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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)

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REPUBLICAN REFERENCE

Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki


Update No: 053 - (02/06/06)

South Africa's former deputy president, Jacob Zuma, was acquitted of rape on May 8th following a 3 month trial. While Zuma's camp was still celebrating his court victory and gearing up for the two corruption trials scheduled for July, the mood at the African National Congress (ANC) headquarters was understandably subdued as the full implications sunk in. While Zuma remains politically dented after a damaging trial, his acquittal and the jubilant street reaction to it will send a signal to the ANC hierarchy that he remains the party's most popular leader. Zuma's corruption trial is likely to be tougher to beat. The ball has been pushed back into the ANC hierarchy's court. Whether Zuma can re-group and gain enough momentum to re-launch his presidential campaign remains to be seen.
Jacob Zuma upped the ante in the ANC leadership succession race May 9 in an emotional apology to the nation for his lapse in judgement when he had unprotected sex with his HIV-positive rape accuser. The apology further signalled a resumption of the intense rivalry between Zuma and President Thabo Mbeki for public leadership on the issue of HIV and AIDS, arguably the country's biggest social and economic crisis. He did not comment on Mbeki's stated desire to see a woman succeed him, interpreted by many in the party as an attempt to bolster Deputy President Phumzile Mlambo-Ngcuka, who Mbeki chose to replace Zuma in the cabinet. If Zuma resumes his party responsibilities this would give his many detractors in the National Executive Committee (NEC) cause for concern as his popularity with the party's rank and file has not waned. If Zuma is also acquitted of corruption in July, his march to the party's highest office could be unstoppable, but he will be fortunate indeed if he can get off this very serious charge. In a real sense the impartiality of South African justice itself is on trial as it can be safely assumed that the Zuma supporters will use any means, fair or foul to get him acquitted. So far, the courts have acted commendably. He received the benefit of reasonable doubt in the rape case, but the evidence in the corruption case is of an altogether weightier character. Eveything - Zuma's future, the leadership of the ANC, who will be the next president when Mbeki's term expires in 2009, depends on the outcome of this trial. Even more -this is the first time that any "African Big Man" has been on trial for corruption. Many other "Big Men" in other African nations and their better informed citizens, will be waiting and watching.
President Mbeki faces the grim prospect of open rebellion in the ANC and its allies, with a growing tide of criticism of his stewardship of party and state threatening to engulf the final three years of his presidency and weaken him in the succession struggle raging in the party. The Congress of South African Trade Unions (Cosatu) launched a full-frontal attack on Mbeki's presidency May 25, warning that both the ANC and South Africa under Mbeki were "drifting towards dictatorship". The South African Communist Party (SACP) also voiced criticism of an "overly powerful Presidency", and the powerful National Union of Mineworkers (NUM) gave Jacob Zuma a ringing endorsement. 
Cosatu has accused Mbeki of using state institutions and the media to settle political scores inside the ruling party. "A frightening culture has developed in the ANC of cutting corners and not only to ignore internal democratic processes but to be contemptuous of them. This culture leads to the use of leaks to the media to take forward individuals' narrow agendas," said Cosatu general secretary Zwelinzima Vavi. The attack built on the SACP's criticism of Mbeki's "imperial presidency", which it said sidelined the ANC and its alliance and undermined democratic institutions. The tone of the latest barrage against Mbeki signals that the left inside the alliance has stepped up its offensive for control of the party, sensing Mbeki's weakened position following Zuma's acquittal on rape charges.
Thousands of South African workers took to the streets to protest against unemployment and poverty mid May. The strikes relate to continued poverty and unemployment at a time of supposed continued economic growth. Many argue that the economy is still not creating enough formal sector jobs. The country's official unemployment rate is 26.5 percent, but analysts say it is as high as 40 percent. The National Union of Mineworkers (NUM) said the mining sector had laid off between 40,000 and 50,000 workers over the past two to three years under the pretext of a strong rand currency and a weak United States dollar price for gold. In the same period, according to the Southern African Clothing and Textile Workers' Union, more than 62,000 clothing, textile and footwear jobs were lost because local employers were unable to compete with cheap imports from China and either had to close shop or downscale their operations. The major stumbling block in job creation is the lack of skills. The Joint Initiative for Priority Skills Acquisition (JIPSA) was launched earlier this year to address the shortage of skilled labour. The International Monetary Fund (IMF) projects a required annual growth of at least seven percent to meet the UN's Millennium Development Goal of halving poverty by 2015. Mozambique is the only country in the region to have achieved this target. 
Emerging market jitters have sent the rand to a six-month low of R6,67 to the dollar. The JSE's all-share index is down about 11% since the beginning of May. President Mbeki said South Africa's economic fundamentals remained sound and the falls were pretty much in line with other comparable emerging markets. "Some countries have done a little worse. South Africa has therefore not negatively been singled out among the emerging markets," he said. A poll of analysts conducted by Reuters found that economic growth probably accelerated to 4,2% in the first quarter of 2006. Domestic demand was strong and manufacturing and mining output had recovered.
The South African AIDS lobby group, Treatment Action Campaign (TAC), will be back in court in three to four months' time for another round with German vitamin entrepreneur Matthias Rath. This time the ministry of health and the Medicines Control Council (MCC) are also being dragged into the fight for their alleged lack of action against Rath, who has claimed his vitamins were more effective than antiretroviral drugs in treating HIV/AIDS. Rath has been able to continue selling his vitamins as anti-AIDS medication, despite a year-long investigation by the MCC. TAC spokesman Nathan Geffen said he believed the MCC had acted negligently. "From everything I have seen and heard ... no proper investigation has taken place into the activities of Matthias Rath, despite complaints being lodged by ourselves and other organisations and individuals," he told the South African Broadcasting Corporation.

ANC Succession Crisis
The succession battle is likely to deepen after ANC leaders failed to agree on a strategy to manage the crisis May 27. This has led to accusations and counteraccusations of conspiracy and plotting from the party's main contending factions. ANC secretary-general Kgalema Motlanthe conceded May 29 that the party traditionally made no provision to manage its leadership race. "In the ANC there is no provision for succession. It's a foreign concept to the ANC. Succession happens in dynasties. We elect national leadership," he told reporters following a three-day meeting of the party's national executive committee (NEC). The ruling party is now awash with paranoid conspiracy theories as leaders jostle to grab the mantle from President Mbeki when his term as ANC president ends in December next year and as president of the country in 2009. ANC deputy president Jacob Zuma is on record as saying that unnamed party colleagues were using state resources to frustrate his presidential bid. Sources who attended the tense meeting said Mbeki himself complained bitterly about attempts by "ultra left forces" to topple him as the party and South African president, and appealed to the NEC to come to his defence. The sources said Mbeki was referring to statements by ANC allies the South African Communist Party (SACP) and Congress of South African Trade Unions (Cosatu). The allies warned against a "slide towards dictatorship" under Mbeki's "imperial" presidency. However, the NEC, which has been split down the middle by the fallout between Mbeki and Zuma, refused to accept that there was any conspiracy against Mbeki. Last year the NEC also rejected Zuma's assertion that there was a conspiracy against him. Instead, in what appeared to be an attempt to paper over the cracks and also placate Mbeki, the NEC gently chided Cosatu and the SACP over their claims of dictatorship and over-centralisation: "Statements about tendencies towards 'dictatorship' and the centralisation of powers within the ANC and government presidencies, among others made, are not borne out by reality. Unless properly rebutted, these statements may cause confusion and uncertainty among the membership of the alliance and among the broader public." 

Zimbabwe Meltdown Could Lead to Policy Shift
South Africa has expressed its alarm over the deepening political and economic crisis in Zimbabwe, with Deputy Foreign Minister Aziz Pahad saying the increased number of refugees fleeing the meltdown called for an urgent solution to the crisis. Pahad's remarks to journalists May 17 at a parliamentary briefing broke government's silence over the unfolding decline in SA's northern neighbour. His comments are the loudest so far from any senior South African official on the crisis. Depending on how they are followed up, Pahad's remarks could sound a decisive break with the 'quiet diplomacy' policy that has been implemented up to now. To be more effective, Pretoria will have to exert pressure to signal its dissatisfaction at having to pay the price of mis-governance in Zimbabwe. The seven-year economic decline is now a real threat to South Africa the policy of quiet diplomacy in dealing with Zimbabwe has failed to bear fruit. Pahad said government "remained seized" with the Zimbabwean situation. "We have been concerned about the deteriorating economic situation, where inflation has now reached 1000%, and the predictions are it can get worse," he said. "We remain concerned not only about the effects on the people of Zimbabwe, but the effect on the region as a whole, because Zimbabwe is an important player." Pahad said that there were at least 2-million Zimbabweans living illegally in SA, and that the number of Zimbabweans applying for visas at the South African embassy in Harare had been increasing alarmingly. "By any standards 2-million is high even if it's not as much as this, it is high. Pahad hinted that SA was placing its hopes for a solution on a United Nations (UN) plan to broker a deal. UN Secretary-General Kofi Annan, who is expected to visit Zimbabwe this year, is under-stood to be working on a plan, with President Mbeki's backing, to resolve Zimbabwe's political problems. The plan involves an aid package for Zimbabwe on condition President Robert Mugabe gave a timetable for his departure. If Mugabe accepted the UN plan, he would be given immunity from possible prosecution for human rights abuses. However, Mugabe is relying increasingly on the military to run the country as a protection against possible urban riots, and is putting in place a transition strategy for when he is gone. This "creeping coup", with Mugabe's connivance, is designed to ensure the grip on the country by the Zanu (PF) is maintained in the post-Mugabe era. That will mean continued stolen elections and economic decline. But events may overtake these transition plans. Hyperinflation, now at 1000%, high unemployment and extreme food shortages mean most Zimbabweans cannot meet their basic needs. It also means that Mugabe's rewards for those whom he relies on to stay in power are being diminished rapidly. The government has delayed paying salaries to some in the public service, the police and the military. This will soon erode the pillars of support for the Mugabe regime, which clearly knows that economic decline is its prime threat. Not only does it threaten military and public-service support structures, it also increases the chances of urban riots. Ultimately, the driving force behind any future change will be Zimbabweans themselves, but SA can play an important role. All the signs coming out of Zimbabwe are of a humanitarian and human-rights crisis. These are the type of early warning signs that should demand that the African Union and the Southern African Development Community address the issue. The potential is for another Darfur, albeit in a different form. The South African government seems finally to be coming round to the view that quiet diplomacy has failed, and a new initiative is needed. A united effort by government, the UN and regional bodies may yet avert the political and economic implosion of Zimbabwe.

Pan-African Parliament: US$6.1m Cash Crisis
Pan-African Parliament (PAP) MPs said May 11th that Libya and its supporters were acting as sore losers by plunging the Midrand-based body into a financial crisis. The chairman of the PAP's monetary and financial affairs committee, Kenyan MP Wycliff Oparanya, said that the three-year-old body was short of US$6,1m and, as a result, "may not be able to hold its sixth session" in October. He said the current session, which ended May 12th, had to be cut by half because of the unsolved financial problem. Sierra Leonean MP Ibrahim Sesay said Libya had wanted to be the host of the PAP but had lost out to SA. It was now acting as a spoiler, with the support of Algeria and Egypt. As host, SA has budgeted R80m for the building, infra-structure and operating expenses of PAP. Oparanya, who returned from talks in Addis Ababa with African Union (AU) officials, said he had been told that the main reason the AU was unable to meet its full US$12m contribution to PAP this year was because there had been a shortfall in the membership dues paid to it. Four of the five largest contributors, which together provide 75% of the AU budget, had failed to pay their membership dues this year, he said. SA has paid in full but Algeria, Egypt, Libya and Nigeria have not. Of these four, Algeria, Libya and Nigeria were all significant oil producers. With the oil price now at more than US$70 a barrel, they were quite capable of paying. Oparanya said 15 AU countries had been in arrears for more than three years and were facing sanctions. This meant they would be reduced to observer status. Oparanya said an appeal for funds would be made at an African heads of state summit in Gambia this year. "As a last resort," Oparanya said, "the parliament may have to approach international donors to help the body through the crisis". Consideration had been given to a levy on multinationals for African development last year but the idea had been abandoned. Oparanya said PAP was already operating under conditions of financial stringency. For instance, instead of hiring a full complement of more than 90 support staff, it had only 22. Until recently, Libya had been a significant contributor to AU coffers and had even helped other countries pay their fees. It was supported by Algeria and Egypt In its campaign to host PAP

Competition Commission Tribunal Targets Former Utilities
Former state utilities have often been accused of breaking competition rules. This was illustrated when South African Airways (SAA) was slapped with a R55m fine for price-fixing and colluding with its competitors. This follows another R45m fine for SAA last year, and a hearing involving dominant steel producer Mittal, which first grew fat on state support as Iscor. Telkom, for a long time accused of stifling competitors, will soon face accusers at the competition authorities over its plan to buy Business Connexion. Then there is Sasol, already a frequent flyer at the Competition Tribunal. Last year, Sasol faced a rough tribunal hearing over a complaint about discriminatory pricing from minnow Nationwide Poles. That decision went in favour of Nationwide initially, but was overturned by the Competition Appeal Court in December. In effect, that decision held that it wasn't particularly bad of Sasol to charge smaller buyers more for products than it charged its larger, cosier customers. Then there was Sasol's mooted merger of its liquid fuels business with that of Engen, a merger it failed to charm the Competition Tribunal into giving it the green light. Now, Sasol will have to prepare its bosses for yet more time at the tribunal on the charmless campus of the trade and industry department in Pretoria. This time, its fertiliser business has hit the competition fan. First, small fertiliser supplier Nutri-Flo, which bought fertiliser from Sasol, convinced the Competition Commission to refer its complaint to the tribunal for a full hearing. Sasol, Nutri-Flo says, was overcharging for fertiliser and fixing prices. Although Sasol tried unsuccessfully to fight this referral, the Competition Appeal Court says it must go ahead. Not that Sasol was likely to have got away with it, the commission said it would also be forwarding another complaint over Sasol's fertiliser division to the tribunal, this time from Profert. There is a bright side: if the Competition Tribunal ever introduces a loyalty programme, then Sasol could stand to recoup at least a fraction of the millions it has shelled out in Pretoria.

OECD Backs Agricultural Reforms
Agricultural development backed by a broad range of policies to boost economic growth and tackle social inequities is critical for alleviation of poverty in South Africa, says an expert at the Paris-based Organisation for Economic Co-operation and Development. The 30-nation club has carried out a comprehensive review of agricultural policies in South Africa. "The basic message of the report is that South Africa has undergone extensive reforms since the transition from apartheid to democracy in 1994. But there is much more that needs be done," said project leader Vclav Vojtech. Agriculture comprises 3.4 per cent of the country's Gross Domestic Product (GDP) but employs 30 per cent of the labour force. Industry accounts for 25 per cent of employment, and the services sector 45 per cent. The report states that "The South African economy, including agriculture, is increasingly integrated in world markets with about one-third of agricultural production exported," it says. "It is among the world's leading exporters of such agro-food products as wine, fresh fruits and sugar. At the same time, South African agriculture is highly dualistic with a small number of commercial operations run predominantly by white farmers and large numbers of subsistence farms run by black farmers." The OECD report says "these pressures need to be considered in the context of land reform, agricultural support programmes to disadvantaged farming communities, and Black Economic Empowerment (BEE) measures meant to address past injustices." In conjunction with business, the government began enforcing BEE acquisitions and shareholding in South African companies. "Continuing the land reform process, providing adjustment assistance, and trade development are the most important agricultural policy challenges," the OECD report says. South Africa is a net food exporter, farming accounts for 8 per cent of the country's total exports of 51 billion dollars a year. It is the world's top exporter of avocados, tangerines and ostrich products, and is a large exporter of grapefruit, plums, pears and grapes. Highlighting the significance of an appropriate global trade environment, the OECD estimates that a 50 per cent cut in import tariffs and export subsidies around the world, together with a 50 per cent reduction in domestic support to agriculture in OECD countries would benefit the South African economy. 

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AUTOMOBILES

Vehicle Exports Up 58%, Heading for Record


New export programmes by local vehicle manufacturers were behind the 57,7% increase in vehicle exports in the first quarter of this year, the National Association of Automobile Manufacturers of SA (Naamsa) said May 15. Major vehicle manufacturers such as Volkswagen SA, Toyota SA, Daimler Chrysler SA and Ford Southern Africa have multibillion-rand export contracts, while General Motors SA (GMSA) has said it would make the country its main export base for its Hummer H3 vehicles. GMSA will start manufacturing the H3 in Port Elizabeth this year. In its review of the first quarter of this year, Naamsa said new vehicle exports increased from the previous corresponding period's 24,442 units to 38,541 units. It said higher projected exports of cars and light commercial vehicles, in particular, were likely to lead to record export sales this year. "Overall, exports are projected to improve by more than 50% year on year," it said. Last year the industry exported about 140,000 units. Naamsa director Nico Vermeulen attributed the increased exports to contracts won by the various manufacturers. "The contracts have ramped up exports," he said. Over the same period, the industry's employment figures increased by more than 1000 jobs to 36,184, which is 3% higher than the end of last year. Naamsa said 36,184 jobs was the highest aggregate level in the past eight-and-a-half years. It said the rapid expansion in employment in the first quarter was in addition to the 2,589 new jobs created last year. Vermeulen said the growth in employment was consistent with increased production for local consumption and exports. In the first quarter, sales for passenger vehicles increased 21,2% compared with the same period last year, while new commercial vehicle sales increased 23,9%, compared with last year. Naamsa said that, in addition to favourable interest rates and manufacturers' incentives, the industry benefited from new vehicle affordability. According to Wesbank, the average price of a new car last year was R183 744. This compared with the average price in 2002 of R185 037.

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FOOD & DRINK

South Africa: Beer And Profits

As SABMiller reported another consecutive year of earnings, revenue and volume growth, it seems the group has achieved a comfortable balance in its brand portfolio and global exposure to maximise the benefits of growth in the global beer market. The largest stake of the group's earnings for the year to April 2006 came from South African Beverages, with 31%, followed by the newly expanded Latin America division, with 22%. Europe, its third-biggest market, accounted for 17% of earnings, while the North American division and the African and Asian division contributed 14% and 13%, respectively. While the geographic spread is diversified, so is the brand portfolio, with SABMiller's presence in SA, Poland, the US and Honduras covering all spectra of the beer market, from economy and mainstream brands to so-called "worth-more" or premium labels. Group chairman Meyer Kahn says the group has built "one of the most attractive brand portfolios in the global beer market," which will allow it to benefit from long-term growth in a competitive industry. Sources of growth for the group in the medium to long term would come from beer's increasing share of the alcoholic beverage market, and from consumers trading up to more aspirational, and expensive, premium brands, CE Graham Mackay said.
Premium beer as a percentage of total lager consumption was strongest in Europe and North America during 2004, according to the group. However, encouraging signs have been seen that this trend is to spread and continue in markets such as Eastern Europe, SA, and even Central America, which should have a positive effect of margins and earnings

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GLOBALISATION

South African Diversification

There was widespread concern in the late 1990s that the government's decision to allow major local companies such as Billiton, South African Breweries, Old Mutual and Anglo American to move their primary listings offshore would be detrimental to the economy. It took a while for those concerns to be proved baseless but the required leap of faith, it should not be underestimated, given the tripartite alliance's socialist leanings, has been vindicated in recent years as inward investment has gained momentum and the benefits of globalisation have started to kick in. With a decade of political stability under the belt, economic growth solidly on track to average 5% this year and the equity market booming, SA started to attract significant inward investment, of both the portfolio and more desirable fixed variety. Barclays bought a controlling stake in Absa for almost R30bn last year, while Vodafone coughed up more than R20bn to increase its Vodacom holding by buying out Venfin, lifting inward investment to a record level that matched total investment outflows for the first time in decades. But this year the trend appears to have been reversed, with a spate of announcements by South African companies of major offshore acquisitions. April saw private hospital groups Netcare and Medi-Clinic announce deals in the UK and Dubai respectively that totalled R24bn, and cellular group MTN revealed early May that it planned to buy out Dubai-based Investcom for more than R33bn. Should alarm bells be ringing anew over so much cash leaving the country? Leading investment analysts do not believe so, pointing out that the two-way investment flow that has developed is not only a sign of a more normal economy than the concentrated and internationally un-competitive structure that existed post-1994, but that South African companies are behaving no differently from their international peers. Old Mutual's recent decision to relocate some of its South African staff from Cape Town to Johannesburg is likely to have been prompted partly by its experience in the UK, for instance, where setting up headquarters anywhere other than in London, the country's economic engine room, would be unthinkable. The diversification argument is supported by Old Mutual Asset Managers economist Johann Els's who believes that while SA is far better placed to withstand an emerging market crisis than the last time this happened in 1998, the risk of such a correction taking place has increased of late. The appetite for emerging market investments remained "exceptionally strong" during the first four months of the year, he said, with more money flowing in than during the whole of last year. However, jitters had appeared in some emerging markets, with the currencies of Iceland, Hungary and New Zealand depreciating sharply during the first quarter. While these economies had certain characteristics in common -- large current account deficits and slower growth than in other emerging markets more such events could trigger nervousness about emerging markets as a whole that could spill over into SA. In addition, an external shock such as sharply higher global interest rates or an oil crisis could spark a run on emerging markets. Analysts say such concerns are a legitimate reason for South African companies to buy assets in developed markets as a means of diversifying and spreading risk. 

South African Companies Still Wary About Africa

South African companies are not less risk-averse than their European and American counterparts when doing business in Africa. This is one of the many surprising findings of the South African Institute of International Affairs' three-year Business in Africa project, presented at an international conference on African private-sector development late May. The research, which was conducted in nine countries across the continent : Botswana, Egypt, Ghana, Kenya, Mali, Mozambique, Nigeria, Senegal and Zimbabwe, found that despite the perception that South African companies were moving aggressively into Africa, the percentage of foreign direct investment in the region was still marginal in comparison with overall South African investment going to Europe, the Americas and Asia. More than 80% of SA's total foreign investment was still directed at these three markets. Analysis presented by Andrea Goldstein of the Organisation for Economic Co-operation and Development corroborated this finding. South African multinationals tend to invest much less in their immediate region than multinationals from other emerging markets. Taking SA's foreign assets in Africa as the benchmark for measuring interest in Africa, in 2004 the region attracted only 4,9% of total South African investment (both stocks and flows). Although this is better than the 3% of total investment flows that Africa attracted from the rest of the globe in the same period, it is not significantly more. South African firms' risk perception of doing business in Africa is thus quite closely aligned with that of the rest of the world. However, where South African companies do distinguish themselves is in their willingness to invest in a broad range of sectors, unlike Africa's traditional investment partners who have focused on oil and mining. SA's entry into telecommunications and retail in the region as the most visible manifestation of SA's corporate presence has fuelled the perception that South Africans are everywhere and that the rest of Africa is a profitable outpost for South African business. Shoprite Checkers is now the largest retailer in Africa with more than 600 outlets in 16 countries. But because of Africa's small markets and low disposable income, revenue earnings from Africa are still modest in comparison with its operations in SA. It is a mistake to assume that high returns on investments, up to 30% in some sectors in Africa, automatically translate into high earnings. For companies, one of Africa's biggest hurdles in growing the market is the high level of poverty in individual markets and the small size of the formal sector. The size of the informal sector, up to 60% and more in some economies, is one of the biggest indicators of the constraints hampering the more robust development of Africa's private sector. Two of the most striking findings of the report are firstly that political and economic governance are hugely important if the goal is a more diversified, mature and growing economy. Secondly, engagement between the public and private sector is essential in enabling the private sector to play a stronger role in the sustainable development of the continent. While there are many complex factors contributing to the weak state of Africa's private sector, some low-cost interventions can reap immediate benefits. Governments providing a supportive framework will attract more investment into the economy from foreigners, and local players. It will also ensure that South African companies will be more confident in the continent's prospects.

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HIV/AIDS

Public Health Costs Will Soar

Researchers say they are bracing for a sharp rise in the cost of public health services in South Africa within the next few years, due to HIV/AIDS. And, they warn that the country's health department might not be able to cope with its ever-growing responsibilities if government fails to increase the department's budget substantially. Large numbers of HIV-positive South Africans are expected to develop AIDS-related diseases, as the country's high prevalence rates start manifesting themselves in illness and death, predicts the Health Economics & HIV/AIDS Research Division (HEARD) of the University of KwaZulu-Natal, in the coastal city of Durban. "HIV patients might soon account for 60 percent to 70 percent of hospital expenditure in medical wards," says HEARD researcher Nina Veenstra. Already, about half of all patients admitted to hospitals in South Africa seek care for HIV-related illnesses, while the numbers of HIV-positive patients in paediatric wards are even higher, she added. According to figures posted on the website of the Joint United Nations Programme on HIV/AIDS, adult HIV prevalence in South Africa is 21.5 percent. As the numbers of AIDS patients grow, there will be a greater demand for skilled health workers, medication and hospital facilities. Greater pressure on health facilities will impose a heavier financial burden on the country's public health care sector, even as health workers suffer more stress from an increased workload. This is likely to prompt higher levels of absenteeism, low staff morale, and large numbers of health care workers quitting their jobs. South Africa already suffers a shortage of health workers, due in large part to unattractive working conditions. Many posts for health workers remain vacant, notes a study by a national research organisation, the Durban-based Health Systems Trust (HST). The HST has already found that a number of sites where anti-retroviral drugs (ARVs) are dispensed have reached saturation level due to staff shortages. HST researchers estimate that only 12 to 13 percent of all patients in need of ARV therapy are receiving it at present. "Limited human resources capacity is the biggest constraining factor on further rollout of the ARV programme and must be addressed as soon as possible," state researchers Rob Stewart and Marian Loveday in the organisation's annual health review for 2005. In addition, the already-limited number of health care workers will be further reduced through HIV-infection. According to an HSRC study, 13 percent of health workers who passed away between 1997 and 2001 died of AIDS-related diseases. These findings are likely to receive attention during the latest of the United Nations General Assembly Special Sessions (UNGASS) on HIV/AIDS from May 31 to June 2 in New York. In 2001, the assembly held its first special session on HIV/AIDS, in acknowledgement of the fact that while some progress in increasing access to HIV-prevention and treatment initiatives had been made, the programmes were still failing to reach those most vulnerable to HIV. During the first UNGASS meeting, participants agreed on goals set out in a 'Declaration of Commitment on HIV/AIDS' which was adopted by leaders from 189 countries. The declaration sets targets to halt and reverse the spread of the pandemic by 2010 through action by government and civil society. Together with other countries, South Africa vowed to improve conditions for health care workers, and upgrade supply systems and financing plans concerning access to ARVs, testing facilities and care by 2005. Delegations from South Africa will have to report back on progress in achieving these goals at the UNGASS+5 meeting. The cost of full-scale ARV treatment is expected to come with a price tag of about 996 million dollars by 2008/2009, up from 179 million dollars in 2005/2006, according to the HST.

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INTERNATIONAL ECONOMIC RELATIONS

South Africa and Indonesia Strengthen Trade Relations

South Africa and Indonesia are making headways in removing transport barriers blocking the flow of trade between the two countries. Lack of direct transportation between South Africa and Asian countries has been a major challenge for efficient trading. The issue of transportation also came under the spotlight during the Asia-Africa Trade and Investment Conference (AATIC) held in November 2004, where delegations from African countries complained about difficulties experienced in accessing Asian markets due to transport barriers. Indonesian Trade Minister Dr Mari Pangestu said May 23 that her country and South Africa were steps ahead in resolving the problem. "This is an issue which is receiving attention at the moment," said Minister Pangestu, adding that discussions between the South African Airlines (SAA) and a trade committee from Indonesia were at an advanced stage to address direct flight setbacks. Trade and Industry Minister Mandisi Mpahlwa also shared the sentiments, saying he hoped "over the course of time we will overcome the problem". He noted that the issue of transport links was one of the items scheduled to be discussed May 23 at first meeting of Joint Trade Committee (JTC) between South African government representatives and Indonesian government trade team. As part of efforts to consolidate trade agreements entered into in 1997, and addressing impediments in their trade relations, South Africa and Indonesia launched the JTC. The JTC is tasked with reviewing existing trade relations, identifying obstacles barricading effective flow of trade between the two countries. Over and above this, and according to the Joint Statement signed by both countries in April last year, JTC will oversee implementation of trade deals that would be signed by these countries in the future. Mr Mpahlwa pointed out that this trade task team (JTC) should explore "ways and means" of increasing investment and improving trade relations. "The challenge, however, in addition to the growing volume of trade, lies in changing the structure of trade to ensure greater diversity in traded products and services, and more effectively reflect the capacities of the two economies," said Mr Mpahlwa. Issues under discussion at the meeting include, among others, promotion of trade, encouraging greater industrial co-operation, facilitation of co-operation between business communities and ways to encourage direct banking between South Africa and Indonesia. The meeting will also explore ways of forging stronger ties in encouraging trade between small and micro businesses in the two countries. Indonesia is SA's fourth largest export trading partner while Asia is South Africa's second largest trading bloc after the European Union. 

Agreement On Science Matters Signed With Argentina

South Africa and the Argentine Republic have signed an agreement on scientific and technological co-operation. Speaking at the signing ceremony, Science and Technology Minister Mosibudi Mangena said the agreement was part of a broader mechanism to enhance relations not only between the two countries but also to strengthen the South to South co-operation. "Our joint efforts will create the necessary space for sharing of skills, technology transfer and exchange of knowledge amongst key players in our science and innovation systems and to ensure that we are better able to respond to socio-economic challenges," he said. He said the South African government had realised that knowledge and innovation remained the critical factors in the development of the country. In this regard, he noted: "we have a duty to create an enabling environment for investment in scientific infrastructure to build our country." The Minister also said that the country faced a challenge to grow young scientists who would be able to swing with the increased technological changes of globalisation. "It is crucial that we develop the next generation of scientists who can create new knowledge for the benefit of all," and added that "it is through co-operation such as this that we remain positive and confident that we are in the right direction." This co-operation covers other issues such as agriculture and live stock, ICT, Industry, Mining and Geology, Health and Social Sciences. The Argentine Republic delegation expressed their commitment to the agreement.

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MANUFACTURING

Manufacturing Stages Cautious Recovery

The manufacturing sector is showing signs of a recovery, with production rising in March, raising hopes that the economy grew at a faster pace in the first quarter of this year after last year's disappointing fourth quarter. Growth in the sector remains under pressure, however, as the rand continues to receive a boost from robust metal prices and positive sentiment regarding future prospects for the country's economic performance. The rand has gained almost 5% since the beginning of this year, although further gains have been halted by concerns about SA's widening current account deficit and an "invisible hand" in the market that has restricted the currency from piercing below the R6-to-the-dollar level. Manufacturers catering to the local economy have benefited from buoyant consumer demand, while those exposed to international markets have not been so lucky, mainly as a result of the strong rand. Statistics SA said May 11 that manufacturing production grew 5,7% in March. Month on month, output rose 1,7%. In the three months to March, manufacturing production grew 1,1%. "The recovery in manufacturing performance is welcomed and enhances prospects for another year of solid economic growth and healthy earnings growth in the manufacturing division," Vunani Securities chief economist Johan Rossouw said. He said manufacturing performance was expected to remain resilient over the course of this year, although the risk of an early interest rate hike had increased over the past few months. "Should that happen, the eventual full-year manufacturing outcome should be more benign," Rossouw said. Manufacturing, the economy's second-largest sector, rose a revised 4% year on year in February, its slowest pace in three months. The sector's poor performance has fuelled speculation that the Reserve Bank may trim rates, as it did last year, to revive the economy's production sector. However, with oil prices at current levels, and showing no signs of abating, a rate cut is out of the question, economists say. Neither do they expect a rate hike. "Overall, the numbers suggest that producers are still benefiting from strong local and external demand conditions, despite the strong rand," JP Morgan economist Marisa Fassler said. The rise in production is in line with Investec's purchasing managers' index , an indicator of manufacturing activity. After a decline below 50 index points in the first two months of this year, indicating a contraction, the index rebounded, recording 51,5 in March, and 54,3 last month. The economy grew at 3,3% in the fourth quarter of last year, far below expectations of 4%. This came after the manufacturing sector made no contribution to overall growth during the quarter, bringing growth for the whole of last year to 4,9%, just shy of the much-anticipated 5%.

China Restricts Textile Exports to South Africa

China has committed itself to restrict textile exports to SA, a senior Chinese commerce department official said May 29 ahead of a tour to SA and several other African states by Chinese Premier Wen Jiabao. SA's textile industry has been hit hard by imports of cheap textiles and ready-made products from China. Western Cape, where the country's textile industry is concentrated, has faced a wave of factory closures and job losses. The indication that an agreement has been reached on textiles comes on the eve of a visit to Beijing by Deputy Foreign Minister Aziz Pahad. Pahad's talks will lay some of the groundwork for a seven-state tour to Africa by the Chinese Premier in June. The premier's trip, which will include a two-day stop in SA, is a strong signal of a heightened focus on Africa by China. China has intensified its political and economic relations with Africa over the past few years, sending large business and political delegations to the continent. China needs Africa's raw materials, including crude oil, to fuel its rapid expansion. A Sino-Africa summit is scheduled for November this year. Indications are that the deal to restrict exports to SA is part of an overall cut in the capacity of the Chinese textile industry that is already under way as a result of agreements with the US and the European Union (EU), including the UK. While China has reached deals with the US and EU to restrict textile exports, the deal with SA could indicate a new awareness that it will have to accommodate demands from Africa on trade. "The Chinese government fully understands concerns of our trading partners," Zhou Yabin, director-general for western Asia and Africa in the Chinese commerce ministry, said. Zhou said nothing had been announced by either side about the details of the arrangement, as the trade and industry department in SA was still talking to interested parties. He did, however, say the agreement was "quite a complicated arrangement". It would involve restrictions on textiles sales to Africa, as well as an agreement for China to focus on higher-priced goods and higher-quality products. He said this would be achieved by requesting some of China's financial institutions to limit credit to the textile industry. Leading South African investors in China are beer giant SABMiller and Sasol. Both have invested heavily in large projects in China. Zhou said May 29 that the Chinese government would be "willing to properly guide investment by textile enterprises in Africa, if African governments come up with preferential policies to attract investment". He said, ahead of the November summit, new mechanisms to stimulate foreign investment by Chinese businesses and particularly investment in Africa were under consideration.

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MEDIA

Naspers In $422 Million Brazil Deal

Media company Naspers continued its foray into foreign markets, saying that it had acquired a 30% stake in Brazil's family-owned Abril Group for $422m. The deal gives Naspers a foothold in the group, said to be Latin America's largest media house. According to Naspers, Abril is the largest magazine publisher in Brazil, with a 54% share of that country's magazine circulation and 58% of magazine advertising revenues. The company publishes five of Brazil's top 10 magazine titles, including Veja, the fourth-highest-selling weekly in the world. Abril owns an educational book publisher and, like Naspers, also has a major stake in a pay-TV network. While Naspers and Johncom are the major shareholders in M-Net/Supersport, Abril's founding Civita family, directly and through Abril, own 80% of Sistem de Televisao (TVA), the leading Brazilian pay-TV company. Naspers said that in the financial year to December, Abril generated revenue of R7,1bn as well as earnings before interest, taxes, depreciation and amortisation of R1,3bn. Naspers said it would fund the transaction from its own funds. CEO Koos Bekker said the deal, which was not subject to any unfulfilled conditions, was in line with the company's strategy to invest in "promising" developing countries. "Brazil is an attractive market, where strong economic growth is expected to drive domestic media expansion. This acquisition gives us the opportunity to apply our expertise in various media types in another emerging market, to learn and to participate in growth," Bekker said. Naspers has established itself in 53 countries in Africa and beyond. This includes pay-TV subsidiaries in countries such as Greece and Thailand. It also has investments in Tencent, a Chinese-based instant messaging business. Media24 CEO Hein Brand said Naspers's growth into these markets had shown some success. "This transaction will create a solid stake in Brazil. We look forward to working with Abril in sharing media experience in pay- TV, internet, magazines and book publishing," Brand said. Naspers investment officer Mark Sorour said the company's investment strategy was to enter high-margin countries Brazil, Russia, India and China. He said after establishing itself in China and, now, Brazil, the company was exploring opportunities in Russia and India. Bekker said Naspers first encountered Abril more than a decade ago "and were immediately struck by the fact that it was a particularly well-run company with professional executives". Abril chairman and CEO Roberto Civita said the transaction would accelerate the company's growth and diversification over the coming years. Abril said that it would use the money from the transaction to reduce debt and embark on its own expansion. According to Brazilian newspapers, the Civita family will retain editorial and financial control of Abril. The transaction reduces the Civita family's hold in the company to 70%.

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MINING

Botswana and De Beers Sign New Diamond Deal

The world's largest diamond mining group, De Beers, and the government of the world's largest diamond producing country, Botswana, signed a suite of historic deals May 23. The deals entail an extension of leases on De Beers' four mines in the country by 25 years in exchange for a greater shareholding by Botswana in De Beers and efforts to build up a local sorting and cutting and polishing industry in the country. The big hope by Botswana from the agreements is that the local diamond cutting and polishing industry will be given a kick-start, which De Beers said could lead to the creation of roughly 3000 local jobs over five years. With De Beers facing new constraints in obtaining diamonds, and Botswana accounting for about 56% of De Beers' production by weight and revenue, the Botswana government had unprecedented power in the negotiations of more than two years with De Beers. De Beers plans to open two mines in Canada, and has promised large-scale exploration projects in Angola and the Democratic Republic of Congo, but it still faces problems in meeting the growth in demand for diamonds. Under a European Union competition policy ruling, De Beers will have to gradually scale down and ultimately cease its buying from Russian diamond miner Alrosa by 2008. Under the deal signed by Botswana's President Festus Mogae and De Beers chairman Nicky Oppenheimer, the government renewed the licence for 25 years on the world's most valuable diamond mine, at Jwaneng. The licences for De Beers' other mines at Orapa, Lethlakane and Damtshaa have also been extended. Botswana is hoping that the deal, under the suite of agreements, to establish the Diamond Trading Company of Botswana - a joint venture between the government and De Beers - will help it diversify away from its heavy reliance on diamond mining alone. A new $83m facility for the trading company, which De Beers will fund fully, is now under construction near Gabarone's airport and is expected to be completed by 2008. Apart from sorting and valuing local production, De Beers will bring diamonds from around the world to the new facility to be aggregated into parcels for its sightholders or clients. Currently this activity takes place in London. Four diamond cutters currently operate in Botswana, and the government has issued a total of 15 licences, but Varda Shine, MD of De Beers' London-based Diamond Trading Company, says: "In five years we will have a real industry (in Botswana)." However, cutting and polishing in Botswana is profitable only for higher-value diamonds as the process costs four to five times as much as it does in India. As a result of the deal, Botswana's government will be obtaining an enlarged stake in the local De Beers subsidiary. That will expand its share of De Beers globally from 7,5% to 15%. With the Anglo American stake of 45% and the Oppenheimer stake of 40%, the Botswana government now has enhanced power to shift control between the two major shareholders. The agreements have not been made public, but a De Beers spokesman says that the holdings of the two major shareholders have not been diluted due to the arrangements.

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MINERALS & METALS

Scrapping Steel Duty Needs Confirmation

The national treasury confirmed that the import duty on steel products remained in place despite an announcement by the trade and industry department almost two months ago that the duty had been scrapped with "immediate effect". Confusion over whether the duty has been scrapped has wreaked havoc in the steel market, with customers delaying orders from importers in anticipation of a reduction of prices. The organisation representing steel makers in SA, the South African Iron and Steel Institute, has also lamented the delay in scrapping the duty and the uncertainty as to which steel products would be affected, saying it has hampered the ability of steel makers to plan ahead. "The delay in scrapping the duty is not only confusing, it is impacting negatively on downstream steel users who were supposed to be beneficiaries of this move," said Francois Dubbelman of trade consultancy International Trade Services May 18. Treasury spokeswoman Thoraya Pandy said the department had received the relevant documentation from the trade and industry ministry on May 4. Mpahlwa told Parliament on March 30 that the duty on "certain" steel and stainless steel products had been scrapped "with immediate effect". Adding to uncertainty around the duty, Pandy said that Finance Minister Trevor Manuel had to consider the effects of eliminating the duty before he could sign it off. "There is a risk that Manuel may question the scrapping of the duty," said Dubbelman. South African Revenue Service spokesman Adrian Lackay said the scrapping of the duty would become effective only once it was published in the Government Gazette. The scrapping is among government's initiatives to reduce the cost of intermediary materials in SA in order to stimulate the manufacturing of value-added goods. The trade and industry department was not available for comment. In March, the department also announced measures to discourage import parity pricing in order to reduce the costs of raw materials such as steel and chemicals. The measures include rejecting applications for government incentives by companies using import parity pricing.

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PETROCHEMICALS

Countdown To Sasol's $950m Qatar Operation

Petrochemicals group Sasol will open its gas-to-liquids plant in Qatar on June 6 in a move that will mark the South African company's foray into the global gas-to-liquids industry. Sasol will launch the project at a time when oil prices are smashing records, having broken through the $75 a barrel mark recently. Soaring oil prices have prompted intensified efforts worldwide to develop alternative energy sources such as liquids from natural gas. Sasol said the $950m Oryx project in Qatar would be the world's largest and most technologically advanced gas-to-liquids plant. It would tap natural gas from the North Field in the Gulf, and turn it into liquid fuels, mainly diesel. Other oil firms such as Shell are building similar plants in Qatar, dubbed the gas-to-liquids capital. Oryx is the first step in plans to produce 600000 barrels of liquid fuel a day from natural gas by 2016. Sasol and partner Qatar Petroleum will produce 34000 barrels a day of cleaner diesel and other fuels, which Sasol and marketing partner Chevron hope to be able to sell at a premium to conventionally made fuels. The intention is to increase Oryx's capacity to more than 100000 barrels a day. The partners are considering building a second plant with a capacity of 130000 barrels a day. Sasol, which is the smaller of the two partners, with 49%, said the diesel made from natural gas at the Oryx plant burnt cleaner and exceeded performance standards of conventional oil-derived diesel fuel. Sasol expects the cleaner fuels will be well received at a time when environmental controls are tightening and diesel consumption is rising. The group says the maximum permissible sulphur content in diesel has plummeted from 5000 parts per million 15 years ago to 10 now in markets such as the US, Europe, Japan and Australia. Diesel from the Qatar plant will have a sulphur content of less than five parts per million, according to Sasol. The Oryx project partners expected to open the plant early this year, but a shortage of construction and engineering skills in this field led to delays. Sasol plans to build its second gas-to-liquids plant outside SA in Nigeria with partner Chevron. Sasol is scouring other gas-rich parts of the world, such as Australia and Iran, as venues for gas-to-liquids plants.

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PROPERTY DEVELOPMENT

AECI in R1,6bn Cape Development

Chemicals group AECI would launch a mixed-use development project with an estimated value of R1,6bn and spanning 1,85-million square metres an area roughly the size of Cape Town's central business district, around Somerset West, the company said May 9. The land, situated between the N2 highway and the coast, was previously used for explosives and fertiliser production from materials such as lead, mercury and arsenic. The income generated from the development would range between R600m and R1250m, depending on the type of development, said Deon van Zyl development director of AECI's property arm, Heartland. The group told media and analysts may 9 that its Somerset West site, which would include residential, office and retail areas, was 90% cleaned up. It had removed 270000 tons of contaminated soil, which would be disposed of by waste group Enviroserv. AECI, which faces liabilities in relation to land contamination, said it would spend close to R200m in cleaning up the site, which included the largest wetland rehabilitation project in the country. Van Zyl said Heartland was awaiting approval from the City of Cape Town to start with the first phase, which was scheduled for next year. He could not say what servicing of the land, which includes installation of services such as water and electricity, would cost. These costs would be higher than average, given the size of the development, he said. Van Zyl said an average development income of between R600 and R1250, multiplied by the square meterage, would provide a rough indication of the turnover AECI could expect to derive from the new development. AECI, which owns more than 2400ha of unused land around Cape Town, Durban and Johannesburg, has also lodged an interdict against the Gautrain development, which it has said would thwart property development plans at its Modderfontein site, east of Johannesburg. An analyst said yesterday that AECI was "sitting on a gold mine" in reference to the unused land the company owned. The land is generally near the airports of Johannesburg, Durban and Cape Town.

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TELECOMMUNICATIONS

Vodacom and Telkom Miss Boat in Africa

South Africa's Telkom and Vodacom telecoms operators may be too late to secure a footing on the continent after a sting of massive deals, say analysts. Coronation Fund Managers portfolio manager Gavin Joubert said that what is left on the continent is too small and too pricey to be worthwhile. "Basically it's too late now," he said. "What's left is very expensive." International investors have been rallying to gain access to Africa's rapidly expanding, mainly mobile, telecoms market. Poor access to fixed line services has resulted in strong support for mobile telecoms. Assets are not cheap though. South Africa's MTN and Kuwait's MTC have established a massive presence on the continent, but at a price. MTN's recent offer of $5.53bn for Investcom is a 68 percent premium over the firm's valuation when it floated last year. So while MTN and MTC's Africa unit Celtel have pushed into new markets, Vodacom and Telkom have not been successful in expanding north of South Africa's borders. Although Vodacom dominates in South Africa, it is most certainly not in the same league as MTN when it comes to Africa anymore, say analysts. Vodacom abandoned a quest to control Nigeria's third-ranked Vmobile after a legal battle because of price. Its 50 percent shareholder, Vodafone, also prohibits it from expanding north of the equator. Apart from a potential deal in the Democratic Republic of the Congo, it may be difficult for Vodacom to expand significantly beyond South Africa. Telkom on the other hand has identified acquisitions as a method of boosting slumping domestic revenue streams. However, given that fixed line operators on the continent traditionally struggle in the area of access because of poor infrastructure, it may be too much of a risk to invest in fixed telecoms.

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