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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: 045 - (03/10/05)
The African National Congress's (ANC's) alliance partners have
given the thumbs up to a crisis-management process agreed to by the party's
national executive committee (NEC). The agreement signalled that the ANC's
leadership may finally be coming to grips with the political crisis unleashed by
the sacking of former deputy president Jacob Zuma. Alliance leaders endorsed the
line taken by the NEC that neither Zuma nor President Mbeki was more important
than the unity of the ANC and its alliance, meaning both had to be reined in.
The ANC's top leadership has been under pressure from its own ranks, as well as
Cosatu and the South African Communist Party (SACP), over its perceived lack of
direction in the Zuma crisis. SACP general secretary Blade Nzimande said his
party welcomed the ANC's decisive steps to deal with the crisis. The ruling
against the Scorpions in the Julekha Mahomed case effectively opened a new front
in the battle involving former Zuma. Judge Ismail Hussain's finding that the
search-and-seizure raids on Mahomed, one of Zuma's attorneys, were illegal has
given the Zuma camp ammunition to launch further court actions against the
Scorpions. The ruling has also given Zuma the opportunity to argue that his
right to a fair trial has been compromised. During the hearing of Mahomed's
case, Judge Hussain himself questioned whether Zuma would have a fair trial,
following the raids. Current indications are that Zuma will wait and use his
trial to launch his counter-offensive. One source said the trial would be used
to turn the spotlight on the arms deal and those, like the president who
exercised influence on the process, rather than Zuma, whose role was peripheral.
London listed South African insurer Old Mutual vowed September 23 to
press ahead with its £3.3bn bid for Swedish rival Skandia, despite its offer
being rejected by by a majority of its target's board. Old Mutual insisted its
determination to take control of the insurer could not be described as 'hostile'
as the management of Skandia had pledged not to stand in the way of a direct
approach to the shareholders. Skandia even published independent advice from the
investment bank ABN Amro describing the approach as "reasonable and
fair." Julian Roberts, the Old Mutual finance director, said that 60% of
Skandia's investors were already supportive of the deal. Bernt Magnusson,
chairman of Skandia also supports the offer, saying it represented a
"reasonable premium" over the share price. The bid ran into further
trouble when one of the target's major shareholders went public in its
opposition to the sale. The Fourth National Swedish Pension Fund backed the
majority of Skandia directors. The Swedes also do not like the idea of being
paid in Old Mutual shares. They argue that as much of Old Mutual's earnings are
from South Africa they are therefore much more volatile than Skandia stock.
The health department hit back September 26 at the Congress of South African
Trade Unions (Cosatu) general secretary Zwelinzima Vavi for his criticism of
government's response to the HIV/AIDS epidemic, accusing him of being a
mouthpiece for the Treatment Action Campaign (TAC). The TAC has been one of
government's fiercest critics on the HIV/AIDS front. More than 6-million people
have the disease, according to government figures. Vavi described the lack of
government leadership on HIV as "a betrayal of our people and our
struggle". He criticised Health Minister Manto Tshabalala-Msimang for
emphasising traditional medicines and nutrition instead of putting more effort
into making the antiretroviral medicines available to people infected with HIV.
Vavi's comments were "irresponsible", and demonstrated "a high
level of ignorance" about the challenges posed by the epidemic, said health
department spokesman Sibane Mngadi in an e-mailed statement. "This should
be expected as Cosatu's positions on health are determined by TAC and the AIDS
Law Project" (which provides legal services to TAC).
South Africa's attempts to solve the crisis in Cote d'Ivoire appear to be
unravelling, which could leave President Mbeki with less of an appetite for
engaging in conflict resolution in Africa. Mbeki was given a mandate by the
African Union (AU) to mediate between Ivorian President Laurent Gbagbo,
opposition political parties and rebel leaders controlling the northern half of
the former French colony. After heavy criticism of Mbeki's alleged bias toward
Gbagbo September 17, AU chair Nigerian President Olusegan Obasanjo said South
Africa's mandate to mediate in Cote d'Ivoire would be reviewed by the
organisation's Peace and Security Council. Government has claimes neither the
African Union nor the United Nations Security Council has asked President Thabo
Mbeki to step down as mediator in the peace process. President Mbeki's
spokesperson Murphy Morobe said there was no truth to reports that appeared in
some newspapers, apparently sourced from French news agencies that the two
multilateral bodies had asked the South African president to step down as
mediator. The Ivorians are due to hold elections on 31 October, but the country
remains by and large divided between the south and north.
The leaders of India and South Africa called for a reform of the UN Security
Council to address "the gross imbalance of power" in the world body.
Indian Prime Minister Manmohan Singh told the UN World Summit in New York that
the council's structure reflected the world of 1945. The summit coincided with
the UN's 60th anniversary. World leaders have signed a deal on reforming the UN,
though critics say it is much weaker than first envisaged. UN Secretary General
Kofi Annan hailed a protocol obliging intervention in cases of genocide, and
reaffirmation of goals to tackle poverty.
Serious Concerns Over Detention Conditions
Human rights activists in South Africa are hoping that a chiding by the UN
over the poor state of detention facilities will prompt the authorities to take
immediate steps to remedy deteriorating conditions in prisons. At the end of a
two-week study the UN's Working Group chairwoman, Leila Zerrougui, noted that
pre-trial detention conditions fell far short of meeting the international
standards South Africa has subscribed to, in particular the Covenant on Civil
and Political Rights. In statement released on Monday, Zerrougui raised concerns
that awaiting-trial prisoners often had to endure conditions "much more
stringent than the ones for sentenced detainees". She pointed out that
detainees had limited access to medical facilities, which exacerbated the
condition of inmates suffering from serious illnesses, at times leading to
death. Despite overcrowding in pre-trial detention facilities, the UN noted that
bail was "seldom granted, even for minor offences", or exceeded what
the suspect could afford. Of specific concern was the detention of accused
persons at police stations for months on end and the "high" number of
deaths in custody. South Africa has the highest rate of incarceration in Africa.
In an attempt to lighten the burden of overcrowding, South African prison
authorities released more than 7,000 prisoners in June under a special clemency
programme for those jailed for nonviolent and less serious crimes. Although the
clemency initiative has been welcomed by some rights groups, they have pointed
out that releasing offenders without proper rehabilitation or reintegration
programmes was unlikely to solve the problem.
White Farm to be Seized
South Africa says it will for the first time force a white farmer to sell
his land under a redistribution plan. The decision was announced by the
Commission on Restitution of Land Rights, set up to return to black people land
lost under apartheid. An official said talks to agree on a price for the farm
had failed and the farmer has vowed to challenge the move. South Africa's
government says it wants to hand over about a third of white-owned farm land by
2014. The commission said September 22, an expropriation notice would be served
on Hannes Visser, the owner of a cattle and crop farm in North West province.
The government offered to buy the 500-hectare (1,250-acre) farm for $275,000 but
Mr Visser said it was worth almost twice as much. Mr Visser told the South
African news agency Sapa he intended to fight the decision in court.
"Should the courts turn out to be my final recourse, I will go that
route," he said. Two-thirds of the country... remains in the hands of less
than 60,000 people who unfortunately in this case are white farmers. The
government argues that Mr Visser's father bought the land from a black farmer
through a forced transaction in 1968. Regional land claims commissioner Blessing
Mphela said the seizure was a last resort. But he added that South Africa must
speed up land reform or face chaos. Eighty per cent of agricultural land is
owned by white South Africans, who make up only 10% of the population - the
legacy of apartheid laws. Since coming to power in 1994, the current government
has adopted a "willing buyer, willing seller" approach to land
redistribution, paying market prices for land that white owners are prepared to
sell, and then distributing it to landless blacks. But Deputy President Phumzile
Mlambo-Ngcuka says the pace of reform should be speeded up as in neighbouring
Zimbabwe, where most white-owned land has been seized by the state. "There
needs to be a bit of oomph. That's why we may need the skills of Zimbabwe to
help us," she said.
Mbeki Concludes Trip to the UN Summit
President Thabo Mbeki concluded his visit to the Millennium Review Summit
and the 60th Session of the United Nations General Assembly (UNGA) in New York.
World leaders converged at the Summit to review the progress made in the
implementation of Millennium Development Goals (MDGs) and to deliberated upon
the comprehensive reform of the UN, including the Security Council. In his
address to the summit President Mbeki criticised world leaders for not
implementing the Millennium Development Goals, agreed upon at a United Nations
summit in 2000. These include halving extreme poverty, halting the spread of HIV
and AIDS and providing universal primary education by 2015. He said world
leaders had not achieved the required scale of resource transfer to empower the
poor to "extricate themselves from their misery". Speaking about UN
reform, Mr Mbeki said the only saving grace with regard to the "miserable
performance" on Millennium Development Goals so far was for world leaders
to reaffirm their commitment to strengthening the United Nations with a view to
enhancing its authority and efficiency. He said their approach to deploying the
necessary resources for the realisation of the Millennium Development Goals had
been half-hearted, timid and tepid. Meanwhile Foreign Affairs Minister Dlamini
Zuma remained in New York to head the South African delegation, which includes
foreign affairs Director-General Dr Ayanda Ntsaluba, to the Summit's remaining
sessions and further bilateral discussions. During his visit to New York
President Mbeki, supported by Minister Dlamini Zuma, held bilateral discussions
with leaders of Seychelles, Canada, Portugal, Iran, Israel and Uganda, the
Foreign Affairs Department said. He also received courtesy calls from the
foreign ministers of Palestine and Burkina Faso. President Mbeki further met
with former Canada Prime Minister Jean Chretien, the UN High Commissioner for
Refugees Antonio Guterres and the UN Conference on Trade and Development (UNCTAD)
Secretary-General Dr Supachai Panitchpakdi.
SA Climbs in Economic Freedom Report
September 8 saw the release of the Economic Freedom of the World report,
published each year by the Fraser Institute in Vancouver. It is a composite
score of 38 variables measuring the amount of economic freedom citizens have in
various countries. The five main categories of economic freedom are: size of
government; legal structures and security of property rights; sound money;
freedom to trade with foreigners; and regulation of credit, labour and business.
SA jumped nine places this year to 39th (127 countries are in the survey),
placing us just above France, Cyprus and Greece. The top five spots are held by
Hong Kong, Singapore, New Zealand, the US and Switzerland. The bottom five are
Myanmar, Zimbabwe, the Democratic Republic of Congo, Venezuela and
Guinea-Bissau. Once again, world economic freedom improved year on year, as
globalisation and the spread of democracy empowered citizens to make more of
their own economic choices. The difference in wealth levels between countries of
differing levels of economic freedom is stark. Those countries with higher
levels of economic freedom are significantly wealthier than those with lower
freedom scores. The free countries have better health, better education, better
internet connectivity, and score highest on the happiness index. Africa reversed
its trend of increasing economic freedom this year with notable losses in
Burundi, Rwanda, Guinea-Bissau and Botswana. Gains, however, were made in
Namibia, Madagascar, and the Republic of Congo. Zimbabwe has the lowest score in
sub-Saharan Africa. Taking an eight-year perspective, the top 20% of
economically free countries in Africa achieved annual growth rates of 2,45%. The
bottom 20% muster only 0,63% a year. As SA ponders the route to higher levels of
growth, it is instructive to look at the policies where SA differs from those of
the winners. Certainly, SA's historic growth performance has been poor. Using
gross domestic product (GDP) per capita (as opposed to overall GDP, which
neglects population changes), the income of the average South African has
decreased 0,0023% over the past 33 years. The past eight years saw GDP per
capita grow only 0,65%. Contrast this with Hong Kong, which achieved yearly
growth of 4,5%. In a nutshell, the average Hong Kong citizen earns five times
more than their parents did. One crucial factor in achieving high levels of
growth is convincing investors their property (and money) will be safe. In this
regard, SA has made improvements, increasing its "legal structures and
security of property rights" score. The principal movement in this category
is due to an improved rating by the international political risk guide.
Specifically, the "judicial independence" parameter moved from 7,7 to
8 as our country's courts gained the confidence of overseas analysts. We still
rate quite poorly on the "law and order" score (5), which did improve
from last year's 3,3. SA's biggest problems, according to the report, will come
as no surprise. We rank 93rd in the world for "hiring and firing"
practices. Other problem areas include: recent inflation rate (90th);
restrictions on owning foreign exchange accounts (89th), share of labour force
involved in collective bargaining (86th), top marginal tax rates (72nd), and
overall size of government (75th).
Pretoria Denies Israel's Iran Claims
Government moved to defuse diplomatic wrangling with Israel after sources
close to Prime Minister Ariel Sharon accused SA of planning to aid Iran by
storing parts of its suspected nuclear weapons programme. Foreign Affairs
spokesman Ronnie Mamoepa said that SA had seen reports in an Israeli newspaper
of the allegations, and would ask the Israelis to provide the necessary proof.
The burden of proof lay with the accuser, he said. Israel has accused Iran of
trying to "buy time to overcome their technical difficulties" in
making weapons. SA's support for Iran to use its nuclear knowledge for peaceful
purposes such as generating power has set SA on a collision course with the US
and Israel, which fear that Iran will use the knowledge to manufacture nuclear
weapons. SA, which serves on the 35-member country board of the International
Atomic Energy Agency (IAEA), and is participating in the talks on Iran, has
opposed pressure from the US and the European Union (EU) for Iran to be referred
to the United Nations Security Council for possible sanctions. The board is
split between countries that would back a US-EU effort to refer Iran to the
security council and those that oppose it. Of the 35 board members, 14 are
members of the Non-Aligned Movement (NAM). Developing countries on the board
accuse the west of trying to deprive poor nations of independent nuclear
programmes. Of these, only Singapore and Peru have said they will back a
referral of Iran to the security council, diplomats have said. Openly against
the US-EU effort are China, Russia, Brazil, India, Pakistan, Venezuela and SA.
However, EU diplomats said the 14 NAM countries were considering abstaining en
masse, which would ensure the EU-US plan's approval. Foreign Affairs spokeswoman
Nomfanelo Kota there was no reason for SA to panic about what an Israeli
official may have said about the country. She said President Mbeki met Sharon at
the millennium review summit in New York and their discussions cleared any
issues of concern to the two countries. Mbeki urged the UN to resume
negotiations on Iran's nuclear programme with the full participation of the IAEA.
While he implored nuclear- armed countries to get rid of weapons of mass
destruction, saying they were as threat to global security, the president
advocated diplomatic and peaceful means to reach a solution. "None of us
can justly claim that our failure as the UN to take specific decisions on these
matters served to enhance global security from the threat of weapons of mass
destruction," he said. During the visit by Iran Supreme National Security
Council secretary-general Hassan Rowhani and the head of Iran's nuclear
negotiating team with Europe to SA this July, Mbeki stressed the legitimate
rights of a member nation of Non-Proliferation Treaty to use peaceful nuclear
technology. The meeting was also attended by the Iranian ambassador to Pretoria
and the representatives of the European trio of France, Germany and Britain.
The Zimbabwe government appeared late this month to have avoided expulsion from
the International Monetary Fund after making a payment of US$120 million to the
institution on its debt owing. The IMF gave the reprieve, but warned that Harare
needs to act quickly to prevent further social and economic decline. The
24-nation board met September 9 specially to decide whether to make Zimbabwe
only the second country after Czechoslovakia 50 years ago to be expelled from
the fund, which is the benchmark lending institution for developing countries.
Talks over a possible South African loan to help cash-strapped Zimbabwe have
fallen silent since the reprieve. It is unclear exactly where the Zimbabwean
government got the money for that payment, although analysts say it may well
have come from a variety of sources including hard currency set aside from
platinum exports and friendly foreign governments, perhaps South Africa itself.
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AUTOMOBILES
Malaysian Proton Cars Success in South Africa
Early indications are that Imperial Group could replicate the success of its
Indian Tata vehicle range with the Proton line from Malaysia. Sales of the
Proton exceeded the group's most optimistic forecasts in September after the
vehicle was launched in SA last month. Tata has been the most successful marque
imported by Imperial to date, with sales consistently surpassing expectations
since the range was launched in SA less than a year ago. Proton distributor
Pearl Automotive, which is majority owned by Imperial's Associated Motor
Holdings (AMH), will invest more than R8m over the next year to establish Proton
in SA. This will include rolling out about 25 dealerships. The aim was to secure
a share of about 4% of the vehicle market segment that Proton is competing in by
the end of next year, said Pearl Automotive MD Albert Venter. The Proton marque
consists only of a hatchback passenger vehicle at the moment, retailing at
between R138000 and R158000. The range would be extended with a half-ton bakkie
in November and several new vehicles next year, said Venter. He cited Imperial's
backing and a value-for-money offering as the main reasons behind
better-than-expected Proton sales. Pearl Automotive is traditionally a luxury
vehicle distributor, representing marques such as MG, Rover, Bentley and Lotus.
The demise of British car maker MG Rover was not the reason Pearl had launched
the Proton in SA, said Venter. He said Imperial had been negotiating for about
three years with Proton, whose majority shareholder was the Malaysian
government. Venter said the marque was added to Pearl's stable to tap into the
lower end of the vehicle market, the fastest-growing segment. Proton is a small
player in global terms. It was started as a government programme to build cars
for the Malaysian market. Proton vehicles were exported to nearby Asian markets,
but free trade agreements have meant that import tariffs in Malaysia have been
reduced, forcing the company to look to markets further afield. Buoyed by the
past year's domestic vehicle sales boom, AMH became the largest operating profit
contributor to the Imperial group in the year ended in June. AMH reported 64%
growth in operating profit and 54% in revenue to R9,7bn in the year to June. AMH
imports Citroen, Renault, Hyundai and other marques.
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BLACK ECONOMIC EMPOWERMENT
Sasol's Offshoot Set to Empower 150,000
About 150000 previously disadvantaged people will become shareholders in the
largest fuel retailer in SA, Uhambo Oil, if competition authorities approve the
establishment of the company in October. Sasol announced September 22 that it
had finalised the make-up of the broad-based Tshwarisano consortium, which would
buy a 12,5% stake in Uhambo for R1,45bn. The deal would be one of SA's largest
empowerment deals to date. Uhambo will be born out of the mooted merger of
Sasol's liquid fuels division with Engen and will control 48% of the country's
fuel production capacity and 34% of the fuel retail market. Uhambo will have
annual revenue of about R33bn. Sasol and Engen parent Petronas will each own
37,5% of Uhambo, while Petronas empowerment partner Afric Energy Resources and
Tshwarisano will each own 12,5%. The Competition Commission has approved the
deal based on certain conditions. The Competition Tribunal will decide on the
matter in October. Sasol, which has been criticised for lagging in empowerment
efforts, said if the competition authorities did not approve the establishment
of Uhambo, Tshwarisano would become a 25% shareholder in Sasol's liquid fuels
division. Former justice minister Penuell Maduna, former Eskom chairman Reuel
Khoza and entrepreneur Hixonia Nyasulu will, through various businesses in the
Tshwarisano consortium, hold about 30% of the consortium's equity. The
consortium comprises 10 groups. The largest of these are Ngazana Liquid Fuels,
Batho Trust, Nozweni and Autoworkers Funds. Three analysts suggested the deal
would help counter perceptions that Sasol had lagged on empowerment. The
financial cost to Sasol was a secondary matter to them. Sasol said it would
provide considerable facilitation for Tshwarisano's financing requirements,
which amounted to R1,1bn. Sasol had provided guarantees for the debt and had
agreed not to recover guarantee fees. This would lower Tshwarisano's cost of
borrowing, said new Sasol CE Pat Davies. Sasol would also donate R45m to two
trusts, aimed at empowering the "severely underprivileged", as well as
Uhambo Oil staff and their families. Sasol said the consortium would comprise
about 150000 direct and 2,8-million indirect beneficiaries. Women represented
just more than half of the consortium. Davies said the transaction price had
been discounted by R200m, which would stem from synergies to be gained from the
merger.
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CORRUPTION
President Calls for 'Sustained Vigilance' Against Corruption
President Mbeki has called for "sustained vigilance" against
corruption in South Africa, saying he did not think that the problem would go
away anytime soon given the emerging value systems engendered by market
economies which contribute to corrupt practices. The president was responding to
a question asked in Parliament September 8 on whether the Second National
Anti-Corruption Summit held six months ago had enhanced the fight against
corruption in the public and private sectors. Responding to a question on
whether perceptions of corruption were perhaps greater than real incidences of
corruption, President Mbeki said it was better to overestimate levels of
corruption than to underestimate them, adding that the former would help to stem
a tide of corruption corroding society. He said the National Treasury had
allocated funds to the Public Service Commission to strengthen the secretariat
of the National Anti-Corruption Forum, which would help greatly "to
increase the effectiveness of our offensive against corruption".
Corruption, he said, was "inimical to the achievement of the goals of
reconstruction and development that we have set ourselves ... especially the
critical task to eradicate poverty and underdevelopment". Referring to the
socio-economic environment that can spawn corruption, the president referred to
the writing of United States-based financier George Soros, who stated that
"one of the great defects of the global capitalist system is that it has
allowed the market mechanism and the profit motive to penetrate into fields of
activity where they do not properly belong". Warning against "market
fundamentalism", President Mbeki again quoted Mr Soros, who wrote that
"people increasingly rely on money as the criterion of value ... what used
to be a medium of exchange has usurped the place of fundamental values ...
society has lost its anchor". The president referred to the Nel Commission
set up some years ago to investigate South Africa's Masterbond fraud saga, where
Judge Nel said he found it difficult to believe that some of the auditors
involved with the Masterbond companies could have been so "blatantly
dishonest", especially as they were in a profession widely perceived as
being based on honesty and integrity. "To ensure that the new society we
are building does not lose its anchor, and emerges as a people-centred society,
we must enforce a policy of zero-tolerance on all corruption," President
Mbeki told parliamentarians.
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EXPORT
High Maize Prices Deter Overseas Buyers
Japanese buyers have cancelled a 70,000 tonne yellow maize shipment from
South Africa scheduled for October as rising local maize prices leave foreign
buyers looking to the Americas, trade sources said September 22. South African
maize futures have risen from around 600 rand a tonne in July to over 800 rand a
tonne now on fears the 2005 crop might be less than the 12.18 million tonnes
predicted and worries that low price levels might put growers off planting.
"A month ago you'd have given your back teeth to get a slot on one of the
grain elevators," one shipper said. "Now they're freely available.
We'll be looking to fill contracts with shipments from the U.S. Gulf or
Argentina instead." South Africa had seen a string of shipments move to
Asia and the Middle East but traders said the only exports moving through South
African ports now would likely be headed for other African destinations, many of
which have been hit by drought. One trade source told Reuters Japanese buyers,
who had made a series of large purchases, keen to avoid purchasing genetically
modified corn after a series of contaminated U.S. cargoes had cancelled a 70,000
shipment booked for October. "They have cancelled the October slot,"
he said. "They are keeping the November and December slots open and I think
if prices come down we can see some more business." Only a couple of months
ago, with South African prices low on expectations of a bumper harvest, traders
had complained their main problems were the capacity of the country's railway
and ports to handle demand. Now, food aid shipments are almost all that is
moving. The trade source said the United Nations World Food Programme had booked
a 6,000 tonne shipment to Kenya and a 4,000 tonne shipment possibly ultimately
destined for Zimbabwe to Mozambique's second port of Beira. But South African
farmers, who unlike their European or U.S. counterparts are unsubsidised --
still complain they cannot break even at current price levels, and some traders
see the market rising higher still until growers sow the 2006 crop towards the
end of this year. "The farmers are playing their own game," said the
shipper. "They've brought exports to a grinding halt."
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ELECTRICITY
UK's Ipsa Entera South African Market
A new British electricity company, Independent Power Southern Africa (Ipsa), is
set to enter the South African electricity supply industry next year by building
an 18MW gas-fired power station in KwaZulu-Natal. Ipsa's entrance into the South
African market follows a decision taken by government last year to allow
independent power producers to compete with power utility Eskom. It is expected
that the introduction of private power producers will not only ensure that SA
continues to enjoy low electricity prices but will also provide the country with
security of power supply. With a surplus capacity of about 36000MW and the
current peaking demand of 34000MW, SA could be plunged in widespread power
outages if additional capacity is not found, fast. Eskom projects that its
peaking capacity will run out in 2007 while its base load capacity could be
depleted in 2010. Peaking capacity refers to available electricity during the
hours of highest load, usually in the morning and in the evening. Base load is
power available around the clock. Ipsa chairman Stephen Hargrave said September
19 that the company raised £8m (R93m) to buy a Lancashire power plant in the
UK, which would be dismantled and its parts shipped to Newcastle in KwaZulu-Natal
to be reconstructed to build a new power station. Speaking from the London Stock
Exchange where Ipsa was listed yesterday, Hargrave said the 18MW gas-fired plant
would not be connected to the national grid, but would rather supply power to
specific industrial customers in Newcastle. One of the customers was synthetic
rubber manufacturer Karbochem. "Key agreements are in place for steam sales
and gas supply," said Hargrave. Ipsa CEO Peter Earl said the company was
established to specifically develop, own and operate power plants in SA and the
neighbouring countries, which are also facing power shortages. "We have no
doubt that with the forecast shortfall in generating capacity in the near future
there will be abundant opportunity to develop new power plants in the
region," Earl said.
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FINANCIAL NEWS
Cosatu Dismisses IMF's Criticisms
The Congress of South African Trade Unions (Cosatu) has slammed the
International Monetary Fund's (IMF's) country report on SA, which found that the
country's labour market was too rigid, and was hindering job creation. "The
high levels of unemployment in SA cannot be blamed on the labour laws and
minimum protection of standards that South African workers enjoy," Cosatu
said September 22. "Once again the IMF has failed to provide evidence that
our labour laws are inflexible and a hindrance to employment growth." The
institution's 2005 report on economic and policy developments in SA was released
September 19. "There are at least three views not mutually exclusive, on
why unemployment is so high," it said. "First, a lack of available
skills poses a key structural constraint to investment and labour demand.
Second, labour legislation and employment protection policies have unintended
side effects. Third, official statistics may underestimate employment."
Cosatu said it was deeply sceptical of the IMF report, in particular the
comments made in relation to the continued need for more labour market
flexibility in SA. Cosatu said the IMF had no credible evidence for reaching its
conclusions, and relied heavily on "anecdotal" information. The June
South African Small Business Partnership report suggest that labour legislation
was not the main reason for slow growth and employment creation among small
business, said Cosatu. "Of all the business respondents surveyed (1794),
25% listed lack of confidence and demand in the economy as the main reason for
constraints in employment creation." Twenty percent identified government
regulations, with only 10% listing high labour costs as constraints, Cosatu
said. The labour federation said that only a quarter of SA's labour force was
covered by bargaining councils, dismissing the contention that centralised
bargaining arrangements restricted small business growth. Government has
identified the small and medium-sized business sector as critical for SA to
reach its target of 6% growth. A cabinet subcommittee involving all the economic
ministers heard presentations this week from the trade and industry department
on a new strategy for developing small businesses.
Growth is Precarious
Is SA capable of an aggregate gross domestic product (GDP) growth rate above 6%
in the near future? The vital statistics of the economy are now the new rallying
cry, the new measure of confidence and perhaps even the new patriotism. The goal
of 6% growth by 2010 is impossible without those terrible things called
"structural reforms", say some, backed by the sombre voice of the
seemingly omniscient International Monetary Fund (IMF). It is quite possible,
indeed probable, say the new patriots, backed by those flighty rating agencies
who tend to see growth in growth. The numbers game is the new sport, meshed into
SA's new sensibility of unctuous positivity. Like everyone, I'm a bit confused.
Driving to Pretoria from Johannesburg, and seeing the rows on rows of Tuscan
cluster developments and the flourishing shopping complexes, I'm tempted to
agree with Deputy President Phumzile Mlambo-Ngcuka that SA's growth is
under-recorded in the official statistics. But we all know that the basis of
this growth is painfully dependent on South Africans' precarious flirtation with
a callous damsel called debt, an indulgence SA's banks seem weirdly happy to
coddle. The recent growth spurt is easily explained as a consequence of the
interest rate fall and not much else. If this is the case, SA's more likely path
is not going to be higher at all, but a painful fallout as soon as the dollar
strengthens and interest rates rise. But the place to look for clues about SA's
economic future lies not in the official statistics on SA's growth rate, but in
the structure of South African society. In the latest liberal journal Focus,
SA's canniest society watcher Lawrence Schlemmer draws some rather controversial
conclusions about recent changes in the racial makeup of wealth bands. It's
true, he points out, that surveys show a dramatic change in the income shares of
different races since 1994. Until 2002, black South Africans increased their
share of the top bracket dramatically. One out of five very rich South Africans
is now black. "Very significantly, however, the table shows that the rate
of change slowed dramatically since 2002," he notes. The racial group that
was the biggest winner in this period was, in fact, whites, which makes sense
when you think about it, because the biggest winners from interest rates
declines would be those most in debt. However, the point, says Schlemmer, is
that the absorption of Africans into the public sector reached saturation after
2000. "The affirmative action bonanza has passed." What about the
bottom of the ladder? As has often been noted, progress has been significant but
not enormous. About 5% of Africans have moved from the "poor" to
"not so poor" categories in just two years, which is excellent news.
But Schlemmer says this falls rather short of the popular notion of a burgeoning
black middle class, and he warns that increases in prosperity will be determined
more by market forces than political engineering. This has a ring of truth to
it. If this is so, the big question is whether SA has the kind of business
environment in which market forces will allow the new generation to propel us
into the future. Once again, the structure of SA's society provides the clue.
One of the biggest problems with SA is that the ruling party is not dependent
for its power on the people it taxes heavily, with the result that it taxes them
heavily. Taxation is not egregious in SA, and the money is needed for basic
service. But the tax structure acts as an entrepreneurial stimulant. In SA,
entrepreneurship is largely the province of a desperate middle class fighting
the tendency to slide down the social ladder rather than bright, budding
millionaires trying to climb up it. I hate to say it, but I'm with the IMF.
Without demeaning the fabulous effort thus far, 6% growth in the near term is
highly unlikely.
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HEALTH
Huge Disparity in Spending Between Private and Public Health Sectors
A team from national Treasury and Finance Minister Trevor Manuel have pointed
out that South Africa is second from the top on a list of 20 countries in terms
of total expenditure on health as a percentage of GDP. Nearly 60 percent of
funding flows for health services in the country goes towards the private health
care used by 15% of the population, while over 40 percent of health funding goes
towards the majority. The disparity in these figures, revealed in the Provincial
Budgets and Expenditure Review released by the National Treasury, is "all
the more startling given that South Africa's total health expenditure as a
proportion of its GDP is relatively high", according to the treasury. This,
Finance Minister Trevor Manuel mentioned to journalists, was a fact that stood
out in a comprehensive review of government expenditure between 2001/02 and
2007/08 undertaken by a team from the National Treasury. Funding for health
services in South Africa has been estimated by the national treasury at
approximately R114 billion in 2004/2005, 8.2% of the country's gross domestic
product. This is high compared to a list of several other comparable countries -
it is higher than Turkey (5%), for example, and Brazil (7.6%) - another country
with a huge divide between rich and poor. It is also higher than South Korea
(6%) or Malaysia (2.5%) and is beaten only by Argentina, at 9.5%, in a list of
20 similar countries. However, South Africa's public sector health expenditure,
at 3.4% of GDP, is "only slightly above the average" spent by
comparable countries and compares favourably with the 19 other countries on the
list. For the 2004/05 financial year, government spent R47.5 billion on funding
public health services. In the same financial year, the private health sector
attracted capital of just over R66 billion. "This translates into a
significant difference in per capita spending between those covered by the
private sector and those covered by the public sector," which raises
"a number of equity issues," the treasury report said. Part of the
huge imbalance seen here can be attributed to the fact that South Africa's large
private health sector has "apparent high input costs" such as
expensive, high-tech equipment, while the country as a whole faces a
"growing disease burden associated with the HIV and Aids epidemic".
Already, national government has massively increased spending on HIV and AIDS
treatment in the provinces, from R37 million in 2001/02 to about R770 million in
the 2004/05 financial year, with projected expenditure by national government by
2007/08 estimated at R1.6 billion, aside from provincial spending. This is an
average annual of over 88%. Nonetheless, the treasury report states, the
"skewed distribution" of funding, high disease burdens and input costs
present "huge health service challenges, even with comparatively high
overall levels of health expenditure". While contributions to private
medical schemes grow, the number of beneficiaries - at roughly 15% of the
population - remains stable. This suggests, says the Treasury that the growth in
expenditure is due to the increasing costs of services. The Treasury report
states that the inclusion of 25 chronic conditions and anti-retrovirals into the
prescribed minimum benefits [for medical aids] may continue to increase
expenditure [in the private health sector]. "The challenge," says the
report, "is to offer affordable and acceptable lower-cost schemes."
Aids Drugs Company Set for Africa Sales
South African generic drug maker Aspen Pharmacare is preparing to enter Africa's
anti-AIDS drugs market. The company is regarded as one the top performers in
Black Economic Empowerment (BEE) in SA and its expansion into the rest of Africa
is backed by SA health Minister Manto Tshabalala-Msimang. This new sector of
trade and investment into Africa will give a significant boost to SA black
business which believes it has an uphill struggle in breaking into the 'white'
business world, analysts say. Tshabalala-Msimang said that local production of
anti-retroviral HIV treatment drugs, which is being promoted by the World Health
Programme, should be viewed in the context of "local" meaning the
African continent. African Union heads of state have also said that medicine
production should be strategically located within the region. "This
strategy anticipates a market size that would ensure sustainability as well as
technical and financial viability," Tshabalala-Msimang said in a statement
to the World Health Organisation meeting in Maputo. The huge market for
antiretrovirals will mean a bonanza for the SA health company and its
shareholders. Aspen CEO Stephen Saad said only 8 percent of the approximately
four million people in sub-Saharan Africa who needed treatment for HIV/AIDS were
receiving it. "Antiretroviral medicines are becoming a bigger and bigger
part of our production", he told local newspapers, adding somewhat
disingenuously, "We could never have foreseen this growth". In fact
the HIV/AIDS market has long been viewed as a major potential money spinner and
the SA cabinet some years back had already indicated its strong interest in the
profitable local development of AIDS drugs in the abortive Virodene experiment.
ANC members were alleged in 1998 to have been offered a six percent stake in the
company involved. In April this year Aspen did a deal with the US firm Gilead
Sciences for licensing and distribution of its antiretrovirals and will
distribute these products throughout Africa. The company has approval from the
US Federal Drug Administration for some of its anti-AIDS drugs, and was recently
awarded the biggest share of the South African government's antiretroviral drug
tenders. This is largely because it has a good BEE profile, guaranteeing it
state patronage. Black control will be deepened soon and when a new BEE funding
deal is finalized over five percent of Aspen's equity will be black-owned. Those
with interests include the investment arm of the Chemical, Energy, Paper,
Printing, Wood & Allied Workers' Union. Aspen has also approved the
establishment of a vehicle for its black workers - around 70 percent of its
staff. Tshabalala-Msimang endorsed the World Health Organisation's call for the
local production of medicines at the 55th session of the WHO-AFRO Regional
Committee in Maputo on Wednesday. At the moment Africa's share of world medicine
production is declining and accounts for only 2.6 percent of global output. The
manufacturing of medicines on the continent is limited to compounding and
packaging, using imported raw materials. Mainly generic medicines are produced,
and they satisfy only a small proportion of national requirements,
Tshabalala-Msimang said and recommended that the continent should look at
diversifying between primary and secondary level production. Primary level
production included the manufacture of active pharmaceutical ingredients from
basic chemical substances. Secondary level included the production of finished
dosages from raw materials. There should also be a comprehensive and integrated
strategy on intellectual property and trade agreements for the benefit of AU
member states, facilitated by the WHO.
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INFORMATION TECHNOLOGY
US Firm Strengthens its South African Presence
Tumbleweed Communications Corp, a leading provider of IT software and appliances
in the US, has strengthened its relationship with a South African company by
appointing it as its exclusive distributor in the southern Africa region. Under
the terms of the agreement, i-Security will now offer Tumbleweed's full line of
secure internet communications applications to governments and enterprises in
southern Africa, and will also provide technical support to its customers. Based
in Johannesburg, i-Security was established in 2004 to work solely with
Tumbleweed in South Africa and in other African countries, delivering and
maintaining only Tumbleweed's products, and providing customer support and
related professional services. Tumbleweed provides security software and
appliances for email protection, file transfers, and identity validation that
allow organisations to safely conduct business over the internet. Tumbleweed was
founded in 1993 and is headquartered in Califonia, and its enterprise and
government customers include ABN Amro, Bank of America Securities, Catholic
Healthcare West, JP Morgan Chase & Co, The Regence Group (Blue Cross/Blue
Shield), St Luke's Episcopal Healthcare System, the US Food and Drug
Administration, the US Department of Defence, and all four branches of the US
Armed Forces. Explaining the decision to appoint i-Security, Tumbleweed's Soren
Bech said: "Since our relationship began over a year ago, i-Security has
worked tirelessly to evangelise the Tumbleweed brand and has made great strides
in establishing Tumbleweed's presence in the South African marketplace." He
said that partnering with i-Security as their exclusive southern Africa
distributor reinforces Tumbleweed's "commitment to provide our
industry-leading secure-messaging products globally". According to i-Security's
CEO Jeremy Miller organisations of all sizes are facing an "ever-increasing
number and diversity of security threats via the internet. "Tumbleweed
plays a vital role in providing organisations with solutions for email hygiene,
secure email, secure file transfer and identity validation. "Our keen
understanding of the business need to conduct business safely and securely over
the internet, together with the broad and deep experience and expertise of our
technical consultants and specialists, places i-Security in an excellent
position to achieve this goal."
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INTERNATIONAL ECONOMIC RELATIONS
SA, Indonesia to Strengthen Relations
Deputy President Phumzile Mlambo-Ngcuka will host her Indonesian counterpart
Jusuf Kalla for bilateral, political, diplomatic and economic discussions at
Tuynhuys in Cape Town September 27. The visit is aimed at consolidating
relations between the two countries following the success of the New
Asian-African Partnership Summit co-hosted by President Mbeki and Indonesian
President Sosilo Bambang Yudhoyono in Jakarta in April, said the Department of
Foreign Affairs in a statement today. It said the two governments shared the
view that to jump-start the second economy and to alleviate poverty afflicting
their citizens, there was a need to pursue and strengthen bilateral relations
and concretise greater regional co-operation between ASEAN and SADC, to which
the Republic of Indonesia and South Africa respectively belong. The two deputy
presidents are expected to interrogate mechanisms to help effect closer
co-operation in areas of bilateral trade, diplomatic relations, economic
matters, cultural exchange programmes and the global political landscape. This
in an effort to promote the ideals of South-South co-operation and advancing the
cause of developing countries in engagements with the developed North said the
department. South Africa and Indonesia enjoy healthy bilateral trade with South
Africa's main exports to Indonesia include prepared foods, pulp and paper, while
it imports vegetable products, fats and oils, plastics and rubber, timber, pulp
and paper, footwear, stone and plaster from Indonesia. Trade between the two has
increased from over R 535 million in 1994 to over R3 billion in 2004. Meanwhile,
the two deputy presidents attend the National Orders Award Ceremony at the Union
Buildings in Pretoria as well as the South Africa-Indonesia Business Forum at
the Pretoria Country Club September 27. Vice-President Kalla will also officiate
at the handing-over ceremony on the completion of renovations to Masjid Nuru
Latief, a shrine in honour of Sheik Jusuf, an Indonesian political leader who
died in exile at Maccassar, outside Cape Town in the seventeenth century.
Presidential Economic Commission Established With Tanzania
President Mbeki and his Tanzanian counterpart Benjamin Mkapa signed an agreement
to establish the Presidential Economic Commission (PEC) September 21, to
strengthen their bilateral relations. President Mkapa on a three-day visit as
serves his last term as that country's president. Tanzania is expected to hold
general elections in October, to elect a new leader. After signing the
agreement, President Mbeki said there was a very big trade imbalance between the
two countries which was however in favour of South Africa. Mr Mbeki said the
commission should intensify the relations to benefit both countries. He said he
was glad President Mkapa had signed the agreement before stepping down.
"Tanzania is very close to our hearts. It is a very important fellow
'terrorist' that was our first base which led to South Africa's
liberation," he said jokingly. The PEC is a joint commission on economic
development chaired by both presidents. It has already identified corporation on
agriculture, tourism, transport and mining. It will also be responsible for
relaxing Visa arrangements in order to attract investment for both countries.
President Mkapa said he was glad that he participated in the institutional
framework of establishing the commission, saying Tanzania was already benefiting
from massive South African companies investing in his country. "It never
occurred to me that I would be able to visit the apartheid free South Africa and
celebrate with you the freedom you enjoy. "We want to thank South Africa
for your help in promoting peace and stability especially in Burundi, Rwanda and
Cote d'Ivoire, I think you deserve our greatest encouragement. "Please stay
on course of mediation in Cote d'Ivoire," he pleaded. Commenting about his
achievements in the past ten years as President of Tanzania, Mr Mkapa said he
had tried to serve his country accordingly, despite political and economic
instability. He said he promoted the success of "pluralism" after 30
years of one-party state rule there. "I shall be ready to help in
retirement and not to observe the elections," he said jokingly. He
explained that he was concerned about the next electioneering weeks as there
were ten presidential candidates in the elections scheduled for 30 October,
saying there were possibilities for violence and other disturbances. Giving the
latest on the Cote d'Ivoire, Mr Mbeki explained that South Africa had given a
report to the Security Council of the United Nations that Cote d'Ivoire needed
to implement the resolutions of the mediation process. These included the
disarmament of the rebels, arming of the militia and preparing for the
elections. Meanwhile, Trade and Industry Minister Mandisi Mpahlwa signed with
his Tanzanian counterpart, the avoidance of double taxation, mutual assistance
on customs and investment promotion and protection agreements.
SA, UAE Sign Economic Agreement
Trade and Industry Minister Mandisi Mpahlwa signed a bilateral agreement on
economic, trade and technical co-operation with the United Arab Emirates (UAE)
Seotember 25 The agreement was signed in Abu Dhabi during Mr Mphahlwa's visit to
that country. He signed the bilateral agreement with his counterpart, Sheika
Lubna Al Qasimi. UAE was Minister Mpahlwa's first stop on his weeklong
four-country tour to the Middle East where he is leading a 30-member trade and
investment delegation. The main purpose of the visit is to promote bilateral
trade and economic ties with Middle East countries: the UAE, Kuwait, Yemen and
Bahrain. According to the Department of Trade and Industry, South Africa and the
UAE agreed to develop and strengthen economic, trade and technical co-operation
between the two countries. The co-operation shall include, the following areas:
trade, industry, agriculture, transport, telecommunication, petroleum and petro-chemical,
education, scientific research, technology, tourism and investment. The two
countries also agreed to establish a joint commission consisting to coordinate
and promote economic and trade co-operation between them. Minister Mpahlwa also
witnessed the signing of two memoranda of agreement between the countries'
business delegations. These were between the Abu Dhabi Chamber of Commerce and
Industry and the National African Federated Chamber of Commerce and Industry,
and Medi Clinic Corporation of South Africa and UAE's United Eastern Medical
Services. Minister Mpahlwa also addressed a luncheon, where he described the
visit as "an important milestone, which would assist in unlocking potential
for economic cooperation between UAE and South Africa, as well as between Africa
and the Middle East region."
New Bid to Curb Chinese Imports
In a new bid to avert a damaging trade dispute with China over cheap textile
imports, the trade and industry department is planning a bilateral trade
agreement with Beijing to help SA limit the damage being inflicted on the
domestic rag trade. SA's textile industry has been badly damaged by Chinese
imports, which grew 80% in 2001-02, 196% in 2002-03 and 88% in 2003-04, leading
to an estimated 36000 job losses over the past two years. The surge in imports
has led to the closure of factories and reduced employment in the industry from
300000 in 1996 to less than 200000 today. The new moves are likely to spark
opposition from trade unions and could scuttle delicate negotiations around a
rescue plan for the industry. The rescue plan is the result of negotiations
between senior government ministers and the tripartite alliance and involved
strong protectionist measures against China, including the imposition of quotas,
which are allowed under World Trade Organisation (WTO) rules, against Chinese
imports. The WTO allows imposing safeguards for a maximum of three years when
there has been a surge in imports. The department's new strategy suggests
government now wants to go it alone in revitalising the rag trade. The new
approach has been prompted by fears that imposing quotas or import duties
against China might incite tit-for-tat sanctions on SA exports such as iron ore
and chemicals. Department officials have been engaged in a flurry of visits to
China in a bid to thrash out a deal. It is hoped the deal would resemble that
reached recently between the European Union and China to un-block stockpiles of
Chinese goods warehoused at European ports. The US and other countries are also
trying to avert a clothing and textile trade war with China by negotiating an
agreement outside the WTO framework. Tshediso Mantona, acting director-general
for trade and industry, said that government wanted to protect thousands of jobs
in the steel and chemicals sectors. These export industries would be harmed by
Chinese retaliatory action, he said. "China is determined to protect its
hard-won rights against trade harassment. It is likely to react if anyone acts
in a way that seems hostile to them. "It is very clear that anyone who does
this will attract the wrath of the People's Republic. "If we put up
barriers which damage China they will hurt us. We could shoot ourselves in the
foot in a big way. We are trying to draw the Chinese into a solution. They are
fully aware of the crisis we are facing in the (textile) sector, and aware that
we are thinking of invoking special safeguards." Government officials
appear to be banking on goodwill that exists from historical ties with China,
which supported the liberation struggle. However, it is understood that previous
efforts by government to negotiate a bilateral deal with China over textiles
have failed. Unions have argued that any intervention in the industry would be
pointless in the absence of a comprehensive industrial strategy. Mantona agreed
that a long-term survival strategy would entail the industry's "total
transformation". But government moves to negotiate directly with China are
likely to be read by labour as a repudiation of the approach agreed to by the
ruling alliance's task team that called for the formulation of an industrial
strategy. Government was committed to supporting the sector, Mantona said. But
support strategies such as the duty credit certificate scheme, implemented as a
temporary measure to stem job factory closures and job losses, had been
corrupted and had created a loophole for imports. He said government, business,
and labour had failed to honour agreements made at an industry summit in 2000.
Oman Bilateral Relations Flourish
Foreign Affairs Minister Nkosazana Dlamini Zuma and her Omani counterpart Yusuf
bin Alawi bin Abdullah say political relations between the two countries are
thriving. However, they said the relations were lagging behind in terms of
economic co-operation. South Africa's bilateral trade with Oman remains very
low. During the twelve months until the end of April this year, South African
exports reached R135 million and its imports from Oman only R31 million. The two
countries however have bilateral agreements on Double Taxation and the
Prevention of Fiscal Evasion to Taxes on Income and Military Co-operation,
signed in 2002. The two held discussions in Pretoria September 2; on their
bilateral relations and issues relating to regional developments faced by the
Gulf Co-operation Council (GCC), the Middle East and the Southern African
Development Community (SADC). They also discussed the comprehensive reform of
the United Nations Security Council. In addition, they talked about the tragic
stampede in Iraq; and also sent condolences to the US following the aftermath of
Hurricane Katrina that destroyed New Orleans especially. Both tragedies left
thousands of people dead. "This reminds us that we must work together to
ensure that we control some of human activities that might an impact on
nature," said Dr Dlamini Zuma. Commenting on economic co-operation, she
said they were talking to business to look at investment opportunities in both
countries. "To have a sustainable co-operation we need to go beyond
government," she said. Mr bin Abdullah concurred that they had strong
relations that were "steadily developing". He however concurred that
economic relations were lagging behind. "We are however working together to
have peace and stability in our regions. We are encouraging the GCC and the SADC
to negotiate a free trade agreement, these will benefit both areas," said
Mr bin Abdullah. "We need to bring together our communities to identify how
we can work together. We are interested in the mining sector as South Africa has
experience in it. We are now planning together to exchange visits, we hope these
will bring benefits," he said.
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INSURANCE
Old Mutual In Skandia takeover bid
Old Mutual launched a bid for Swedish insurer Skandia September 2. Two of Old
Mutual's large institutional investors have indicated they will not support the
group's R38bn offer for Swedish savings group Skandia if it turns hostile.
However, Old Mutual CEO Jim Sutcliffe said the group would not resort to a
hostile bid, and would be willing to walk away if it did not win Skandia's
support. However, getting the approval of its own shareholders will be equally
important if the offer is to proceed. Old Mutual's investments in Zimbabwe,
which include a 19% stake in Zimbabwe Newspapers, have also come under the
spotlight, with the Skandia board questioning Old Mutual on the investments. The
Zimbabwe government is the largest shareholder in Zimbabwe Newspapers, which
publishes The Chronicle and The Herald. Skandia shareholders are believed to be
wary about getting into bed with a company seen to be propping up President
Robert Mugabe's dictatorial regime. Old Mutual expects a positive outcome to its
bid for Skandia, despite suffering a setback September 23 when the board of the
Swedish group rejected its cash and share offer and advised shareholders not to
accept it. However, Old Mutual CEO Jim Sutcliffe said the group had already
approached shareholders holding 60% of Skandia's shares and had "received
positive indications on the merits of our proposals from a vast majority of
them". Sutcliffe would yet not commit to the exact level of acceptances the
group had received. If Old Mutual is successful in its bid, the combined group
will be Europe's eighth-largest insurer with a market capitalisation of £7,9bn.
It will also fulfil the Old Mutual's ambition to become a global player.
Analysts said the board's rejection would make it more difficult for Old Mutual
to win the 90% it needed if it wanted to force out minority shareholders and
delist the group. While it can pursue the offer at a lower acceptance level,
Sutcliffe said that decision would be taken only after shareholders had voted on
the deal. "It's certainly something we don't rule out," he said.
Skandia's board, which remains divided over the bid, said Old Mutual's offer was
too low, despite an independent assessment by Dutch Bank ABN Amro concluding it
was fair from a financial point of view. Skandia commissioned the assessment.
Old Mutual said it did not plan to offer more for the group. Three members of
the board, including chairman Bernt Magnusson, concurred with ABN Amro's
findings. Eight members of the board were against the bid, Skandia said in a
statement. "This is a complex issue, and it's not surprising that members
of the board have had differing views," Magnusson said at a press
conference. "It is ultimately up to the owners of the company to decide on
its future." Old Mutual will go ahead with its offer document, which will
be published in the middle of October. Sutcliffe said the tender offer was
expected to close in the second half of November. The Skandia board said it
would not take any action to "frustrate the offer", would not look for
alternative bidders and would co-operate with Old Mutual in preparing its
prospectus and filing for regulatory approvals. Old Mutual must also win the
support of its own shareholders. Sutcliffe said they had been largely supportive
of the deal. Ed D'Almeida, financial sector head at Sanlam Investment
Management, said Skandia's actions on September 23 meant it had handed the issue
over to shareholders to decide. "Obviously it's a little bit negative for
Old Mutual. A positive endorsement would have helped persuade the shareholders
to move," D'Almeida said. The board's rejection would make it tougher for
Old Mutual to win the support it needed. "I think it will be a tall order
for Old Mutual, given the fact that there are a number of small shareholders
that hold a large percentage of Skandia's shares."
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METALS
Steel Sales Drop 7% As Local Manufacturing Falters
Steel sales in SA dropped almost 7% in the first half of the year as import
replacement and the strong rand continued to depress local manufacturing. The
South African Iron and Steel Institute said in its quarterly report September 21
that domestic carbon steel sales declined 6,9% in the first half of the year
compared with the previous first half. Exports by local steel makers declined
1,5% in the period under review compared with the corresponding period last
year. Domestic steel sales are an indicator of the country's economic health.
Steel makers Mittal Steel and Highveld Steel and Vanadium will be hurt by the
decline in sales volumes, even though these two still benefit from steel prices
that are higher than two years ago. The institute said that the domestic
economic outlook remained relatively buoyant, driven mainly by brisk growth in
domestic consumer demand. But domestic production lagged somewhat, mainly
because of import competition and substitution, it said. The organisation said
domestic demand would not expand as rapidly as it had over the past year, but
"it should still support positive growth in the manufacturing sector".
But the prospects for exports were less upbeat, said the institute. Global steel
prices started coming off last year's record highs earlier this year. The trend
has prompted large global producers such as the Mittal Steel group and Arcelor
to announce production cuts. The institute's data shows a 2,1% increase in steel
imports in the first six months of the year compared with the previous first
half. Imports as a percentage of total apparent domestic steel consumption rose
to 6,8% during the first six months of the year, compared with 6,4% during the
whole of last year. The trend appears to have intensified in the second quarter.
The institute said imports in the second quarter of this year increased by 24,2%
compared with the first quarter of this year.
Sasol Sells Stake in Uhambo for $229
South African synthetic fuel group Sasol has sold a 12.5 percent stake of its
proposed Uhambo Oil Ltd liquid fuels business to a black group for 1.45 billion
rand, it said September 22. Sasol, the world's biggest producer of synthetic
fuel from coal, said in a statement Tshwarisano Ltd was the broad-based black
economic empowerment (BEE) partner in the deal. Uhambo Oil is expected to arise
out of the planned merger of Sasol's liquid fuels business with Engen, a
subsidiary of Malaysia's Petronas, resulting in the largest liquid fuels
business in South Africa, Sasol has said. The Uhambo Oil transaction is awaiting
Competition Tribunal approval, and hearings are due to start in early October. A
sister regulatory authority, the Competition Commission, has already approved
and given its green light to the merger. "If, for any reason, the
Competition Tribunal does not rule in favour of the merger, then Tshwarisano
will become a 25 percent shareholder in Sasol's liquid fuels business rather
than a 12.5 percent shareholder in Uhambo Oil," Sasol said. "Sasol
views transformation in South Africa as a strategic business and moral
imperative," said Sasol's Chief Executive, Pat Davies. South Africa's BEE
policy requires companies to sell a stake to black investors in an effort to
lift participation in the mainstream economy after decades of exclusion under
apartheid. Shares in Sasol -- buoyed as the oil price leapt above $68 a barrel
as Hurricane Rita threatened U.S. oil and gas facilities gained 2.0 percent. The
operating profit of Sasol's liquid fuels business rose by 33 percent to 1.9
billion rand in the 2005 financial year to end-June, driven mainly by higher
refinery margins. Sasol supplies about 40 percent of South Africa's liquid fuel
requirements, mainly from coal, and some from crude oil.
Iron-Ore Company Considers Congo Prospects
Iron-ore producer Kumba Resources has renewed its joint venture with Canadian
miner Adastra Minerals, taking it a step closer to a possible redevelopment of
the Kipushi zinc and copper project in Democratic Republic of Congo. A
reassessment of the mine's commercial viability in current market conditions and
an appraisal of the mine's physical condition are due to be completed by
November this year. Kipushi has indicated resources of 16,9-million tons, with
an average grade of 16,7% zinc and 2,2% copper. Zinc and copper were produced at
the mine from 1925 to 1993, but production was stopped due to a lack of foreign
exchange and operating supplies. The Kipushi mine is located in the south of the
Congo, 30km southwest of Lubumbashi, adjacent to the Zambian border. Kumba has
been operating in the Congo for about 12 years, said Kumba strategy and business
development acting GM Doug Taylor September 9. The original contract for the
joint venture with Toronto-listed Adastra Minerals was signed five years ago.
Under the joint venture, Kumba can earn a 50% shareholding in the Kipushi
project, the company said. Adastra is developing several mineral assets in
Central Africa, the Congo and Angola. Adastra Minerals was trading at C$1,55 on
the Toronto Exchange on Friday, after the company closed the previous day at
C$1,60. Kumba has interests in base metals, heavy minerals and coal, and is also
planning to start an iron-ore venture in Senegal as well as a heavy-minerals
project in Madagascar.
Mittal SA Praised
Investment banking group Credit Suisse First Boston (CSFB) says the South
African arm of the Mittal Steel group is among the best assets in the world
number one steel maker's portfolio. The South African plants are among three
"ultra-low-cost", high-quality assets, according to the investment
banking group's initiation report on Mittal Steel. The Newcastle plant in SA
rates as the lowest-cost producer in the group at about $255 a ton of slab. The
Vanderbijl- park plant is the third-cheapest producer at about $267 a ton. The
global average slab cash cost is about $314 a ton. "Within the Mittal Steel
portfolio, we see some real jewels in the crown," says the report, naming
South African and operations in Kazakhstan, Mexico, Algeria and Romania, among
others. In addition to its low-cost structures, Mittal Steel SA rates among the
top assets in the group also because it has a share of about 72% of the domestic
market. The global Mittal group has dominant domestic market shares in four
other countries. These include Romania, Czech Republic, Poland and Kazakhstan.
CSFB says the South African operations also have significant room for expansion.
The global Mittal group has about 13-million latest capacity of which
1,6-million tons resides in SA. Mittal Steel SA has more than 7-million tons a
year of steel-making capacity, and is expanding to about 9-million tons by 2007.
The South African operations are also considered good assets as they have a
large amount of backward integration. Mittal Steel SA produces much of its raw
materials and enjoys a favourable iron-ore supply arrangement with Kumba
Resources. The South African operations, formerly Iscor, improved significantly
after Mittal Steel gained majority control of the company last year. CSFB says
Mittal Steel has achieved a 26% productivity gain across its core facilities
since the respective dates of acquisition, with the most notable increases
coming from some of the emerging market acquisitions Mexico, Kazakhstan, Romania
and SA. SA is also among the higher-risk operations in the group, however. This
is due to currency volatility and political risk in the country, the report
says. The CSFB report is bullish about Mittal Steel and the global steel market.
The brokerage initiated coverage with an "outperform" rating and a
price target of $40 per American Depositary Receipt (ADR). The ADRs are
currently trading at $29,25. It says Mittal Steel has some of the highest
returns in the industry. CSFB expects US steel prices to rise from the last
quarter of the year, with prices in Europe increasing in the first quarter of
next year. Prices in Asia would rise from the second quarter of next year,
onwards, it says. "With the upside risk of a full-blown steel market
recovery into next year, we believe momentum within the sector should be strong
through at least early next year," CSFB said.
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PETROCHEMICALS
Mbeki Hopes Petroleum Congress Will Bring Positive News
President Mbeki hopes that the 18th World Petroleum Congress taking place in
Johannesburg will bring good news to people throughout the world. Speaking at
the opening of the congress September 25, Mr Mbeki said the energy sector was
central to global economic and social development. "It used to be said that
money makes the world go round. Perhaps we should vary this and say that energy
makes the world go round. "The fact does not need to be argued that the
sector you represent is central to global economic and social development and
therefore has enormous possibilities to contribute to an atmosphere of optimism
affecting all countries, especially the developing countries," said Mr
Mbeki. The President added that he was confident that the meeting being held for
the first time in Africa would help the continent address its problems. He said
the Congress took place shortly after the "unsuccessful" United
Nations Millennium Review Summit that specifically focused on the alleviation
and eradication of global poverty, world peace and security, and the reform of
the United Nations. "To speak frankly, we must say that the UN Millennium
Review Summit did not succeed in its mission as well as it should have. This
represents a bitter disappointment especially for those of us whose peoples'
better future depends on a successful resolution of the issues placed on the
global agenda by the UN General Assembly." With the annual meetings of the
International Monetary Fund and the World Bank having just taken place in
Washington DC, the President raised concern that obstacles might arise to block
the decision taken by the G8 to write off the debt of 18 least developed
country. This he said, could add to the feeling of pessimism especially about
the future of Africa However, Mr Mbeki welcomed the "progress" that
seemed to have been achieved in this regard. He was referring to a media
conference on Saturday, in which the British Chancellor of the Exchequer and
Chairperson of the International Monetary and Financial Committee Gordon Brown
announced moves to complete the IMF's approval of the debt's relief by the end
of this year. "'That means that the historic process of completing the debt
write-off that started many years ago has ended today with this agreement that
all the elements have been resolved and the Managing Director will call the
Executive Board together to complete the approval of the arrangements to deliver
debt relief by the end of 2005...'" the president quoted Mr Brown. The
President told delegates the controversy concerning Iran's intentions to use
nuclear technology took a turn for the worse explaining that it was not known
where the escalating confrontation on this matter would end. "We are
however absolutely convinced that conflict over this issue can only add to
heightened global tension, which none of us need." He also saluted the
Israeli government for the closure of the settlements in Gaza and the withdrawal
of the Israeli Defence Force from this occupied Palestinian territory. "We
fervently hope that this historic step will open the way to the full, speedy and
unqualified implement of the Road Map."
The Congress is expected to emerge with solutions affecting the petroleum
industry, especially bottlenecks affecting refineries. It has brought together
about 4 000 delegates from across the world - most of whom are specialists and
pioneers in the petroleum sector, including industry executives, ministers,
junior professionals and speakers, among others.
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RETAIL
Spending Spree Picks Up Pace
Household spending, the main driver of economic expansion in the past year
increased steadily in the second quarter, picking up slightly from a slowdown in
the first three months of the year, the Reserve Bank said September 22.
According to the Bank's quarterly bulletin, consumption spending by households
grew by a seasonally adjusted and annualised 6%, compared with 5,5% in the first
quarter, following a surprise rate cut by the Bank in April, which stimulated
consumption. This contributed to impressive growth in gross domestic expenditure
of 5% in the second quarter, after a slump to 1,5% in the first. For the first
time in recent quarters, growth in expenditure was in line with growth in gross
domestic product, which economists said was a "positive trend" that
could help to "alleviate pressure" on the current account of the
balance of payments. Statistics SA reported growth in gross domestic product of
4,8% in the second quarter. The hefty deficit on the current account, which
shrank slightly in the second quarter, is partly the result of robust consumer
demand for imported goods. The bulletin shows that gross saving as a percentage
of gross domestic product increased to 13,5% in the second quarter from 13% in
the first. This is low compared with other emerging markets, such as China,
which has a savings rate of 50% of gross domestic product. SA's chronically low
savings rate is inhibiting economic growth, and a savings rate of about 20% of
gross domestic product is seen as more enabling for higher growth rates, while
providing a cushion against financial shocks.
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TELECOMMUNICATIONS
Umthunzi Wants R1,6bn Payout
Umthunzi Telecoms Consortium said September 19 that its shareholders were "traumatised"
by Transnet's decision to terminate talks with the empowerment group on the sale
of the state asset's 5% stake in cell-phone operator MTN. The consortium, led by
businessman Sandile Zungu, was selected as the preferred bidder last year after
what government described as a "robust and competitive process".
Government said in April last year that it was satisfied with the quality of
bids it had received. Zungu accused Transnet's new management, led by Maria
Ramos, of overruling a cabinet decision. "Umthunzi shareholders are angry
and traumatised by the experience," said Zungu. "All we want is the
implementation of the agreement (with Transnet)." He said if Transnet was
unable to implement the deal, it should pay compensation of R1,6bn, the increase
of the value of the MTN shares since April last year. The shares are now valued
at R4bn. Zungu said that the consortium was also considering legal action
against Transnet for breach of an agreement. "We are ready for the
long-haul of the legal process," he said. The public enterprises
department, to which Transnet accounts, said last year that Umthunzi had met the
objectives of the first phase of the sale, which included offer price, the
ability to fund the transaction and broad-based black economic empowerment
objectives. The 80-million MTN shares were valued at R2,5bn last year. But
Transnet announced that it had terminated the 15-month long talks with Umthunzi,
citing "failure to agree a mutually beneficial transaction".
"Consequently, Transnet is considering various options," said Transnet
spokesman John Dludlu. He would not divulge details of the disagreements with
Umthunzi, but said that Transnet was "deeply committed to leveraging
meaningful black economic empowerment." Dludlu said the parastatal had to
realise maximum value for pension fund members on whose behalf the shares were
being held in a trust. Analysts said Transnet's remarks suggested it had doubts
about Umthunzi's ability to hold on to the shares for a long period of time.
There was speculation that Umthunzi wanted to sell the shares as soon as was
practically possible to reduce its debt. Zungu dismissed the allegations as
"nothing but red herring and spurious claims."
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