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SOUTH AFRICA


  
  

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 159,886 104,235 113,300 29
         
GNI per capita
 US $ 2,780 2,600 2,820 93
Ranking is given out of 208 nations - (data from the World Bank)

Books on South Africa

REPUBLICAN REFERENCE

Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki


Update No: 054 - (30/06/06)

Mbeki hits back
President Thabo Mbeki has taken aim at those threatening South Africa's democracy through violence, he refers by association to the African National Congress' (ANC's) alliance partners, the South African Communist Party (SACP) and the Congress of South African Trade Unions (Cosatu). Mbeki strongly condemned acts of violence associated with strikes and protests against provincial boundary changes. Opposition leaders said the mobilisation of pro-Jacob Zuma forces in the SACP and Cosatu were threatening the efficiency and stature of the presidency. Cosatu and the SACP have charged that the presidency is too powerful, and that the country is sliding towards dictatorship. Mbeki said that in the recent past millions had experienced intense pain at the hands of "a tiny minority of individuals that holds the people's democratic victory in contempt" and sought to drag SA back to the "killing fields" of apartheid. 

BLACK ECONOMIC EMPOWERMENT 

Alarm Bells
The black economic empowerment policy is intended to bring greater equity to the ownership and control of South African business, and to provide the wider economic opportunities essential for sustainable economic development. Today's black economic empowerment is the outcome of an extended philosophical and practical struggle. Former president Nelson Mandela's empowerment programme was built on an enterprise development policy dating back to the Bantu Investment Corporation. President Thabo Mbeki has been associated with the more grandiose objective of creating a black bourgeoisie. This project was ostensibly inspired by the historical achievements of Afrikaner and Malay empowerment but at its heart has been the evident need for more honest and direct lines of communication between businesspeople and SA's new political elite. Today's policy is also intended to draw in a wider range of beneficiaries. It is set out in the 2003 Broad-based Black Economic Empowerment Act, which brings together business development, preferential procurement and skills enhancement. Its key instrument is a "balanced scorecard" that measures every enterprise against wide-ranging criteria for broad-based empowerment. Each element of the scorecard is clarified by soon-to-be-gazetted "codes of good practice" that will be binding on all state and public entities, and will be applied in all decisions involving procurement, licensing, concessions, public-private partnerships and the sale of state-owned assets. Few, if any, private companies can escape the codes' wider impact because the requirements of the procurement component will cascade down public sector supply chains. Concerns about this policy relate to its economic costs, the character of the "empowerment state" it may produce and its implications for African National Congress (ANC) unity. 

First, business agrees black economic empowerment is essential but often says current models are far too costly. Vendor companies must "facilitate" transactions, providing loan guarantees, price discounts, or internal financing at below market rates. The balanced scorecard introduces "realisation points" to ensure that the value accruing to empowerment actors is genuine. Analyst Jenny Cargill has argued that realisation points oblige vendors to underwrite the success of empowerment transactions and assume disproportionate risk, so raising the investment hurdle and reducing overall investment. Other critics fear that the new scorecard will create a swathe of dysfunctional empowerment partnerships that will tie up resources in unproductive activity. It will encourage "broad-based" participation through development trusts or employee share schemes that lack any economic rationale, and it will bring on board investors whose only real asset is political influence. Empowerment requirements will also discourage some of the foreign investment that might otherwise compensate for SA's savings shortfall. Despite government's much-vaunted flexibility towards multinational corporations, they must still deliver compensatory "equity equivalents". International businesses may already fear the lack of any clear empowerment time frame, unable to predict that 10 years hence empowerment obligations will not be renewed or even dramatically intensified. 

A second set of critics is worried about the character of the emerging empowerment state. It may become the slave of narrow interests, rather than government's hoped-for "developmental state" forging transparent and economically productive relations with business. Empowerment policy can disguise the growth of patronage relationships between officials and entrepreneurs. It could lead every business to believe it must have a state patron in order to land government contracts or to secure licenses. Industrial policy could become a life-support system for politically well-connected companies. Given a drastic shortage of empowerment finance, public sector and parastatal pension funds might be drained in support of risky investments. Government departments might increasingly act at the behest of individuals rather than in the national interest. Intelligence systems and diplomatic capital might be put at the disposal of companies with high-risk foreign investments simply because of their close relationships with ministers or officials. Major infrastructure investments -- in power generation and transmission or new-generation rail systems -- might be still more often secured by golf-course hand-shakes rather than by social and economic cost-benefit calculations. The key financial beneficiaries will continue to be established businesses but with politically connected black empowerment partners bought into what Moeletsi Mbeki has called the "white oligarchs" club. We have so seen the issue of "revolving doors" dramatised by the deal-making of former communications director-general Andile Ngcaba. The circulation of talented individuals between state and business is desirable, of course, bringing mutual understanding and aiding the internal transformation and corporate culture of both sectors. Nevertheless, confidentiality requirements and new regulations ensuring appropriate time delays are urgently needed. Exit to the private sector is infinitely preferable to the routine acceptance of conflicts of interest between officials' private and public activities -- a scourge that is widespread today and that itself requires dramatic and urgent attention. 

A third set of critics worries about the implications of empowerment for the integrity of the ANC. Empowerment vehicles are already implicated in the alleged abuse of preferential procurement to bring kickbacks to party funds, and in the purported interference of business in the presidential succession process. Empowerment mechanisms can also cloak spreading patronage and corruption. South African Communist Party intellectuals worry that SA is following the road of some other postcolonial states in which liberation movement elites have thrown off colonial oppression only to become parasites looting state resources themselves. In truth, there are deep divisions, notably generational ones, across the tripartite alliance. Congress of South African Trade Unions' general secretary Zwelinzima Vavi has spoken of the "crass materialism" of many union leaders, who "use their positions to negotiate shares" and join the "conveyor belt" between "business and its political representatives in the liberation movement". Beyond these three sets of concerns lies a fourth, unspoken, worry. Black economic empowerment today is more interventionist than yesterday -- but what of tomorrow? The first voluntary phase of empowerment failed to produce a sustainable increase in black ownership and control when the 1998 emerging-market crisis led banks to wind up empowerment financing vehicles. Black entrepreneurs have again borrowed at high cost and deals remain vulnerable to higher interest rates or a slowing economy. If the current generation of transactions proves no more sustainable than the last, we will see another dramatic reversal of the project to bring a degree of racial equity to ownership patterns. Today, however, a far wider range of broad-based beneficiaries, an over-borrowed new middle class and more numerous politically connected empowerment partners, will suffer the consequences. The resulting political turbulence might generate a counter-reaction against market-friendly and voluntary empowerment, and so carry disturbing implications for South African business.

Repo rate hike
The Reserve Bank monetary policy committee announced a surprise 50 basis points increase in its repo rate, June 8. The hike takes the repo rate to 7.5 per cent and the prime lending rate to 11 per cent. Governor Tito Mboweni said that the rise was necessarily to cool domestic demand and reduce debt with data showing that March retail car sales reached a 17-month peak. The weakening rand and an increasing current account deficit has put pressure on the bank to raise rates. However, although there is uncertainty in international markets which could add a risk to the inflation outlook, as Mboweni noted, South African inflation was expected to stay well within the bank's target of 3 to 6 per cent.

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HIV/AIDS

Economists Fail to Note Aids Widening Impact


AIDS will affect South Africa's economy in unexpected ways that are not being captured in current impact projections, according to a new book on the subject in South Africa. Estimates of the epidemic's impact on national economic impact tend to differ widely. A study by the Joint Economic AIDS and Poverty Programme (Jeapp), for example, claimed the effect would be negligible. On the other hand, financial analysts at ABSA Bank forecast that South Africa's gross domestic product (GDP) would be almost 10 per cent smaller in 2015, than it would have been if the AIDS epidemic had not occurred. But most current projections of the economic impact of AIDS offer a narrow and possibly misleading picture, Hein Marais argues in a new book, 'Buckling - The impact of AIDS in South Africa', published by Pretoria University's Centre for the Study of AIDS. The different estimates reflect varying assumptions and methodologies that are used to generate the estimates. However, the models share some features. They tend not to reflect the epidemic's effects on value produced in the non-market economy of the household and community (including child and elder care, sick care, other home-based tasks and volunteer work), nor do they capture the likely depreciation of human and social capital, and the potential knock-on effects of losses in one sector on others. Equally important, they tend not to convey the uneven nature of the epidemic's impact. Consumption patterns of poor households will very likely alter, putting pressure on enterprises that rely heavily on sales to the poorest income quintiles (especially informal retailers and Œspaza' shops). Marais warns that this probably will cut further into the already-insecure livelihoods of households that rely on 'micro-enterprise' efforts. There is general agreement in the AIDS literature that the epidemic, along with other factors, will cause greater dysfunction in the public education systems of countries in Southern Africa. This could have serious economic repercussions in South Africa, according to Marais. "If basic education suffers further, the springboard for higher education and skills training weakens-to unhappy effect in an economy that has been geared to rely more heavily on a strong skills base", he writes.
AIDS is also expected to sabotage public institutions' capacities to provide predictable, consistent and acceptable standards of service-a fundamental prerequisite for an efficient economy. Little of this is currently factored into projections of the economic impact of AIDS. The direct cost of AIDS to businesses is expected arrive in the form of higher health-care costs and more expensive workers' benefits, while the indirect costs will occur in the shape of reduced productivity, loss of skills, experience and institutional memory, and (re)training and recruitment time and expenses. Indirect costs are significantly higher for skilled workers, compared with their less-skilled counterparts, while employee benefit costs tend also to be higher for skilled workers. Some analysts have argued that these costs add up to a kind of hidden employment or payroll tax. In 2003, a study of six Botswana and South African companies by Sydney Rosen concluded that an 'AIDS tax' of 1-6 per cent of labour costs per year was being incurred. In tackling the epidemic's effects, companies have several options. They can reduce their reliance on low-income markets, shift some of their operations abroad (especially elsewhere in Africa), restructure their labour requirements and terms of employment, invest in HIV prevention programmes, provide treatment, care and support to AIDS-affected workers, and/or invest more in sustaining and extending their human capital base. Several large companies are experimenting with a combination of these options. Most, though, seem intent on deflecting the epidemic's costs elsewhere, writes Marais. For well over a decade, companies in South Africa increasingly have been using labour-saving work methods and technologies, outsourcing of jobs, favouring the use of 'casual' staff when possible, and trimming benefits. The effects have been particularly harsh on workers in the middle and lower skills tiers. When surveyed by the Bureau of Economic Research in 2004, almost one quarter of SA mining companies and almost one fifth of manufacturing companies said they were investing in machinery and equipment in order to reduce their labour dependency because of AIDS. (By far the biggest share of fixed capital investment goes towards 'machinery and other equipment' - and that share has grown larger, from an average 40 per cent in 1990-1994 to 49 per cent in 1995-2002, according to the UNDP's 2004 Human Development Report on South Africa.) Substituting machines and technologies for less-skilled workers reduces overall labour requirements but also creates a need for higher-skilled workers. Though fewer in number and apparently less at risk of HIV infection, the epidemic does not leave them unscathed; companies will still need the ability to fast-track skills acquisition and training, which is costly. Poaching or importing skills might be the easy way out. Meanwhile regressive changes to workers' health-care benefits and pensions continue to be made, as part of restructuring efforts that also pre-date the epidemic but probably are being spurred on by it. Medical benefits are now customarily capped at levels (or even replaced with fixed cash pay-outs) far too low to cover the costs of serious ill health or injury. Already in the late 1990s more than three quarters of 56 randomly sampled large South African companies were cutting back death and disability benefits, limiting employer contributions, and requiring that workers pay a larger share of the premiums for the same benefits. On average, more than one third of the workers with access to such medical schemes had withdrawn from them because of the costs they entailed. A huge shift has occurred as well from defined-benefit retirement funds to defined-contribution funds, often with the support (and in some cases the encouragement) of trade unions who believed that defined-contribution funds were in their members' interests. (The latter variant entails a one-off pay-out equal to the combined amounts contributed by the employer and the worker up to the last day of employment. It is of scant value to younger workers and provides little longer-term help to families - but it shields companies against future obligations.) The net effect has been a significant 'grab-back' of wages and benefits from those South Africans with formal employment - at a time, writes Marais, "when they and their families are at increased risk of severe illness and premature death". Much worse off are the unemployed, and 'casual' or 'non-permanent' workers. In concert with other pressures, AIDS will very likely maintain the trend to cap or reduce real wages and benefits for semi- and lower-skilled workers, according to Marais. Meanwhile, strong demand for skilled and highly-skilled workers and professionals can be expected to push their wages and salaries up. If AIDS risk causes companies to shirk investment in training and education (instead luring skills from the public sector and other countries), mobility into higher-skilled employment would suffer, with black South Africans (especially women) worst-affected. However, the actual cost of such reactions and outcomes might not be readily visible to most economists and accountants in the short- to medium-term. On the contrary, warns Marais, it might even yield an image of boosted productivity, savvy cost-cutting and timely realignment, widening profit margins and buoying the equities of some firms. But this will have occurred on the basis of a massive 'redistribution of risk', with the epidemic's heaviest costs within the lives and zones of South Africa's poor, and those institutions saddled with social welfare functions. The sum effect would be to trap even larger numbers of South Africans in poverty, and to substantially increase inequality - a recipe for possible instability.

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INTERNATIONAL ECONOMIC RELATIONS

China Aid To Africa 

The Premier of the People's Republic of China Wen Jiabao has reassured African countries that his country's generosity towards poor countries comes with "no strings attached". "Our cooperation with African countries is transparent, open and inclusive and we will always promote a win-win situation," he said. Mr Wen, who was speaking at the opening of the China-South Africa Business Cooperation Forum, said his country did not have any hidden agendas. "China has endeavoured to provide assistance without any political strings attached to our brothers and sisters in Africa to the best of our ability." He cited the close- to- a thousand social and economic projects which China had initiated in and for the benefit of African countries over the years, as evidence that his country had no sinister intentions. "We respect the social system and development strategy pursued by African countries in light of their particular national conditions. "We do not seek to export our own values and developmental models to Africa." With Africa calling for equitable representation at the UN Security Council, Mr Wen said his country would not hesitate to lend its support to the positions adopted by the continent internationally as well as domestically. "We will continue to speak out for the interests of Africa at international forums and support African countries in their efforts to safeguard sovereignty, independence and promote regional peace and stability," he said. Deputy President Mlambo-Ngcuka said China and South Africa had a lot in common and there was a lot that both countries stood to benefit by working together. "Both countries are currently under pressure to deliver on Millennium Development goals, we both face energy challenges and our economies are characterised by the huge gap between the first and second economy," she said. She said working together would make it possible for the two countries to tap into each other's experiences.

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MINERALS & METALS

Steel Prices to Hit Record Levels 

Global steel prices could be heading back up to the record levels seen in the past two years, boding well for local steel makers Mittal Steel SA and Highveld Steel & Vanadium -- but not for end-users. International steel prices in the year to date have been rising almost as steeply as they fell last year. Industry research firm MEPS expects steel prices to increase 30% in Europe this year and 15% in Asia in dollar terms. The consultancy says fourth-quarter steel prices could rise to levels similar to those reached in 2004. Mittal Steel SA, which is raising average prices on the bulk of its steel products by about 5%, says global hot rolled coil prices increased about 20% in the year to date and more than 30% in some markets. ThyssenKrupp, Arcelor, Corus and Salzgitter are all looking to hike steel prices next month. Increases in raw material prices are among the factors behind climbing steel prices. Annual iron-ore contract prices for several European, South Korean and Japanese steel mills have increased about 19% compared with last year. Chinese mills are still negotiating new iron-ore contracts. Global prices of zinc, which is used to galvanise certain steel products, jumped 70% in the first quarter compared with the same quarter last year. Global demand for steel is widely expected to remain healthy throughout the year, providing further support for strong steel prices. Demand in SA is expected to be particularly strong amid rising government infrastructure spending, among other things. There is concern that the rise in steel prices may intensify as buyers build stockpiles to hedge against future steel price hikes. Online publication iSteelAsia said recently it had become clear that stock-building was taking place in some markets, raising the possibility of a speculative bubble that could bring problems later. MEPS says steel makers around the world are exercising a degree of control in output in an effort to put a floor under the price decreases witnessed last year, when customers embarked on a period of inventory reduction after the excesses of 2004. In many countries this action has stimulated prices and in a number of cases has revived demand on the mills, it says. Merrill Lynch said last week that prices in Europe, Asia and the Commonwealth of Independent States continued their upward trend of the past few months. MEPS said in an international steel market round-up last week that US flat steel buyers had accepted further price increases, driven by a lack of supply. Meanwhile, steel output is expected to continue rising. MEPS estimates world crude steel output this year will be 1,176-billion tons, a 4,15% increase over the previous year's production. The majority of the steel output increase is expected to come from China and India. Mittal Steel SA's share price has remained strong amid rising global steel prices in the year to date. This is despite the company reporting a 57% fall in headline earnings in the quarter ending March compared with the same quarter last year.

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MINING

Miners in Running for Zimbabwe Uranium

At least two South African uranium miners could be weighing up opportunities to develop the Kanyemba uranium deposit in northeastern Zimbabwe. Zimbabwe's state-owned Sunday Mail reports that the government had short-listed three foreign bids for the Kanyemba deposit, and it hoped work could begin before the end of the year. Bids have come from SA, China, Russia and Namibia. Global interest in uranium has picked up sharply in the past few years on expectations of a supply shortfall because high oil prices have forced a rethink on building nuclear-fuelled power stations. The price of uranium has risen to about $43/lb from $21/lb at the beginning of this year. Gold miner Simmer & Jack has formed a joint venture company, First Uranium, to investigate the uranium potential of its Buffelsfontein operations. Two other companies, Uramin and Brinkley Mining, are looking for uranium in the Karoo. Asked about interest in Kanyemba, First Uranium CEO Jim Fisher said yesterday that First Uranium had not been approached directly but would look at the opportunity if it thought there was a good business case. There was no comment from sxr Uranium One. Among Zimbabwe's neighbours, Namibia has at least two uranium operators, Rio Tinto and Paladin, which is developing Langer Heinrich. In SA, AngloGold Ashanti produces uranium as a by-product of gold mining while the most advanced of the junior miners is sxr Uranium One, which plans to bring its Dominion uranium mine into production next year. The Kanyemba deposit, with an estimated 20000 metric tons of mineable uranium, appears from local media reports in the past year to have been promised to several companies. It was explored to feasibility stage about six years ago by joint venture partners Cassiar Mines and Metals and Cline Mining Corporation, both of Canada. They slowed development in the early 2000s while waiting for an upturn in the world uranium market, but in 2001, Cline Mining said its special concession had been revoked by the Zimbabwean government because of lack of work on mine development. Zimbabwean newspapers reported last November that OmegaCorp of Australia was, with local partners, awarded the licence, although OmegaCorp said on its website in April it was still waiting to hear the outcome of its application. The Zimbabwean government's moves on the country's uranium assets follow shortly after other deals with foreign investors to cash in its minerals wealth. These include an agreement with a Chinese firm for a thermal power- generation project, for which it will be paid in chrome, and another with a French bank for a loan to pay for fuel imports. The business environment in Zimbabwe is a deterrent for foreign investors, with shortages of critical supplies, including fuel and energy, exchange-rate restrictions and continuing uncertainty over the government's indigenisation requirements.

AngloGold Teams Up to Mine Alaska

AngloGold Ashanti has entered into an agreement with a junior mining company to explore its projects in the US state of Alaska so it can focus resources on its prospective greenfields projects. AngloGold announced a joint venture agreement with Bema Gold to explore some of its gold properties in Colombia. Gold mining groups have stepped up their search for new ore bodies globally in the past three years. Joint venture agreements with junior mining companies are a common strategy to minimise the costs and risks. AngloGold said it would sell six mineral exploration properties in Alaska, covering 246km', to International Tower Hill Mines, in return for a 19,99% stake in Tower Hill. It would also give Tower Hill the option to acquire 60% in two other properties, LMS and Terra, if Tower Hill spent $3m in exploration on each property within four years. "While Alaska remains highly prospective for the discovery of new gold mines, our commitment in countries such as the Democratic Republic of Congo, Colombia, and Australia limits our ability to optimally develop these Alaskan projects," said AngloGold executive officer for business development Richard Duffy. He said AngloGold had two types of greenfields exploration: where it explored in its own right, using its own teams, and where it sought partners with local knowledge. In Colombia, the group will focus on areas where it is most likely to find AngloGold-type deposits and bring in partners in other areas where there might be more base metals than gold. The co-operation with Tower Hill would make it possible to accelerate exploration and give AngloGold's shareholders rights to the upside on any future discoveries Tower Hill made in Alaska, Duffy said. Gold was discovered in Alaska in the 1870s. Northern Dynasty Minerals is developing an open-pit gold and copper mine near Lake Iliamna. The resource estimate is 26,5-million ounces of gold and 16,5-billion pounds of copper, but the mine requires infrastructure. Other recent major gold projects launched in Alaska include the Kensington gold mine north of Juneau and the Pogo gold mine near Fairbanks.

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PETROCHEMICALS

Sasol Coal-to-Fuel Deal 

SA's largest capital investor, Sasol, has signed agreements with Chinese companies to proceed with a second stage of feasibility studies into two $5bn plants to convert coal into fuel, it said June 22. An initial study had found that all the key drivers were in place to establish the plants, which could be in operation in 2012, each producing 80000 barrels of fuel a day, said Sasol. The group's share price rose as much as 6,9%, but analysts said the rise stemmed from the rand's weakening rather than the Chinese agreement. An analyst said the viability of the Chinese project depended to a large extent on the incentives Sasol would be able to secure from the Chinese government. Sasol China Ventures president André de Ruyter said that government had not yet committed to any incentives. He said that what Sasol wanted in incentives required changes to tax laws in China. "They're still studying various proposals to do this," he said. De Ruyter also said Sasol had done an extensive due diligence of intellectual property protection in China. "Based on what we ascertained and the nature of our intellectual property, we are comfortable this is a risk that is very manageable and not particularly greater than anywhere else." A coal-to-liquids plant based on Sasol technology would be difficult to operate, "even if someone built a carbon copy", he said. Sasol's intellectual property did not only reside in its patents and blueprints, but also in the know-how of operating and integrating the plant, he said. One analyst said Sasol would probably take a 50% share in the project, with the Chinese government taking the balance. He said capital investment of R37bn -- for the two projects -- over three years would raise Sasol's gearing above its target of 50%. The second-stage feasibilities would examine further detail on determining capital cost, feedstock costs, water supply, and commercial and funding issues, Sasol said. The agreements were signed with Shenhua Corporation in Cape Town yesterday for a plant in Shaanxi province, and with Shenhua Ningxia Coal in China on Wednesday for the plant in Ningxia Hui autonomous region. Sasol said one of the strongest indications of Chinese support for the projects was that they were included in China's 11th five-year plan as an area for policy intervention and support. The Chinese projects have been on the cards for a long time, so those in the know would have factored it in already, said one unnamed analyst.

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TELECOMMUNICATIONS

MTN to Raise R8 Billion in Bonds for Acquisition

MTN is planning to raise part of the US$5,5bn it needs to take over the pan-African and Middle Eastern cellular operator Investcom by selling bonds worth up to R8bn. It would start selling bonds to South African investors today in a sale led by Deutsche Bank's South African arm, said finance director Rob Nisbet. Four banks including Deutsche will lend MTN the cash it needs, but Nisbet did not name the other backers. MTN would borrow US$3,85bn and issue up to 204-million shares to complete the payment, giving Investcom shareholders up to 13% of MTN. Yields on the benchmark South African government 10-year bond have risen 24 basis points since June 7, the day before the central bank raised interest rates for the first time in almost four years. "It's an interesting choice of timing," said Leon Myburgh, a sub-Saharan Africa strategist at Citigroup. "You could have got substantially better rates last week." Taking over Beirut-based Investcom will give MTN another 4,9-million customers in eight countries, along with licences to operate in two more. MTN shareholders approved the reconstitution of its board to better support its international expansion, with moves to appoint experienced personnel able to help develop its business in the Middle East. The new members include Sheikh ARH Sharbatly, a director of Riyad Bank in Saudi Arabia and the Saudi Arabian Refinery Company and chairman of Arabian International Corporation. CEO Phuthuma Nhleko said MTN needed a "regionalised operational structure" to realise its expansion plan. With Bloomberg.

Telkom Hinders Progress

Long delays in introducing competition to the telecommunications sector, and thus reducing costs, could result in SA missing the boat in the major new industries of business process outsourcing and offshoring, the industry's representative body has warned. This sector has been identified as a priority area in government's Accelerated and Shared Growth Initiative for SA. Its representatives are participating in several high-level forums with government. In SA, the industry has the potential to create 100000 new jobs and contribute up to R7,9bn to gross domestic product by 2009, the South Africa Contact Centre Community (Sacccomm) said in a submission to Parliament's communications committee. On a global scale, the sector is set to grow 50% a year for the next four or five years. SA could miss this opportunity if nothing was done soon to bring down the costs of international connectivity, Sacccomm CEO Mfanu Mfayela said. The South African industry has so far failed to attract European and American multinational investments at the same rapid rate as the more competitive Philippines and India. The latter has forecast the creation of 1-million jobs in business process outsourcing by 2008. "Over the past two years, the industry has lost major international opportunities which could be directly attributed to the high costs of telecommunications. This is continuing," Mfayela said. Sacccom has calculated that the telecommunications cost differential between operations in SA and other locations abroad such as India and the Philippines amounts to R23m a year for a 1000-seat call centre. It accounts for about 20% of the total cost gap between these countries. Calling costs in SA are particularly heavy. Competitors in India and the Philippines do not bear this burden. Domestic and international bandwidth costs and wage rates are also much higher in SA. "One of the main reasons for the high costs of international telecommunication services is the monopoly which Telkom exercises over the landing rights and access to the undersea cable. It is imperative that other operators be granted access to the undersea cable at wholesale rates and on the same terms and conditions as Telkom," Mfayela said. "Regulations which robustly regulate access to the undersea cable are urgently needed."

Business Connexion Buyout

Telkom has cleared the second hurdle in its bid to take over Business Connexion, with 99,59% of shareholders voting in favour of its R2,4bn acquisition. Now the most difficult stage is looming, as its bid will face concerted opposition at the Competition Commission from the Internet Service Providers' Association (Ispa). Telkom cleared the first hurdle several weeks ago by winning support from four key black partners in Business Connexion. Although they do not hold shares in the listed company itself, their support was crucial for keeping the company intact after a change of ownership. The terms that persuaded them to support the sale have not been disclosed. Telkom bought its way to victory with the ordinary investors by offering R9 a share plus a dividend of 25c, for a share that analysts believe is worth less than R8. CEO Peter Watt said the shareholders had overwhelmingly accepted that the price was reasonable and exercised their option to sell to Telkom. The deal is taking place via a scheme of arrangement, which lets a buyer take over a company if just 75% of shareholders approve, subject to a court order. Business Connexion will apply for court sanction on June 20. Telkom now faces a more difficult and far less predictable audience with the competition authorities. Opposition from Ispa, which represents 113 private players, will be supplemented by protests from Internet Solutions, the largest supplier of internet services to corporate SA. They will argue that Telkom dominates the telecommunications sector, with evidence that its monopoly has held SA back as a globally competitive country. That stranglehold has also damaged the internet industry, because private players are forced to lease their core network facilities from Telkom. If Telkom bought Business Connexion, it could further damage competition as Telkom could indulge in anticompetitive practices by illegally cross-subsidising its services or offering a bundled package of services that rivals cannot compete with. Telkom wants to clinch the deal to gain "a meaningful presence" in software, technical support and business process outsourcing, to broaden revenue as profit from voice calls dwindles. Telkom CEO Papi Molotsane said last week: "We have to build an integrated information and communications technology services provider. That's where the telecoms industry is going." Although the deal poses a major shake-up for the information technology sector, its effect on Telkom is ironically far more muted, at least in the short term. Telkom would be buying a company that would grow its own business by a mere 2%. However, the long term promises greater rewards, as Telkom could offer a wide range of services spanning high-speed internet access, cheap voice calls over the internet, video conferencing, network integration, data storage, business software and the ability to manage all those services for clients.

Vodacom Boasts Revenue of R31 Billion

Cellular operator Vodacom has posted the best results in its 12-year history, with a massive 52% rise in subscriber numbers giving it an almost unassailable dominance over the South African market. Vodacom now boasts a 58% market share in SA after signing up 6,4-million new users in the year to March, to serve 19,2-million users. They brought in a revenue of R31bn, up from R25bn a year ago. With its operations in four other countries added in, the overall revenue hit R34bn, its customer base touched 23,5-million and after-tax profit rose 32% to R5,1bn. Although Vodacom dominates the local market, it is an also ran to MTN in Africa as a whole, with MTN reporting a revenue of R34,7bn in financial 2005 and 24,1-million subscribers. Vodacom's results showed a diverging strategy between the rivals, with Vodacom concentrating on increasing its profit by offering a wider range of services, compared to MTN's quest for all-out geographic growth. The rise in profits came despite cuts in the cost of calls, which dipped between 13% and 54% on various packages. The cost of data services, which include text messages and data cards for high-speed internet access from a laptop, were slashed 94%. That lays the foundation for Vodacom's future growth, which is centred on becoming an all-round communications company rather than a carrier of voice calls. Customers would come to think of Vodacom as the provider of all their communications needs, be it voice, text messages, e-mail, video calls, television or surfing the internet, said CEO Alan Knott-Craig. "Mobile TV is the most interesting thing on our horizon. Television on a mobile phone is going to be a real big business, and there is no reason why we shouldn't have the same penetration of low-cost TV as we have for voice," he said. "There is no reason why companies such as ourselves shouldn't start enhancing revenues quite significantly by being part of the selling of content." Even though mobile television is in its infancy, 13000 users watched the verdict in the Jacob Zuma trial on their cellphone handsets. Vodacom is hoping that mobile television and other data services will help shore up the declining average revenue per user (arpu), which measures how much its customers actually spend each month. In the past year Vodacom SA's arpu plunged from R163 to R139 a month as cellphones reached lower-spending customers. That made it essential to invest in new technologies that could offer revenue-generating services, said Knott-Craig. In the past year Vodacom SA reinvested 11% of its revenue in improving its network.

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Newnations (a not-for-profit company)
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774
enquiries@newnations.com