials iron ore, coking coal and coke are seen as easing.
Some investment in new capacity is taking place, with prices expected to settle
at levels that will nonetheless be higher than those prevailing several years
ago. Much-needed industry consolidation is expected to continue to take place,
as the enhanced financial strength of companies provides the means to explore
mergers and acquisition more actively. The OECD says consolidation is considered
an important development that should help the industry weather cyclical
downturns more effectively. "Although considerable consolidation has
already taken place, the industry remains highly fragmented at the global level,
with the ten largest producers accounting for only about 30% of total world
steel production," says the OECD. It says it is concerned, however, that
smaller producers, competitive as they might be, might not be able to remain as
stand-alone operations.
Anglogold Ashanti's Profit Plummets
Anglogold Ashanti has reported a steep fall in profit and earnings for last
year, blaming much of the problem on rising costs, the slow turnaround at its
Obuasi mine in Ghana, and the returns it received from hedged output.
AngloGold's net profit for last year fell to R567m from R2,3bn in the previous
year. As a result it has undertaken a major restructuring of its hedge book to
ensure that future sales are closer to market prices. It plans to extend cost
cutting and focus efforts on the turnaround of Obuasi. The practice of hedging
involves agreeing to sell future gold production at fixed prices before the
mineral is mined. AngloGold CE Bobby Godsell said January 27 one reason that
last year was "tough" was that the company "was more exposed to
forward sales at lower prices than we would have wished". In the December
quarter there had been a gap of $38/oz between the spot price of gold and the
amount received by AngloGold for its production, he said. Godsell said the
company's South African operations had a good year in 2004, with a 2% fall in
cash costs. "To hold costs at the R60000/kg level is an extraordinary
performance," he said. "This was despite a 7% wage increase, and
increases in prices for electricity and water of close to 10% not to mention a
big rise in the steel price." However, he said costs outside SA had
increased, and efforts were continuing to keep the lid on costs. Godsell said
his major area of concern was the turnaround of the Obuasi mine, which was run
by Ashanti before the merger with AngloGold last year. "The Obuasi mine has
continued to under-perform, and we are not satisfied with this." He said it
had been expected that the turnaround would take four to six quarters, so he was
not surprised that the mine was still under-performing. Headline earnings a
share fell to 280c from 1068c, and the dividend for the year fell to R3,50 from
R7,10 in 2003. Analysts said that the results were close to expectations.
AngloGold also announced the signing of a new three-year, $700m revolving credit
facility to replace its existing $600m facility at an improved interest rate. In
another development, the company announced that its board had approved a $121m
expansion of its Cuiaba mine in Brazil, which will increase production from
190000oz a year to 250000oz. Godsell said a speedy and efficient conversion of
mining licences under the mining charter would help allay foreign concerns about
empowerment in SA. He said it was important that it should be demonstrated that
SA did not have an anti-mining regime, and the conversion of licences from the
old order to the new would be a good way of showing the world that government
backed the industry. He said it was inevitable that the conversion process would
take some time as there was no precedent for what was happening, and mining
companies were having to comply with issues such as rural development and job
plans without being able to refer to any precedent.
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PHARMACEUTICALS
Aspen Gets U.S. Approval to Supply $15bn Aids Drive
JSE Securities Exchange SA-listed Aspen Pharmacare, Africa's biggest generic
drug maker, has won US regulatory approval for some of its AIDS drugs. This
opens the way for it to supply the medicines to developing countries through the
Bush administration's $15bn programme to fight the disease. By the end of last
year, about 39,4-million people were infected with HIV and as many as 6- million
needed treatment with anti- retroviral (ARV) AIDS medicines, according to the
United Nations. Aspen is the first generic supplier to have won access to the
President's Emergency Plan for AIDS Relief (Pepfar) in the US through its
registration with the US Food and Drug Administration (FDA). "It's a hell
of a milestone for us. I don't think many people would have bet on a company
from SA being the first to get (FDA) accreditation," said Aspen CEO Stephen
Saad. The company won FDA approval for its drug manufacturing plant in Port
Elizabeth last month, which is a prerequisite for FDA registration of its drugs.
No other generic drug makers with voluntary licences to make copies of patented
AIDS drugs had obtained FDA approval for their manufacturing facilities, he
said. The FDA has given "tentative approval" for Aspen's co-packaged
versions of nevirapine tablets and a pill combining lamivudine and zidovudine.
Tentative approval is granted when the drugs are still under patent in the US.
GlaxoSmithKline, the world's biggest maker of AIDS drugs, holds the patents on
the combined lamivudine and zidovudine pill, which is branded Combivir, while
Boehringer Ingelheim holds the patent on nevirapine, which is branded Viramune.
This combination is the world's most widely used triple cocktail regimen, but is
not the most widely used in SA. Saad said Aspen was seeking FDA approval for
other generic AIDS drugs, but declined to provide details. FDA approval means
Pepfar funds can be used to purchase Aspen's approved drugs for treatment
programmes in countries where the local regulatory authorities have approved
their use.
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RETAIL
Spar to Open 130 New Branded Stores
The Spar group will bring another 130 branded stores on-stream in the current
financial year, while investing R190m in a Western Cape distribution centre and
extending its Nelspruit and KwaZulu-Natal facilities. Chairman Mike Hankinson
and CEO Peter Hughes said that through these ventures and the upgrading of
another 140 facilities, the newly listed group sought higher revenue and
improved operating margins. Spar's annual report, released January 19, said the
new stores would include Spar supermarkets, Tops bottle stores and Build it
home-improvement facilities. Food giant Tiger Brands unbundled and separately
listed Spar on a one-for-one basis last October. Hankinson and Hughes said that
the group had bedded down its north and south Rand distribution centres. The
R350m paid to Tiger last September for Nelspruit Wholesalers reduced cash
resources and would mean Spar earned "only a small (amount of)
interest" this year compared with R8,9m last year. But the group remained
"a strong cash generator", and would offset last year's cash outflow
by next year. The directors expected Spar to generate R350m before this year's
dividend payments and would retain a 2,25 times dividend cover. Dividends will
be paid six-monthly. Hankinson and Hughes said Spar would focus on a new
marketing campaign that emphasised "guarantees" in terms of price,
value and service, while its customer service campaign would enter "phase
two". Build it recently flighted its first television advertisements. Tops
is to set up 50 new stores during the year. The 2%-3% growth in food inflation,
countered by an 11% revenue growth, meant Spar achieved an 8% real growth last
year. Hankinson said this was ahead of the market and, when including Nelspruit
Wholesalers, saw Spar lift revenues nearly 20%. Looking ahead, the directors
said the favourable exchange rates and lower interest rates boded well for the
retail market, but cautioned that food consumer spending did not "change
dramatically" with economic shifts. "The food business has also been
affected by low inflation and even deflation in some product categories.
"Additionally, the market is exceedingly competitive and is hotly contested
by several major chains," they said. Competitors had also expanded into
franchising, meaning Spar now competed for retail members.
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TELECOMMUNICATIONS
Decision On Telkom Rival 'During 2005'
A decision on which of two bidders will be awarded a controlling interest in the
long-delayed second network operator will be announced "during the course
of 2005", a communications department spokesman said January 25. The
drawn-out time-frame dashes any hopes that customers will soon be able to deal
with a rival to Telkom, even though the bidders for the 26% controlling stake
were named in October last year. Speaking at the African Telecoms Summit in
Sandton, the department's GM: telecommunications, Devan Naidoo, said: "It
is anticipated that the licensing will take place during the course of
2005." Asked specifically when the winning bidder could be announced,
Naidoo said the decision would be made this year, but he was unable to say how
far advanced the adjudication process was. Last November, the department
attributed a delay in the closed tender process on the bidding parties
themselves, saying they had both requested more time to complete their formal
proposals. Bids were submitted by Old Mutual Asset Managers and Tata Africa, an
offshoot of India's Tata industrial conglomerate. Meanwhile, the other parties
in the second network operator consortium Nexus with 19%; Transtel and Eskom
Enterprises with a joint 30%; and CommuniTel and Two Consortium with 12,5% each
have yet to agree on the terms of the shareholders' agreement and their
respective roles in the operation. One source confirmed that the parties were
still holding discussions in an effort to prevent Nexus from proceeding with a
judicial review into the entire licensing process. Nexus is unhappy about the
inclusion of Two Consortium and CommuniTel as shareholders, since both were
rejected as substandard when they initially bid for a stake. The long delays
have already undermined the business case for the second network operator,
because Telkom has used the hiatus to sign long-term contracts with many of its
highest-spending corporate customers. Its viability may also have been eroded by
Communications Minister Ivy Matsepe-Casaburri's decision to liberalise the
telecommunications market from February 1. Some analysts believe the
liberalisation negates the need for a second network operator, because data
networking companies and internet service providers will be able to carry voice
calls over their networks and lease their spare capacity to other players,
giving customers more choice of service providers. Other analysts argue that the
liberalisation of the sector has actually increased the need for a second
network operator, since numerous small operators will want to lease a national
network infrastructure from a wholesale provider. Speaking at the summit, Naidoo
said liberalisation of the industry was a national imperative to create a
globally competitive telecommunications sector, to reduce the cost of doing
business and to accelerate economic development.
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TRANSPORT
Top Two Ports to Get R2bn Upgrade
Transport parastatal Transnet January 25 approved a R2bn investment to improve
capacity at Durban and Cape Town ports, a move designed to alleviate congestion
due to accelerating economic growth. The upgrading of container terminals at the
two ports is part of Transnet's five-year, R37bn infrastructure plan, given the
goahead by the cabinet last year. Leading exporters such as iron-ore producer
Kumba have complained to government about the lack of transport capacity in the
country, which they say threatens the competitiveness of the export sector in
the country as a whole. President Mbeki, in his state of the nation address last
year, focused on infrastructure development as vital to lowering the cost of
doing business in SA. Accelerating economic growth has resulted in bottlenecks
at the major ports including Durban, SA's biggest harbour. Gross domestic
product grew at an annualised rate of 5,6% in the third quarter the fastest
growth in more than eight years. Economists estimate that growth could top 4%
this year. Transnet CE Maria Ramos said "These projects (are) consistent
with our strategic vision of reducing the cost of doing business in SA." Of
the R2,075bn that Transnet has approved, R1,437bn will be spent on developing a
container handling facility at Durban harbour's Pier 1. Durban handled 64% of
SA's container trade, Ramos said. Transnet did not say when the upgrades would
be completed. However, it did say that R600m would be used to upgrade the
container terminal at the Cape Town port.
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UNIONS
Cosatu Mission to Zimbabwe
The African National Congress (ANC) says the Congress of South African Trade
Unions (Cosatu) can go ahead with the controversial visit to Zimbabwe that is
opposed by President Robert Mugabe's government. In a surprise move likely to
spark tension between SA and Zimbabwe, the ANC said January 25 it would have no
problems with the union federation returning to Harare. COSATU said the
situation in Zimbabwe was critical, as the present legal and political situation
was not conducive to holding free and fair elections, due in March, and alleged
that labour unions were being suppressed. The country has one of the highest
inflation rates in the world, resulting in a steady erosion of household
purchasing power. New laws restricting freedom of association and freedom of the
press have also been heavily criticised. A COSATU delegation was deported from
Zimbabwe in October last year, on allegations that their mission was more
political than labour-related. An application for permission to send another
fact-finding mission was turned down mid-January. In a joint communique with
Wellington Chibebe, secretary-general of the Zimbabwe Congress of Trade Unions (ZCTU),
COSATU secretary-general Zwelinzima Vavi said a delegation would be sent to
Zimbabwe by the first week of February, in a show of solidarity with workers in
Zimbabwe. " Zimbabwe's minister of public service, labour and social
welfare, Paul Mangwana, told IRIN that COSATU would not be allowed to use union
issues to cover a mission meant to interfere in the internal affairs of the
country. "The nature of the COSATU mission is political," he claimed.
"South African labour unions do not govern or influence labour issues in
Zimbabwe. COSATU wants to gain cheap mileage by traversing their activity
boundaries - they should limit their activities to South Africa. We have active
labour unions in Zimbabwe, and anyone who says they are not being allowed to
function is talking absolute nonsense," Mangwana charged. "As the
responsible minister, I can confirm that the labour situation in Zimbabwe is
normal. We are in contact with unions, and I have not received any complaints
from them. We are negotiating with them [and business], including the same ZCTU
that makes all these claims, in the Tri-partite Negotiating Forum."
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