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Key Economic Data 
  2003 2002 2001 Ranking(2003)
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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Thabo Mbeki

Update No: 050 - (03/03/06)

Mbeki declines third term
The public declaration by President Thabo Mbeki, forswearing any desire or inclination to continue in office after his second five-year term as South Africa's president ends in 2009, has pleased proponents of democracy and legality in Africa and beyond. This comes amid speculations and rumours ignited by moves by the ANC and its allies for a debate on changing the constitution to allow Mr. Mbeki to run for a third term. Speaking during an interview with South African television, Mr. Mbeki said though his party had the out-right majority to amend the constitution having won two-thirds of the seats in parliament in the 2004 election that the "ANC had taken the position that we don't want to change the constitution". 
President Mbeki made his State of the Nation address on February 3rd. With South Africans probably more optimistic about the future than at any other time in the country's history, Mbeki appealed to South Africans to make a national effort to push up economic growth in order to halve poverty and unemployment by 2014. Quoting the words of former president Nelson Mandela made at the opening of South Africa's first democratic parliament, 12 years ago, President Mbeki urged South Africans to "seize the time to define for ourselves what we want to make of our shared destiny."
The African National Congress (ANC) was ahead in municipal elections March 2, having won 61 councils, thus getting 67 per cent of the national vote. Early results in at the Independent Electoral Commission's National Operations Centre showed that the Democratic Alliance was in second place with 15.5 per cent and having won seven councils. The Inkatha Freedom Party (IPF) third, polling 6.5 per cent and winning two councils. South Africans went to the polls to vote for 45000 councillors to represent them at 284 municipalities. In the hotly contested Western Cape province, with a backlash expected against the power blackouts, the DA is leading with 600743 votes so far, followed by the ANC with 578941 votes. The Independent Democrats, which is participating for the first time in municipal elections has 165583 votes.

Talking about the neighbours
President Mbeki congratulated Ugandan leader Yoweri Museveni on his election victory and urged the opposition to accept the outcome. Museveni, in power in Uganda for 20 years, won 60 per cent of the vote in the elections but opposition leader Kizza Besigye has dismissed the result as "outrageous." In a message of support, Mbeki noted that the first multi-party elections held in Uganda since 1980 "were conducted in a calm and peaceful manner which accorded the people of Uganda the opportunity to freely express their democratic right. Besigye has contested the result, saying neither he nor Museveni had garnered the 50-per cent threshold needed to avoid a run-off election.
President Robert Mugabe of Zimbabwe has called on neighbouring countries not to interfere in his country's internal affairs, while signalling that constitutional reform was on the cards, possibly to smooth the way for a chosen successor. Speaking in a televised interview to commemorate his 82nd birthday February 18, Mugabe said: "We have tolerated some of them because they are our friends. We hope in future they will keep away." He was responding to a question on what he thought of diplomatic interventions by South Africa and Nigeria in Zimbabwe's political crisis. Mugabe suggested their interest in resolving Zimbabwe's problems was more to do with pressure from western governments deemed hostile to his ruling ZANU-PF.
South African Nobel Peace Laureate Desmond Tutu has announced that the regime of President Robert Mugabe is 'totally unacceptable' because of its gross human rights violations. The retired Anglican Archbishop of Cape Town said he once "admired" Mugabe, who was at one time "the brightest star in the African firmament," who had brought reconciliation and reconstruction to his country after the war which ended the rule of the white minority. "But something happened to him, because now he oversees something that is totally unacceptable. We, and all of Africa, should be prepared to say that violation of human rights is violation of human rights, whoever does it." The anti-apartheid veteran spoke to journalists after addressing the 9th World Council of Churches in Brazil. 

Zuma's rape trial
Thousands of people were outside the Johannesburg High Court February 13 to show their support for Jacob Zuma at the former South African deputy president's rape trial. A 31-year-old HIV/AIDS activist has alleged that Zuma had raped her at his home in Johannesburg in November 2005. Zuma has denied the allegations. The presiding judge stepped down amid claims that he might be biased. Judge President Bernard Ngoepe 's shock decision to "step aside" in the high-profile Jacob Zuma rape trial February 13, was based on explicitly political considerations regarding perceptions that Zuma would not get a fair hearing. His move will force Zuma's supporters to accept the legitimacy of the trial and effectively binds them to accept its outcome. Zuma's legal team argued that Zuma harboured fears that Ngoepe may not be impartial, after the judge president granted the National Prosecuting Authority (NPA) warrants for the search of properties linked to Zuma last year. This related to Zuma's corruption trial, which is set to be heard later this year.

Manuel Announces 2006 Budget
Hailing the most promising economic outlook for 40 years, Finance Minister Trevor Manuel doled tax relief for individuals and companies and unveiled R156 billion of spending on job creation and infrastructure spending in his Budget February 15. The "exceedingly favourable" economic outlook, with growth expected to have closed in on the six per cent target, was the main theme of Manuel's upbeat 10th Budget speech in parliament. This upsurge underpins a moderately expansionary Budget of R473-billion, aimed at skills development and public investment in infrastructure and service delivery. As South Africa started implementing its accelerated and shared growth plan (Asgi-SA), to achieve higher growth and employment, Manuel said, investment was anticipated to grow between eight per cent and 10 per cent a year. The 2006 Budget includes R5-billion dedicated to infrastructure for the 2010 Soccer World Cup, of which R3-billion is set aside over the next three fiscal years. Announcing a boost in funds for "reinforcing our tools and procedures for fighting corruption and waste," policing and justice, Manuel also seemed to have lifted the lid on the future of the Scorpions. The bulk of additional funds allocated to the National Prosecuting Authority will be going to its special operations, indicating that it may not be abolished or incorporated into the SA Police Service.

GDP Figures Disappointing 
Gross domestic product (GDP) data for the fourth quarter of 2005, released on February 28, came in slightly lower than many economists had predicted. The economy grew at an annualised rate of 3.3 per cent in that quarter, following real annualised GDP growth rates of 4.6 per cent, 5.4 per cent and 4.2 per cent during the first, second and third quarters, respectively. The latest GDP data release indicates that real annual GDP increased by 4.9 per cent in 2005, up from the 2004 growth rate of 4.5 per cent.
The economy's disappointing growth performance in the fourth quarter of last year helps to cut through some of the euphoria and excessive expectation that has built up around the issue. It also highlights the extent to which industries with an internal focus are riding the crest of the growth wave, while those that rely on external factors, such as the rand exchange rate, for their success are struggling to get on board. According to data released by Statistics SA February 28, the economic growth rate slowed to a seasonally adjusted and annualised 3,3% in the fourth quarter, far below market expectations of 4% from 4,2% in the third quarter. Overall, gross domestic product (GDP) grew an estimated 4,9% last year, slightly slower than the 5% predicted by Finance Minister Trevor Manuel in his budget speech, but considerably faster than the 4,3% pencilled in by government this time last year. It was also a sizeable improvement on the 4,5% rate of GDP growth recorded in 2004. In his budget speech, Manuel said that "when the full accounting is done towards the end of this year, we may indeed find that our economy grew 5,5% or 6% last year," and that 5% annual growth was likely over the three-year planning period of the 2006 budget, ending in 2009. He may ultimately be proved right, as he has been before, but the latest Statistics SA figures suggest some caution is needed when proclaiming the economic growth rate to have already reached the heights intended to be achieved by government's accelerated and shared growth initiative without the interventions envisaged in the initiative having taken place. The flipside of this optimism, as Brait economist Colen Garrow points out, is that we are now disappointed with a level of growth that would have been distinctly pleasing only two years ago. Statistics SA's breakdown of the various sectors and their contribution to GDP growth paints an interesting picture, with the production side of the economy, that with the greatest potential to create jobs, continuing to be hamstrung by the strong rand, while the supply sectors benefit from the rand and the country's interest rates. The mining and manufacturing sectors, which together make up almost 23% of GDP, both contracted in the fourth quarter; the former 4,5% and the latter 0,3%. The contraction in the mining sector had the effect of subtracting 0,3 percentage points from the fourth quarter's growth, while manufacturing, the economy's second-largest sector made no contribution to the 3,3% expansion. Construction, wholesale and retail, trade and transport, storage and communication, which account for 26,5% of GDP, grew apace. Growth in the finance, real estate and business services sector, which at 19,5% makes the biggest contribution to GDP, was more modest, coming in at 3,7%. Finance, real estate and business services contributed 0,7 percentage points, and transport, storage and communication 0,6 percentage points to overall growth.

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Daimler Could Quit SA if Motor Industry Development Programme Ends

DaimlerChrysler has warned that it will be "very difficult" to continue making cars in SA in the absence of the Motor Industry Development Programme (MIDP), whose future hangs in the balance. Hansgeorg Niefer, DaimlerChrysler SA chairman, warned in a recent interview that, while DaimlerChrysler had a long history in SA, "it should not be taken for granted that we will stay here forever". The controversial government support programme, which contravenes World Trade Organisation (WTO) rules, is undergoing a major review, including consideration of new support when the MIDP comes to an end in 2012. Other car makers, such as BMW, have also expressed concern about the future of the 11-year-old programme, which has been reported to have yielded benefits worth more than R55bn to car makers to date. Not only must the major benefits of the MIDP remain intact until its end date in 2012, said Niefer, but the industry needed another support programme that was WTO- compliant to compensate for the geographic disadvantage exporters here faced. The operating environment in SA had become tougher, with requirements such as black economic empowerment being added. Tax and interest rates in SA also remained "too high". While things had become tougher in SA, several new competitors, such as some from Eastern Europe, China, Brazil and Mexico, had emerged as attractive destinations for vehicle manufacturing, he said. Niefer said the MIDP, which discounts the cost of vehicle and component imports, was so important that DaimlerChrysler probably would not have made the C-Class Mercedes-Benz in SA, had the programme not been extended to 2012. DaimlerChrysler makes about 45000 C-Class cars and about 15000 vans in SA each year. Niefer said uncertainty on the future of the MIDP may have been responsible for an apparent overhang in capital investment by the industry. Car makers were expected to invest close to R6bn in new plants and equipment last year but only R3bn materialised. The balance appears to have been carried over to this year, with automotive industry body National Association of Automobile Manufacturers of SA forecasting capital expenditure of R8bn. The sector and the national trade and industry department put the automotive sector's contribution to gross domestic product at about 7%. Government, which is reviewing the MIDP together with industry and labour, is expected to complete the review around mid-year. A recent report by economist Frank Flatters says that the cost of the MIDP may have outweighed the benefit to the country. His report calls for a thorough cost-benefit analysis into the programme, which had not been undertaken before. The support programme had yielded benefits worth more than R55bn to vehicle manufacturers, according to Flatters' report.

Dunlop SA Sold to Apollo Tyres in R400m Deal

Dunlop Tyres International and Indian-listed company Apollo Tyres reached agreement to wholly acquire local Dunlop tyre maker for 2,85bn rupees or about R400m January 30. Dunlop's shareholding includes a consortium led by management and Ethos Private Equity, which four years ago facilitated a growth strategy. Since 2000, Dunlop has pumped more than R500m into its Durban off-road and truck operation and its passenger tyre factory in Ladysmith. The investment has brought the group to the point where it is one of the leading tyre makers and distributors in the country. Turnover touches R1,2bn and the deal remains subject to regulatory approval. Dunlop has factories and distribution networks in SA, Zimbabwe, the UK and Nigeria, while Dunlop Tyres International has the use of the Dunlop trademark in 33 countries. The company has global ownership of 1500 trademarks for the Dunlop name in more than 100 territories worldwide. Excluding the US, Canada and Australia, the worldwide licence includes Dunlop Argentina, Goodyear Dunlop Europe, Dunlop Aerospace, Dunlop Oil and Marine, Dunlop Aircraft Tyre, Dunlop Fenner and international sports goods maker Dunlop Slazenger. The acquisition will not affect the Dunlop structure, operating subsidiaries, management or staff. The move is Apollo's first foray into the global manufacturing arena and it is expected to raise the combined entity, ranking 14th internationally, in terms of its size and create a base for further growth. The purchase excludes the Dunlop interests in Dunlop Nigeria and Dunlop Zambia, as well as the brand company Dunlop International. Apollo will have the use of the Dunlop brand rights in SA and the African territories. Dunlop CEO Mike Hankinson said that the move further enhanced the group's technology. Current radial technology will be boosted by Apollo's in-house technology, coupled with support from its European and North American arrangements. Apollo Tyres chairman and MD Onkar Kanwar said there were synergies in the two operations that could create leverage strengths, enabling the groups to become a major global power. The Kanwar family is the majority shareholder, with Group Michelin of France holding a 14,9% stake. Ethos partner Eugene Stals said leadership and innovative funding had facilitated Dunlop's initial restructuring and subsequent growth. Lost-cost manufacturing capabilities and techniques from India would assist Dunlop in cost containment and in combating the sharp increase in imported cost competitive products into SA. Hankinson also confirmed that the company's investment in Zimbabwe would remain part of the group, following earlier reports that the entity would be sold.

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SAA Pulls Out of Air Tanzania

South African Airways (SAA) is set to dispose of its 49% stake in money-losing Air Tanzania. SAA's divestment from Air Tanzania could put on hold its plan to create three African hubs as part of its growth strategy. The plan was to have a hub in eastern, western and southern Africa. With the imminent withdrawal from the Tanzanian capital Dar es Salaam as a hub, SAA would be left with Accra in west Africa and Johannesburg as its two gateways to the rest of the world. SAA bought the Air Tanzania stake for $20m in 2002. SAA said February 15 that it was in discussions with the public enterprises department on the status of the relationship between the Air Tanzania Company Limited and SAA. "The discussions are at a formative stage and it would be inappropriate to speculate on the outcome," said SAA spokeswoman Jacqui O'Sullivan. Tanzanian Infrastructure Development Minister Basil Mramba told his country's parliament that "there are problems in the Air Tanzania merger as reported by media recently. "We have decided to part ways and we are now negotiating with SAA." Mramba declined to give details of the nature of the problems. But the east African newspaper last month quoted government officials who accused SAA of failing to meet part of the management agreement. It quoted Tanzania Civil Aviation Authority director-general Margaret Munyagi as saying Air Tanzania was in a "worse state than before it was taken over by SAA". SAA in turn accused Tanzania's government of not "being serious" in failing to release about US$30m needed to implement Air Tanzania's business strategy to reverse continued losses.

South Group in Indian Airport Deal

A South African consortium has struck a US$1.5 billion (approximately R9 billion) deal to modernise India's two main airports, in Mumbai and Delhi. The consortium, consisting of Airports Company South Africa (ACSA), Bidvest Group Limited and GVK - an Indian infrastructure company, beat nine other consortia to win the tender. In terms of the agreement, the consortium - to be known as GVK-SA - will modernise, operate, develop and manage the airports for a concession period of 30 years with the option of a further 30 years. The consortium will partner the Indian government in the venture with India retaining 26 per cent shareholding in the airport during the concession period, GVK 37 per cent and ACSA holding ten percent. Speaking at the event to announce the deal, Transport Minister Jeff Radebe welcomed the deal saying it was" just the beginning" as ACSA was spreading its wings internationally. He explained that the upgrading of airports and other transport infrastructure into efficient and well-managed entities was crucial for development. "This deal is not only important because of the money involved but also because transport is important for the realisation of the Nepad goals and objectives. As African ministers of transport we hold meetings to discuss transport development issues. "As government we want to encourage ACSA to embark on more projects such as this both in Africa and abroad," said Mr Radebe. ACSA Managing Director Monhla Hlahla said from now, engagements would be aimed at finalising the transaction and preparing for the transfer of the Mumbai airport initially. Ms Hlahla explained that ACSA would provide the intellectual know-how - policies and procedures; information technology solutions; total quality management; environmental management; maintenance and engineering; safety; service standards; capacity planning and master plans; project management; route and traffic development as well as stakeholder management. "ACSA will discharge its responsibilities with humility and the spirit of ubuntu that Africans are renowned for," she promised. According to Ms Hlahla, ACSA will also provide technical exchange programmes as part of its skills transfer initiatives within various functional areas. "However, I must hasten to mention that the learning experience will be a two-way process for ACSA and the Mumbai International Airport employees. "Through these initiatives ACSA will clearly gain invaluable experience from exposure to the Indian environment. This transaction will therefore enrich all employees and partners involved," she said. Furthermore, it stands to create job opportunities within ACSA as seasoned professionals are posted to Mumbai on an ongoing basis. She added that another area of focus where ACSA could extract value for the Indian government was through non-aeronautical commercial activities as the company was well positioned to "realise an all-encompassing commercial transformation for Mumbai International Airport". The "remarkable" growth of commercial revenue has contributed significantly to ACSA's financial success over the years. It has grown by 364 percent in the last eight years at a rate nearly three times that of the company's aeronautical revenues, Ms Hlahla said. Explaining the choice of GVK as a partner, she said it was primarily due to their commitment to the project and their experience in various infrastructure projects in India including the power sector, toll-roads and urban infrastructure. The company was also chosen for its "successful" partnerships in the past with credible international partners such as the IFC (International Finance Corporation, part of the World Bank); their ability to raise debt finance in the Indian market; their approach of an equal partnership with the South African consortium and their shared values regarding corporate governance.

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Economic Freedom of the World Report

Government is reported to have identified six constraints preventing the South African economy from growing at the hoped-for rate of 6%: currency volatility, delivery, import-parity pricing, infrastructure backlogs, regulation and skills shortages. The Economic Freedom of the World: 2005 Annual Report identifies a different set of problems. The most prominent are: excessive government consumption expenditure; government enterprises playing too large a role in the economy; top marginal tax rates that are too high; concerns over the integrity of the legal system; restrictions on owning foreign currency; restrictions on foreign-capital transactions; minimum wages that affect employment; regulatory barriers to hiring and firing; and government price controls in the economy. These are the areas in which SA achieved a low score 50% or less, out of the 38 components used to construct a summary index for the 127 countries for which data were available. They also indicate what policy issues need to be addressed in order to increase our level of economic freedom. A decade of analysis has provided ample evidence that there is a close correlation between economic freedom and growth. SA, for instance, has greater economic freedom now than we had in 1990 and our ranking has improved from 62nd to joint 38th during a period that has been marked by increased economic freedom worldwide. So SA has been doing many of the right things and it shows up in the improved growth rate. Yet research shows that most governments could carry out their core functions, including their welfare tasks, on a great deal less money as a proportion of gross domestic product than they are inclined to spend. Government has, at last, recognised to some extent that it is the private sector that is responsible for bringing about economic growth. However, that recognition has to translate into positive action towards the private sector. What the private sector has achieved despite the burdens that have been imposed on it is nothing short of remarkable. Deputy President Phumzile Mlambo-Ngcuka is heading a review that seeks ways to improve the growth rate of the economy. She has already indicated that a change of attitude may be on the cards, which would be most welcome. High on the list are the unfortunates made unemployable by labour laws. Then there are the consumers, many of whom are poor, who will get the best goods and services at the best prices from companies owned and managed by people most efficient at doing so. Having a large part of the economy owned and controlled by government is a deterrent to growth. Instead of the consumers choosing between, say, fully competitive electricity suppliers, transport suppliers or telecommunications suppliers, they are limited to the services supplied by public enterprises or government-licensed enterprises. Government should sell off these enterprises to the highest bidders and let the new owners fix them while they provide the best and lowest-cost services to their customers in an effort to keep out competition. And if government insists that public enterprises are capable of competing with private firms, it should allow open competition in all the areas of the economy in which public enterprises operate and allow consumers to support their suppliers of choice. That will remove many of the complaints about delivery. Tax and regulation, including price controls, remain on the list of things that require attention. Lower taxes leave money for reinvestment in the hands of those most productive in the economy. It provides them with the incentive to be even more productive. Unnecessary regulation imposes costs in time and money that can be more productively employed. Government is moving in the right direction in many respects. Unfortunately, some of its arms are intent on moving in the opposite direction at the same time. A great deal of time and energy could be saved if government policy makers took note of the successes achieved by the most economically free countries and used that knowledge and experience for the benefit of all South Africans.

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EU Commits R1bn Into Water Sanitation Projects

The European Union (EU) has committed about R1 billion for the provision of water and sanitation to the poorest areas of the country. Water Affairs and Forestry Minister Buyelwa Sonjica and EU commissioner Louise Michelle announced this during a site visit February 27. The fund will be used in implementing national government water and sanitation support programmes over a period of seven years, from 2007 to 2013. The grant is part of the continuing relationship between the EU and South Africa in the implementation of water services and sanitation programmes countrywide. The EU has to date, through its European Programme for Reconstruction and Development (EPRD), pledged more than R1.6 billion to the projects since 1994. The funds were used, among other things, for capacity building, skills training and water infrastructure development in Limpopo, the Eastern Cape and KwaZulu-Natal - provinces identified as the poorest. However, the Ministry of Water Affairs and Forestry has since declared that these programmes should cover all areas lacking proper water supply and sanitation infrastructure. According to the 2005 White Paper on Basic Household Sanitation, nearly one million households in South Africa have no access to sanitation and a further two million have inadequate sanitation. The government has thus committed itself to halving water and sanitation backlog by 2008 and 2010 respectively. Signing the agreement, Ms Sonjica commended the EU "for the noble job you are doing for the poorest people in our country." She explained that her department had had a healthy relationship with the EU, thanking Mr Michelle for his organisation's continued support to the country's service delivery programmes. The government programme for provision of water and sanitation to poor communities is called Masibambane. The first phase of the programme was implemented from 1994 until 2004, while the second phase is still being implemented, with nearly R22.5 billion committed. The EU's new grant has been secured for the third phase, scheduled to begin next year. "Masibambane is the flagship programme of the department and the water sector and is concerned with infrastructure provision, capacity building in local government, health and hygiene and HIV and AIDS, environmental management and monitoring and evaluation," noted Ms Sonjica. 

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Old Mutual Takes Skandia's Helm

A year ago Old Mutual finance director Julian Roberts said a European acquisition was not a priority; today he is CEO of Skandia, following a takeover of the Swedish life assurer. The takeover of Skandia is likely to reach its conclusion after Old Mutual's offer to Skandia minorities closes on March 14, when it is likely to have reached the 90% it needs to buy out remaining minorities and delist the group. At last count Old Mutual had 89,54%. Roberts presented his last set of results as Old Mutual group finance director and has already taken up his position at Skandia. His focus will now be to ensure Old Mutual delivers on the £70m a year Old Mutual has targeted in tax and other savings by 2007. "I move to the new role confident that actions taken across all businesses will provide a platform for future growth," Roberts says. Roberts says the Skandia deal moves Old Mutual into a new phase, fulfilling what the group set out to do in 1999 when it embarked on an expansion strategy to create a group with an even split of earnings from number of geographical areas. Following the merger, 23% of the value of new business for Old Mutual will come from the UK, where Skandia earns more than half of its revenue, 23% from SA, 19% from the US, 15% from Sweden and 20% from the rest of the world. Skandia has operations in Europe, South America and China. Roberts says following the Skandia deal, Old Mutual's business has extended to 46 countries. "We have got a good geographical diversity and really quite good growth potential," Roberts says. Sutcliffe says buying Skandia also broadens the group's exposure to currencies and markets. No time has been wasted in starting to mould Skandia into an Old Mutual group company. A new board is in place with Sutcliffe as chairman and Roberts as CEO. "Work has already begun. Our first job is to make sure we look after customers and staff," says Sutcliffe. A progress report will be given to the market in June, he says. Skandia will be consolidated into Old Mutual's accounts at the same time. The acquisition of Skandia has resulted in a "step change" at Old Mutual. The enlarged group has secured profit generators at its South African and Swedish operations, where it has a high market share and powerful brands. The US, the UK and Europe provide operations with strong growth momentum. India, China, Latin America and Australia offer long-term growth opportunities.

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SABMiller Extends Into Chinese Market

SABMiller's announcement that its Chinese associate, China Resources Snow Breweries, had purchased an 85% stake in Quanzhou Qingyuan Brewery indicates that the brewer is continuing to extend its reach in the country through acquisitions. CE Graham Mackay said at the release of SABMiller's interim results to September last year that the group would continue to make acquisitions in China. He said the global brewing industry had continued to consolidate, and the smaller targets for acquisition were in China and Russia. SABMiller has been investing in China since 1994 with China Resources Enterprises. China Resources Enterprises is the second-largest brewer in China. It had a 2-million hectolitre market in the 1980s, which has now increased to a 235-million hectolitre market. Mitch Ramsay, communications manager for Africa and Asia, says despite a slowdown in the rampant consolidation that has characterised the Chinese beer market in the past few years, it is still somewhat fragmented. China had about 800 breweries before consolidation began, many owned by local governments and municipalities in an effort to create employment, rather than being profit driven, Ramsay says. He says if brewers want to extend their product reach, the acquisition of another brewery in a different region is often necessary. "China is characterised by local brands. There is no such thing as a national brand," he said. The recently purchased Quanzhou Qingyuan Brewery is SABMiller's first attempt, through its China Resources Snow associate, to extend its reach into the southeast province of Fujian, which has a population of 7-million people. In 2004 Fujian Province recorded total beer sales of 13,5-million hectolitres and annual consumption per capita of 39l, exceeding the national average of 23l. SABMiller said the consideration for the acquisition of Qingyuan would be based on its appraised net asset value, which is expected to be about US$10,5m. The brewery's annual production capacity is 1,2-million hectolitres. SABMiller said the capacity could be increased to 2,8-million hectolitres after an upgrade for an additional investment of 65-million yuan. Qingyuan Brewery's main product line is its "Qingyuan" beer, distributed for sale mainly in the Quanzhou area. Strong growth in China for the six months to September last year helped contribute to an overall 12% organic beer volume increase on a comparable basis for SABMiller in Africa and Asia. Premium label Snow was launched as a national brand in China in the past year and had generated organic volume growth of 51%. This brand now has a 13% share of the world's largest beer market. Its closest competitor, Tsingtao beer, produced by a brewer of the same name, has about 15% to 16% market share, Ramsay says. SABMiller's other main brands in China include Xibao, Zero Clock, Harbin Huadan, Yate, He Shi, Snowflake (Snow) and Largo.

SABMiller Regains Control of Top UK Brands

Global brewer SABMiller subsidiary Miller Brands would take back the marketing and distribution of its international premium brands in the UK from international brewer Scottish & Newcastle, it said on January 27. SABMiller's premium brand portfolio in the region includes Peroni Nastro Azzurro, Pilsner Urquell, Miller Genuine Draft and Castle Lager. Premium brands have shown "growing momentum" in the UK, the group said. This follows an increased interest in SABMiller's premium brands in the local market. The group said that positive economic performance and consumer confidence contributed to improvements for the third quarter ended December. In the UK, marketing campaigns have helped to boost the performance of Peroni Nastro Azzurro and a brand re-launch of Miller Genuine Draft is planned for March. Miller Brands would double the marketing investment behind Miller Genuine Draft this year and invest more in Peroni Nastro Azzurro, SABMiller said. Scottish & Newcastle will continue to brew Miller Genuine Draft under contract and manage the Miller brand under licence in the UK. MD of Miller Brands Gary Whitlie said the return of SABMiller's key brands to the UK would enable the group to build direct relationships with customers. Michael Farr, the head of communications at SAB in SA, said the introduction of Peroni Nastro Azzurro to the South African market last June was directly related to the growth seen in the premium sector as consumers traded up from mainstream to premium labels. "The targets we set for the Gauteng launch were exceeded, which gave us sufficient confidence to launch nationally," Farr said. Peroni was launched in Kwa-Zulu Natal in October last year and in Cape Town a month later. "We continue to be happy with the brand's performance in the three major metropolitan areas and are optimistic that we will continue to see the brand grow." Premium brands amount to 10% of SAB's South African beer brand portfolio. Amstel is the leader in the premium sector with about half of the market, followed by Castle Lite. Nedcor Securities analyst Sean Ashton said that while there had not been a significant improvement in beer sales volumes, more consumers were buying up the income scale from mainstream to premium brands. Ashton said an increase in interest rates should not have a significant effect on this shift in brand loyalty: "If there is a rate increase, you will find that people won't eat out as much or will choose not to buy a new car. Beer sales should not be affected materially."

Tongaat Profits on Rising World Sugar Price

The rising world sugar price, coupled with internal initiatives, meant sugar subsidiary Tongaat-Hulett Sugar could show a R450m improvement in operating profit in the years ahead, CEO Peter Staude said February 22. Industrial holdings group Tongaat-Hulett announced the unbundling and listing of Hulett Aluminium and the introduction of empowerment equity partnerships. Tongaat more than doubled operating profit in the year to December to R730m from R358m. Addressing the Investment Analysts Society, Staude said Tongaat-Hulett Sugar aimed to boost SAs' cane production to 953000 tons (2005: 753000 tons); cane production from Xinavane Mozambique to 156000 tons (115000 tons); refine value chain initiatives; and cut overhead and milling costs. Tongaat-Hulett Sugar achieved operating profit of R232m in the year to December. Staude said it had the capacity to reach R682m should external and internal factors come to fruition. The group has commissioned the world's first white-sugar mill at Felixton on the KwaZulu-Natal north coast. Staude said the development of co-products was well advanced, while Tongaat-Hulett Sugar had successfully piloted the white-sugar mill technology in Brazil, and was expanding the marketing scope into other international markets. These internal factors were coupled with a swiftly rising world sugar price, currently at US$0,19 a pound (US$0,898 a pound) that significantly enhanced export values and sugar grown in southern Africa. The 953000 ton crop at the current world sugar price is worth R341m, shifting to R460m if the price moves to US$0,23 a pound. Upward pressure on the world sugar market is being driven by the deregulation of the world sugar markets, including the reforms in the European Union and the World Trade Organisation negotiations for a fairer agricultural trading regime. Internationally, the market has experienced shortages in production, despite consumption growing 2% annually and the high oil price stimulating a growth in ethanol production. Staude said these factors would be key earnings drivers in the year ahead. In terms of the Hulamin unbundling and listing and the introduction of empowerment equity to Tongaat and the aluminium company, Staude expected the process to take a year, and in line with empowerment, would consider black farmers, suppliers, clients and employees. He expected the Hulamin market capitalisation to be in the R4bn-6bn range, while Tongaat's would be in the R6bn-9bn range.

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South Africa Invited to G8 Finance Ministers' Meeting

Deputy Finance Minister, Jabu Moleketi welcomed the opportunity given to South Africa by the G8 Finance Ministers to attend a meeting in Moscow February 11. Mr Moleketi noted that such meetings enabled developing countries to share their views with the G8 on global economic and trade matters. He said the meeting mainly focused on the need to make more progress on the Doha Trade Round, with a special emphasis on the Doha Development Agenda. "These matters include agricultural reforms, expanding market access and the elimination of trade-distorting subsidies. "A special emphasis was placed on the increase of Aid-for-Trade to address supply side constraints in developing countries like transport infrastructure to enhance the capacity of Developing countries, to enable them to take advantage of trade opportunities," said Deputy Minister Moleketi. The Meeting further noted the importance of opening up markets for non-agricultural commodities and services. "We agreed that there was a need to sustain the commitments to the Africa Development Agenda to complete the unfinished business of 2005 (as expressed by Chancellor Gordon Brown), and agreed that they would approach Heads of State and Government to increase their involvement to accelerate the process to complete the trade round," he said. Brazil, India and China also participated in the talks.

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EU Proposes 'Preferred Partnership'

The European Union's (EU's) most senior official in charge of development assistance, Louis Michel, said he would propose the upgrading of relations with SA to a higher level. SA and the 25-nation EU already have a free-trade agreement, but Michel said he would soon present a policy draft to the EU's foreign ministers, proposing what he described as a "preferred partnership". This would give SA far greater recognition in Europe's strategic global awareness, the former Belgian foreign minister said. The upgrading of the relationship could in time allow SA to be placed on a high-priority diplomatic footing with the EU similar to that held by the US, China, Russia, India, and Brazil, all of which have special agreements with the EU. Michel holds the post of EU development commissioner, and oversees the EU aid programme, which together with that of its member countries accounts for about 55% of world aid. Michel declined to go into the details of what the new relationship might entail, but said the focus would be "deep political agreement", allowing for "permanent political dialogue". "We have many fields in which we can develop: research, transfer of technology and regional policies." Mbeki has spoken of EU structural funds as a possible model for fast-tracking development in SA. "We need SA to be well-informed to help in our strategy for Africa. SA has a pivotal role in the continent. The geo-strategic priority for Europe has to be Africa. The pillar of SA is our natural interlocutor, and that deserves a preferred strategic approach," Michel said. He said Europe considered Africa its foremost priority for aid, and would for the first time consider a common programme for aid from the European Commission and those of its individual donor member countries this year. "There is now a complete international consensus to give priority to Africa. This is a change because before Africa was a rather forgotten continent," he said. Instead of having to deal with the priorities of European donors as well as those of the commission, Michel said there would now be a clearly stated and agreed development agenda for European donors. For the first time, aid recipient countries would not have to deal with the separate regulations of European donors and those of the EU, but rather one set, he said. "If we are more coherent, we will be a lot more efficient," he said.

Reservations Over Plans to Broaden EU Trade Pact

SA's chief trade negotiator, Xavier Carim, said February 14 that it was premature for the European Union (EU) to call for a large-scale expansion of the free trade agreement between the 25-nation bloc and SA. EU trade commissioner Peter Mandelson called for a "step-change" in the five-year-old deal, currently under review, to now include services, investment and procurement. The call signals a drive by the EU to gain substantially greater access to the South African market. Carim said that it was "a little early" for the EU to call for an expansion while several issues relating to the implementation of the deal were yet to be resolved. The primary purpose of the scheduled five-year review under way was to resolve issues relating to the implementation of the deal to date, said Carim. He said SA would be prepared to discuss an expansion of the deal, which involves mainly trade in industrial goods, but only once outstanding issues had been resolved. Trade analysts have warned that an expansion in line with Mandelson's call could have negative consequences for SA. Riaz Tayob of the Southern and Eastern African Trade Information and Negotiations Institute warned that concessions in investment could affect government's empowerment efforts, as the EU might seek exemption from such obligations. He also warned it could have negative consequences for the motor industry development programme which he said, was expensive but provided social benefits in some areas. The Trade Law Centre's Calvin Manduna said it appeared the EU was ratcheting up pressure to gain increased access to other markets in bilateral deals due to slow progress on these fronts in the Doha talks. Manduna said SA should not expand the deal until a thorough analysis had been undertaken of the effects the trade deal has had so far. Mandelson said South African exports to the EU had increased 46% since the deal was implemented in 2000. These exports increasingly comprise of manufactured products. But Manduna said the increase and diversification of exports were not necessarily attributed to the free trade deal. A recent study by BusinessMap Foundation also did not find conclusive evidence that the free-trade deal had led to an increase in fixed investment, as SA had expected. Manduna warned that SA should be cautious in the concessions it was willing to make relating to services, investment and procurement because other countries, such as the US, with which SA is negotiating a free trade deal might want SA to match them.

Biggest Foreign Investor in Mozambique

South Africa has clinched its position as the single largest foreign investor in Mozambique by doubling its direct investment over the past year. Just 52 of the larger South African-led infrastructure and construction projects attracted foreign investment of 93.7 million US Dollars during 2005. Smaller tourism and small business related projects were not monitored and were therefore not included in the statistics. Mozambique Investment Promotion Centre (CPI) director Mahomed Rafique said that the South African investment accounted for 58 percent of the total foreign direct investment into the country over the past twelve months. The total foreign investment climbed to 164.5 million US Dollars, which was a 34 percent rise compared against the 2004 figures. Mr Rafique said South Africa's nearest competitor was the United Kingdom with 15 projects totalling 27.8 million US Dollars. In 2004, the UK's investment in Mozambique was just 13.1 million US Dollars. Zimbabwe rose from the seventh position in 2004 to become the third most important investor in its eastern neighbour last year with investments worth 9.1 million US Dollars. In fourth position is Mozambique's former colonial master, Portugal, maintaining the same poll position it held in 2004 - though its actual investments increased slightly from 5.6 million US Dollars in 2004 to 7.3 million US Dollars in 2005. The biggest increase in investment was made by China, which jumped up the ranks from 25th position in 2004 to sixth place in 2005. Direct Chinese investment in 2005 totalled 5.6 million US Dollars against only 292 000 US Dollars in the previous year. Investment into Mozambique also came from countries such as Mauritius, Rwanda, Angola, Swaziland, Botswana, Brazil, US, Yugoslavia, Belgium, India, France, Uganda, Sweden, Spain, Switzerland, Pakistan, Germany and New Zealand. The CPI also reports that 541 South Africans have successfully applied for permits to work in Mozambique in 2005. Mr Rafique said the National Institute of Labour and Professional Training (INEPF) authorised 4 051 foreigners to work in Mozambique in 2005. "The ministry [of labour] says of the 4 051 foreigners who got work permits, 541 are South African and 440 Chinese, [while] others include Portuguese, Cuban and German nationals," he said. The requests for foreign workers were from companies from different sectors. Mozambique has, in recent years, increasingly been seeking foreign technical and construction experts to service its increasing numbers of large investment projects.

South African Companies See US Stock Markets Success

The 10 South African companies listed in New York gave glittering returns to US investors, who bought $20bn in their shares on the Nasdaq and the New York Stock Exchange last year. Attracted by returns of up to 40%, the $20bn investment amounted to a 40% increase over the R14bn invested in US-listed South African companies in 2004. The best South African performers in the US were Sasol, which saw its US prices grow 64%, Highveld Steel & Vanadium, with a 58% increase, followed by 41% from Gold Fields, 40% from Harmony Gold and 35% from AngloGold Ashanti. While the resources recovery helped, media company Naspers saw a 40% price jump and telecoms giant Telkom saw a 26% spike in its stock. The performance has helped entrench the perception of South African companies as desirable investments, despite the fallout over Randgold & Exploration, which was delisted from the Nasdaq under a cloud of fraud. Janet Johnstone, vice-president of the Bank of New York, which facilitates the American Depositary Receipt US listings for South African companies, said last year was good for South African listings on US exchanges. "The sentiment towards South African stocks is really good at the moment. If you look at the share prices and the volumes traded, you will see the results of this." The reasons for the boom were partly related to the recovery in resources and commodity stocks, and partly due to US investors opting for emerging market stocks as well as heightened investor awareness of South African companies. There is also no sign of the trend slowing down this year. Last month Harmony Gold saw 37% growth in its US stock price while Gold Fields saw a 30% jump. The 40% share-price growth of the 10 South African companies last year outperformed the overall stock growth of foreign companies listed in the US, which saw an average price gain of 9,7%. The best performers were Latin American firms, which saw a 47% stock price rise, followed closely by SA and Israel. One of the key reasons US investors ploughed so much cash into foreign companies was that US stocks provided poor returns. The Dow Jones industrial average, which tracks the top 30 US blue chips, fell marginally during the year while the Standard & Poor's 500 index, which tracks the stocks of 500 US companies, climbed 3%. The allure of South African companies in the US will also buoy two companies intent on listing in the US -- shipping company Grindrod and platinum firm Implats. Johnstone said she expected US listings to remain "a key agenda item for South African companies" this year. "South African companies have benefited from being able to reach into the US retail investor via these listings with some companies maintaining up to 50000 retail holders of their stock," she said. The Bank of New York does not see the fallout over Randgold & Exploration affecting the appetite of US investors. Forensic investigators said in December that they had found "prima facie misappropriation" of Randgold & Exploration's assets dating from when it was under the control of Brett Kebble, who was murdered in September. Importantly, South African companies saw 300% liquidity in New York, in that total stock worth US$7bn was turned over nearly three times in trades worth $20bn. This is in contrast to the JSE, where liquidity is closer to 40%, which means that even though the capitalisation of all the JSE companies is nearly R4-trillion, only about R1,6-trillion of this is likely to trade a year.

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Sasol-Engen Merger Blocked

Sasol's attempt to become SA's largest fuel retailer foundered February 23 when the Competition Tribunal blocked its proposed merger with Engen, calling it an attempt to re-establish an oil industry cartel. The competition authority described Sasol, which has been engaged in yet another clash with government after a windfall tax was mooted, as "a maverick, a lone and hungry ... wolf". Sasol, which was considering "all options", was widely expected to appeal the outright prohibition, although analysts said Engen might not want to be dragged further along this rocky road. The tribunal said in its decision that the merger between the country's largest fuel maker and the largest retailer to form Uhambo Oil would significantly reduce competition, and this could have negative consequences for the domestic economy. The tribunal said the new cartel would "destroy the promise (of lower fuel prices through enhanced competition) contained in further planned deregulation of the fuel market". Uhambo's dominant position could have enabled it to influence fuel prices in a deregulated environment in SA's economic heartland, competitor oil companies argued earlier. Uhambo, which would own half of all fuel production capacity in the country and a third of the retail market, would have the South African consumer as its "natural prey", it said. Sasol had wanted the deal to catapult it into the fuel retail sector as the largest player ahead of deregulation. Its alternative to expand in the retail market is through the continued roll-out of service stations -- a much slower process. An unnamed analyst said the deal was strategically important as it would have secured a future market for Sasol's output when other companies no longer needed to buy fuel from it. "It would have placed Sasol in an unbelievably strong position," he said, but for now it was "business as usual". The case is only the sixth to be prohibited outright in the history of the tribunal. The tribunal said its view was the oil industry had been cartelised for many years under the legislated Main Supply Agreement, which forced other companies to buy fuel from Sasol, which was the only producer inland. The cartel would eliminate the competition already ushered in by the termination of the Main Supply Agreement, and it would destroy the promise contained in further planned deregulation, it said. Engen's motivation for the merger was widely seen as a desire to defend its market position, which would be under threat if Sasol pursued a different strategy to enter the retail market.

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Vodafone Finalises VenFin Takeover

British cellular operator Vodafone will finalise its takeover of VenFin by compulsorily acquiring the few outstanding shares that VenFin investors did not voluntarily relinquish. Investors holding 373,4- million shares readily accepted Vodafone's bid of R47,25 a share, a generous 41% premium to VenFin's previous trading price. With acceptances received for 98,5% of the stock, that leaves just 1,5% yet to be handed over. Vodafone said February 27 it would invoke section 440K of the Companies Act to force the owners to sell those shares so it could take over VenFin's assets and delist the company. A circular and a surrender form was sent out yesterday to the shareholders who did not accept the offer. VenFin's listing will be suspended from the JSE this morning and terminated on April 18. Vodafone has negotiated the deal purely to acquire VenFin's 15% stake in the pan-African cellular operator Vodacom. It has no interest in VenFin's other assets, which will be sold back to Newco, a company being formed by the Rembrandt Trust, which was the largest shareholder in VenFin. Vodafone is paying R21bn for VenFin, then selling the other assets back for R5bn, including shares in Dimension Data, Idion, and Alexander Forbes. When the deal is done Vodafone will have effectively paid R16bn to acquire 15% of Vodacom, taking its stake up from 35% to 50%. Telkom holds the other 50% of Vodacom. VenFin shareholders can opt to remain invested in the assets left behind once the Vodacom shares are stripped from the portfolio. They can subscribe for Newco shares at R11,24 each, at the rate of one new share for each VenFin share they owned. Merrill Lynch analyst Meloy Horn says shareholders may find good value in Newco, as its shares are being offered at an attractive discount. Its assets will include shares in listed and unlisted companies and some cash, together worth about R7,1bn, which it will buy back for R5bn from Vodafone. Horn believes the fair value for Newco ranges from R12,73 to R18,34 a share, so the purchase price of R11,24 is a substantial discount. However, since the 15% stake in Vodacom represented 63% of VenFin's net asset value, buying into the remaining assets should be considered only by investors who are not dependent on near-term dividends and who can tolerate a five-year investment horizon, says Horn. The Newco offer closes on March 13.

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Zuma Scandal Far Reaching Consequences

The removal of Jacob Zuma from the deputy presidency was one of the biggest corruption scandals in the world last year, with "far-reaching" consequences for SA's parliamentary oversight bodies, according to global watchdog Transparency International. Transparency's 2006 global corruption report, released February 1, includes an extensive discussion of the Zuma scandal, Parliament's Travelgate scandal and weaknesses in protecting whistle-blowers. The report serves as a warning to SA. The Berlin-based body's annual corruption report, along with its corruption perceptions index released in October, are followed by the investment community, and can influence decisions. Cobus de Swardt, Transparency's head of global programmes, said the Zuma issue had brought about a greater awareness globally of the corruption issues facing SA. "But most of the response from (international) businessmen has been encouraging (with people perceiving) that for a president to sack his deputy is a bold move," he said. Transparency's report said the conviction of Zuma's financial adviser, Durban businessman Shabir Shaik, had "highlighted weaknesses or abuse in oversight mechanisms in Parliament, the director of public prosecutions, the public protector and the auditor-general". It said this was because the investigation team that looked into the arms deal in 2001 found that there were no corruption issues significantly affecting the contracts awarded. "Since the (joint team) included investigators from all the above oversight bodies, the court verdict calls into question the rigour of their inquiries," Transparency said. The corruption report said the Shaik trial also focused attention on the "supply side" of bribery, where multinational companies paid over thinly disguised bribes such as "facilitation fees". The Paris-based Organisation for Economic Co-operation and Development (OECD) is encouraging countries to outlaw such payments. "The OECD's 1999 Anti-Bribery Convention could mean increased scrutiny for Thales and other firms implicated in the arms deal," Transparency said. The report also scrutinised the Travelgate saga, concluding that the judiciary had been able to carry out its duties in prosecuting offenders without interference, even when it involved the African National Congress. But it raised concerns over the commission led by Judge Sisi Khampepe charged with looking into the future of the Scorpions investigating unit. Transparency was wary of what it saw as "moves to muzzle the Scorpions" by incorporating the unit into the police force from the justice department's National Prosecuting Authority. The commission is expected to make its recommendations to President Thabo Mbeki on the future of the Scorpions this year. Transparency warned that the commission's recommendations would indicate the strength of government's commitment to fighting graft at a high level. Late last year, Transparency released its corruption perceptions index, which showed that SA had slipped two notches to 46th out of 156 countries. But this was slammed by Public Service Commission chairman and Anti-Corruption Forum member Prof Stan Sangweni, who said the index measured perception rather than progress. De Swardt said that there were signs that SA was moving in the right direction when it came to tackling corruption. "But this started from a very low base a decade ago because not only was apartheid a corrupt political system, the access-to-information laws at the time were not helpful," he said.

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