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Books on South Africa
REPUBLICAN REFERENCE
Area (sq.km)
1,219,912
Population
43,586,097
Capital
Pretoria
Currency
rand
President
Thabo Mbeki
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Update No: 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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AUTOMOBILES
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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AVIATION
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
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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ENVIRONMENT
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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FINANCIAL NEWS
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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FOOD & DRINK
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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G8
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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INTERNATIONAL ECONOMIC RELATIONS
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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PETROCHEMICALS
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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TELECOMMUNICATIONS
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, e.tv 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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TRANSPARENCY INTERNATIONAL
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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