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SERBIA & MONTENEGRO


 

 

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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 19,176 15,555 10,900 70
         
GNI per capita
 US $ 1,910 1,400 930 112
Ranking is given out of 208 nations - (data from the World Bank)

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Area (sq.km) 
102,350

Population 
10,825,900

Capital 
Belgrade 

Currency 
New Dinar

President 
Boris Tadic

Private sector 
% of GDP 
40% 



Update No: 046 - (01/11/05)

Zuma-Mbeki feud threatens Security Agencies
South Africa's intelligence and security community has been plunged into an unprecedented crisis that commentators say is threatening the stability of the country. The dramatic purge of the top leadership of the National Intelligence Agency (NIA) is the latest development in a protracted war between factions in the security services aligned either to President Thabo Mbeki or former deputy president Jacob Zuma. Until now it has been thought that the Scorpions would be the first security casualties of the Zuma-Mbeki dogfight. But the tables turned when Intelligence Minister Ronnie Kasrils suspended intelligence chief Billy Masetlha, his deputy, Gibson Njenje, and counter-intelligence chief Bob Mhlanga. Now the NIA finds itself fighting for its credibility as they face an inquiry over illegal monitoring of ANC bigwig Saki Macozoma. Events can be traced back to the Hefer commission in 2003, set up to probe claims that former National Prosecuting Authority head Bulelani Ngcuka was a spy for the apartheid government. Since then, the war of the security agencies has escalated and spilt out into the public on several occasions. Most recent was an armed stand-off between the Scorpions and the police VIP Protection Unit at Zuma's Johannesburg residence and a still-unexplained fire at ANC headquarters. The Khampepe commission of inquiry into the future of the Scorpions has exposed divisions within security agencies. These fights have now raised questions about whether any of the security agencies acts to uphold the constitution or private political agendas. As the mudslinging intensifies, it is clear that neither the Scorpions nor the NIA is immune to political manipulation. "Definitions of threats to state security are beginning to include threats to individual and economic interests," said political analyst Aubrey Matshiqi. Announcing the suspensions of the spy agency's top leadership, Kasrils went to great lengths to assure the public that the politics of succession in the ANC had nothing to do with his action. He does not appear to have convinced everyone. Zuma and ANC Youth League president Fikile Mbalula questioned his actions. Mbalula claims to have contacted Kasrils with complaints that he was being illegally monitored by state agents. He says the minister's response was to dismiss him. Zuma pointed out to a newspaper that his complaint against Ngcuka was endorsed by the public protector, yet no action was taken. This raises uncomfortable questions for Kasrils, whose actions appear to be inconsistent, if not partisan. However, a senior government insider says irrespective of the factional battles, the Macozoma incident highlights a lack of professionalism in the NIA. The incompetent conduct of the Macozoma surveillance appears to bear this out. In the end, the Khampepe commission will decide the future of the Scorpions, while intelligence inspector-general Zolile Ngcakani will decide the fate of the suspended NIA top brass. But neither of these two processes will stem the creeping politicisation of the country's security establishment.
In a move likely to put further pressure on the Scorpions' investigation of Jacob Zuma, the former deputy president's trial date has been set for July 31 2006 in the Durban High Court, the National Prosecuting Authority (NPA) said October 12. The date was agreed on by the NPA, Zuma's defence team and the Judge President of KwaZulu-Natal, Vuka Tshabalala. This means investigators must sift through 93,000 pages of documentation seized from Zuma and his associates, to formulate an indictment to be served on Zuma in November. At his last court appearance, supporters chanted insults against Mbeki and burned T-shirts emblazoned with the president's face. Reflecting the split within the ANC, South Africa's law enforcement and intelligence agencies are arguing in a special commission over the future of the elite Scorpions unit that led the investigations into Shaik and Zuma. The Scorpions were set up several years ago under the authority of the justice ministry to target the most serious offences in a country with one of the world's highest crime rates. But critics say the agency has abused its position and used its investigations to pursue political agendas. Masetlha's submission to the commission accused the Scorpions of compromising national security by cooperating with foreign intelligence agencies like the U.S. Central Intelligence Agency and Britain's MI5, backing the suggestion that the Scorpions should come under police control.

Generosity to the neighbours
South Africa announced a R140 million (US$22 million) donation to the UN World Food Programme (WFP) and the Food and Agriculture Organisation (FAO) to alleviate food shortages in Southern Africa. The Department of Agriculture and Land Affairs said in a statement that the government had agreed "to provide humanitarian food aid assistance and to support the rehabilitation of agricultural production in seven countries in the region ... Lesotho, Malawi, Mozambique, Namibia, Swaziland, Zambia and Zimbabwe." "It (the government) has agreed in principle to make R140 million available this year, with the main focus on rehabilitation of agricultural productivity, and in proportion to the identified respective country needs," the statement noted. Of the total donation, 70 per cent R98 million (US$15.4 million) would be used to assist households to become agriculturally productive again. Aid agencies have blamed drought, a shortage of seeds and fertilisers and weakened capacity due to HIV/AIDS as the main factors responsible for the agricultural decline in Southern Africa. Twenty-five per cent of the total donation R35 million (US$5.5 million) would be allocated to direct food relief through WFP, while the remaining five per cent R7 million (US$1.1 million) would be used to support the regional early warning system. "The South African donation comes at a time when nearly 9.2 million people require emergency food aid in Southern Africa. This is the third major South African donation to WFP, and clearly shows the government's support for the people of the region," said WFP spokesman Mike Huggins.

The next president
President Mbeki's successor will face the task of smoothing over the holes created by his policies on Zimbabwe and HIV/AIDS, says an article in the next edition of a US foreign policy journal. An article to be published in November-December issue of Foreign Affairs says the next president, to take power in 2009, will have to "repair the damage that Mbeki has done through his misguided approach to black empowerment and through his policies on Zimbabwe and AIDS." Jeffrey Herbst, provost of Miami University in Ohio, writes in the quarterly journal that Mbeki's successor will need to develop "a political approach that goes beyond racial solidarity," to fix up the problems as well as build on the successes of Mbeki's administration. If the ruling African National Congress (ANC) is to remain relevant, it must put aside its role as a struggle organisation. The party must replace "its primary focus on resistance to apartheid with greater emphasis on the development of non-racial politics and socio-economic equality." Herbst specialises in African affairs. While the article is critical of the ANC and the president, it does have strong words of praise for South Africa for its macro-economic stability and democracy. Empowerment has helped create an iconic black business elite and extend the ANC's influence outside politics, and help it win more investment for SA. However, it has not spread wealth widely, or encouraged the black population into the formal economy. He also criticises a tendency of Mbeki and the ANC to lash out at critics by labelling them racist.

Arms deals - and corruption
South Africa says it is discussing the future of an arms contract with India, after the Indian government apparently cancelled the deal. An Indian military journal reported the deal with South African state arms maker Denel had been cancelled, after allegations of corruption. India had been investigating the deal since April. Denel denies any impropriety. The journal, SP's Land Forces, based its article on a statement made by the Indian defence minister in July. "There is prima facie evidence of violation of clauses relating to use of undue influence and agents/agency commission, as contained in the contracts of Anti-Material Rifles (AMR) signed in 2002," Indian Defence Minister Shri Pranab Mukherjee said in a statement published on the ministry website in July. "A decision has been taken to initiate action to cancel all contracts entered into with Denel," the statement concluded. Government officials in Delhi would not comment on the latest reports. In the apartheid era, South Africa was a successful exporter of weapons, despite sanctions, but in recent years Denel has struggled. It has been losing money and there have been frequent changes of senior personnel. The trade union Solidarity has put out a statement saying the cancellation of contracts with India will cost thousands of jobs.

South Africa slips on Corruption Perceptions Index
Although Transparency International believes the axing of former deputy president Jacob Zuma has "improved" foreign perceptions of how seriously South Africa views corruption, the country still slipped in the organisation's recent corruption perceptions index. Surprising many, South Africa slipped two notches to 46th in an index of 156 countries, from 44th last year, sending a message that those polled, local business leaders and analysts, remain unconvinced by corruption-busting measures. This came despite a number of prosecutions of top officials in the past year, and even though President Mbeki hinted at a total onslaught against corruption, saying he would not hesitate to remove corrupt municipal officials, even at the risk of destabilising that district. But the survey was roundly criticised by Prof Stan Sangweni, who chairs SA's Public Service Commission and is a member of the Anti-Corruption Forum. Sangweni said the report fell "short of giving a meaningful contribution", exposed Transparency International's questionable methodology and reflected only the views of business leaders and analysts, rather than the wider public. He asked how government's handling of the corruption scandal surrounding Zuma could not have spurred SA to a higher position. Transparency International chairman Peter Eigen, speaking from London, admitted that there were holes in the organisation's methodology, such as the fact that it measured only perceptions rather than actual improvements. But Eigen said SA's drop was by such a small margin it had "no significance at all". He said President Thabo Mbeki's axing of Zuma had been seen internationally as "a very encouraging sign", and underlined the fact that SA was "perceived as strong", and was placed just under many European countries on the table and ahead of others such as Greece. SA's place at 46 means that it is the third-best in Africa, behind Botswana (39) and Tunisia (43), even though Africa brought up the rear of the table. But Transparency International's research appears to clash with other surveys on the issue. A US-based research organisation, the Centre for Public Integrity, for example, groups SA among the top third of "strongest countries" when it comes to tackling corruption, whereas the Transparency International survey puts SA within the ranks of the lowest two-thirds. Also, Research Surveys' head of public sector research, Claudia Fenor, said that "generally, public opinion from a variety of sources showed an improvement in perceptions over the South African government's efforts to combat corruption". Hassan Lorgat, head of Transparency International SA, used the forum to call for government to allow the Scorpions crime-fighting unit to remain independent, rather than placing it under the auspices of the South African Police Service. "The Scorpions have great influence in our society and have had great victories (in tackling corruption)," he said. This suggests that if the Scorpions were to be absorbed into the police, it would negatively affect the perceptions that SA is serious about eradicating corruption. Eleven surveys were compiled to get SA's score, including that of the Economist Intelligence Unit, the report of the United Nations Economic Commission for Africa and the World Economic Forum's competitiveness report. Eigen said that SA was "vulnerable to corruption", given its rich natural resources in mining, and had a well-developed arms industry. In 2002, Transparency International said the arms industry accounted for 50% of all corrupt transactions. In October, state-owned arms supplier Denel was accused of paying bribes to secure lucrative arms contracts in India.

South Africa optimistic of WTO success
Although the road leading to a successful World Trade Organisation meeting in Hong Kong in December is "rocky", government is optimistic of a breakthrough. Trade and Industry Minister Mandisi Mpahlwa told the media October 27 that government was "working at breakneck speed" to ensure there was a breakthrough in the talks on cutting trade barriers and trade subsidies during the World Trade Organisation ministerial meeting scheduled for 13-18 December. "The process leading to Hong Kong is a big and rocky path and we really have to work at break-neck speed to ensure a successful meeting. "We are cautiously optimistic we can register success in Hong Kong," he said, after opening the WTO National Consultative conference at Gallagher Estate. He said unlike Cancun in 2003, where trade talks deadlocked, Hong Kong should move to "specifics and modalities" of cutting subsidies and tariffs. "Our view is that by 2010 we would like to see an elimination of subsidies," the minister said, referring to the financial subsidies that the US and European Union offered their farmers. Minister Mpahlwa said a US proposal to cut subsidies in phases was lauded but needed to be done to get the EU to agree to cut agricultural subsidies to their farmers. "Our assessment however is that the main challenge to moving the agricultural negotiations forward lies squarely with the EU which needs urgently to put forward a proposal that responds positively," he said. Labour representative Tony Ehrenriech said although a lot more work was needed to be done, he was hopeful the meeting would be successful. "We remain hopeful that South Africa will advance the developmental agenda of Africa," he said. Minister Mpahlwa proposed a 10-point plan that started with the elimination of export subsidies and "trade distorting" domestic support particularly on agricultural products of export interest to developing nations. He said the Group of eight industrialised nations should provide non-reciprocal duty free and quota free access to all products from least developed countries amongst other points. However, all delegates were in agreement that for Hong Kong to succeed, modalities on total elimination of agricultural subsidies was vital. 

Mbeki endorses move to expropriate land
President Mbeki has endorsed land expropriation in SA, but says it must be done in an environment of "fair compensation". Frustrated by the slow pace of land reform via the "willing seller willing buyer" system, the ruling African National Congress and its allies have called on government to quicken the pace through expropriation. They argue that farmers are deliberately inflating farm prices to stall redistribution. Government is expected to make its first expropriation, a farm in Lichtenburg, North West, after a failure to agree on a price. Mbeki told Parliament October 27 that expropriation would speed up the reform process. "We say that expropriation is provided for in the constitution but the constitution also provides that there must be compensation, fair compensation," he said. Organised agriculture reacted with alarm recently when notices of expropriation were sent to a number of farmers by the land affairs department. The concept of expropriation has raised the question of what constitutes fair compensation. However, allegations have sprung up of farmers being offered less than half the market value of farms. There have also been questions of government using the productive value of the land rather than the market value when deciding on compensation. Referring to the row around Deputy President Phumzile Mlambo-Ngcuka and her statement that SA could learn from Zimbabwe in the matter of land reform, Mbeki said that "merely because the Zimbabwe solution was studied does not mean SA seeks to emulate it". He said those who had criticised Mlambo-Ngcuka's remarks were "scaremongers." AgriSA president Lourie Bosman said: "Most of the problems leading to slow pace of land reform can be traced to government's lack of capacity. "Before resorting to expropriation, government should reinforce its own capacity," he said. Transvaal Agricultural Union GM Bennie van Zyl supported AgriSA's stance, saying expropriation would derail investment in the sector.

African food crisis looms 
Southern Africa will face a severe food shortage if early warnings are not acted on, the South African Red Cross Society said October 5. "The world community must heed the early warnings about the impending crisis in the African region so that we can prevent another disaster like the one in Niger," said Francoise Le Goff, head of the Harare-based Red Cross regional delegation for southern Africa. The west African country of Niger is in the grip of a food crisis after poor rains and locust invasions destroyed crops and livestock. While conditions are improving and food prices coming down, the Washington DC-based Famine Early Warning Systems Network last month warned of shortages again next year. Drought, HIV/AIDS and poor governance have put more than 10-million people in Lesotho, Malawi, Mozambique, Swaziland, Zambia and Zimbabwe in danger of a similar crisis. Le Goff said $27m was needed to feed the 1,5-million most vulnerable communities from December to March. Speaking at the launch of the 2005 World Disasters Report compiled by the International Federation of Red Cross and Red Crescent Societies, Le Goff said the Red Cross would approach large donor organisations and government agencies to raise the money that is required for aid. She said governments needed to make it easier for humanitarian agencies to operate and have access to vulnerable people, rather than ignoring the issue. "Some governments in the region have denied there is a problem with food security while their people suffer and die," she said. Only by mobilising resources and volunteers within the next six weeks could a regional disaster be prevented, Le Goff said. The organisation's 2005 disaster report focuses on information and the importance of early warnings to help mitigate the damage caused by disasters. "Although humans may be powerless to prevent disasters, there is much we can do to minimise their effects," executive manager of the South African government's Disaster Management Centre Louis Buys said at yesterday's presentation. Although early warning mechanisms were expensive, they were able to save lives and cost less than disaster responses, he said. "The importance of information and communication cannot be sufficiently stressed." Buys said if coastal communities in southeast Asia were given even a two-hour warning of the approaching tsunami that hit the region last December, it would have given an opportunity for people to evacuate, as some people living in coastal cities in India were able to do. "The lack of communication, co-ordination and indecisiveness of the US government and disaster management services seen during Hurricane Katrina "caused untold damage", Buys said. "Disasters seek out the poor and destroy them and leave in their wake poorer and more vulnerable families and regions," National President of the South African Red Cross Society Mandisa Kalako-Williams said. She stressed the importance of simplifying early disaster warning information and communicating it to communities in a timely and simple way so that they are able to act on it. "People need information before a disaster as much as they need food, water and shelter after the event," Le Goff said.

Moscow cool on South Africa's UN ambitions
Despite a visit in October to Moscow by a 64-strong delegation of South African government and corporate officials, the largest ever to go to Russia relations between the two countries appear to be cooling. On the Russian side, there is unspoken frustration at the year-long campaign by President Thabo Mbeki to secure a South African seat in the expanded United Nations (UN) Security Council, without sufficient consensus from other UN members. Sources in Moscow are aware that Mbeki made the admission of SA to a permanent seat on the security council a personal priority this year. High-level African sources, who attended the Group of Eight (G-8) summit at Gleneagles, Scotland, in early July, said they believed Mbeki, there as an African Union observer, had asked Russian President Vladimir Putin for Russian support for SA's security council ambitions. Regarding talk of a UN seat for SA, the Russian foreign ministry said they "do not have such operational information". Mbeki then ordered Foreign Affairs Minister Nkosazana Dlamini-Zuma to Moscow to meet her Russian counterpart, Sergei Lavrov, on July 12. She was told in no uncertain terms that Russia would not support expansion of the security council unless there was demonstrable backing for this from the entire UN membership which Dlamini-Zuma could not demonstrate. The Russian foreign ministry issued a statement confirming that Dlamini-Zuma had made the security council seat her priority. Dlamini-Zuma returned to the same issue when she met Lavrov in Moscow early October. By then, most UN representatives had concluded that the move for African permanent seats on the security council had been stopped by US action. Why then were Mbeki and Dlamini-Zuma repeating their request for Russian backing? Lavrov's ministry issued a new statement, acknowledging Dlamini-Zuma's visit, and repeating its line that reform of the UN should be carried out "on the basis of the widest consent, and what is even better, the consensus of member states". There was nothing new in the Russian position, but officials at SA's foreign affairs department said they believed the Russians were "still open" on security council reform, adding that "the situation is changing all the time". Dlamini-Zuma and Lavrov are reported to be on friendly terms. On the South African side, sources at major mining companies have expressed concern that South African government officials, including new Minerals and Energy Affairs Minister Lindiwe Hendricks, have done too little to deal with Russian restrictions on South African mining companies investing in Russia -- and perhaps have done too much to endorse Russian involvement in SA's mining sector. It has been customary for the two governments to issue a detailed report on the results of their annual Intergovernment Commission on Trade and Economic Co-operation (ITEC). This did not happen after the latest meeting, and only a brief press conference was held to discuss the results. Instead Russia's co-chairman at ITEC, Natural Resources Minister Yury Trutnev, issued a summary of his own interests as expressed at a meeting with Hendricks. Trutnev repeated previous statements he has made on behalf of the Renova group's plan to mine manganese in the Kalahari. The minerals and energy department's head of licensing, Jacinto Rocha, said in August that it had issued a manganese exploration and mining licence to Pitsa ya Setshaba, Renova's black empowerment partner. Trutnev also announced that he had met with a delegation from De Beers. Russian sources confirmed that there was such a meeting. Neither De Beers nor Alrosa has reported publicly on the meeting, and both were surprised that Trutnev did so. The two world leaders in diamond mining are assembling a work group to consider joint exploration for diamonds in northwestern Russia. However, there are significant obstacles to co-operation, including new Russian legislation preventing foreign diamond-miners from mining any diamonds they discover.

US Official sees 'Five African Lions' by 2015
Nigeria, Tanzania, Kenya, South Africa and Ghana could rival "Asian tigers" like South Korea by 2015, says former Assistant Secretary of State for African Affairs Herman J. Cohen. In a Washington File interview October 6, Cohen, who was assistant secretary of state for Africa from 1989 to 1993, said he expects "good things" from the "five African lions," including consistent gross domestic product growth of 7 per cent or more a year and the development of a common market for Tanzania, Kenya and Uganda. In the 1960s, Hong Kong, Singapore, South Korea and Taiwan were at comparable levels of wealth as African countries, Cohen said. Since that time, the "four Asian tigers" have experienced astonishing rates of sustained growth, while their African counterparts, for the most part, have stagnated. Cohen said he believes the trend is reversible, provided the lions return to their agricultural strengths and maximise their inexpensive labour force through manufacturing. "More money is not necessarily the answer," the former ambassador to Senegal and The Gambia emphasized. "If you look at all the money that's gone into Africa since the Second World War, there have been 25 Marshall Plans [the U.S. plan for the reconstruction of Europe after World War II]. So money is not an issue. The question is how you use it and what the policies are." Acknowledging that debt has been a continual problem, Cohen commended President Bush's "creative" solutions, in particular his push for multilateral development bank assistance in the form of grants rather than loans. In 2001, when nearly 100 per cent of assistance to the world's poorest countries was provided as loans, Bush challenged the World Bank to stop the "lend-and-forgive cycle" and provide 50 per cent of its aid as assistance grants. Today, approximately 45 per cent of the bank's aid to the poorest countries is provided in the form of grants. Ghana, Kenya and Tanzania all benefit from the program. These three African lions also illustrate Bush's policy of "backing winners" a strategy that concentrates "the lion's share" of U.S. development assistance on those countries most likely to "roar," says Cohen. Ghana, for example, is currently set to receive assistance under the President's Millennium Challenge Corporation (MCC), which provides development assistance to those countries that rule justly, invest in their people and encourage economic freedom. Kenya and Tanzania also are being considered, having been designated "threshold countries" those committed to undertaking the reforms necessary to improve policy performance and eventually qualify for MCC funding in 2004. "Why not concentrate resources in these countries to make sure they do succeed?" Cohen mused. "People criticise the MCC for the way it's been administered, but I think the idea behind it is a very good one." The administration's substantial increases in financial assistance to Africa elicited praise from Cohen, who commended the tripling of U.S. assistance to Africa to US$3.2 billion in 2004 as well as the US$15 billion HIV/AIDS prevention program, the majority of which benefits countries in sub-Saharan Africa. To date, the program has helped treat 235,000 Africans, 90,700 of whom live in Nigeria, South Africa, Tanzania and Kenya. The ambassador was less enthusiastic, however, about the emphasis on teaching abstinence that often accompanies HIV/AIDS assistance: "Let local governments decide how to handle it, based on their culture," he said. Cohen's tiger-lion comparisons inevitably invoke questions about the growing influence of China on the African continent. Chinese investment in Africa has more than tripled since 2000, passing the US$30 billion mark in 2004, and Chinese-Kenyan trade alone has doubled in the last three years. He sees these developments as positive: "China could do a lot for Africa. China is hungry for resources. Whatever Africa has to offer, they need it." Cohen has continued to work in African affairs as president of Cohen and Woods International, a strategic planning firm that represents African governments and multinational corporations. He remains optimistic about the continent, despite "the disappointments of Zimbabwe and Cte d'Ivoire." Moreover, he continues to hold high hopes for the five lions: "Between now and 2015, if Africa can produce the equivalent of five Asian tigers, we can declare victory."

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AUTOMOBILES

GM to bring Cadillacs into SA


US Vehicle manufacturer General Motors (GM) could soon start distributing its Cadillac brand in SA, the company said October 5. The addition of Cadillac models will enable General Motors to take advantage of the boom in the local economy, spurred by low interest rates and resultant strong consumer demand. In April this year, the company announced its plans to make its Hummer H3 range at its Port Elizabeth factory next year. The company has said that the Hummer H3 models would be produced for both right-hand-drive and left-hand-drive markets. General Motors SA manufacturers and distributes brands such as Chevrolet, Isuzu, Opel and Suzuki. General Motors SA spokeswoman Denise van Huyssteen said October 5 that the company intended to broaden its product portfolio to enable it to compete in more segments of the local market. The Financial Times quoted Maureen Kempston Darkes, head of General Motors operations in Latin America, Africa and Middle East, saying the South African market was ready for Cadillac imports. Econometrix economist Tony Twine said the success of the government-initiated Motor Industry Development Programme had seen local manufacturers adding more models to their product ranges. Twine said, given that most major badges already had a presence in SA, "the potential for further expansion is fairly limited". Prior to General Motors coming back to SA, a small independent retailer imported and sold the Cadillacs in SA. "But I believe that, given their strong and wide dealer network, General Motors SA stands a good chance to do well," said Twine.

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AVIATION

SAA director quits

National carrier South African Airways (SAA) has parted ways with its chief operations officer Kyrl Acton, who joined the airline just six months ago. The national carrier said october 3 that Acton, who started in April, "had decided to leave the company to pursue other commercial interests". It declined to give details of Acton's departure, including his remuneration package. But sources at the airline said Acton was fired by company CEO Khaya Ngqula after the two executives could not agree on strategies to sustain the airline's profitability. Acton declined to comment on the reasons for his departure or where he was going. Ngqula was not available for comment. Public Enterprises Minister Alec Erwin has apparently been informed about Acton's departure, and had given Ngqula the green light to offload him. Erwin's spokeswoman Gaynor Kast could not deny or confirm the minister's involvement in Acton's departure, saying the hiring and firing of staff was an operational matter that involved the company and its board. Acton joins a growing list of officials who had either been suspended or fired since Ngqula took the reigns at the company nearly a year ago. Seven senior managers, including human resources head Nolwazi Qata, finance head Mark Shelly and marketing GM Nonhlanhla Khoza are currently suspended pending investigations into their cases. The charges against them vary from corruption to abuse of power. SAA spokesman Onkgopotse Tabane said that the cases were at different stages. Acton's appointment five months ago was seen as key to SAA's newly developed turnaround strategy focusing on improved customer service, network growth and profitability. With 25 years' experience working in the airline industry, analysts said Acton was one of the few executives at SAA with extensive knowledge of the sector. Announcing Acton's appointment in April, SAA described the Irish national as "a seasoned aviation executive with a wealth of experience". Ngqula said at the time that the appointment of Acton was "one of the most critical areas to be achieved as part of SAA's re-engineering process". Acton had beaten nine other short-listed candidates to take the chief operations position, the first such post in the airline's 70-year history. It was clear Acton had a huge role to play in its turnaround strategy. He had eight general managers reporting to him. He started his career with Ireland's national carrier Aer Lingus, where he rose to become CE for passenger service. In 1995 he joined Chile's national carrier, Lan Chile, as senior vice-president responsible for planning and development. He played a leading role in the airline's initial public listing in 1997. He later joined information technology firm Unisys as transportation vice-president, overseeing its aviation markets in Europe, the Middle East and Africa.

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ELECTRICITY

Eskom posts R5.2bn profit

South Africa's biggest state-owned enterprise, Eskom, reported to parliament October 19 that its group profit after tax has risen to almost R5.2 billion in the past financial year. The electricity utility also exceeded its electrification target in the same period. Presenting its annual report to the Portfolio Committee on Public Enterprises, an Eskom executive said that by 2005/06, 3.2 million homes would have been electrified since the advent of democracy in South Africa in 1994 - an average of about 300 000 homes a year. At the same time, electricity prices in South Africa were among the lowest in the world: they were lower than several highly industrialised countries in North America, Scandinavia and western Europe, the report stated. Its average price of electricity is currently 16.04 South African cents per kilowatt hour, compared with an average of about 9 US cents (about 59 SA cents) charged in Germany and about 7 cents (about 46 SA cents) charged in the United States. In terms of scale of activities, the report stated that Eskom was among the top eleven utilities in the world in terms of generation capacity, and was among the top seven in the world in terms of sales. The giant utility's total assets currently amount to R109,2 billion and it employs over 31 000 staff, according to the report. However, the chief executive told the portfolio committee that Eskom's costs per new electricity connection were now starting to increase, due to the fact that it was now bringing electricity to more rural areas with low population densities and with greater distances to cover. The utility would also be greatly expanding its generation capacity - to an intended extra 5,304 megawatts by 2009 - and had projected an increase in capital expenditure of over R25 billion by 2009. At the request of its shareholder, the government, Eskom has changed its financial year from December to March, making this year's reporting period 15 months long. In the 2005 financial year to end March, Eskom said it spent R157 million on corporate social responsibility projects, while it spent R10.3 billion on black economic empowerment entities, of which R1.1 billion was spent on black women-owned enterprises. HIV and AIDS continue to be a strategic focus area for the utility, which has contributed R83 million towards research for the development of a vaccine for the virus. In terms of Eskom's special focus on voluntary, confidential HIV testing and counselling, it noted an HIV prevalence rate of 8.9% of its employees in 1999. By 2003 the prevalence rate was therefore predicted to be as high as 13.5% by 2003, but, interestingly, Eskom noted after a follow-up study in 2003 that the prevalence rate stood at a lower figure, of 10.7%.

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FOOD & DRINK

SABMiller in US$478m Offer for Backus

SABMiller announced October 25 that it would consolidate its newly acquired position in Latin America, confirming it would make a US$478m public offer for the shares in Peruvian brewer Cervecerias Peruanas Backus it did not already own. The offer is one of a number of offers due to be made in the near future following its US$7,8bn take-over of Bavaria, South America's second-largest brewer in September. In this deal, SABMiller paid US$3,5bn for the Santo Domingo family's 71,8% stake in the Peru's largest brewer, and took over debt of US$2bn. The company intends to make offers to the minorities in Bavaria, which will cost about US$1,4bn. The offer to Backus -- majority owned by Bavaria -- constitutes about half of the remaining value of what SABMiller announced it intended to spend at the time of the Bavaria deal. The company said that it had already gained the approval of a large minority shareholder at the quoted price, saying that Cheswick Commercial, which holds about 20% of the class A voting stock in Backus, had agreed to tender its shares.

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FOREIGN INVESTMENT

Investment Up 2%

Foreign direct investment (FDI) flows rose 2% after three years of decline according to the latest World Investment Report, the definitive annual survey of FDI flows by the United Nations Conference on Trade and Development (Unctad). The big story was the 40% increase in flows into developing countries, particularly Asian countries, led by China (which took in $61bn of FDI last year). All Africa managed to do was to keep inflows constant, at $18bn, with most going into oil producers such as Nigeria and Angola. The continent still receives only 3% of global FDI inflows. And SA, which saw a fall in inflows last year, doesn't even feature in Unctad's list of the top 10 African recipients. We do rank high as outward investors. The Unctad report says outflows from Africa doubled last year (to $2,8bn), most of that by SA's companies. We are pretty good at exporting capital but not too good at importing it -- at least not as direct investment, defined by Unctad as "involving a lasting interest by a home-economy entity in an enterprise in a host economy" and, in technical terms, involving an equity stake of more than 10%. But while we may not be too good on direct investment, SA has proved pretty good at attracting large flows of portfolio and other foreign investment in local equity, bond and money markets. Indeed, that tendency to attract portfolio rather than direct foreign investment is one of the peculiarities of SA, contrasting it with other emerging markets. In SA, in the past decade, a recent International Monetary Fund study showed the split between portfolio and FDI inflows had been 70:30; the ratio is reversed for other comparable emerging markets. But there is no doubt SA has done well out of portfolio and other inflows lately. They have enabled us to finance deficits on the current account of the balance of payments as well as build up foreign reserves. But the conventional wisdom is that these "hot" money flows are skittish. FDI, the argument goes, is a more durable source of foreign investment that will do more for the economy in the long run. But it's not that simple. Which is why it's not clear that we should necessarily worry about the Unctad figures. For one thing, FDI isn't always that "cool", nor are portfolio flows always "hot". The change in the way international investors view emerging markets may mean fund flows into emerging market bond and equities markets are a lot more stable than they used to be. More profoundly, though, FDI inflows aren't guaranteed to be good for economic growth prospects; nor should we assume that FDI outflows must be bad. It all depends. Says Edge Institute economist Stephen Gelb: "It's not just about the money. It's more about the quality of the FDI we receive." The debate, he argues, should focus on the growth benefits that come through quality FDI. That depends on issues such as whether inward investment brings improvements in technology and productivity, as well as enhancing local skills. Such improvements would boost long-term growth prospects. In this quality sense, though, outward FDI could as easily have benefits for the economy as the inward version. There is no reason why our companies shouldn't be buying companies abroad, or entering joint ventures, to access better technologies and skills, rather than just to enter new markets and grow profits. In some cases, they may well be. But there's no clear evidence. And we know very little about the real effect of incoming FDI. This is, however, where there are some worrying trends evident in the second half of the Unctad book, which looks at transnational corporations and where they do their research and development. That's important because if SA were doing well as a recipient of some of the research and development activities of foreign investors, that could be one indicator it was getting something out of FDI in terms of technological capacity and skills. The Unctad study finds multinationals are locating more research activities in developing countries. But SA's share of the research spend of US multinationals, for example, is below average for emerging markets. So the quality questions about foreign investment need to be asked. But the money is not entirely unimportant. As it happens, this year is set to see a big FDI turnaround as the proceeds of Absa's Barclays purchase flow in. But SA's current account deficit is likely to stay with us for a while, especially if growth accelerates. That has to be financed by capital inflows. Portfolio inflows may well hold up. But there are concerns, among economists and ratings agencies, about the composition of SA's capital inflows and how robust they will be in coming years. So the FDI money matters. But so does the quality. And the measures that will encourage FDI with maximum economic benefits are likely to also encourage the best kinds of domestic direct investment.

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HIV/AIDS

De Beers aids plan recognised

Against a backdrop of increasing demands from activists and medical professionals for government to speed up the provision of AIDS drugs, the world's biggest diamond producer, De Beers, has walked off with a prestigious international award for its work in combating the epidemic. De Beers was among six companies recognised by the Global Business Coalition on HIV/AIDS for its efforts to fight the epidemic. The United Nations estimates close to 40-million people are infected with HIV, the virus that causes AIDS, 60% of them in sub-Saharan Africa. In SA, more than 6-million people are infected. De Beers won an award for its workplace HIV counselling and testing programme, which has seen a sharp increase in the number of workers volunteering for confidential HIV screening. For example, 95% of the workers at Koffiefontein, one of De Beers' seven South African diamond mines, were tested last year. "Testing is important because it changes behaviour," says Busi Boikanyo, a nurse employed by health-care company Careways Group to conduct counselling and testing at De Beers' Cullinan mine, near Pretoria. Testing also identifies workers who, with the help of a "wellness" programme, can take steps to stay healthy, and start treatment if necessary. In September, the Cullinan mine launched one of its regular testing drives, hoping to improve on last December's 65% take-up. Two weeks into the programme, 70% of the company's 2700 workers had come forward. Mine managers and union leaders went for HIV tests to encourage stragglers. The mine has made important changes since last year's testing programme, says National Union of Mineworkers shop steward Freddy Madike. Workers were uneasy about using in-house medical services, fearing their results would not remain confidential, and so Careways was brought in. Workers complained about standing in long queues at the end of a tough shift, and asked for testing facilities inside the 760m-deep mine. This was done. "We are the gentlemen of mining," says Cullinan operations manager Ivan Vidulich, explaining that the relatively wide and shallow diamond mine can easily accommodate HIV testing. Cullinan's HIV/AIDS co-ordinator, Thabo Manne, says surrounding residents have asked the mine to provide testing facilities for them too, a sign of the trust they place in its abilities. He concedes their interest may be triggered by reluctance to use overburdened government clinics, and a desire to avoid being tested by people they know. Fear of stigma often prompts people to seek HIV tests outside their communities, he says. "Whites from eastern Pretoria often prefer to go to Refilwe (a black township) for HIV testing." Madike says workers are more willing to be tested now that treatment is available, as without it many prefer not to know they have a fatal disease. In July 2003, De Beers announced it would provide AIDS drugs to employees and their partners, and workers who had been retrenched or had retired. Although government had signalled its intention to begin providing free AIDS drugs a few months earlier, it began to do so in earnest only shortly before the April 2004 elections. De Beers does not provide AIDS drugs to workers' children, but refers them to nearby government clinics. Madike says the unions hope children can be brought into the programme. The increase in testing has boosted the number of workers and spouses enrolled on AIDS treatment programmes but, like many mining houses, De Beers has been surprised by the relatively slow take-up of the life-saving medicines, says its HIV/AIDS community programme manager, Tracey Peterson. The company estimates 10% of its 10000 workers in SA are HIV-positive. By the end of August, only 310 were enrolled in its wellness programme, and half of them were taking AIDS drugs. "Many people believe media reports that antiretroviral medicines are not the only way to deal with the disease. So they opt for traditional remedies that claim to be cures," says Manne. Few workers' spouses have taken up the offer of free AIDS drugs, despite De Beers providing treatment wherever they live, says Peterson, highlighting an issue that may be more a reflection of workers' infidelities than shortcomings in the company's communication strategy. There is no doubt unions and the company's management have made a significant effort to persuade employees to get tested for HIV, but underpinning what they do is the grim reality of the AIDS epidemic. "Don't forget -- workers have seen their colleagues dying," Madike says.

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INTERNATIONAL ECONOMIC RELATIONS

SACU-U.S. Trade Talks Resume

Efforts by SA, its customs union partners and the US to sign a free trade deal resumed early October after a year-long stand-off, but negotiators warned that the hardest part was yet to come. The first few steps in the second bite at the deal in Botswana were "cautious". "The real difficulties still lie ahead, but this was an important first step," said SA's chief trade negotiator Xavier Carim. Negotiators plan to meet once every eight weeks or so with the aim of concluding negotiations towards the end of next year. This is two years later than the original scheduled completion date. Talks ran aground after serious differences emerged between the Southern African Customs Union (Sacu) and the US. In one of several efforts over the past year to revive talks, officials from both sides agreed at a meeting in Geneva in July to resume talks in bite-sized chunks. The focus of the Botswana session was on industrial tariffs. Carim said a large part of the talks involved updates on technical developments such as tariff amendments, as there had been several changes in the time negotiations were stalled. Negotiators touched on some of the sticking points including mainly "new-generation issues" such as intellectual property and government procurement, which do not traditionally form part of trade deals between two regions. The two participants tried to identify areas of convergence and divergence in difficult areas. The aim was not to "get into the substance" of these issues at the Botswana meeting, Carim said. "With respect to trade in goods and industrial tariffs, we are relatively confident that we could have a deal there," said Carim. Negotiators are looking to schedule the next session in the middle of November. It will tackle the sensitive areas of agriculture and textiles. Sacu hopes to lock in the benefits its exporters enjoyed under the US's African Growth and Opportunity Act permanently through a free trade deal, as well as giving exporters increased access to US government tenders.

Agreement to Strengthen SA-Zambia Relations

Foreign Affairs Minister Nkosazana Dlamini Zuma and her Zambian counterpart Lt Gen Ronnie Shikapwasha signed an agreement October 18 aimed at strengthening co-operation between the two countries. The agreement seeks to establish a commission for the implementation of the 1996 general agreement on co-operation in the economic, social, scientific, technical and cultural fields. It is also meant to provide the two governments with a process to implement co-operation in a structured and workable format, a need expressed by the Zambian government last year. The two leaders noted the report of a meeting held by senior officials from the two countries in Pretoria where outstanding areas of co-operation and agreements were discussed. The two ministers urged the officials to accelerate discussions on these outstanding agreements so they could be concluded soon. Addressing reporters, Lt Gen Shikapwasha thanked South Africa for helping his country during the prevailing fuel crisis. The fuel shortage, he said, was as a result of refurbishment work being done to the country's main refinery. Lt Gen Shikapwasha added that South Africa made it possible through private sector-driven initiatives for the needed fuel to be exported into Zambia by rail and road. "The South African government has played a big role to mobilise wagons and trucks that were needed to carry out this exercise. " Lt Gen Shikapwasha said Zambia had waived up to 35 percent of taxes on all fuel imports to allow for the price at pump stations in Zambia to be the same as when the fuel was produced and sold at refineries there. Dr Dlamini-Zuma expressed appreciation at the solidarity and support Zambia had given to South Africa's struggle for liberation. She also reiterated South Africa's commitment to consolidating close relations with Zambia. After the meeting with Dr Dlamini-Zuma, Lt Gen Shikapwasha paid a courtesy call to President Mbeki.

South Africa and Iraq to increase trade relations

South Africa and Iraq have resolved to increase political and trade relations, especially in the oil sector. This emerged following the first South Africa/Iraq bilateral meeting between Foreign Affairs Deputy Minister Aziz Pahad and his Iraqi counterpart Talib Al-Bayati at the Union Buildings in Pretoria October 5. Mr Pahad told reporters that the parties discussed broad economic relations, and in that context, the Iraqi delegation informed them that the Iraqi oil industry had "tremendous" potential for involvement and investment. Deputy Minister Pahad said Iraq had the second largest oil reserves in the world. He said relevant departments from both sides would look more into the potential of economic relations between the two countries. "The deputy minister [Al-Bayati] has stressed that there is a lot of potential in Iraq in the post-conflict situation and reconstruction and development process for international partnerships generally and specifically for South Africa," said Mr Pahad. Economic trade between South Africa and Iraq increased from over R90 million in 2004 to over R200 million during the first five months of this year - even during years of conflict there. "So we have discussed the potential of visits between our business sectors. "There are a lot of Iraqi business people based in [neighbouring] Dubai, Jordan and Kuwait and we think that can become the starting point between the business sector and parastatals (state enterprises)," Mr Pahad explained. Deputy Minister Pahad added that he was happy with the "thorough" briefing he received from Mr Al-Bayati regarding the constitutional process unfolding in Iraq. These include the referendum on the draft constitution that is scheduled for later this month, which will be followed by elections in December. "[The Iraqi] government is confident that there will be a very successful turnout and that a political process is on the roll. We also received a briefing on the security situation there," said Mr Pahad. He said the South African government had always believed Iraq was "very strategically placed" and when peace finally came it would be a major political player in the Middle East region. South Africa was also seriously considering opening a mission in Iraq, precisely because the country was not represented there. In addition, trade is expected to increase with the recession of conflict there. The South African delegation to the meeting briefed the Iraqi delegation about developments in the country and in Africa as well as South Africa's interest in increasing economic relations in the region, including in Iraq. On his part, Deputy Minister Al-Bayati said Iraq's transitional government had started bringing democracy there, citing the upcoming referendum and elections for "real term government". He said Iraq viewed South Africa - the only African country Iraq has an Embassy in - as important and that it envisaged strengthening existing political and economic relations with it. "There is a lot of potential resources in Iraq such as oil, gas and minerals. Iraq needs oil for reconstruction and we need all kind of help from friendly countries and South Africa can do a lot to help the Iraqi people and government," said Mr Al-Bayati. On security issues, Mr Al-Bayati said Iraq was up against groups like the Al-Qaeda that did not believe in democracy and attacked women and children. "They consider everybody who takes part in elections, referendums or democratic processes as infidels who deserve to be killed. Car bombs are targeting innocent civilians and it is our responsibility to protect our people and maintaining security. "We had a vacuum of power because of the collapse of the [Saddam Hussein] regime and the dismissal of the army and police force but now we are in the process of rebuilding our army, police force and security organisations," he explained. He added that when the elected Iraqi government ran the country, its security forces would be capable of maintaining security, they would discuss with the multinational force that is deployed there to take over from them. "We will keep them for as long as they are needed and will not be kept [in Iraq] longer than they are needed," he explained.

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PETROCHEMICALS

Total's Natref Move 'Bolsters Merger Case'

Oil company Total has chosen to forgo its right to buy another 13,6% of the Natref refinery from Sasol, a decision Sasol says strengthens its case for a merger between its liquid fuels division and Engen. The planned, merged Uhambo Oil would have less of a dominant position if Total exercised its option. Total and all the other major global oil corporations operating in SA are opposed to the merger, which they say would be to the detriment of the fuel industry, consumers and the economy. Total SA owns 36,4% of the inland Natref refinery, and Sasol owns the balance. If approved, the merger would see Sasol transfer ownership of Natref to the proposed merged entity, Uhambo Oil. But Total had first right to grow its stake to 50%. The second witness in the Competition Tribunal hearing on the merger, Sasol Oil MD Ernst Oberholster, said October 6 that Total had decided not to exercise the option as agreement could not be reached on the price it would have to pay. Oberholster said Sasol and Total had appointed respective consultancies. Both consultancies consulted a single third party. The three together arrived at an agreed price, which Total said was "too high". A Total representative said that it was not viable in view of its long-term projections. A source, who wished to remain anonymous, said: "Clearly they (Total) were not too worried about foreclosure if they walked away." Total and other oil companies fear Uhambo will have the incentive and ability to foreclose, meaning it will not sell fuel to oil companies despite having sufficient supplies. These oil companies rely heavily on Sasol for fuel supplies in the inland region, where Sasol has more than 80% of production capacity. The global Total group owns 51% of Total SA, a black consortium owns 25% and Rembrandt the rest. Meanwhile, BP told the tribunal yesterday that Sasol appeared to have tried systematically to restrict opposing oil companies' road and rail transport from the coast to inland areas. Oberholster conceded that this had formed part of "scenario planning" in the past, but said this was considered only where capacity could be legitimately limited. BP's legal representation also pointed to a Sasol document in which foreclosure was contemplated. Oberholster said while this may have formed part of scenario planning, Sasol did not intend to foreclose as it would be illegal for Sasol as a dominant player to do this. Oberholster said Sasol and Engen would derive synergies to the tune of R600m-R750m a year from the merger if it were to go ahead. He said the merged entity would be less than 1% of the market capitalisation of global petroleum giant BP. Oberholster also said that while the merged entity would have a retail market share of about 34%, it would be very difficult for it to grow that share substantially. He said the efficiencies that would emerge from the merger would "factor through to lower petrol prices".

Corruption damaging to oil and gas industry

"The most important contracts are the ones we have with the societies in which we operate. Respecting these will enhance the image of our industry," says Eivind Reiten, President and Chief Executive Officer of Norsk Hydro AS. Mr Reiten was speaking at the corporate governance plenary on the final day of the 18th World Petroleum Congress (WPC) in Johannesburg September 29 that looked at the factors that influence the image of the oil and gas industry. He said that trying to buy credibility through social investment, technology and skills transfer was not enough. "Factors that influence the image of the industry go far beyond sponsoring. Corporate responsibility should be integrated in our daily business. It has to be integrated in order to filter through [the organisation and the industry]," he said. Mr Reiten said that corruption was a major problem with the World Bank saying that more than $1 trillion was made in bribes only. This amount did not include things such as embezzlement. He said transparency should be demanded in this industry. This call for transparency was echoed by the chairperson of Transparency International Peter Eigen as corruption is most damaging to the image of large global players. Dr Eigen said corruption affected the world especially countries in the south struggling to overcome poverty. This he attributed to the states' inability to expand jurisdiction past its borders in a globalised economy. Dr Eigen said this had to do with the time horizon of the democratic state which was a short span while the extractive industry had a longer life span. He added that this was also a result of northern governments who tolerated investors and exporters who participated in corrupt activities, and the southern governments who accepted these activities. "Corruption is just one example of governance failure. What can be done by the extractive industry which is more at risk than other sectors," he asked. Here Dr Eigen said civil society through organised groups could play a crucial role through forming a coalition with other actors namely governments and business. This as the extractive industry was thought to be the most susceptible to corruption as extensive research had shown that countries rich in natural resources, if they also hade weak political and social institutions, often had poor growth and developmental outcomes and high levels of poverty. In these cases, corrupt governments often collude with corrupt investors, bankers and other private sector actors to steal the proceeds of extractive industries, rather than investing them in the country's development, said Kimberly Ann Elliot of the Institute for International Economics in a Testimony before the Senate Foreign Relations Committee in July 2004. Dr Eigen cautioned however that it was very easy for corrupt activity to enter into a community, but once it had settled it was difficult to root out. He quoted Nigeria as an example saying that the country was doing good work through the Nigeria Extractive Industry Transparency Initiative (NEITI). Through this initiative Nigeria is making its petroleum revenues and contracts transparent. Dr Eigen also said that African leaders have understood how deadly corruption can be for countries and added NEPAD has an important role to play in driving out corruption. When asked if the world was winning the battle against corruption Dr Eigen responded: "In my personal opinion it is going down." He added that because of the intervention initiatives that are in place there is a greater awareness of corruption, the media reports on it thus making the problem seem as if it is worse than in previous years. Rooting out corruption, concluded Mr Reiten, involves having a long term perspective and working consistently to eradicate it.

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TELECOMMUNICATIONS

Iran contract with MTN network

Iran is finalising a new contract with South African firm Mobile Network (MTN) after throwing TeliaSonera AB's Turkish affiliate Turkcell out of a venture to set up the country's second mobile network. Ebrahim Mahmoudzadeh, the head of the Irancell consortium set up to manage the multi-billion dollar project, said MTN had deposited the license fee required to take the 49 pct stake originally awarded to Turkcell. The depositing of the cash with an Iranian bank is a first step to negotiating contract details and signing a deal. The comments are further confirmation that Turkcell is out of the running, despite the company's assertion that it remains involved. The head of the board of Iran's state-run telecoms company said October 3 that 'in the eyes of the Telecommunications Ministry and the Iranian partners in the project, Turkcell is no longer involved'. Turkcell was initially awarded the contract in February 2004 in a landmark deal to provide a mobile phone service to some 16 million users over the next 15 years, subject to the payment of a licence fee. But the agreement suffered a setback last year when Iran's conservative-controlled parliament objected to giving a foreign firm a majority stake in the venture. The Turkish firm's stake was then cut from 70 to 49 pct, a move deputies said was necessary to protect Iran's National security.

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