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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: 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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