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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: 042 - (01/07/05)
A 'first' for Africa? Corruption at the top penalised
South Africa's most important corruption trial since liberation has ended in a
15-year prison sentence for Schabir Shaik, financial adviser to the country's
deputy president, Jacob Zuma. Newspapers in South Africa and beyond are
convinced that President Thabo Mbeki made the right decision in sacking his
deputy Jacob Zuma June 14. Mr Mbeki acted after the trial of Schabir Shaik,
appeared to implicate the deputy president in corruption. The president's
announcement has been welcomed as a signal of Africa's determination to fight
corruption. The move has reinforced South Africa's standing in the international
community. It did so by underlining not only a commitment to clean government,
but, critically, to the constitution and the country's institutions, including
the judiciary. Mbeki's decision to get rid of Zuma is viewed as a move that will
be investor friendly for a long time to come. The continent is generally
perceived by the international community as being riddled with corrupt
leadership. Some critical observers have observed that Mbeki's decision could
strengthen his hand as he takes Africa's case to July's meeting of the Group of
Eight (G-8) industrial nations in Scotland, where he is expected to argue for a
better economic deal for the world's poorest continent.
The African National Congress (ANC) struggled to contain the fallout from the
guilty verdict in the Schabir Shaik trial. Mbeki has been under pressure to
demonstrate his commitment to principles of good governance, one of the
foundation stones of the New Partnership for Africa's Development (NEPAD) plan
which he and other African leaders have sold to the G8 nations. Mbeki attempted
to persuade Zuma to resign, his emissaries telling Zuma that the judge's verdict
made his position as heir to the presidency untenable. Ultimately Mr Mbeki
dismissed his deputy and the minister of minerals and energy Phumzile
Mlambo-Ngcuka has been appointed as replacement. President Mbeki had worked
closely with his deputy for over 30 years and it must have been a difficult call
to make. Mr Zuma was imprisoned by the apartheid regime for 10 years on Robben
Island and spent many more years in exile. After apartheid's downfall in 1994,
Mr Zuma joined the provincial government of his native KwaZulu-Natal before
rising to deputy president.
Mr Zuma was heavily tipped to succeed Mr Mbeki, and remains a popular figure. Mr
Zuma is unlikely to make a comeback in government before Mr Mbeki is due to step
down in 2009. But analysts say he may be able to retain support within the ANC
and position himself to return to national office in the future. He has made it
clear that his sights are still fixed on the country's presidency. However,
commentators are unanimous that his prospects have been deeply dented by his
dismissal as deputy president and subsequent resignation from Parliament. Once
odds-on favourite, he is now considered an outsider. But he is still in the
race, and wants to capitalise on widespread sympathy and support in the
tripartite alliance by projecting himself as a victim of political machination
and apartheid justice. Some analysts argue that in his new capacity as full-time
ANC deputy president, in regular contact with members, he will be well placed to
advance his ambitions. However, the consensus is that without state resources
and the platform of office, Zuma now has a mountain to climb. The National
Prosecuting Authority (NPA) announced that Zuma is to be charged with
Corruption. "We have decided to bring criminal charges against former
Deputy President Jacob Zuma, among them two counts of corruption,"
spokesman Makhosini Nkosi said. Opposition political parties have welcomed the
NPA's announcement.
Zuma Decision 'Will Boost Economy'
The corporate sector overwhelmingly welcomed President Thabo Mbeki's
decision to axe Jacob Zuma from his cabinet June 14, saying it would be a
significant boost to confidence in the local economy. Business Unity SA said
Mbeki had "no choice but to release Zuma from his office". South
African Chamber of Business president Deidré Penfold described the move as
positive, and said it sent out a strong message that there was no tolerance for
corruption in SA. Econometrix chief economist Ajar Jammine said any other
decision could have caused investors to pull out of the country. "This
entrenches Mbeki's stature, and (if) he hadn't taken this stand there could have
been a huge flight of capital," he said. Mittal Steel, Africa's largest
steel maker, said in a statement it had faith in the democratic processes of the
country, and respected the president's decision. "We also believe it was
not an easy decision to make." Sappi said the president had to act with the
best interests of SA in mind, and this required making difficult decisions.
"It is important to know that he can do that," Sappi said. Trevor
Munday, incoming deputy CEO of Sasol, said: "We respect the decision taken
by the president, and thank Zuma both for the leadership he has provided over
the years and for his countenance in these difficult circumstances."
Banking Association MD Cas Coovadia said Mbeki was to be commended for acting on
the matter and putting the good of SA and democracy at the forefront. "The
bottom line is that there was uncertainty around the role the deputy president
played, and that wasn't good for confidence in the country," Coovadia said.
Presidents on the move
President Mbeki met with US President George Bush in Washington. He appealed
to Bush for a "results oriented" session when African leaders meet
heads of government from G8 nations in Gleneagles, Scotland in July. Speaking to
reporters at the end of an Oval Office meeting, Mbeki thanked Bush for the U.S.
contribution to Africa, then added: "I'm going to ask for more. Whatever
mechanism is used to finance Africa's development, It is important that the G8
Summit this year should come out with specific decisions." Among the
priorities, he said, are debt forgiveness, increased flows of assistance and
improved market access for African products. While the western world spends
about $50bn a year on aid, it spends $300bn on trade subsidies. The AU will meet
just days before the G-8 summit, and endorse the initiatives needed to help
improve Africa' future.
Six African leaders meeting in the Nigerian capital, Abuja, have called on rich
countries to cancel all of Africa's debts at the G-8 summit. The G-8 group of
leading industrial nations will focus on development in Africa when it meets on
6-8 July. Finance ministers agreed in June to full debt relief for 18 countries,
including 15 poor African countries. The presidents of South Africa, Nigeria,
Ghana, and Rwanda are among those who took part in the meeting June 19. G8
finance ministers also said they were prepared to renegotiate the debts of
Nigeria, which alone are almost as large as those of all the other countries who
have received debt relief.
World Bank President Paul Wolfowitz visited Nigeria, Burkina Faso, Rwanda, and
South Africa June 12th-18th to hear from African leaders and local communities
how the continent can make greater strides in reducing the poverty that afflicts
hundreds of millions of its people. In taking office as the tenth President of
the World Bank June 1st, Wolfowitz declared that the Bank and the international
development community must make Africa their first priority if it is to become a
"continent of hope." World leaders will be gathering several times
before the end of 2005, such as at the G-8 Summit in July and the United Nations
Summit in September. They will discuss the urgent need for progress in reducing
poverty worldwide, and Wolfowitz said his discussions in Nigeria, Burkina Faso,
Rwanda, and South Africa will directly inform his participation at these
critical meetings.
G-8 meeting and Africa
The leaders of the world's richest nations, the Group of Eight (G-8) will
meet in Gleneagles, Scotland early July, with Africa at the top of their agenda.
The British Prime Minister will argue at Gleneagles for the comprehensive
package outlined in the Commission for Africa's report. This means significant
additional resources through agreements on debt and aid, plus progress on trade
justice. But this will be linked to securing improvements in governance and
capacity across Africa. The UK's proposal to Group of Seven finance ministers
that they should lift the debt burdens from 18 heavily indebted poor countries
-- 14 of them African, has been agreed. This write-off will be worth $40bn.
Another nine African countries will qualify within 12-18 months for debt relief
worth a further $10-$15bn. A second UK proposal is the launch of an
international finance facility for immunisation. This will raise $4bn extra for
vaccinations, saving an extra 5-million lives by 2015. The UK, France and Sweden
have contributed to the scheme, which also has financial support from the Gates
Foundation, the World Health Organisation, the United Nations (UN) Children's
Fund and the World Bank. Other backers are expected soon.Thirdly, the UK
proposes a large increase in development aid. Last month, the European Union (EU)
made a historic commitment to double aid to Africa by 2010. In addition, EU
donors committed themselves to achieve the UN target of allocating 0,7% of gross
national income to aid by 2015 at the latest. Sub-Saharan Africa's share will be
about half the extra $40bn, more than two-thirds of the extra development aid
recommended by the Commission for Africa. The fourth set of UK proposals focuses
on trade. To maintain progress at the WTO in delivering substantial increases in
market access for goods from developing countries and in dismantling
developed-country protectionism. The UK will argue strongly for all countries to
remove export subsidies and all trade-distorting support to agriculture that
works against African producers. This will be taken beyond the G-8 summit to the
WTO ministerial meeting in Hong Kong in December. Sub-Saharan Africa's share of
world trade has dropped from 6% in the 1980s to 2% today. While the western
world spends about $50bn a year on aid, it spends $300bn on trade subsidies. If
sub-Saharan Africa could regain just an extra 1% share of global trade, it would
earn $70bn more in exports -- more than three times what the region currently
receives in development aid.
G-8 - Mbeki Urges African Unity
President Thabo Mbeki has urged African business leaders to speak with one
voice when addressing the upcoming G-8 Summit that is led by the most powerful
economies in the world. Addressing the Fourth Congress of the World Chambers
Federation in Durban June 21, President Mbeki said this would enable world
leaders to act decisively in assisting the development processes taking place in
Africa. He said African leaders could then be able to erase the ugly scar of
poverty and underdevelopment "from the face of the earth". The summit
will follow hot on the heels of a decision by the finance ministers of the G-8
to cancel all multi-lateral debt owed by 18 of the world's impoverished
countries, most of which are in Africa. "We should also communicate a
common message that, it is in the interest of international business to ensure
market access for developing countries because this will accelerate the
necessary growth of entrepreneurship and business in these developing countries.
"Indeed, economic growth of developing countries will invariably increase
and open new markets for goods and services from companies that are the
back-bone to this important Federation. Undoubtedly, many of these developing
countries are willing and ready to trade and do business in equitable and fair
partnerships," said Mr Mbeki.
Aid, Free Trade, Governance Key to Reaching Millennium Goals
Doubling of more effective aid, a fair world trade regime and good
governance are key to increasing Africa's growth level to create jobs and
reducing poverty, says Paul Boateng, UK's Ambassador to South Africa. Ambassador
Boateng told journalists at the Africa Economic Forum (AEF) at the International
Convention Centre that the three are key themes that will be on the agenda of
the Group of Eight industrialised nations summit in Scotland in July. The key
themes, he said, were interlinked and G-8 leaders will not make concessions on
one without addressing the other key elements. "There's no doubt in my mind
whatsoever of the importance of trade, and the fact that it will be the subject
of discussions among leaders of the G-8. But the situation we find ourselves in
is that trade, aid and good governance are seen as three legs of the same tool.
An increase in aid by itself will not be enough and free trade by itself is not
enough," he said. The three issues - amongst others- are seen by African
leaders and some developing nations as key to unlocking growth potential for
developing nations to reach the Millenium Development Goals of halving poverty
by 2014. This year also presents a opportune time for the world to make strides
towards reaching MDG, as AEF comes on the heels of the G-8 summit in July, the
review of MDG summit in September. Developing nations also hope for possible
concessions to the Doha development round World Trade Organisation ministerial
negotiations in Hong Kong in December. The Doha developmental trade talks
launched in 2001 in Qatar are key to developing nations to push for fair trade
regime that will see industrialised nations open their markets to African
exports and see the US and European Union cut agricultural subsidies to their
farmers. "If developed countries immediately extended quota and duty free
access to all low income countries, annual income in Sub-Saharan Africa could
increase in the short term by $5-billion a year," said Ambassador Boateng.
The removal of agricultural subsidies by US and EU to their farmers could
increase Sub-Saharan Africa's cotton exports by 75 percent, he said. The issues
of doubling of aid, debt cancellations are also contained in the Commission for
Africa report recommendations that will be discussed at the G-8 Summit in
Scotland.
Wolfowitz Urges Business to Play Lead Role in Africa
World Bank president Paul Wolfowitz has come out strongly in support of SA
playing a leading economic role in Africa, saying South African business and the
bank should form a partnership to boost development in the region. Wolfowitz
said local firms were already uniquely positioned for public-private
infrastructure projects in the region. According to research analysts Liquid
Africa, SA is now the largest source of foreign direct investment in Africa, far
outstripping the US, the UK and France. South African companies are involved in
sectors such as construction, mining, financial services, telecommunications and
retail on the continent. Wolfowitz said if SA and the bank "partner
together we can probably increase our respective effectiveness and we have a
huge interest in seeing that this part of the world makes progress."
Wolfowitz's call for a partnership between SA and the bank on the continent is
likely to be warmly received by government, which is increasingly placing SA's
economic interests at the heart of its foreign policy. President Thabo Mbeki is
also keen to align SA's economic needs with those of the rest of the continent
and has been at the forefront of efforts to boost trade links across Africa.
Wolfowitz met Mbeki and business leaders June 18. His visit to SA was the last
leg of a four-nation Africa trip. In a thumbs up for the controversial new World
Bank president, Mbeki said the two had "a general chat -- really a courtesy
call", and he was "very pleased that he (Wolfowitz) came so soon"
after taking up office. Wolfowitz, a former US deputy defence secretary, took
over the presidency of the bank on June 1, replacing James Wolfensohn, who led
the bank for 10 years. Wolfowitz has said he wants to make poverty alleviation,
especially in Africa, the main feature of his tenure at the bank.
Delegates to WEF Summit Confident of Africa's Ability to Absorb Increased Aid
Africa was perfectly capable of absorbing and managing the increased aid
flows envisaged by the Commission for Africa, delegates to the World Economic
Forum's African summit agreed June 2. Top businessmen and political leaders
discussed this crucial issue at one of the main plenary sessions of the
three-day summit, which the organisers are using to build support for the
commission's development proposals ahead of next month's Group of Eight meeting
in Scotland. The ability of African countries to absorb and properly manage the
doubling of aid proposed by the commission has been questioned, but panel
members in the plenary were adamant that it was not an issue. Panel members
included Finance Minister Trevor Manuel, Absa CEO Steve Booysen, SABMiller CE
Graham Mackay and Tanzanian President Benjamin Mkapa. Introducing the
discussion, Mackay said the proposed doubling of aid raised a number of
questions in addition to that of whether African countries had the capacity to
spend it. He said these questions included, "what distorting effects could
be created in the economies of the countries (by additional aid)?" and,
"does being dependent on aid rob these countries of the chance to attract
foreign investment?" Manuel said that Africa's capacity to absorb aid was
"double the flows, and unless we recognise that as a chance to maximise the
leverage of aid flows, we will have missed the opportunity." Absa's Booysen
said it was unfortunate that countries were "putting their country ratings
at risk if they accept debt relief". He said companies use the ratings by
agencies to assess investment opportunities. Mackay disagreed, saying that
SABMiller, for example, generally stayed away from a particular country for
reasons such as "an unwillingness to privatise" and "creating
barriers to entry aimed at protecting local interests that are not necessarily
in favour of the consumer". He said whether aid was accepted by a country
was tangential. Manuel insisted that a new way needed to be devised to measure
aid which focused on the "quality of aid." "Too much aid remains
in the donor country under the guise of technical assistance and never touches
the ground in the recipient country." The meeting also discussed what the
US is calling its new approach to its aid programme for poverty reduction
through the Millennium Challenge Corporation. Under the rules for disbursement
of grants by the corporation, set up by the Bush administration, aid goes only
to low income countries that meet strict criteria on governance, human rights
and investment in education and health. The problem is that very little has been
disbursed for various reasons, as yet, it's contribution is negligible.
Labour unrest
Tens of thousands of South African workers demonstrated against job losses
and poverty in a countrywide one-day strike called by trade unions June 27.
Describing the strike action as a success, COSATU spokesman Paul Notyhawa
claimed that almost the entire mining sector had been affected, while 86 percent
of the workforce in the textile and clothing manufacturing sector had stayed
away. However, South African Chamber of Business spokesman Johan Zietsman said
that the strike had affected only 10 percent of workers across the country. The
main demonstrations were in Johannesburg, and in Cape Town, where strikers took
a petition to parliament. The Official figures suggest a quarter of all South
Africans are unemployed, but some analysts put the figure at up to 40%.
South Africa, along with its Southern African Customs Union (Sacu) partners, and
the US have finally agreed to meet on July 1 in Geneva to rescue free-trade
talks that stalled a year ago. Negotiators on both sides have been unable to
agree to a meeting for the past six months. SA's chief negotiator, Xavier Carim,
said June 21 it would be an exploratory meeting to find a way forward. SA's
acting trade and industry director-general, Tshediso Matona, and deputy US trade
representative Josette Shiner are expected to attend the meeting. Business in
South Africa hopes that the free-trade agreement between Sacu and the US will
permanently lock-in the temporary duty-free access that South African exporters
enjoy in the US market under the African Growth and Opportunity Act. The
free-trade pact was scheduled for completion in December, but broke down as
substantial differences of opinion emerged over a range of issues.
Figures released May 31 from Statistics South Africa show that economic growth
slowed in the first quarter of 2005. Gross Domestic Product (GDP) for the first
quarter of this year stood at 3.5 percent, as compared with a 4 percent growth
in the last quarter of 2004. According to Stats SA the real annualized economic
growth rates during the four quarters of 2004 were 3,8 %, 4,4 %, 5,7 % and 4,0 %
respectively. The seasonally adjusted real value added by the manufacturing
industry decreased at an annualised rate of 1.9 percent during the first quarter
of 2005, as compared with the fourth quarter of 2004. Stats SA said the decrease
was mainly due to "decrease reflected by the petroleum, chemical products,
rubber and plastic products, basic iron and steel, non-ferrous metal products,
metal products and machinery products." Government has forecasted the South
African economy would grow by 4.3 percent in 2005.
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AUTOMOBILES
Car sales reach peak
More vehicles were sold in SA in May than in any other month in the past 10
years, but the figures show further signs of a slowdown in the rate of sales
growth. New vehicle sales were up 33,5%, at 45867, on the previous May's total,
according to data released June 2 by the National Association of Automobile
Manufacturers of SA (Naamsa). This increase was lower than the 41% increase in
sales this April on the previous April's. This April's sales were 7% down on
March's, prompting McCarthy Motor Holdings to say last month that this could be
the first sign of the market starting to flatten out. Absa transport industry
analyst John Loos said June 2 the industry was at the beginning of a gradual
slowing in new car sales growth. He said real disposable income would decline as
the economy slowed and inflation showed no major downward movement; also
interest rate cuts were less frequent; and the cost of household debt servicing
was rising. Loos said he expected vehicle price increases in the remainder of
the year to come from a weaker rand. However, price hikes would be
"mild". Substantial interest-rate cuts in 2003, together with
virtually stable vehicle prices over the past two years, were the primary
drivers of the boom in vehicle sales over the preceding 12 months. Ford Motor
said this week's Competition Commission finding that there was anticompetitive
behaviour in the automotive industry was not expected to have a significant
effect on sales. It is still generally expected that this will be a record year
for the industry, following unprecedented sales last year, when more vehicles
were sold - by Naamsa members and nonmembers - than at any time before in SA.
Absa said sales this year would be "a healthy 16,7%" ahead of last
year. It is now certain that the market will break the 500000 mark this year.
Growth is occurring across the spectrum of vehicles, including passenger cars
and commercial vehicles. Most estimates point to sales of 550000 units. WesBank,
whose forecast is among the most optimistic, expects sales of 573000 units this
year. Meanwhile, it appears that the used-car market is improving. Used car
values depreciated steeply over the past year or so as more consumers opted to
buy new cars. McCarthy chairman Brand Pretorius June 2 said used vehicle
inventory levels and depreciation trends were returning to normal, which meant
dealers now could trade with more confidence. Naamsa reported vehicles exported
rose 1,2% to 30732 in the first four months of this year, compared with the
corresponding period last year. Exports are expected to rise substantially this
year as Ford's first export programme and Toyota's new Hilux export programme
come on stream. Toyota president and CEO Johan van Zyl said SA was "riding
a wave of economic confidence" based on the lowest interest rates in
decades, combined with stable and favourable economic fundamentals. The economy
appeared to be moving towards a point of critical mass that could take it to a
new level. Van Zyl said that with total vehicle sales reaching 213441 in the
first five months of the year, the motor industry was on track to exceed sales
of 250000 units for the period from January to June for the first time in its
history. WesBank said it had a record month, generating R3,8bn in new business
last month. The bank - which financed about one in every four cars in SA - said
it had seen a steady increase in the number of private vehicle sales from 15,8%
in January to 23,4% last month.
Car makers in price-collusion allegations
Competition authorities, having accused most of SA's car makers of
anticompetitive behaviour, should be careful not to destabilise an industry that
was a major contributor - almost 7% of gross domestic product - to the economy.
The warning was issued by industry body the National Association of Automobile
Manufacturers of SA (Naamsa) in its monthly car sales commentary June 2. The
Competition Commission, which said that it had found evidence of anticompetitive
behaviour by most of SA's car makers, said that the biggest culprit when it came
to high car prices might be the Motor Industry Development Programme (MIDP). The
programme, which is under review, affords car makers substantial benefits by
offsetting the costs of imports, and is credited with saving the industry from
collapse when it was introduced 10 years ago. The commission is not the first to
criticise the programme - Australia threatened to challenge its compliance with
global trade rules before the World Trade Organisation last year. The
commission's "implied criticism" of the MIDP should be taken up with
the trade and industry department and the national treasury, said Naamsa head
Nico Vermeulen. There was a significant and growing disconnection between
industrial policy and competition policy in SA, he said. This required
"urgent attention at the highest level of government", Vermeulen said.
Car makers have been vexed by the commission's findings of anticompetitive
behaviour earlier this week, and by the way in which the outcome of the
investigation was communicated. Car makers, including Volkswagen,
DaimlerChrysler and General Motors, said they could still not comment on the
commission's findings as they had not yet seen them. BMW, among others,
described the commission's communication of the outcome of the investigation
through a press release as disappointing. Several car makers said the
announcement was rushed so as to afford commissioner Menzi Simelane another big
notch in his belt before his departure. Simelane left the commission on the day
of the announcement. The commission released findings in relation to issues such
as collusion, but had yet to complete an investigation into allegations of
excessive pricing. Simelane said on the day the announcement was made that the
commission had a lot on its plate and that he wanted to help finish what he
could.
Fiat car part export contract
Fiat Auto SA is expected to announce a third major component export contract in
July, following two substantial export orders during June. Fiat said that it had
landed a contract potentially worth R250m to supply catalytic converter
components to customers in Germany. This follows a R200m contract to export
exhaust heat shields to Italy. An industry commentator said yesterday that Fiat
was about to land another contract, which would be bigger than the previous two
combined. Fiat would not confirm this June 21. The company said the contracts
announced to date made it one of the largest component exporters in the country,
and marked a deeper integration of the South African arm into Fiat's global
supply chain. It also boosted the company's export revenue and enabled it to
earn more export credits through government's Motor Industry Development
Programme (MIDP). The industry commentator said Fiat may be ramping up its
component export business in preparation for a possible switch from local car
production in SA to importing cars into the country. Fiat, like other local car
makers, can use MIDP credits generated through its component exports to reduce
the cost of importing cars.
Fiat was considering its options after Nissan SA's recent decision not to renew
an agreement whereby it shares its car-production facilities north of Pretoria
with Fiat. The agreement ends in 2008. Fiat, which sells a relatively low number
of vehicles in the country, could try to strike a production-sharing agreement
with another car maker, or decide to invest in a new car factory. Meanwhile,
Fiat said that under the first phase of the new catalytic converter components
contract, which would start immediately, 100000 units would be shipped to
Germany every year for sub-assembly before being sent to various plants in
Italy. The catalytic converter components would be made for Fiat Auto SA by
Western Cape manufacturer Arvin Meritor. The converters would be used in the
latest models from the Fiat and Alfa Romeo stables. The company said recently
that the exhaust heat shields contract would boost its annual export turnover by
more than 12%.
Renault To Launch New Model Next Year
French car manufacturer Renault is set to add the newly launched
third-generation Clio to the South African small car market early next year.
Renault, which imports its vehicles into SA, launched the Clio III in France,
saying the car would be on the French market in September. Renault
vice-president for the "B" product range programme said the car would
be available in the rest of Europe by year-end and in other parts of the world
by April next year. The addition could see Renault increase its share in the
small-car segment. Clio accounted for 4700 of the 78199 units sold in the
segment last year. Renault has spent à953m on the new Clio and à630m of this
was for production-related investment. The new Clio will be manufactured at
plants in Flins and Dieppe in France and Bursa in Turkey. The costs were spread
among the three plants. Renault vice-president Jacques Prost said the company
saved money by re-using existing manufacturing resources such as equipment. He
said the company also reduced costs because Clio III's development time was 28
months, compared with 49 months in the previous version. "This is the
shortest development time ever achieved for a Renault. The reduction made
significant contribution to cutting costs," he said. Prost said the Flins
plant, which specialises in small cars, would be used as a pilot site. Annual
production there would be aimed at about 325000 vehicles. Renault is also likely
to consolidate its position in the South African market through the Logan, also
known as the à5000 vehicle. The company has concluded a joint venture with
Indian automotive manufacturer Mahindra that will see the production of
right-hand drive Logans in India. According to Renault, the low-cost sedan would
be sold through the Mahindra Renault brand and also distributed in SA through
Renault dealerships. It was "too early" to put a price on the new
Clio, company officials said.
Fiat production threatened as Nissan ends deal
Fiat Auto SA may be forced to stop producing cars in SA and switch to imports,
after Nissan decided against renewing an agreement that has seen Fiat sharing
Nissan's production facilities for the past seven years. The agreement would end
in July 2008, Fiat said June 8. The car maker said it was now evaluating a
number of long-term production alternatives, as it considered SA an important
market. Fiat is a small producer in SA, but any erosion of the domestic
production base will be a setback for the country's ambitions to double
production to about 1-million units a year in order to become a serious global
player. Fiat was likely to approach other car makers to negotiate a similar deal
to that with Nissan, said a commentator who would not be named. Fiat could also
consider building its own plant, but the commentator said Fiat's volumes were
probably too low to justify investment in a greenfields facility. Fiat sold
about 8000 vehicles last year, down from about 11600 in 2002. Its market share
has declined from 3,3% to 1,8% over this period. If Fiat opted for the
importation route, it would still be able to offset the cost of vehicle imports
through the Motor Industry Development Programme, as it exports vehicle
components from SA. Fiat said that since the inception of the agreement with
Nissan in 1998, more than 55000 vehicles -- Uno, Palio and Siena -- had been
produced. It said that, of the current product range, only three Fiat models
were manufactured locally. These were the Palio, Siena and the
soon-to-be-launched, three-quarter-ton Strada bakkie.
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AVIATION
Comair in operating profit rise
BA/Comair has learned well from sister airline kulula.com on cutting overheads,
and recent load factors have put the companies' parent, Comair Ltd, firmly on
the road to profitability. Stuart Cochrane, executive manager of BA/Comair said
mid-June that the combined BA/Comair-kulula.com operating profit for the year
ended June 2005 would be "substantially higher" than the R11-million
posted last year. Comair Ltd is due to report its results in September and some
insiders say the figure could be as high as R80-million. "We have taken a
leaf from our sister airline kulula's book on cutting costs without impairing
our full service, and it's paying handsomely," said Cochrane. "Through
our volume strategy we have been able to keep fares on BA/Comair competitive,
which has boosted load factors considerably," he said. For the past six
months kulula has been operating in excess of 90% occupancy and BA/Comair at an
average 75%. Cochrane says BA/Comair will continue to reduce overheads without
compromising its service, by: Introducing newer, more fuel-efficient aircraft
with lower maintenance costs; Reviewing distribution costs by driving online
sales and reviewing commissions to travel agents; Removing inefficiencies from
the business through steps that will reduce no-show passenger losses; and
Renegotiating contracts with catering companies and other suppliers with a view
to lowering costs. Asked why BA/Comair did not give up the costly British
Airways (BA) franchise and throw in its lot with the obviously more profitable
kulula, Cochrane said the current set-up offered the best of both worlds.
"Through BA/Comair we have the high end of the market and through kulula
the low end," he said. Cochrane said that its corporate accounts -- such as
Anglo American, Nampak and Barloworld -- comprised 60% of passengers. BA and
other foreign carriers fed in another 15%, with the balance of
"discretionary" business from small and medium enterprises, as well as
ordinary passengers who did not mind paying higher fares for a superior service.
"On top of this we have benefited from passenger growth generated by kulula
and other low-cost carriers," Cochrane said. Were it to join kulula, BA/Comair
would also lose its corporate accounts and foreign connecting passengers to
opposition. "We would not have enough passengers to fill our combined fleet
of 20 aircraft," of which BA/Comair has 12 and kulula eight, Cochrane
explained. He said the only negative factor was the oil price, which was being
managed by the introduction of levies.
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EXPORT - FREE TRADE
Deals to extend free trade for South Africa
Trade negotiations, aimed at giving exporters improved access to foreign
markets, are advancing slowly. This may frustrate some of the country's
potential free trade partners, but government's focus -- supported by the
private sector -- is on securing the best deals, rather than meeting deadlines.
But given SA's limited capacity, ambitious agenda and the race to secure free
trade agreements around the world, it cannot afford to move too slowly. Free
trade talks with India are expected to commence in August and a challenging
round with China is likely to follow. SA and its customs partners also hope to
identify a free trade partner in Africa before year end, and there are numerous
requests for partnerships from other countries, such as Singapore. Arguably the
most pressing issue that has to be dealt with is free trade talks with the US,
which ground to a halt a year ago. The Southern African Customs Union (Sacu) and
the US have been struggling to agree on a date to resuscitate the talks. In a
recent report on trade between the US and sub-Saharan Africa, the US blames
negotiating capacity constraints in Sacu -- comprising SA, Botswana, Lesotho,
Namibia and Swaziland -- and divergent views on key issues for the delay in the
talks, which both sides had hoped to conclude in December last year. SA's chief
negotiator, Xavier Carim concedes limited capacity is an issue, but says this is
not the fundamental stumbling block. The main obstacle, he says, is different
approaches to key issues. The negotiations with the US are the most important
talks on SA's bilateral trade agenda, as the US is SA's largest single trading
partner. The free trade deal is expected to lock in and expand on the benefits
South African exporters enjoy under the US's temporary African Growth and
Opportunity Act, which allows duty-free access to the US for a wide range of
products. The completion of a free trade deal with the European Free Trade
Association (Efta) -- Switzerland, Norway, Liechtenstein and Iceland -- is
imminent, according to Carim. The scheduled deadline for these talks was also
December last year. Minor issues remain outstanding and the negotiations could
be completed on June 21, says Carim. Once the deal is ratified, South African
exporters will enjoy duty-free and quota-free access for industrial goods in
Efta countries. Sacu inked a preferential trade deal with Mercosur -- Brazil,
Argentina, Paraguay and Uruguay -- in December last year, but the ratification
process has not yet started as several technical details are yet to be finalised.
Carim expects these details to be finalised soon, and ratification to start in
August. A preferential trade deal allows for lower tariffs on a limited range of
products and is typically used as a foundation for a free trade deal. China is
eager to conclude a free trade agreement with SA, but business has put the
brakes on this. Companies have concerns about the effect of a free trade
agreement with China, where exporters enjoy the benefits of subsidies and a
currency pegged to the dollar. Recently an extensive study was launched, led by
the National Economic Development and Labour Council, to assess the effects of a
deal with China. A report is expected at the end of the year. The Doha
Development Round of world trade talks remains the highest priority on SA's
trade agenda, as it can potentially yield large-scale benefits by opening up
rich markets to developing country products. The Doha round, being negotiated by
the 148 members of the World Trade Organisation (WTO), is expected to overrun
its December 2004 deadline by almost two years, as negotiators battle their way
through sensitive and complex issues such as agricultural subsidies. WTO members
aim to produce a draft agreement for the sixth WTO ministers meeting in Hong
Kong in December by next month. Many countries are hoping the appointment of
Pascal Lamy as the new director-general of the WTO will help lubricate progress.
Carim, who will not say whether SA voted for Lamy, expects him to make "a
positive contribution" to the talks. "The general sense is that he
will be a good director-general. He has vast experience in the multilateral
trading system," he says.
Call centres can employ 100,000
Up to 100,000 new jobs could be created in the outsourcing market if government,
industry and labour make a concerted effort to polish SA's international image,
says a McKinsey survey issued June 7. So many foreign companies are outsourcing
business processes or placing call centres offshore that SA has a golden
opportunity to grab a slice of the market. But government must provide tax
incentives, unions must allow workers to run round-the-clock centres, and the
private sector must fund heavy investment in training, say analysts at McKinsey.
If that happens, the sector could attract US$90m to US$175m in foreign
investment and boost economic growth, the report says. Research highlighting the
huge potential for SA to win foreign outsourcing deals is nothing new. The
difference this time is that the report will be used by the Business Trust, a
body dedicated to job creation, to draft a blueprint to turn opportunities into
firm action. "SA has an extraordinary opportunity for 100 000 more people
to be employed over the next five years," said Business Trust CE Brian
Whittaker. A blueprint being prepared for the trade and industry department
would propose tax incentives and programmes for training matriculants, and
pressure had to be applied for telecoms costs to fall. SA's competitive
advantage lay in handling processes for the financial services market, Whittaker
said.
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FOOD & DRINK
SABMiller to invest US$125m in India
Global brewer SABMiller will invest about US$125m in capital projects and
marketing in India over the next five years to expand its existing operations
and develop its brands, it said June 14. SABMiller has operated in India for
almost five years, beginning with the purchase of the Narang Brewery in Utter
Pradesh. Two years ago it entered into a joint venture with the Shaw Wallace
Group. Recently it said it would buy out Shaw Wallace. The group is now India's
second-largest brewer, with 10 breweries making brands like Haywards 5000, Royal
Challenge Premium Lager and Knock Out. BJM Securities analyst Grant Swanepoel
said SABMiller's increased investment in India is not immediately share price
enhancing, but it is a long-term strategy. Although liquor consumption in India
at present is more weighted towards spirits than beer, beer consumption is
growing at 7%-10% a year, and this is expected to continue for the next few
years. Apart from SABMiller, the only other international brewer with a
significant presence in India is Scottish & Newcastle, which has tied up
with United Breweries. But in 10 years' time India could prove as desirable a
market for the international brewers as China had now become, Swanepoel said.
SABMiller Africa and Asia MD André Parker said while the Indian market had been
growing at about 6%-7% annually, SABMiller's brewing operations have grown 12%
in the past year. The additional investment would go towards upgrading and
expanding breweries, developing brands and improving the standard of barley
growing through co-operative ventures.
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FINANCIAL NEWS
Reserves soar seven per cent as bank buys dollars
SA's foreign exchange reserves rocketed 7% in May as the Reserve Bank stepped up
its activity in the market and started managing the financial inflows from the
proposed US$4,9bn Barclays-Absa deal. Gross foreign exchange and gold reserves
surged by US$1,15bn to US$17,2bn, despite a US$72m drop in the value of gold
reserves brought about by a 10% decline in the value of the rand against the
dollar last month. This is because the Bank increased foreign exchange reserves
by US$1,23bn, nearly 10 times as much as it bought the previous month and its
biggest acquisition of dollars in six months. Efficient Group economist Nico
Kelder said reserves "breached the R100bn level for the first time"
last month, increasing the import-cover ratio to 16,8 weeks from 13,9 weeks in
April. "This ratio is expected to increase further in coming months,
especially after the Barclays transaction boosts reserves by approximately
R33bn," he said. The Bank said June 7 that the reserves increase reflected
"a combination of foreign exchange operations conducted by the Bank for own
account, as well as on behalf of customers, including foreign exchange purchases
arising from a foreign direct investment transaction". It did not identify
the transaction, but economists said it was most likely to be the deal approved
by Finance Minister Trevor Manuel last month, in which Barclays seeks to buy up
to 60% of Absa. National treasury officials have said the Bank will manage the
inflows from the deal to avoid an unwelcome strengthening of the rand that a
sudden increase in demand for the currency would cause. It is thought the Bank
would do this by buying dollars from Barclays and issuing it with the local
currency it needs to pay for the stake. However, the sharp increase in reserves
also comes against the backdrop of calls for the Bank to be more active in the
foreign exchange market to weaken the rand, something it has repeatedly said it
is not prepared to do. The strong rand has been blamed for job losses and
sluggish growth in the manufacturing sector, with the African National Congress
suggesting recently that one way of ensuring the desired "competitive"
exchange rate was to buy dollars more aggressively in the market.
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HIV/AIDS
National Aids Conference
The United States government made their presence felt at South Africa's second
AIDS conference June 7 with a delegation led by US Ambassador to South Africa
Jendayi Frazer presenting an overview of the local US response to the pandemic.
South Africa is one of the beneficiaries of the US President's Emergency Plan
for AIDS Relief (PEPFAR) - a US US$15 billion programme launched by President
George W Bush in 2003 to tackle HIV/AIDS in 12 African countries and the
Caribbean region over five years. Many AIDS activists have criticised PEPFAR,
regarding it as a slight to the Global Fund to fight AIDS, Tuberculosis and
Malaria, set up in 2002. The US has committed US$200-million a year to the Fund,
which falls far short of its expected contribution. A third of PEPFAR's money
goes to programmes promoting sexual abstinence, and prevention efforts aimed at
promoting fidelity are also favoured. South Africa received almost US$90 million
from PEPFAR in fiscal 2004, and is expected to obtain another US$149 million
during the period from 1 October 2005 to 20 September 2006. About 12 percent of
the US$149 million will be given to the South African government, while 48
percent will go to local NGOs, universities and private partners. American and
international NGOs, universities and private partners will receive 40 percent of
the projected funds. During a satellite session before the official opening of
the conference, being held in the east-coast city of Durban, representatives of
the US Embassy confirmed that all PEPFAR funds allocated to South Africa in the
current financial year had been disbursed, and noted that the US government had
modified its bureaucratic procedures "so that the money could reach the
field as quickly as possible." Gray Handley, health attaché of the US
Embassy in Pretoria, said the lack of human and institutional capacity was of
"central concern", as a large number of healthcare professionals had
left South Africa, and some had even left the profession. Under PEPFAR, the US
government had supported the training of 40,000 local healthcare professionals.
Inadequate access to antiretroviral (ARV) treatment was another major problem,
and more than 25,000 people had so far received ARV treatment (ART). Handley
noted that during implementation of the programme, PEPFAR representatives
discovered "that in resource-poor countries, adherence rates are higher
than anywhere else in the world." Tuberculosis care had also been provided
to 27,500 individuals. Currently in its second year of implementation, PEPFAR
has given support and care to 72,000 orphans and vulnerable children. By
September 2005, the US campaign hopes to be providing prevention of
mother-to-child transmission services to 50,000 South African women, care to
110,000 orphans, and to have reached 40,000 people with tuberculosis treatment.
Its goals for 2006 are even more ambitious. About 70,000 South Africans are
expected to receive PEPFAR-funded ART, while 50,000 people should be able to
access combined HIV and tuberculosis treatment. One of PEPFAR's most pressing
objectives was to expand paediatric treatment, which Handley described as being
"critically important" to the success of any AIDS relief programme.
Nevertheless, Frazer stressed that "real results cannot be seen in
statistics - they are [shown] in how people's lives have changed through the
services provided". Although PEPFAR was originally designed as a five-year
programme, Frazer reassured conference delegates that "we are not going to
turn our backs" on South Africa after this period, and President Bush would
re-evaluate the programme in 2008.
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INDUSTRY
Sugar industry welcomes EU reform plans
The local sugar industry June 23 welcomed proposed reforms to the decades-old
European Union (EU) sugar policy, saying they gave "direction and
impetus" to further deregulation of the international sugar trade. South
African Sugar Association executive director Trix Trikam said the proposals
mirrored the calls the industry had been making for years. The policy has
survived virtually every attempt of reform since its implementation in the 1960s
and has been criticised for distorting trade and harming growers in the
developing world. The planned changes go some way towards meeting South African
calls to eliminate export subsidies and to reduce domestic support in a bid to
level the international playing field in trade. "The proposed reform will
provide direction and impetus for further deregulation of international sugar
trade through the World Trade Organisation (WTO)," Tongaat-Hulett Sugar MD
Bruce Dunlop said. The proposals aim to cut the price from à497 a ton to à319,50
over four years, after which it would remain level until 2016. This would remove
the subsidies European farmers receive for sugar and pave the way for an
increased world sugar price. The proposals must still be debated by EU members
and the least developed countries, as well as African, Caribbean and Pacific
beneficiary countries that receive preferential prices for their sugar exports
to Europe. The outcome is expected by November with the EU committed to
presenting a finalised reform package to the WTO in December. The reforms will
not directly affect South African access to the EU market, but the industry will
benefit from a rising world price. Some southern African operations, such as
those owned by Illovo, supply sugar to the EU in terms of the least developed
countries agreement for developing nations. Illovo MD Don MacLeod said the group
would, pending the finalisation of reforms, continue supplying European markets
at US$400 a ton from its operations in countries such as Tanzania and
Mozambique. It also intends to continue with expansion plans to take advantage
of the increased European access once the duties were eliminated. SA's local
industry supports calls for the least developed countries to continue exporting
to Europe with less of a price reduction than is being mooted. This would limit
the effect the reforms would have on the less developed economies. Dunlop said
the proposals had to be seen in the context of a broad consensus from WTO
members for improving market access, eliminating export subsidies and reducing
trade-distorting domestic support to the benefit of poorer countries.
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INTERNATIONAL ECONOMIC RELATIONS
South Africa signs trade cooperation with EC
South Africa and the European Commission (EC) have signed an additional protocol
on trade cooperation to continue the existing relations between the two. The
additional protocol to the Trade, Development and Co-operation Agreement (TDCA)
provides for customs unions and free trade areas; extending the agreement to ten
more European Union (EU) member states to bring the total to 25. The signing by
Trade and Industry Minister Mandisi Mpahlwa and his counterparts from the
Netherlands and EC took place at a meeting President Thabo Mbeki held with EC
President Jose Manuel Barroso June 25. Presidents Mbeki and Barroso engaged in
discussions "on critical matters" such as the outcome of the
forthcoming G-8 Summit in Gleneagles in Scotland next month, the situation in
Zimbabwe and peace and security in Africa. Mr Mbeki said he indicated to Mr
Barroso what the African community expected from the G-8 summit. "We are
counting much on the support of the European Commission and the European
Union," said Mr Mbeki. He added that Africa relied much on the EU's
experience in addressing issues of poverty and development. He mentioned that
bilateral relations were working very well between South Africa and the EU,
adding that they were looking at ways of expanding them. Mr Mbeki said he
briefed Mr Barroso on progress made on peace initiatives in war torn countries
in Africa, adding, delegations from the Democratic Republic of Congo and Ivory
Coast would be coming here for further discussions. Commenting on the recent
"domestic tribal squabbles" regarding the EU's budget and French and
Dutch rejection of the body's constitution, Mr Mbeki said he did not think the
problems would impact on Africa. "President Barroso is committed to
progress and development of Africa regardless of issues of trade, I have
maintained a regular contact with heads of states who are part of the EU, so
whatever might be happening within EU, I do not think it will have an impact on
Africa," said Mr. Mbeki. President Barroso said the union was re-affirming
its commitment to Africa adding that they would continue supporting Africa.
"South Africa is a very essential partner of the EU, we will closely
support South Africa in its efforts to fight poverty," said Mr Barroso. Mr
Barroso said they discussed issues in a "frank and friendly" manner;
however the issues of Zimbabwe were a huge concern to the EU. The concern
followed the Zimbabwean government's "clean up" campaign "to rid
urban areas of criminality" The campaign dubbed "Operation
Murambatsvina" [Drive out Trash] has reportedly left 1.5 million people
homeless, causing indignation around the world. "Questions of human rights
should be the concern of all people. They are universal values and everybody
should respect these values," said Mr Barroso. Responding on the Zimbabwe
issue, Mr Mbeki said he had discussed this with the United Nations Secretary
General Kofi Annan and both had agreed to send the head of the UN Habitat to
that country. "The delegation should prepare a report and make
recommendations, we must wait and respect that," said Mr Mbeki.
South Korea trade deal possible
South Korea is investigating the feasibility of a free-trade agreement with SA.
Researchers from the Korea Institute for International Economic Policy are
planning a visit to SA this year to identify the benefits of an agreement.
"Africa and the Middle East are areas where we currently lack
knowledge," said Won-Ho Kim, director of the Centre for Regional Economic
Studies at the institute, mid-June. "We don't know what kind of
opportunities there are for trade and investment." The creation of a
free-trade agreement could pave the way for SA to increase its current low level
of trade with South Korea. Trade and industry department figures show that in
2003 SA accounted for 0,29% of Korea's total exports and 0,33% of its imports.
Kim said SA's reputation for political and economic stability as well as its
natural resources were attractive to Korea, which has no raw materials but a
thriving manufacturing sector. Michael McDonald, head of economic and commercial
services at the Steel and Engineering Industries Federation of SA, said while
SA's raw materials were attractive to countries such as China and Korea,
business was cautious about getting into trade deals with such highly
competitive economies due to the effect it could have on SA's manufacturing
sector. "I'm not so sure it is a good fit," McDonald said. "We
don't just want to sell raw materials and allow our manufacturing sectors to go
down the drain."
SA-Thailand trade booms
SA's annual trade with Thailand breached the US$1bn mark for the first time last
year after a 65% increase over 2003. SA was now Thailand's largest trading
partner in Africa, and Thailand was SA's largest trading partner in southeast
Asia, according to the Royal Thai embassy in Pretoria. Trade between the two
countries was expected to rise a further 30% this year from US$1,063bn last
year, Thai Commercial Affairs Minister Adisai Dhummakupt said. The Thai embassy
attributed last year's rapid growth in trade to Thailand's promotional efforts
through initiatives. Thailand's products were also competitive and of good
quality, the embassy said. The stronger rand was also expected to have
stimulated Thai exports to SA, which jumped 74% to US$658m last year. These
comprised mainly vehicle products, rice, machinery, plastic products, clothes,
textiles and household and beauty products. SA's exports to Thailand rose 53% to
US$490m and consisted mainly of nickel and nickel products, tools, cutlery and
organic chemicals, the embassy said. The embassy said that the Thai prime
minister would visit SA in the second half of the year in a move that was
expected to strengthen political and economic ties between the two countries.
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MINERALS & METALS
Demand for steel falls
South Africa sold almost 6% less steel in the first quarter of the year compared
with the same period last year, underlining concerns about the slow down in the
local manufacturing sector. Local steel producers sold 5,8% less steel in the
country during the first quarter and steel imports into SA declined 4%,
according to the latest quarterly report by the South African Iron and Steel
Institute. Local steel makers were also selling less steel abroad. Exports
dropped 15% in the quarter under review. The institute attributed the decline in
domestic sales partly to the poor performance by SA's manufacturing sector,
which has been affected by import replacement. SA's largest steel maker, Mittal
Steel SA, said in its own quarterly review earlier the decline in domestic sales
was mainly due to de-stocking, but that real consumption grew "in line with
the economy". Its parent company and the world's largest steel maker,
Mittal Steel, has also attributed the global decline in steel prices to an
inventory overhang, rather than a softening in demand. Average monthly
consumption in SA peaked at about 400000 tons last year, according to the iron
and steel institute. This came down to about 370000 tons in the first quarter of
this year. These levels were last seen about 14 years ago. The institute said
government's more expansive approach should boost steel consumption. The
institute did not give a reason for the 15% fall in exports, but local steel
makers have been increasing sales in the more lucrative domestic market at the
expense of exports for some time. The largest export markets in the quarter
under review were the European Union, Far East, Africa and North America.
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MINING
Norilsk to join Gold Fields board
Gold Fields June 2 signalled the formal end of a long feud with its largest
shareholder Norilsk Nickel of Russia, by announcing that two Norilsk directors
were to join the board of the South African gold company. This closed the saga
of more than seven months during which Norilsk had sided with Harmony in a
hostile takeover bid for Gold Fields. "Gold Fields is pleased to announce
that Norilsk Nickel has accepted Gold Fields' invitation to nominate two
non-executive directors to the board of Gold Fields," said the gold miner.
"The names of the two new directors will be announced in due course."
Gold Fields' CE Ian Cockerill said: "We are delighted to have Norilsk
Nickel on board, and we look forward to working with them to grow the value of
our company to the benefit of all Gold Fields shareholders. "We have a
common vision of turning Gold Fields into the leading gold company in the
world," said Cockerill. A mining analyst said: "There has been much
talk of some future merger between Gold Fields' offshore assets and Norilsk's
gold interests, and it now seems that the two are singing from the same hymn
sheet." However, Gold Fields spokesman Willie Jacobsz played down the
announcement. "This is a sign that the relationship between Gold Fields and
Norilsk Nickel has been normalised and that the two companies share a common
vision for the future of Gold Fields," he said. "This vision is
premised on maximising value for all shareholders of both Norilsk Nickel and
Gold Fields. "The fact that Norilsk Nickel has agreed to join the Gold
Fields board does not, per se, indicate specific future transactions between
Gold Fields and Norilsk Nickel." Analysts do not believe that Harmony CE
Bernard Swanepoel is in any hurry to dispose of the 11,5% stake in Gold Fields
his company acquired in its unsuccessful takeover bid.
South Africa left out of global mining boom
While the world was in the grip of a mining boom last year, it passed SA by, a
recent report by PricewaterhouseCoopers shows. In fact, South African companies
had a tough 2004, with lower returns and a squeeze on profits - due to higher
costs and the strong rand. The PricewaterhouseCoopers report was based on data
from 40 mining companies that accounted for 80% of global total market
capitalisation in mining. "We called the report Enter The Dragon - but an
earlier draft was called Enter the Dragon; Exit the Springbok," said Hugh
Cameron, the PricewaterhouseCoopers partner in charge of mining. He was at the
local launch of the report, which was released in London early June. Cameron
said last year was "spectacular" for the global mining industry, with
a 19% rise in market capitalisation, revenue up 39%, and profits doubling for a
second year in a row. By contrast, it was "a tough year for the industry in
SA". The market capitalisation of South African mining firms fell 9%,
revenue was up just 3% in rand terms and profits in rand terms tumbled 42%.
Return on equity slumped to 9,7% from 17,5% the previous year. Cameron said the
problems of local mining companies were due largely to significant cost
pressures in rand terms, combined with the effect on earnings from the stronger
local currency. Cameron said the most recent weakening of the rand had brought a
dramatic improvement for local gold producers, with the rand gold price shooting
up from R82000/kg to R92000/kg in the space of a fortnight. "If the rand
settles at R7 to R7,50 to the dollar, and commodity prices remain where they
are, we will see some very good results," said Cameron. He said the global
mining industry had outperformed both the Dow Jones and the Standard &
Poor's 500 stock market indexes for the last three years, due to base metals and
energy stocks "and this trend is likely to continue this year".
Cameron said commodity prices had been performing well in dollar terms, but were
"pretty flat" in rand terms - meaning that SA producers had been
unable to cash in on the commodities boom being led by China. He said those
global companies that had achieved the best return for shareholders last year
had all been in the base metals, uranium and coal sectors. The
PricewaterhouseCoopers report noted that said mining companies had large cash
reserves and Cameron said this represented "quite a big war chest" to
fund acquisitions. He said junior mining companies were exploring more,
"and when they find something, the majors buy them out".
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