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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: 36 - (01/01/05)
2005 Economy looking good
Ten years ago many thought the exchange rate in 2005 would be R18 or R20 to
the dollar, inflation would be well into double digits and growth would be
negative. In other words, they expected the worst. Instead 10 years of democracy
was celebrated with low inflation and interest rates, and stable fiscal and
monetary policies The dominant themes for 2005 are likely to be the strong
currency, low inflation and low interest rates, which all augur well for growth
in South Africa. This is against an international backdrop of growth in China,
which is fuelling commodity prices while US interest rates are rising and the
dollar is crumbling. If all else remains constant, these factors could lead to a
slowdown of global growth, but could bode well for South Africa. A most welcome
effect of the upturn is that there were 196,000 new jobs in the country in the
12 months to June. This is the first time for several years that the labour
force has shown any real growth.
The Reserve Bank took a conservative stance on December 9, keeping interest
rates at 7,5%. The committee suggested that while further rand strength and
lower oil prices would improve the inflation outlook next year, the
sustainability of these movements was uncertain. Bank governor Tito Mboweni said
the recent surge in the rand, was driven by a slump in the dollar, which needed
to be monitored. The rand has strengthened almost 12% against the dollar since
the last monetary policy committee meeting in October. However, the Bank
believed that oil prices could remain volatile. Economists said that despite the
Bank's cautious stance, there could still be room for an interest rate cut early
next year. The rand has been admitted to an exclusive club of 15 international
currencies where foreign exchange transactions are settled immediately, lowering
the risks of transacting across time zones. The global settlement system is
expected to boost investor confidence in the rand, which is one of the most
actively traded emerging market currencies in the world. Forex transactions are
settled in real time through the New York-based Continuous Linked Settlement
Bank, eliminating the risk of payment delays and doing away with the old system
of transacting through a network of secondary banks.
The country's better economic performance has strongly lifted share prices. In
the past 12 months the value of shares on the Johannesburg Stock Exchange (JSE)
has risen a phenomenal 51%, from just under R1 700 billion to R2 600bn. This
sharp rise follows a gain of 28% in 2003, a loss of 10.5% in 2002 and a gain of
14.4% in 2001.
HIV/AIDS frustration
One year after the South African government launched its much-anticipated
HIV/AIDS treatment programme, there is frustration at the slowness with which
the plan is being realised. In November 2003 the government committed to
providing free antiretroviral (ARV) treatment to 53,000 patients by March 2004.
The figure is a fraction of South Africa's HIV positive population, estimated at
over five million, but was nevertheless an ambitious beginning to what was to be
the world's largest ARV rollout to date. That target date has since been moved
forward a year, and by the end of November 2004 the number of patients receiving
the life-prolonging drugs was estimated by the Joint Civil Society Monitoring
Forum to be only 18,500.
GDP - Growth hits eight-year high
Economic growth surged last quarter, rising at an annualised rate of 5,6%
its fastest pace in more than eight years boosting foreign investors'
perceptions of the economy. Economic growth in the first nine months of the year
was 3,4% higher than the corresponding period last year, giving a good
indication that growth for the full year will beat market expectations, coming
in far higher than 3%. Statistics SA (Stats SA), which released the figures at
the start of December, published revised gross domestic product (GDP) figures
for the past five years, which paint a picture of a booming economy, and one
that has been more resilient in the face of a strong rand and difficult global
conditions. The revisions to the data show that the size and growth rate of the
economy was higher than previously stated. The level of GDP was revised up to
R1,251-trillion for last year, up from R1,209-trillion, while last year's growth
rate was increased to 2,8% from 1,9%. Although the revisions to last year's
growth figures were fairly significant, over a longer period the revisions were
less dramatic, with the average growth rate for 19972003 only 0,3 percentage
points higher than previously stated. Finance Minister Trevor Manuel hailed the
improved growth figures yesterday as a more accurate reflection of the economy,
and congratulated Stats SA on their "mammoth work" done to enhance the
data. Manuel would not be drawn on whether the forecasts for the budget deficit
as a ratio to GDP, published in October's medium-term budget policy statement,
would be revised downwards as a result of the higher GDP numbers. "This
will be addressed in the main budget on February 23," he said. In October's
medium-term budget, the deficit as a percentage of GDP was estimated to be 3,2%
this financial year, rising to 3,5% in 2005-06, before settling at 3,2% in
2006-07 and 2,7% in 2007-08.
Trade deficit worsens as strong rand hits exports
South Africa's trade deficit increased dramatically in October, worsening to
R5,8bn from R301m in September, as exports plunged on the back of a strong rand.
Imports grew at a sturdy pace of 5% in October, rising by R1,4bn, while exports
fell 14,65%, or by R4bn, compared to the previous month, according to figures
released yesterday by the South African Revenue Service's customs and excise
department. Cumulative trade figures for the first 10 months of the year give a
startling picture of the debilitating effect the rand has had on SA's trade
balance, with last year's surplus of R15,5bn recorded from January to October
turning into a deficit of R13,6bn for the same period this year. Standard Bank
economist Rashika Lalla said November 30 that exports were being weighed down by
the strong rand and a slowdown in the global economy. "(Rand strength) has
effectively dulled the price competitiveness of the export market," she
said. "And the strength is set to continue as officials in the US have
indicated that they will not intervene to strengthen their currency and are more
comfortable with a weaker dollar. Markets are now pricing in a weaker dollar
well into 2005." The rand has gained 15% against the dollar this year,
making it the second-best performer against the greenback. Trade figures show a
R2,5bn drop in exports of precious and semiprecious stones and metals, while
vehicle exports fell R1,18bn.
Manufacturing - output dips on strong rand
Manufacturing production showed worrying signs of a slowdown, with volumes
dropping 0,7% in October, as the strong rand slowed export activity and hurt
production in import competing sectors. However, production is likely to be
supported by steady growth in consumer spending, with the latest consumer
confidence figures released by First National Bank (FNB) and the University of
Stellenbosch's Bureau for Economic Research showing sentiment remained firm this
quarter. Figures released by Statistics SA yesterday showed production had
expanded at a rapid pace on an annual basis, rising 5,3% in October compared
with a year ago. Vector Securities' chief economist Johan Rossouw pointed out
that the sector's performance was particularly weak in import-competing sectors,
where production and sales dropped. "Closer analyses quite clearly point
towards the detrimental impact of rand-induced imports as a probable major
contributing factor towards the pronounced slowdown in domestic manufacturing
production volume and sales value," said Rossouw. Although radio and
television manufacturers have been suffering from a flood of cheaper imports for
some months already, the clothing and textile industry and basic iron and steel
industry also showed a drop in production because of competition from cheaper
imports, said Rossouw. However, overall production was likely to be sustained by
steady consumer demand, which helped lift production in the furniture and motor
vehicles categories. FNB's chief economist, Cees Bruggemans said December 7 that
strong levels of confidence expressed by higher income consumers improved the
outlook for spending on durable goods, such as cars and furniture, and
semi-durable goods, such as clothing and footwear. "Furthermore, the
prospects for consumer spending in general and spending on non-durables, such as
food and beverages, and services remained bright given the upward shift in the
confidence levels of the low income groups," he said. Consumer confidence
could rise even further next year, prolonging the upswing, which was being
driven by consumer spending. Standard Bank's latest trade activity index also
reflected bullish consumer spending, with the index rising to 56 points last
month, from 50 in October. This augured well for a "bumper" Christmas
sales season for retailers, said Standard Bank. Conditions for businesses in
general also remained good, with the business confidence index compiled by the
SA Chamber of Businesses steadying last month at 125,1 points, slightly down
from October's index reading of 126,5. The chamber said the favourable
conditions boosting the business mood had peaked, but sentiment would probably
remain positive in the foreseeable future.
IMF gives economy thumbs up
The International Monetary Fund (IMF) gave a broad endorsement of
government's fiscal and monetary policies December 1, but hit out at slow
progress on labour-market reform and uncertainty about black economic
empowerment. The IMF's annual country report gave the thumbs up to government's
increased spending plans, the Reserve Bank's efforts in building up
foreign-exchange reserves and the decision to provide antiretroviral drugs for
HIV-infected people. The IMF said that the economy was poised for higher growth
going forward, but that growth remained insufficient to "make a significant
dent in unemployment and poverty reduction". Finance Minister Trevor
Manuel, who announced the release of the report at yesterday's cabinet briefing,
would not express an opinion on the IMF's views. "There aren't any
surprises in the report. But what is very important is that we can engage with
that report, we can engage with South Africans about the report, we can engage
with various sectors in SA about the report." Reiterating concerns raised
in last year's report, the IMF said there was still too much uncertainty about
black economic empowerment, in particular how government would fund it and an
"absence of safeguards against an undue concentration of assets".
Contrasting sharply with the views of exporters and labour unions, the IMF also
said the rand was not overvalued, but was trading "broadly in line with
long-run equilibrium values indicated by macroeconomic fundamentals". The
report, which assesses the rand's strength until the first quarter this year,
said the local unit was being driven higher by the boom in commodity prices,
particularly gold and platinum. The IMF also said the Bank deserved
"considerable credit" for bringing inflation under control, and
advised the Bank to target the midpoint of the 3%-6% inflation target, which
would ensure wage-setting behaviour was more "forward looking". The
Bank's targeted inflation measure, CPIX (consumer inflation excluding mortgage
costs) has been contained within the target band for 14 months running, with
recent figures showing subdued growth in CPIX of 4,2%. The IMF endorsed
government's policy of a gradual relaxation of exchange controls and said the
easing of fiscal policy was "appropriate" to address social issues.
However, the IMF warned against having budget deficits significantly higher than
3%, which it said could reduce international competitiveness, result in higher
debt and reverse the "stabilisation gains" achieved so far. Government
plans to boost spending over the next three years, after years of reigning in
expenditure, with the budget deficit estimated to be 3,2% this financial year,
rising to 3,5% next year.
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AVIATION
Airbus project announced
Government received the go ahead December 15 to sign the R11bn military
transport aircraft deal with Airbus following the dismissal by the Cape High
Court of an urgent interdict by Economists Allied for Arms Reduction (Ecaar).
Ecaar had attempted to block the purchase in court, arguing that it was
unconstitutional. But in an opposing affidavit, defence department director
general January Masilela said all macroeconomic issues were matters which fell
within cabinet's and government's prerogative. "It is government's duty to
make choices. Sometimes the choices made are not always accepted by all sections
of the population," said Masilela. Judge Deon Van Zyl dismissed the
application, saying that Ecaar had sought relief on incorrect grounds to stop SA
from signing contracts leading to the procurement of aircraft while government
was only signing a "declaration of intent" to participate as a partner
with European Aeronautical Defence Systems and Airbus Military in the design and
development of the Airbus A400M, along with a number of other countries. This
could see its purchase of eight to 14 of them already paid for by the time
delivery took place in 2010, says a senior government source. It is estimated
that the cost of purchase will be between R6bn and R11bn, and that SA could earn
about R6bn from the project based on the current order book of 180 aircraft. If
more aircraft are sold then SA will earn more for its work in the development of
the product. In terms of the programme South African companies will be awarded
programme contracts worth about R6bn. The company confirmed that there were 180
confirmed orders for the aircraft from Belgium, Britain, France, Germany,
Luxembourg, Spain and Turkey. A government statement issued at the signing said
that the programme would boost the revitalisation of the domestic aerospace
sector
Comair to buy craft
Listed aviation group Comair's acquisition of four Boeing aircraft for R220m is
unlikely to put strain on the group. Comair's previous purchase of three Boeing
aircraft last year was largely to blame for the R2,8m operating loss the group
reported in the six months to December. Global aircraft depreciation accelerated
after the September 11 2001 terrorist attacks on the US. The depreciation of
Comair's aircraft was made worse by the rand's gains, and a revaluation of the
group's fleet led to an impairment charge of R115m this year. The strong rand
and the recovery of aircraft prices created a favourable environment for the
purchases. Comair MD Piet van Hoven said that international aircraft prices rose
about 5% this year over last year. He said financing the latest acquisition
would not be onerous for the group, whose brands are British Airways (BA) and
kulula.com. Van Hoven said the group had yet to decide how it would fund the
deal. Comair's cash resources at the end of its financial year in June exceeded
the purchase amount, however. Comair said it had taken advantage of the strong
rand to upgrade its fleet. The deal was signed at a level of less than R6 to the
dollar. The aircraft will be used to serve BA's domestic and regional routes.
Comair expected to take delivery of the first aircraft in May next year, with
the remaining three being brought into service during the course of next year.
The latest acquisition takes Comair's fleet to 23 aircraft. The Boeing 737-300s
will provide operational savings including better fuel economy and maintenance
costs.
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BANKING
UK's Barclays makes formal application on Absa deal
Britain's Barclays has filed a formal application with South African regulators
on its bid for a majority stake in Absa, edging nearer to closing the deal with
SA's number one retail lender. Registrar of banks Errol Kruger confirmed he had
received the application on December 1. "They made the formal application
it will go through the normal assessment procedure," Kruger said. He
declined to say how long the process might take. "We cannot give an
indication on timing. You must understand it is one of the biggest transactions
the industry has experienced," he said. Barclays must also lodge a formal
application with the finance minister before it can buy a controlling stake in
Absa, which has a market value of about R 46bn. Absa head of strategic
communications Nick Cairns said Absa had lodged the application, with Barclays'
approval and knowledge. However, he was unable to confirm when a final offer
would be tabled. "The offer is not finalised yet," Cairns said.
"We would want to put a transaction on the table that would be acceptable
to the majority of shareholders." Some investors have grown impatient
waiting for the terms of the deal, but Cairns said there had been "no delay
on anyone's part". "These matters take time," he said. Financial
sources said it was unlikely that Barclays will launch a formal offer this year
given the forthcoming holiday break and expect it to do so only in the second
week of January. Absa's share price has risen sharply from R60,50 when Barclays
first announced its intention to bid for a stake in Absa to R72 December 2. One
analyst said the 19% gain in the bank's share price could be holding up the bid
as the initial price agreed between the two banks - speculated to have been R68
- may have to be adjusted.
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EXPORTS
Exports to US soar 30 per cent
South African exports to the US this year are 30% up on last year's total,
despite the strong rand, according to figures released by the American Importers
Association. Based in Florida, the association links up US companies from
various sectors with their counterparts across the globe. The association
recently announced that South African exports to the US during the first nine
months of this year had posted a 30% increase from last year's 3,2bn to 4,3bn.
SA, one of the beneficiaries of the Africa Growth and Opportunity Act (Agoa), a
law that grants African countries preferential access to US markets, is the US's
36th largest import trading partner. The country's main exports to the US
include minerals, chemicals, metals and vehicles. The value of trade in minerals
and metals had increased from last year's 2bn to 2,9bn by September this year.
During the same period, trade in energy-related products had increased from $37m
to $48m. Exports in chemicals and related products increased from $253m to 273m,
the US body said. The strength of the rand has, however, negatively affected
textile and clothing exports. The clothing industry had been expected to benefit
significantly from Agoa. Exports in textile and apparel fell from last year's
$211m to $136m, but footwear exports went up from 607m to $808m. The association
has predicted that South African exports to the US would total about 6bn by the
end of the year.
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FINANCE
Dollar weakness
The dollar's demise continues unabated, but there is no indication the Reserve
Bank is using the space to increase its foreign exchange holdings. Could the
headlines about the end of the Dollar Age be influencing the Bank? The numbers,
if you are holding dollars or worried about your own export performance, are
looking worse by the day. The greenback has reached a 12-year low against
sterling. This has added fresh impetus to the debate about how the Reserve Bank
should respond. Amazingly, by all accounts, it has not been buying dollars with
any sense of urgency in response to the rand's latest surge to below R6/$. A few
months ago it was common knowledge that the Bank intervened when the currency
hit certain levels. Earlier this year, this level was believed to be in the
region of R6.20/$. The Bank's surprise cut in interest rates in August only
reinforced the perception, though it insisted that it moved in response to an
improved inflation outlook and not out of any desire to weaken the currency. The
Bank has also insisted that its sporadic purchase of dollars in the open market
to increase its levels of foreign exchange reserves was not meant to weaken the
rand. But the perception remained that levels too close to R6 were undesirable
and would prompt intervention. The Bank's apparent inactivity now indicates that
this is no longer the case. It might have resigned itself to the idea that the
dollar's weakness is due to global forces and it is, therefore, not going to
take undue risk by fighting the tide. Data on dollar purchases for November is
not yet available, but movements in the rand, not just against the dollar,
indicate that it has not been a major player. It bought $590-million in October
which, although double the level of the previous month, was not nearly as much
as the $1-billion a month some observers say it should be aiming for. So why the
apparent lack of action? Accumulating and holding reserves is expensive, that
much is clear. The counter-argument is that the taxpayer will be more than
compensated if the Bank buys more dollars because a weaker rand leads to a more
competitive - tax-paying - export sector. Some, like Sanlam group economist Jac
Laubscher, argue that a more aggressive accumulation of dollars will act as a
form of insurance for when sentiment turns and the rand weakens, enabling the
Bank to intervene and minimise disruptions. But is it possible that the Bank has
been caught up in all the talk about the dollar's demise and moves by central
banks to diversify their holdings? Some might question the wisdom of buying a
depreciating asset that other central bankers are apparently rushing to dump. If
the reports about China and Russia reducing their dollar holdings in order to
minimise losses from its depreciation turn out to be true, then the $1.40/euro
level that economists are eyeing could be reached sooner rather than later.
Then, the argument goes, the Bank should also be looking at alternatives such as
the euro, which makes absolute sense as it is also the currency in which most of
South Africa's trade is denominated. In these times of uncertainty, it might
even consider the accumulation of physical gold. But as Citadel chief investment
officer Dave Mohr points out, this would go against basic investment advice,
which normally recommends buying cheap, rather than going with the momentum and
acquiring possibly overpriced assets that have already had a massive run. And do
we really want the central bank to become a speculator in the currency markets?
It might be hard to find an upside for the dollar at the moment, but the news of
its death might also be exaggerated. It is, after all, still the reserve
currency of the world.
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FOREIGN AFFAIRS
Mbeki pushes Ivory Coast peace
Former rebels in Ivory Coast are set to discuss new peace proposals with South
African President Thabo Mbeki. President Mbeki, who is mediating in the two-year
conflict for the African Union, has secured a new timetable to carry out
disarmament and reforms. A parliamentary committee is reported to have
recommended the adoption of a key part of these reforms - a controversial
nationality bill. UN peacekeepers have asked for an extra 1,000 troops to help
maintain order. Ivory Coast has been in crisis since rebel soldiers grabbed the
north of the country in September 2002. In November the Ivorian armed forces
launched an attack on the rebel-held north of the country, breaking an
18-month-old ceasefire. There was also days of turbulence in the government-held
south. UN peacekeepers were involved in operations to evacuate thousands of
westerners. The rebels, now known as the New Forces, say they will propose
"free and transparent elections and not one to keep in power... a loser
regime... while keeping in mind that [President Laurent] Gbagbo has breached the
ceasefire," said their spokesman Sidike Konate. The AFP news agency reports
that the new nationality bill, a key rebel demand, has been adopted by a
parliamentary committee and is expected to be adopted late December. This makes
it easier for those of foreign origin to become Ivory Coast citizens and AFP
says it will apply to some 700,000 people. The rebels control the north, where
many people have foreign roots and say Mr Gbagbo's government has discriminated
against them. A UN official in the country said he expected the security council
to grant the request for extra troops to reinforce the 10,000 peacekeepers
already in Ivory Coast. These include some 4,000 French troops, who have
recently clashed with Gbagbo loyalists in the main city, Abidjan. The UN
Security Council is also considering whether to impose individual sanctions on
those seen to be blocking the peace process. An arms embargo was put in place in
November, affecting both the government and the rebels.
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FOREIGN INVESTMENT
Africa seeks to keep multinational investment
The world is experiencing a commodities boom fuelled by rampant industrial
growth in China. Africa can expect foreign direct investment to rise
significantly. A report by the United Nations Conference on Trade and
Development (Unctad) says there was a 28% increase in foreign investment in the
continent. It expects significant new investment, particularly as foreign
companies invest in exploiting Africa's natural resources. There has been a
steep rise in investment in the continent's petrochemical industry. Investment
services are also on the increase. The report says this can be seen in the
telecoms sectorm, where the number of cellphone subscribers in Africa rose from
1,2-million in 1996 to 51-million in 2003. Major hotel chains are pursuing
opportunities for resorts in Africa. "The focus for growing hotels and
resorts will be exclusively Africa, the Indian Ocean islands and Middle East,
and will centre on areas of natural beauty or city-based hotels with
casinos." The Unctad report says changes in economic policies in many
African countries play a role in attracting foreign investment. Countries such
as Ghana, Zambia and Benin are undertaking "investment policy reviews"
to improve their investment climates. Angola enacted laws on private investment,
allowing projects to be undertaken with participation of domestic and foreign
investors. The Democratic Republic of Congo adopted an investment law
reinforcing its mining code and abolishing previous requirements that saw
investment projects approved in "an ad hoc manner". The common
denominator in all these developments is the involvement of a foreign (to
Africa) multinational expanding operations into Africa via incorporated and/or
unincorporated investment structures. This implies the involvement of at least
two tax jurisdictions and the potential for disagreement on the extent of the
profits in each country. This scenario is the classic transfer-pricing dilemma.
Transfer pricing has been slow in coming to Africa. In SA, transfer-pricing
legislation has been up and running since 1995, and active enforcement soon
followed with a dedicated task team at the South African Revenue Service, where
highly qualified and experienced transfer-pricing specialists have been
employed. SA also embraces the Organisation for Economic Co-operation and
Development guidelines to a large extent, and South African tax practice has
invested in the development of several transfer-pricing specialists. To date we
are not aware of any significant income-tax adjustments relating to transfer
pricing in any African country. We are aware of sporadic attacks on
multinationals in various African countries notably Zambia and Botswana but in
general these were isolated incidents. Past experience has shown that the
African revenue authorities lag behind SA, and a "wait-and-see"
approach has been adopted with various other tax laws such as VAT and employee
tax. More and more we are becoming aware of a transfer-pricing investigation
launched by African revenue authorities on multinationals operating in Africa.
SA has long been treated as the gateway into Africa. Many global multinationals
have opted to use SA as the stepping-stone into other African destinations. Many
South African multinationals have preferred expansion into Africa above other
international expansion. It has been widely reported that it is difficult to
trade in Africa due to various barriers like language, lack of infrastructure,
lack of an educated workforce and rampant bureaucracy. Yet a presence in Africa
has allowed multinationals to tap into this largely virgin market. Significant
profits were to be made by the select few that got it right. These profits were
then relocated as quickly as possible. Another tactic was to show as little
profit as possible in the local African entity, by inflating prices of goods
bought from offshore group companies or by inflating the prices paid for
services rendered by group companies. The time has now come for that scenario to
change. African tax jurisdictions have latched onto the indiscriminate
relocation of profits, which if taxed would assist greatly in advancing the
economy of the African countries. Various methods are now being implemented to
stop this outflow of funds, and transfer pricing in various shapes and forms has
been earmarked as a way to make a "quick buck". The result is the
unprecedented implementation of legislation with a smell of transfer pricing.
Leading this wave of investigations are the eastern African countries of Kenya,
Uganda and Tanzania and the countries bordering SA, including Namibia and
Botswana. It is highly unlikely the rest of the countries will refrain from
keeping up with their neighbours, and we expect a wave of transfer-pricing
adjustments across the continent to follow suit. Global multinationals operating
in Africa and wanting to show that connected-party transactions take place at
arm's length face severe problems, including lack of country-specific comparable
data, lack of transparency in implementation procedures and lack of guidelines.
No guidelines on the preferred methodology are published, and the taxpayer is
generally left in the dark as to the methodology that may be followed to
illustrate the arm's-length principle. The arm's-length principle is generally
not defined, and adjustments are justified on the basis that transactions should
be conducted in a way that provided a similar profit had the transaction been
conducted between persons who do not have a special relationship. No reference
is made to advanced pricing arrangements, mutual-agreement procedures or any of
the other known (to the transfer-pricing world) and accepted methodologies. A
reciprocal adjustment would probably not be on the cards. All this may result in
a huge additional global tax bill for a multinational.
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FOREIGN TRADE
SA-Iran bilateral trade increasing
Foreign Affairs Minister Nkosazana Dlamini-Zuma says bilateral trade between
South Africa and Iran has increased by nine percent between January and
September this year. She was addressing the 8th meeting of the joint bilateral
commission involving the two countries in Tehran December 14. Minister
Dlamini-Zuma outlined that South African exports to Iran had also increased by
over 30 percent during this period. She said a number of South African companies
trading with Iran had almost doubled in this period as the private sector showed
commitment to the trade relationship through investment. "I am informed
that South African investments in Iran currently exceed US 1.5 billion dollars
whilst negotiations for an additional US 4 billion dollars are nearing
finalisation. "We also welcome the confidence of the Iranian private sector
investing in South Africa. Investments totaling US 150 million dollars has
already flowed into my country, and we want to encourage them to continue
choosing South Africa as the destination of choice for their investments,"
she said. The minister is being accompanied by some of South Africa's top
business people and she explained her visit to the country brought along the
South African private and public sector investments to the Iranian market.
"Over the last ten years of our relationship, we have put in place a legal
framework for our relations that consist of 63 agreements. "These
agreements cover a vast area of common interests that include economic issues,
cultural co-operation, the exchange of sports teams, health co-operation,
housing co-operation as well as the sharing of experiences in women's affairs
and security issues," she said.
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FREE TRADE
African deadlock on US trade agreement
The U.S. trade envoy met with ministers from five southern African countries in
hopes of advancing negotiations on the United States' first free-trade agreement
in sub-Saharan Africa. The talks, which began in South Africa in June last year,
have stalled over a number of issues, including labour, the environment and
intellectual property rights. Members of the Southern African Customs Union -
Botswana, Lesotho, Namibia, South Africa and Swaziland - argue that many of
these issues should be dealt with through other forums and want a more limited
deal than that proposed by the United States. South African Trade and Industry
Minister Mandisi Mpahlwa, who led the SACU delegation, described the
three-and-a-half-hour meeting December 10 in the Namibian port of Walvis Bay as
difficult. "There is further work that needs to be done to take this
process forward," he said without elaborating. Although he could not spell
out the US-SACU Free Trade Agreement differences, SACU insider sources have said
that "the US was not at the same level of trade negotiation
ambitions". To conclude an agreement on US terms would have profound
negative implications for SACU's broad development policy. "A key question
is whether our political systems could accommodate such an agreement," said
the source. "You cannot discuss environment, labour and trade on the same
dimension," U.S. trade representative Robert Zoellick said on inquiry that
the US congress has "urged us to include aspects of labour, intellectual
property rights and environment in the trade negotiations". "We are
urging them to simply enforce their own labour laws," he added. Zoellick
was however more upbeat about the meeting. "We had an opportunity to regain
momentum," he said. "We realize that SACU has the best potential and
is a good partner in furthering this agreement." SACU countries make up the
United States' largest export market in sub-Saharan Africa. U.S. officials say a
free trade agreement with SACU would be an opportunity to create a framework for
trade and investment that furthers regional growth and development. "We
build on the relationship that we have built under the framework of the Africa
Growth Opportunity Act (AGOA). "SACU is in a process of developing and
strengthening its own institutions and this helps in strengthening regional
integration." Passed in 2000, AGOA forged a new trade partnership between
the United States and sub- Saharan Africa - granting duty-free access to the
U.S. market for substantially all products of eligible countries and bringing
new jobs and new investment to the region. AGOA has created new commercial
opportunities for Africans. AGOA imports totalled $14.1 billion in 2003, and
non-fuel exports to the United States from eligible countries were up by more
than 30 percent over 2002. A more prosperous Africa is also benefiting American
companies, farmers, and workers. Between 1999 and 2003, U.S. exports to the
region have grown by 24 percent to $6.9 billion. President Bush has made AGOA a
cornerstone of the administration's policy toward sub-Saharan Africa and a key
part of his effort to open markets and promote economic growth and development
in this struggling area of the world. Over the last four years, President Bush
has twice signed legislation passed by Congress to expand and enhance AGOA's
benefits.
No overhaul foreseen for SA-EU deal
Radical changes to SA's free trade agreement with the European Union (EU) were
not likely to result from the first major review of the deal, warned new EU
trade commissioner Peter Mandelson early December. The review of the agreement,
which facilitates the liberalisation of trade between the two regions, got under
way in November. The process is eagerly followed by domestic sectors that have
benefited from the agreement, such as the automotive industry. An unnamed EU
commission official said December 6 that the review could take as long as a
year. This was in part because significant events had taken place since the deal
was inked five years ago, such as the EU's enlargement to 25 member countries.
Mandelson, who replaced Pascal Lamy as the EU's head of trade in November, said
that the initial deal took "quite a lot of negotiating to achieve".
"I don't think they are looking for radical change, but they are in
discussions now," he said, addressing journalists from southern Africa on
trade issues. The unnamed official said in Brussels that a number of issues had
been shelved when the deal was signed, and a number of issues had arisen since
then. These issues, which included trade in cars and car parts, canned fruit,
cheese and agricultural products, among other things, would now be addressed.
The official said the way in which the review would take place over the next
year was mapped out in a November meeting in Europe, in which SA's foreign and
trade and industry ministers participated. The deal is SA's most significant
free trade agreement to date. The outcome of the review is expected to show
whether the free trade agreement has enhanced trade between the regions or not.
This is a moot point at the moment. The review was likely to have an effect on
the way future free trade agreements were structured. Mandelson also suggested
that it was now more possible to conclude the struggling Doha development round
of world trade talks. This was also because issues on the agenda had been
narrowed down from the initial "negotiations overload". Mandelson also
attributed slow progress in the past to developing countries' lack of trust in
the process. He said there was suspicion among developing countries that the
process would benefit only rich countries. And in the past, participants had not
felt that there were sufficient gains to be made from the process, he said.
Mandelson also called for enhanced economic integration in Africa. Regional
integration, he said, was necessary for the New Partnership for Africa's
Development to become a reality. He said the economic partnership agreements
that the EU was negotiating with African, Caribbean and Pacific countries would
serve as a stepping stone to integration on the continent. The agreements were
aimed at liberalising trade between EU and African, Caribbean and Pacific
countries.
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INFORMATION TECHNOLOGY
Sahara expands into Africa
Sahara Computers is to grow its business into the rest of Africa next year.
This was announced at the first annual Sahara Convention held on the East Rand
December 3. Selvin Kristnen, GM of Sahara Holdings, said the expansion would be
split into three phases. "Phase one is currently under way and will finish
in March. This phase includes countries such as Angola, Botswana, Nigeria and
Mozambique." The next phase will see Sahara move into North Africa, with
offices planned in countries like Senegal and Egypt. "Our phase three
countries include Chad and the Democratic Republic of the Congo. However, due to
instabilities in these countries, Sahara will not have a physical presence
there. Instead, we will make sure that our products are represented through
other means."
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MINERALS & METALS
De Beers suffers from rand's strength
South Africa's largest diamond producer, De Beers, is losing money at seven of
its eight local mines, under pressure from the strong rand, Jonathan Oppenheimer,
the head of the global diamond giant's South African operations, said December
1. The company may be forced to close some mines next year unless it can boost
productivity and cut costs. Oppenheimer said that with the rand's current
strength "we have to fix the mines, and to ask whether the mines can
operate at an economically sustainable rate at the (rand-dollar) rates we are
experiencing now". He said De Beers was seeking to implement a "thrive
at five" strategy. This was to ensure that its mines could be viable at R5
to the dollar. "Do we think all can thrive at five? I don't think so,"
he warned. He said that at current cost levels, they could probably survive at a
rand level "in the mid-sixes to the dollar". However, Oppenheimer said
"plans are in place" to make all the South African mines profitable,
and he said this would be important when De Beers brought empowerment partners
on board. "People don't want to buy into a loss-making business," he
said, saying important decisions would be taken in the middle of next year. He
was elusive when asked whether some mines could close, but did not rule out this
possibility. "We as an executive will take the right decision at the right
time," he said. "If mines can come with a move to sustainability, the
inclination is to give them a chance." On a more positive note, Oppenheimer
said that processing at the Kimberley mine had been the highest since 1920. He
estimated that output this year would double from 1-million carats to 2-million
carats. If a similar improvement could be achieved at other mines, that would
"materially change the picture," he said. The Indian government has
taken an effective 13% stake in De Beers' diamond exploration and mining
operations in India, De Beers chairman Nicky Oppenheimer said December 6. The
move deepens the relationship between the two parties and builds on an existing
partnership in diamond cutting and polishing. Oppenheimer and the Hindustan
Diamond Company signed a memorandum creating a 50-50 joint venture between De
Beers and the Indian government. "The agreement also illustrates the
interest shown by the government of India in diamond exploration and
mining," he said. However, Oppenheimer said that exploration was a
long-term business and had risks. There were prospects of important diamond
discoveries in India. Hindustan Diamond Company chairman V Madhavan Nair said
there were 1-million jobs in the diamond cutting and polishing industry in
India, compared with 30,000 in the same industry in the rest of the world.
Harmony - takeover developments
The decision by Gold Fields shareholders to vote down the merger of the
company's international assets with Canadian-listed IAMGOLD throws the attempted
takeover by Harmony into sharp relief. It is pretty clear that the 11,8% of Gold
Fields' equity delivered to Harmony in terms of the early settlement offer came
from arbitrageurs. No major institutional holder went along with Harmony's
takeover bid. So what will happen now? Harmony's second settlement offer closes
on February 5. Depending on the speed with which the Competition Commission
reviews the bid, that may have to be delayed. What is rather more important,
though, is what has happened to the share prices and market caps of the two
companies. Both have had billions knocked off their capitalisations since the
bid began - in fact, about R19bn has disappeared. Over this period the gold
index has fallen 18%. The Harmony counter has declined 27%. It is all very well
for Harmony executive director Ferdie Dippenaar to say the share price will come
back after it is all over but will it? Meanwhile, Harmony CE Bernard Swanepoel
said at the outset that he could save Gold Fields R1bn a year. In the face of
these numbers that is a real laugh. Gold sector shares are now in a decline
across the board. Harmony's and Gold Fields' are dropping faster. That must now
make Gold Fields a tempting target for any other house prepared to put a mix of
shares and cash on the table. It is certainly worth looking at the actions of
Gold Fields chairman Chris Thompson and Harmony's Swanepoel. Some years ago
Thompson put together a deal between Franco Nevada and Gold Fields that would,
in essence, have externalised Gold Fields. It failed to pass the treasury
hurdle. Then Thompson tried a deal with Ghana's Ashanti, but that didn't get off
the ground either. Thompson is now based in Denver, Colorado. He is also
chairman of the World Gold Council. He has publicly said he will vacate the
chair of Gold Fields when the fight with Harmony is over presuming, of course,
that Gold Fields wins. Gold Fields can now conduct an internal restructure if it
wants to. It can split off its international assets, put these into a new
company (Gold Fields International), and list the company with precisely the
same shareholder base (in other words, a form of unbundling) on day one. The
effect of that would be to make it nearly impossible for any predator to get
hold of both the local and international assets as well as the cash pile. Many
options may come into play. Just because the year-end is fast approaching is no
reason for the parties involved to close both eyes. They are being watched from
the deep undergrowth.
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PHARMACEUTICALS
Drug company lands US contract
Drug manufacturer Aspen Pharmacare has got the nod from the US government to
produce and supply generic HIV/Aids drugs, news that could see the SA firm
receive millions of dollars in funding. It was announced December 10 that
Aspen's new R157-million plant in Port Elizabeth had received approval from the
US's Federal Drug Administration (FDA). Aspen is the first African manufacturer,
and the first from a developing nation, to receive FDA approval to supply
generic antiretroviral drugs. FDA approval is a prerequisite to gain access to
the US President's Emergency Plan for Aids Relief (Pepfar). The plan has pledged
$15-billion to assist developing countries address the HIV/Aids crisis over the
next five years. The money will be spent on drugs, training of physicians and
nurses, testing, counselling, prevention and orphan care. Gray Handley, the
health attaché for the US embassy in SA, says Pepfar will purchase the approved
drugs from Aspen for use all over the world. Aspen expects to extend its supply
of generic antiretroviral drugs offshore through among others the Clinton
Foundation, which has selected Aspen as one of only three manufacturers
worldwide. Lynn Margherio, executive vice-president of the Clinton Foundation,
says "the FDA approval Aspen received is a clear demonstration that Aspen
products are of the highest quality". She says that on the basis of the FDA
approval, funds will be made available from the World Bank and other global
funds to purchase drugs from Aspen. The SA government is expected to announce
the outcome of the tender for antiretrovirals in January. Aspen, whose biggest
client is the state, is among the front-runners.
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PUBLISHING
AU Magazine
African leaders, journalists, and other experts have heaped praise on the
new African Union magazine, saying it is a noble continental voice that will
represent Africa's interests while changing western media's negative perceptions
about the continent. Speaking at the launch of the magazine in Pretoria December
9, former Zambian President Kenneth Kaunda said he was "pleased" to
see an African publication that would report on the continent's developments
"without bias." The ageing statesman said the magazine could provide
Africans with a platform to speak with one voice about themselves, their
history, hope and aspirations in a world that still perceived the continent as a
dark, conflict-ridden region, hit by HIV and AIDS providing little hope to the
globe. The quarterly journal, which forms the core of AU media publications, is
currently printed and distributed from Nigeria and South Africa, primarily to
inform, educate and unite Africa behind a common cause. At R29.50 per copy
locally and R10 extra in other African countries, the journal features news
reports on AU organs and related topical issues, Nepad, Africans in the Diaspora
and exclusive feature articles about different leaders and experts. The magazine
has hit the street twice with the latest featuring among others, an exclusive
interview with Mr Kaunda. In the article, he calls for the International
Monetary Fund (IMF) to cancel Africa's debt, which undermines development, and
the fight against other social ills on the continent. "It is about time
these lending institutions listen to the African Union leadership and wave
debt," he implored. He asserted that as much as the now-defunct
Organisation of African Unity (OAU) was to be blamed for "not doing
enough" it was however sad "to sit and watch our wealth and natural
resources being depleted by imperialists." "There is no justification
for Africa to be wallowing in poverty when it is one of the richest continents
in mineral and natural resources," he said. He however praised the current
continental leadership, including President Thabo Mbeki, for their efforts in
integrating the continent's 800 million people and eradicating poverty and
conflicts. "I am proud of them. They must form a formidable strength in
protecting the continent's rich resources from abuse and organise all African
countries without exploiting each other," said the frail leader, known for
his trademark white handkerchief, which he affirmed represented peace. On HIV
and AIDS, the 80-year-old liberation stalwart called on Africans not to relent
in the fight against the scourge, which threatens many African economies and
people. "We have to fight AIDS and beat it," he stressed. There are
plans to publish the magazine monthly.
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