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SOUTH AFRICA


  
  

 

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

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REPUBLICAN REFERENCE

Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki


Update No: 057 - (02/10/06)

Former deputy president Jacob Zuma cleared a major hurdle in his march to succeed President Thabo Mbeki as African National Congress (ANC) leader next year when his corruption case was thrown out of court September 20. The case was thrown out because the prosecution said they were still not ready to start the trial more than a year after he was charged. Mr Zuma and Shaik were both charged over a 1999 arms deal with French arms company Thint SA. Judge Herbert Msimang stopped short of completely dismissing charges against Zuma, who has not, in fact, been cleared, leaving the door open for the prosecution to reinstate the charges against him. Unless this happens, Mr Zuma would be free to contest next year's leadership contest of the ruling African ANC. Whoever is elected to head the ANC would be favourite to become South Africa's next president. Mr Zuma was also acquitted on separate rape charges earlier this year, his supporters say there is a political vendetta against him, designed to remove him from the race to succeed Mr Mbeki in 2009. 

The relationship between Zuma and his financial adviser, Durban businessman Schabir Shaik, has come under intense scrutiny in the Supreme Court of Appeal as Shaik began his appeal against his conviction and sentence on fraud and corruption charges September 25. Shaik was sentenced to 15 years in prison for corruption and fraud, with Judge Hilary Squires concluding that there was a "generally corrupt" relationship between the two men. 

A vindication, a temporary reprieve, a travesty, a disaster for President Mbeki: the interpretations of the dismissal of corruption charges against the former deputy president are many, and varied. The ANC now has a vindicated martyr at the heart of its party with a consuming ambition to be president, but whatever happens the perception of corruption is likely to remain there for a very long time. South African press saw the collapse of the trail as a defeat from President Mbeki and a sign that Zuma was on the road to the presidency. There was much dismay at this outcome but a realisation that Zuma would still face many hurdles. For many South Africans, Zuma represents the worst in African politicians: belligerent, shameless and prone to spreading obviously false rumours about shadowy plots against them. This type of 'big man' politics is not solely an African phenomenon, but it is familiar enough to practically everyone on the continent. Following his court victory a speech seeking healing and giving reassurance would have been appropriate. Instead, there was blame, wild accusations of selective prosecution, and attacks on the media. His digs at detractors and apparent lack of concern about a possible retrial show that this 'big man' now sees himself as above reproach and above the law. South Africa and the world must now wait to see if this bravado will be proved right.

As the heat of the legal battle cools, the debate on the presidential succession can shift from the personalities involved to the underlying issue dividing the ANC and its alliance partners. Zuma can no longer claim victim status. Some believe Zuma may have won a public relations victory, but could eventually be worse off, increasing the chances that he will still be on trial for corruption by next December's ANC conference. However, there is no doubt that the ruling is a setback for the state and the balance of power appears to have shifted to Zuma. The SACP central committee, which last June only narrowly took a decision to back Zuma ahead of the ANC National General Council, has moved more and more towards Zuma. The Congress of South African Trade Unions (Cosatu) too, although earlier split equally, has shifted towards Zuma. It adopted a resolution last year after Zuma was sacked as deputy president of South Africa to call for his reinstatement and for corruption charges levelled against him to be dropped Cosatu unionists screamed with joy on hearing that his case had been struck from the roll.

The dismissal could create a period of increased political turbulence in South Africa, forcing President Mbeki onto the defensive. Mbeki was fortuitously away at the UN in New York, where he may have felt, like other leaders there, that a coup was brewing back home. Zuma returned to victorious accolades at the Cosatu congress, to a trade union movement now presiding over more strikes than in the past 10 years, with growing militancy over the failure of the government to deliver more jobs or adequate services. Zuma's triumphant speech and the jubilation of his supporters may be a little premature if the case is in fact reinstated. Zuma as ANC deputy president had sought automatic elevation to the ANC presidency without an election. In the present climate many ANC big shots are coming round to this idea. Mbeki's paranoid leadership has done much to drive Zuma into the arms of Cosatu and the communists. Mbeki could have done much to prepare potential successors, this has not happened and Mbeki's unpopularity among the ANC faithful is at record levels. His deputy, Phumzile Mlambo- Ngcuka, was snubbed at the Cosatu congress. Cosatu passed a motion calling for the nationalisation of Sasol and other key industries. If Zuma becomes president in 2009 he will barely have settled in when Cosatu and the communists will come calling, reminding him of this resolution and of the support they offered during his hard times. 

The consequences may also be felt beyond South Africa's borders if the Mbeki government's engagement with African and international issues is diverted into its own domestic scene. South Africa is a key voice in the AU and a strong voice in regional crises. In the wider world South Africa will take a non-permanent seat in the UN Security Council next year, while Mbeki chairs the G77. South Africa retains its high moral position in the world because of its successful transition from apartheid and as a stable and potentially prosperous representative of Africa. If turmoil spreads at home Mbeki's voice in all these forums will become weaker. The Zuma affair and its repercussions are far from a simply local affair. All sections of South African society and those beyond its borders should be keenly concerned about who succeeds Mbeki and this is the start of a decisive two years.

The rand slumped to a three-year low late September, knocked by emerging market jitters, current account deficit woes and local political uncertainty. It slid to R7,70 against the dollar September 22, and analysts expect weakness to persist, at least in the short to medium term. It has depreciated by more than 20% in trade-weighted terms since the beginning of the year. The Zuma verdict also threw markets into some confusion as to what South Africa's political outlook would be like. The rand also sank in sympathy with most other emerging market currencies as heightened political tensions from Budapest to Bangkok tested the mettle of investors in risk-sensitive assets.

Mbeki and the Succession Question
If there were any lingering doubts over where the power in SA's ruling alliance now resides, they have surely been eliminated by the Congress of South African Trade Unions' (Cosatu's) move to stamp its authority on the presidential succession race during its national congress. Cosatu has been acting with increasing assertiveness recently, publicly criticising state policies, chastising cabinet ministers and making no secret of the fact that it will in future demand a leading role in setting the national agenda. After the corruption case against African National Congress (ANC) deputy president Jacob Zuma was thrown out of court September 20, rising confidence has become a solid conviction that the left wing of the alliance will triumph, and that Zuma will be its figurehead. This is in marked contrast to the first decade of SA's governance by the ANC-South African Communist Party-Cosatu alliance, which was dominated by the ANC to the point where its partners' often contradictory opinions were ruthlessly suppressed. The extent to which the worm has turned, and President Thabo Mbeki's authority has been undermined, was illustrated most graphically at the congress September 19, when Cosatu officials battled to persuade delegates to take their seats and allow Deputy President Phumzile Mlambo-Ngcuka to make her speech. Rather than the traditional praise-singers, Mlambo-Ngcuka -- perceived by many to be Mbeki's favoured successor -- was greeted with songs in support of Zuma, the man she replaced after he was fired. As if she needed reminding that Cosatu remains convinced that Zuma is the victim of a political conspiracy (initiated by her husband) aimed at preventing him from assuming the presidency. The tide has clearly turned against Mbeki and his approach to governance, but what does this mean for the succession race? For one thing, as long as he refuses to clarify where he stands in respect of the presidency of the ANC, the suspicion will remain that there is indeed a conspiracy within the presidency (if not the party) to keep Zuma from assuming the leadership of the ANC, and, therefore, of the country. But the ambiguity of Mbeki's future role in the party hierarchy after his second term as president has expired is also serving to hinder prospective contenders other than Zuma from coming forward and proclaiming, in whatever way, their interest in the top job. In the vacuum that has thus been created, Zuma has been given a free ride; he has been able to campaign for the presidency while coyly denying any such ambition -- and without having to nail his colours to the mast on critical issues such as economic policy, the call for labour reform and SA's problematic policy towards Zimbabwe. There is only one hat in the ring, and the longer it remains untouchable the more difficult it will be for potential competitors to dislodge it. The president would perform a great service to the country by moving to open up the succession debate, within the alliance and beyond. He should consider removing himself from the equation by stating unequivocally that he does not wish to be nominated again for the presidency of the ANC at its national conference in December next year.
President Mbeki Urges UN to Match Hopes of 'African Century'

President Mbeki urged the United Nations to live up to the promises of an 'African Century' marked by renewal on a continent that has known great degrees of suffering September 19. Thabo Mbeki's appeal to world leaders gathered for the General Assembly's annual debate was echoed by a number of other African leaders calling for measures to help lift the continent's people out of poverty. "Those who populate the poorest part of the regions of the world - Africa - have boldly declared that it will be an African Century," President Mbeki said. "If the wishes of the majority of the world could turn into reality, this would be a century free of wars, free of internecine conflicts, free of hunger, free of preventable disease, free of want, free of environmental degradation and free of greed and corruption." But he warned against empty promises. "Billions of poor people are increasingly becoming impatient because every year they hear us adopt declaration after declaration, and yet nothing practical is done to assuage the hunger pains that keeps them awake at night." He also decried the inequalities prevailing in the world and the indifferent response of rich countries. "Something is seriously wrong when people risk life and limb travelling in suffocating containers to Western Europe in search of a better life. Something is wrong when many Africans traverse, on foot, the harsh, hot and hostile Sahara Desert to reach the European shores. Something is wrong when walls are built to prevent poor neighbours from entering those countries where they seek better opportunities." The UN, he said, could make a significant difference. "Even as we face the cold reality of the indifference of the many among the rich and powerful, this Organization of the peoples of the world has continued to offer hope and the possibility of the fulfilment of the aspirations of the majority of the peoples of the world," he said. Denis Sassou-Nguesso, President of the Republic of Congo, welcomed positive developments in Africa, including the elections in the Democratic Republic of the Congo (DRC) and peace consolidation in Sierra Leone, Liberia and Burundi. But he called for action to support the African Union (AU) troops in Darfur, Sudan, and appealed to the country's Government to exert all possible efforts to address "this tragedy that we see unfolding before our eyes." He also voiced support for AU efforts to seek an enlargement of the Security Council, stressing that it must be made more representative, and its working methods must be reformed. Ghana's President John Kufour drew attention to the scourge of small arms and light weapons, which he said had an especially devastating impact on Africa. While noting that the world is still "far from achieving" international goals for tackling the scourge, he said Ghana "welcomes the current momentum within the international community to move closer to the ultimate goal of drastically removing the menace." President Kufour, on a more personal note, also paid tribute to his countryman, Secretary-General Kofi Annan, who this year completes his second and final five-year term at the helm of the UN. "There is no doubt that he retires with an enviable legacy of contributing immensely to shaping the destiny of this Organization and the affairs of the world," the President said. "Ghana is proud and looks forward to receiving him historically home."

Mbeki Urges NAM to Accelerate Development
The Non-Aligned Movement (NAM) needs to ask itself whether its efforts are sufficient enough to accelerate decisions that emerge from major conferences of the United Nations (UN). President Mbeki said during his address to the XIV NAM Summit in Havana, in Cuba September 15, referring to those decisions that are critical to the development of billions of lives in developing countries. He addressed the summit in his capacity as chairperson of the Group of 77 and China. "Indeed, these billions of our people, the majority of whom live the life of poverty and wretchedness, are united that we, their representatives, should work better, harder and perhaps smarter to ensure that there is implementation of the commitments for more resources for the realisation of the Millennium Development Goals," said Mr Mbeki. He said these billions believed that with better focus, enhanced coordination, increased utilisation of collective strength as well as better monitoring mechanisms to ensure that agreed decisions were implemented, it was possible to change their living conditions for the better. Turning to the reform of the UN, Mr Mbeki said that there was a need for a UN reform process whose outcome would be a stronger and more effective body. He addressed the meeting within the context of South Africa's commitment to promote South-South co-operation through, among others, the revitalisation NAM to effectively play a meaningful and strategic role in global affairs.He said as the NAM confronted by all these and other challenges the central task was to strengthen South-South co-operation, especially with regard to maintaining the relevance of the organisations and groupings of the South. "These various organisations, armed with specific mandates and occupying different political, economic and cultural spaces, are important in our all-round struggles against poverty, underdevelopment, unfair trade and political and socio-economic exclusion and marginalisation," Mr Mbeki said He said September 17, the unilateral actions of big power interventions without regard to the sovereignty and integrity of weaker states was cutting across all continents and affecting all nations. For this reason, Mr Mbeki said the outcome of the reform process would be the strengthening of multilateralism as well as increased capacity of the UN to better respond to the contemporary requirements of member states. In this regard, the G77 and China said Mr Mbeki, remained committed to a close working relationship with the NAM, utilising among others, existing structures as well as co-ordinating "our joint action at various UN centres, especially with regard to the on-going process of fundamental reforms of the UN system". He said many of the developing countries were experiencing difficulties to meet the MDGs; especially those from the African continent. "This is precisely because of the failure of the rich to transfer adequate resources to the needy countries of the South," said Mr Mbeki. Nevertheless, he said South-South co-operation was an important means through which to empower developing countries, to help each other access modern technologies and move the nations away from underdevelopment into development.

Over Half a Million Jobs Created
The Labour Force Survey by Statistics South Africa has revealed that more than half-a-million jobs were created in the country, between March 2005 and March 2006. This translates to a slight decline in the unemployment rate, from last year's 26.5 percent to 25.6 percent in March this year. At least 544 000 jobs were created in the period reviewed said Population and Social Statistics Deputy Director-General Kefiloe Masiteng. "After several years of decline, employment has generally been on a slightly upward trend since March 2003. In the year to March 2006, the number of employed persons rose, thus showing that slightly more than half a million people were employed during that period. "There was an expansion in the number of economically active persons. Since the working age population increased less rapidly than the labour over the same period, the labour force participation rate rose," she said. The survey was conducted via face to face interviews with residents of approximately 30 000 dwelling units. Ms Masiteng added that over the period March 2001 to March 2006, at least 1.2million jobs were created in the formal sector excluding agriculture. With a response rate of 87 percent from the survey participants, it was found that whilst the unemployment rate declined from 26.5 percent to 25.6 percent, the absorption rate rose from 40.3 percent to 41.7 percent. Out of about 29.8 million people surveyed, aged between 15 and 65 years old - the survey found 12.45 million were employed; 4.27 million were unemployed; 13.12 million were not economically active; 16.7 million were economically active and 3.6 million were described as discouraged work-seekers. Ms Masiteng explained that female unemployment rates had been higher than male rates in every period and a similar pattern was evident in the absorption and labour force participation rates. "The expansion in the labour force or economically active population coupled with the decline in unemployment, resulted in higher labour force participation or activity rates. This was particularly evident among women," she said. Describing employment by industry, she said the trade industry made the single largest contribution to total employment, whereas the utilities, mining and transport contributed the least. Trade accounted to over 2 million jobs or 24 percent of total employment in March this year. During the same period, the community and service industry was the second largest provider of employment opportunities in the economy with over 17 percent. The manufacturing industry was the third largest contributor to total employment with 13.9 percent. "The formal sector accounts for the largest share of employment in the country's economy. In March this year, employment in the formal sector was 64 percent, whereas the informal sector was only 17.6 percent." "Domestic work accounted for only 6.8 percent," she said.

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AUTOMOBILES

South Africa: Record Territory


August sales total of 3176 units reported to the National Association of Automobile Manufacturers of SA (Naamsa) represented the greatest single-month volume for this market, exceeding the previous record of 3132 units established in June this year. This is also a 20,1% increase on August 2005 sales. "The August truck market was propelled to a new monthly record by strong results at both the upper and lower extremes of the vehicle size spectrum," said Frans Cloete, executive vice-president of operations at Nissan Diesel SA. "This has resulted in year-on-year growth of 21,2% when compared to the equivalent period in 2005, to reach 21342 by the end of August." Medium commercial vehicle sales logged a new record month, increasing sales by 13% when compared to August last year, to 1329 units. Sales in the heavy commercial vehicle segment rose 9,86% over the same month last year to conclude the month at 568 units. A new record level was also reached in extra heavy commercial vehicles, with a significant growth of 32,3% over the corresponding period last year, to reach 1158 units. Buses also continued to grow in August, lifting sales 59% compared to the same month last year, and concluded the month on 121 units. "Despite the increases in interest rates, and forecasts for a further increase of about one percentage point by, or just after, year's end, the business environment for commercial vehicle operators continues to be favourable." The price of diesel fuel dropped recently -- the first time since March -- while sustained strength in the foreign exchange value of the rand slightly above R7 to the dollar continues to soften expectations of substantial vehicle price increases. "The consumer spending spree, which has extended to record sales of light vehicles, has increased local demand for imported products, and, as a result, put pressure on the country's balance of payments. It has also been characterised by increased demand for credit extension, as well as a reduction in the level of domestic savings." In this scenario of continued strong demand for road transportation, there has been considerable encouragement for operators to renew and upgrade their fleets. "The pressures that have been exerted on operators' margins by recent operating-cost increases should now start to abate as the effects of softer crude-oil prices and sustained rand strength combine to reduce the price of fuel." Cloete said these manifestations were sure to encourage the Reserve Bank to continue along its chosen path of steadily drifting interest rates upwards to influence the impact of these trends. "However, any resulting levelling off of consumer activity is expected to be marginal, and will, in turn, be largely offset by increasing momentum in the creation and upgrading of infrastructure in preparation for the Soccer World Cup 2010. Several major civil engineering projects, including stadium rebuilds and upgrades, as well as the initial works for the Gautrain rapid rail link, are now moving forward, and these will require considerable input from the road-transport sector. "The prospects for truck sales in the remaining months of 2006 remain positive," said Cloete.

Nissan Diesel SA Takes On Forklifts

Forklifts and trucks are an integral part of most commercial businesses, and therefore they are rendered as some of the company's most invaluable assets. Nissan Forklifts, a subsidiary of Nissan Diesel SA, is gearing up to conquer the local forklift market. It is estimating a sales figure of 6800 units for this year, according to Toshi Aoki, corporate vice-president of the industrial machinery division at Nissan Motor Company. "We are committed to provide innovative and high quality products and services, maintaining a perfect balance between the owner, operator and their environment. "All of our activities are dedicated to the customers' production and logistic operations," said Aoki. Founded in 1957 and currently consisting of three factories in Japan, the US and Spain, the company has expanded dramatically in recent years, selling 611000 units globally. Nissan Diesel Motor Company Japan holds an 80% stake in Nissan Diesel SA. With SA making up 12,6% of the global Nissan Diesel truck market, eclipsed only by western Europe at 24%, it is one of the major players in the industry, while global beverage companies make up most of its local client base. The company's global vision is to commit to and surpass customer needs by offering unrivalled quality products that are fuel-efficient, safe and easy to operate. "We are a broad spectrum supplier covering almost the complete medium, heavy and extra heavy commercial vehicle segments of the truck market, and now we have proudly added Nissan Forklift to our product offering," said Frans Cloete, executive vice-president of operations of Nissan Diesel SA.
The synergies of both companies are forecast to ensure that customers, particularly in the logistics business sectors, receive similar levels of service. Both companies will apply the same principles across the range, therefore ensuring the same strategy is applied. Nissan Diesel SA is also looking into the implementation of a dealer network strategy that includes, among other aspects, a national footprint of full dealers, extensively trained service agents and more critically, rental of forklifts, thereby lifting the burden of an outright purchase of the product by the client. Nissan Diesel has been rated highly in terms of their products in the South African market, and all of their current products have been tested for local conditions. "We will refrain from offering products that we cannot support and the introduction of special niche products will be carefully considered," said Johan Richards, executive vice-president of management control at Nissan Diesel SA. The company's overall aim, however, is to offer competitive pricing and reliable parts supply, and to provide an excellent service network, with the main emphasis being that of support and commitment while achieving 95% parts availability at any given point. The company also has short- and medium to long-term strategies in place. The former consists of dealer network standards of service while the latter will focus on rental option products. "We understand the vital role that aspects such as cost of ownership, up-time of products and on-site servicing play in the viability of a customer's business," said Cloete. Nissan Forklift's line-up locally will consist of the LX series (diesel, petrol and LPG models), the BX Series (counter balance electrical units), the three-wheel electrical TX Series, RX series electrical reach trucks, as well as TO/ V02 series tow tractors.

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AVIATION

Air Tanzania Redeems 49 % Stake From South African Airways

South African Airways (SAA) has finally acceded to the request by the government of Tanzania to withdraw from its shareholding in Air Tanzania Company Ltd (ATCL). This brings to an end a troubled joint venture partnership that started in December 2002 with the purchase by SAA of a 49% stake in the company. The disengagement documents were signed in Johannesburg at the SAA head office on August 29 in the presence of officials representing the government of Tanzania, ATCL and SAA. Mr. Ali Mufuruki, ATCL board chairman said that the government of Tanzania paid US$1 for the purchase of the 49% stake held by SAA in ATCL. "Both sides agreed to an amicable resolution to all outstanding issues and committed to cooperate commercially in future where mutual benefits can be extracted," he said. The president and CEO of SAA Mr. Khaya Ngqula signed the agreement on behalf of his company while the executive chairman of PSRC, Dr. Ali Kavarina and Mufuruki signed on behalf of the government of Tanzania and ATCL respectively. The transfer of shares agreement came into effect at 10:00 hours on August 31 and all SAA appointed directors resigned from the ATCL board immediately. The disengagement plan has a 3-6 month timeframe and the management of SAA and ATCL are working out an agreed separation agenda. With the resolution of this longstanding and costly shareholder impasse, ATCL reverts to 100% government ownership for the time being, but remains firmly on the privatisation track under the auspices of PSRC. "However, this time round, privatisation will be considered after ATCL has been turned around into a viable and financially stable business," Mufuruki said. He said it is now expected that the company will finally take off and grow to become a profitable and reliable provider of commercial air travel and cargo services in Tanzania and a significant competitor in the regional air travel industry with Dar es Salaam as the central hub of its operations.

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ECONOMY

IMF Has Faith in the Rand

The International Monetary Fund (IMF) released an upbeat report on the South African economy and dismissed fears that recent volatility of the rand would knock prospects for the country's economic growth. "The economic outlook is largely positive. The main short-term risks arise from a possible worsening of the external environment. Unemployment, poverty and inequality remain major challenges," the IMF staff said in the annual report based on a two-week visit in May. The IMF comments landed in a week of rand volatility fuelled by a strengthening of the dollar, Reserve Bank Governor Tito Mboweni's warning of further rate hikes, a widening trade gap and concerns about imbalance in the international economy. In its Accelerated and Shared Growth Initiative (Asgisa), the government identified "the volatility and level of the rand" as the first of six binding constraints to growth. But the IMF said: "We found no clear linkage in the South African data between exchange rate volatility and trade. An implication of this finding is that there is no strong rationale for taking policy measures to restrict exchange rate movements in an attempt to promote trade flows. Exchange rate volatility in itself is not necessarily harmful to an economy." The fund said the rand's value had been in line with macro-economic fundamentals before its recent fall, but said it was impossible to assess the appropriateness of its current level. Treasury director general Lesetja Kganyago said research under way appeared to show that a strong rand was not a constraint to trade. "What we are seeing is that the exporters have actually adapted to coping with a stronger exchange rate. I actually don't know why we lost sleep about it. The evidence is that the manufacturing sector has successfully done that." The IMF team based their report on fund research, meetings with Mboweni, Finance Minister Trevor Manuel, senior bank, treasury and government officials and economists and other non-government analysts. Manuel said earlier reports had influenced policy in some ways, adding: "It's a useful report, but it is as fallible as any other bit of economic analysis." He said issues on which there was no full agreement were labour policy, inflation targeting and the appropriate level for the country's foreign reserves. The IMF argued for the second year running that the Treasury should state the midpoint of the 3% to 6% inflation target as an explicit goal. Manuel said: "We observe their views, but it doesn't make it the last word on the issue," he said. The IMF and the government were closer this year on the issue of foreign reserves, which has been the government's only stated instrument to address exchange rate volatility. The IMF staff said South Africa's reserve levels were "comfortable" but relatively low in terms of imports and GDP. "Staff therefore shared the [government's] view that some additional accumulation would be warranted, but not urgent," the team said. The IMF team approved nearly all of South Africa's fiscal and economic policies assessed, gave the country's banking sector high marks and endorsed the main thrust of the Asgisa programme. They increased their estimate of potential economic growth from the 3.25% to 3.5% range they forecast in last year's report to 4.2% of gross domestic product this year and 4% next year. "Successful implementation of further structural reforms, including under Asgisa, may also push this rate higher," the IMF said. The Asgisa targets of 4.5% average growth until 2010 and 6% average growth after 2010 were reasonable, they said. They cautioned that high oil prices and the potential impact on global growth of an unmanaged unravelling of the high economic imbalances mainly between the US and emerging power economies like China and Russia were the main risks to growth of the South African economy. While they did not cite South Africa's record current account deficit as a serious risk, they said it could affect the resilience of the economy. Reporting on consultations after the current account deficit soared to a record 6.4% in the first quarter of 2006, the IMF said the shortfall had been easily covered by capital inflows. The risk was that a global slowdown could affect capital inflows. "South Africa's vulnerability to external shocks has increased as a result of the widening current account deficit, but the country's strong fundamentals should help limit the adverse impact on the economy," the team said. The IMF repeated its contention that inflexible labour legislation was an obstacle to job creation. "In particular, dismissal procedures are complex and costly," the report said. The team also proposed further trade liberalisation, saying the pace of reform had slowed recently. The IMF sounded a note of caution on household debt, saying interest rate increases and a correction to property prices could put additional pressure on household debt and lead to more defaults. "While banks are well capitalised and should be able to absorb some deterioration in their loan portfolios, they could become much more conservative in their lending decisions, which may have a significant impact on household consumption." Manuel reinforced the warning: "When rates start picking up and people have borrowed to the limits of their ability, then the risks are real ones. "That kind of property bubble is a huge macroeconomic risk. I have no disagreement with the Fund on the position they have taken," he said.

Strikes Soar

The number of strikes in South African industry has reached a 10-year high and analysts have warned that still more are imminent, according to the SA Reserve Bank. Cosatu, South Africa's largest trade union federation, is looking for ways to exert more influence on the nation's economic policy. The bank said in its report September 21 that the number of working days lost from strikes rose from about 700 000 in the first half of last year to 1.6 million in the first half of this year, the highest figure in 10 years. "Unions are flexing their muscles and we can expect it to last," said Steven Friedman, senior researcher at the Centre for Policy Studies in Johannesburg. "It is a sign of economic growth. Although there is labour surplus, the labour market has tightened, profit margins are up and workers think they can get a better deal." Cape Town alone has recently seen an onslaught of violent and relentless strikes, with the security guard strike and the ongoing cleaners and Shoprite workers strikes. The aggressive security guard strike, which erupted into vandalism and the threatening of non-striking colleagues, ended in a 9.25% increase in the favour of security guards. But an agreement was reached only three months after talks began. After a 45-day strike, cleaners are still in deadlock with bosses and have also been accused of following the violent approach security guards used. Non-strikers have accused strikers of threatening them and robbing them of money and cellphones. Shoprite strikers have also refused to settle for a R265 a month increase after more than a month of striking and want a R300 raise. Cosatu, with 1.8 million members, has been a key supporter of former deputy president Jacob Zuma's campaign to become the next president when President Thabo Mbeki's term expires in 2009. Zuma said he supported the government's current economic policy, but the union believes he would give workers - instead of business - more influence over policy. The federation's 3 000 delegates called for Zuma to be reinstated as deputy president after a judge dismissed corruption charges against him. But the ruling did not address the merits of the evidence and the prosecution is free to file new charges. According to a report compiled by a labour research body before the Cosatu congress, there were 102 strikes last year, mostly over wages. "We have entered a phase of intense and prolonged strikes," the report said. It said membership in Cosatu's 21 affiliated unions grew by 4% since 2003, reversing earlier losses and that the federation "remains a significant and powerful force". South Africa has one of the most progressive sets of labour laws on the continent, but it suffers from massive unemployment some analysts put as high as 40%. While labour has made some gains like the introduction of restrictions on Chinese textile imports, there continues to be strong opposition to the government's conservative economic policy which has tightened social spending. Friedman said that following its backing of Zuma, the strengthened Cosatu may "be looking for more sustainable influence over economic policy and to defend gains they have made in the labour market". But it needed to mobilise the large numbers of unorganised workers in the casual and informal sectors. "If they want a presence in the national and political debate, they need to be the voice of the really poor and exploited," he said. Economist Mike Schussler agreed strike activity was linked to economic growth. Workers had received good salary increases and there had been job creation. "South Africans were getting richer quicker, but many people feel left behind," he said. An increase in strikes could be expected as political tensions play themselves out. "Cosatu thinks they cannot just have political muscle but economic muscle as well."

ANC Economic Policy Under Fire

The battle for the soul of the ruling African National Congress (ANC) was evident on the last day of the Congress of South African Trade Unions (Cosatu) congress September 21, when delegates and representatives of the ANC debated economic policy. Provincial and Local Government Minister Sydney Mufamadi was heckled off the stage by Cosatu delegates when he tried to account for perceptions that the political direction of the ruling ANC had changed. He said the ANC was a "multi-class" organisation and "we will not encourage ANC members to adopt a closed-shop mentality". He conceded, however, that more debate on economic policy was needed in the tripartite alliance. Senior union leaders criticised Mufamadi, accusing him of speaking without a mandate, and Cosatu delegates lashed out at government's "unilateral" adoption of the Growth, Employment and Redistribution (Gear) economic policy in 1996. Fikile Majola, general secretary of public-sector union Nehawu, accused Mufamadi of complicity in what he called "the 1996 class project" responsible for the adoption of Gear. "The ANC's input confirms there has been a rupture in our shared strategic assumptions." Randall Howard, general secretary of the South African Transport and Allied Workers Union, summed up the mood of the delegates when he rejected ANC claims that congress delegates were being unrealistic. "It is not in the spirit of good debate and it is antagonising us." He was responding to Mufamadi's remarks on the "global balance of forces" that influenced the ANC's decision to follow centrist rather than left-leaning economic policies. The minister was accused of contradicting President Thabo Mbeki, who told the United Nations that richer countries should not determine the agenda of developing nations. The robust debate was a curtain-raiser for the ANC policy conference next July, where Cosatu and the South African Communist Party (SACP) are set to push for a policy rethink in the alliance. Delegates accused a "small clique" in the ANC of excluding workers from the process of policy formulation. The discussion ranged over resolutions relating to Cosatu's relationship with the ruling party, and delegates debated whether the SACP should contest elections independently of the ANC. Cosatu wants to conduct a wide-ranging survey on the prospects of the SACP at the ballot box. Delegates also resolved to ensure that the ANC maintained pro-poor policies, in line with Cosatu's 2015 poverty-reduction plan, and to swell the ranks of the ruling party.

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EXPORT

UK Wide Open for Arms Sales 

The head of the UK government's defence export body, which also oversees defence offsets, says there are massive opportunities for South African sales to the UK's armed forces. Alan Garwood, who heads the UK Defence Export Services Organisation, said the UK was "the world's most open defence market" and it spent between 40% and 50% of its military procurement budget outside the country. Under the UK defence industrial strategy, the only areas of defence procurement not open to foreigners are stealth and nuclear missile technology. China recently received a large order to make uniforms for the UK armed forces. Garwood is in SA to attend the 2006 African Aerospace and Defence exhibit at sterplaat air force base in Cape Town. Under SA's multibillion-rand strategic arms deal, offshore suppliers have to meet offset requirements. British- owned BAE Systems is part of a consortium with Saab of Sweden, building the Gripen fighters that SA has ordered. It is also selling SA Lynx helicopters, which will be based on SA's frigates. While in SA, Garwood has visited BAE Systems Land Systems OMC, which manufactures armoured and mine-protected vehicles used by US and UK forces in Afghanistan. "I saw a capability on mine-protected vehicles I have never seen anywhere else in the world," Garwood said. He also visited aerospace firm Aerosud, the first non-European contractor for the Typhoon, a new generation multi-role combat aircraft being built by a four-nation European consortium.

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INTERNATIONAL ECONOMIC RELATIONS

Ireland to Assist Economic Growth Initiatives

Ireland has committed to use its experience to assist South Africa turn the tide against unemployment and a lack of adequately skilled labour, and thus grow the economy. Irish Minister for Enterprise, Trade and Employment Michael Martin said Ireland was ready to assist South Africa in achieving the Accelerated Shared Growth Initiative of South Africa (ASGISA) goals. Driven by Deputy President Phumzile Mlambo-Ngcuka, ASGISA is the government initiative aimed at ensuring that economic growth is accelerated to at least 4.5 percent in the next five years (2005 to 2010) and about six percent between 2010 and 2014. Central to ASGISA is the government's commitment to halve unemployment in the second decade of freedom. Its major beneficiaries will be the youth and women as they are highly affected by unemployment. South Africa can benefit from the Ireland's experience, as ten years ago Ireland was almost at the same position as South Africa is in today, with high unemployment and a lot of unsuitably skilled labour, the Deputy President's office said. Speaking at a meeting with Deputy President Mlambo-Ngcuka and the Deputy Minister of Trade and Industry Elizabeth Thabethe in Cape Town September 21, Mr Martin said Ireland had a lot of interventions and experiences that paved its economic growth and that they were willing to share with South Africa. "One thing that seems to have worked for Ireland is the unity of purpose among government, business and the training institutions. "The training sector ensured that they developed skills directly needed by the industry. As government we asked the industry to state what skills they needed and together we ensured the development of those skills," explained Minister Martin. Many Irish universities have a business and an industrial focus and are backed by particular companies, a model that provides ready labour for the industry and therefore fosters economic growth, added Mr Martin. To take advantage of the Irish's experience, Ms Mlambo-Ngcuka will visit Ireland in November to meet with a range of people including representatives of government, business and the higher education sector with the aim of promoting AsgiSA and the Joint Initiative for Priority Skills Acquisition (JIPSA). South Africa is interested in learning more about entrepreneurship, Information Communication Technology, manufacturing and tourism among others, Ms Mlambo-Ngcuka's office said. The Deputy President expressed the desire to have some high-powered business leaders and tertiary educators accompany her and her delegation to Ireland. This would be in order to interact with their counterparts to see how the Irish had managed to turn their economic situation around. "I think that would be a fantastic manner of learning best practice for us all to win in the end," she said. The two leaders emphasised the need for investment in people in order to achieve economic success.Deputy President Mlambo-Ngcuka requested Mr Martin to encourage Irish companies with business interests in South Africa to look into sending locals to Ireland for some period for exposure as part of the JIPSA programme. In the 1980s Ireland had a graduate overseas placement programme with countries such as Japan, the Deputy President's office pointed out. "Ireland has benefited from such international assistance in the past and now wishes to help South Africa's economic growth attempts along the same successful road," it added.

SA, Brazil, And India Optimistic About Future Ties

The first India, Brazil, South Africa (IBSA) summit ended September 13 in Brasilia with optimism expressed by the leaders regarding ambitious active co-operation plans among these emerging powers of the developing South and promises for future initiatives in economic and cultural complementation. The steps taken in the meeting, according to Brazilian President Luiz Inácio Lula da Silva, were fundamental in "overcoming historical, geographic, cultural and mental barriers that have always made us look to the North rather than the South." Five trilateral agreements and memoranda of understandings were signed by ministers from the three countries, in areas like maritime services, agriculture, biofuels and information technologies. However, as expected, no agreement was signed to begin negotiations towards a free trade agreement. "The idea of the summit was to deepen and unify ongoing debates in different areas, and that is what happened," the Brazilian Foreign Ministry's press relations officer, Ricardo Neiva Tavares, told IPS. The IBSA Dialogue Forum was suggested in 2003 by South African President Thabo Mbeki when Lula took office in Brasilia. Since then, trade and cultural relations between the three nations have expanded significantly. For example, between 2001 and 2005, trade between India and the Mercosur trade bloc, made up of Argentina, Brazil, Paraguay and Uruguay, grew from less than one billion dollars to 2.3 billion. Trade between India and South Africa climbed 133 percent in the same period, from 1.3 billion to 3.1 billion dollars. The IBSA negotiations are aimed at raising trilateral trade flows to 10 billion dollars next year. But trade between the three countries represents just two percent of the total combined volume of their trade. South African Trade and Industry Minister Mandisi Mpahlwa said all three countries have potential, but that they are still talking in superficial terms. Areas of cooperation must be identified, he added, in order to see concrete changes. According to Mbeki, the adoption of a free trade agreement between these three nations would be an unprecedented step in the world trade system, which means it is essential for it to be taken in an appropriate manner. Although many advances were seen the meeting, it was already clear that there would be no new developments in terms of a free trade accord, said professor of international relations Paulo Vizentini at the Federal University of Rio Grande do Sul.. "After the Sep. 11, 2001 terrorist attacks (in New York and Washington), economic negotiations were pushed to the backburner by discussions on international security. For example, the negotiations on the FTAA (Free Trade Area of the Americas) and in the WTO (World Trade Organisation) have ground to a halt. That is why we already knew what would happen here," Vizentini told IPS. Nevertheless, concrete accomplishments were seen in certain areas. According to Rogelio Golfarb, president of the National Association of Automotive Vehicle Manufacturers, which participated in the summit activities in representation of Brazil's business community, good opportunities for business complementation emerged. Brazil and South Africa adopted a three-year pilot project for the export and import of cars and spare parts. At the same time, Brazil and India agreed on the sharing of alternative technologies. "All of this is complementation," Golfarb told journalists. "South Africa specialises in luxury automobiles, and Mercosur is strong in the production of compact cars. India expressed great interest in the production of ethanol fuel (produced from sugar cane) and biodiesel, and Brazil expressed interest in Indian techniques for producing wind and solar energy." "But we need things to move rapidly, because the global market is very competitive. That is why new meetings have already been scheduled for next month, and I believe that these business ventures will be up and running by late 2007," he added. The summit was also a good opportunity for the three countries to stress their points of view on the resumption of the WTO Doha Round of multilateral trade talks, and on U.S. Security Council reform to incorporate permanent and rotating members from Latin America, Asia and Africa. Indian Prime Minister Manmohan Singh said the usefulness of IBSA in the international community was clear in the leadership role that the three countries played in the Group of 20 (G20) developing nations in the WTO negotiations. The members of the G20 are pushing for an end to trade-distorting agricultural subsidies and the protectionism exercised by the industrial powers. Parallel to the summit, an academic seminar brought together university professors from the three countries, with the aim of forging closer cultural ties.
"The seminar served as ammunition for the summit of heads of state and government. Among the range of issues that were discussed, a proposal emerged to create a news agency dedicated to the three continents where the IBSA countries are leaders," the organiser of the seminar, Jer- nimo Moscardo, president of the Alexandre Gusmão Foundation, told IPS. "We saw that we had much in common, but that the lack of information about our countries is still a barrier for more effective interaction," he said. A second IBSA summit will be held next year in South Africa, although the precise dates have not been set.

India, a Strategic Partner 

Deputy President Phumzile Mlambo-Ngcuka says India is a key strategic partner for South Africa. The Deputy President said this while addressing a business forum September 10, the first day of her four-day official visit to the sub-continent. There to strengthen economic linkages between the two countries through business and governmental co-operation. Together with Brazil, South Africa and India are members of a treaty known as the India-Brazil-South Africa (IBSA) tri-lateral agreement. "Our political and economic relations are sound and are based on mutual respect and concern for each other's development. "The strength of our economic relations is illustrated by the South Africa/India Chief Executive Officers' (CEOs) forum that has been in existence for the past two years," explained Ms Mlambo-Ngcuka. The forum aims to smooth working relations and to create a conducive business environment between the two countries. She also placed emphasis on the importance of IBSA, saying it sought to "define a common economic democracy for all three developing states". "We share the same vision of democratic and economic freedom for our people, and indeed we are all driving programmes that will ensure that our economic growth is shared by all our people," the deputy president said. Total trade between SA and India in 2005 saw a considerable increase from 2004. Exports increased by 100 percent, while imports increased by 55 percent, and thus making India South Africa's 13th largest trading partner - in terms of both exports and imports. The increase in trade could be attributed to growing mutual awareness among the two countries, about each other. In addition, India is among the top 10 countries investing in South Africa, estimated to the value of R10 billion. Among the Indian companies with investments in South Africa are TATA, Mittal Steel and Sahara. TATA has also boosted South Africa's Joint Initiative for Priority Skills Acquisition (JIPSA) by taking seven more trainees into a training programme that commenced earlier this year with 15 trainees. "You have been given this opportunity to learn from this experience. We know that you will be good ambassadors for our country and will contribute to the growth of South Africa upon your return. It is an opportunity many others would have liked to have. So make the best of it," the Deputy President told the trainees. Ms Mlambo-Ngcuka is scheduled to meet, among others, various Indian CEOs with a specific focus on tourism, metals and mining, IT and Business Process Outsourcing, Banking and Finance, pharmaceuticals, jewellery, agro processing and South Africa's business in India.

France and South Africa Sign R3 Billion Agreement On Development Projects

South Africa and France have signed a partnership agreement, setting out development projects between the two countries worth R3.1 billion. Deputy Finance Minister Jabulani Moleketi signed the Framework Charter for Partnership in Paris September 11, with his French counterpart Brigitte Girardin. The Deputy Minister visited following a visit to South Africa by Ms Girardin in April when the draft was first discussed. South Africa's Foreign Affairs Minister Nkosazana Dlamini Zuma expressed gratitude to France at the time for helping South Africa deal with power problems at the Koeberg nuclear power station. This followed a series of power blackouts in Cape Town and in other parts of the Western Cape caused mainly by a damaged electricity generator at the Koeberg station. Replacement parts acquired from Electricite de France (EDF) include a rotor and stator bars to replace damaged ones. The Framework Charter Partnership sets out development projects for the next four years in the fields of service delivery, support for small and medium enterprises (SMEs), job creation and energy efficiency. The partnership agreement was drafted in close partnership will all South African stakeholders and mirrors the priorities set out by the South African government. "We see South Africa as a strategic partner, both willing and able to contribute to African development and the resolution of crises on the continent," Ms Girardin said at Monday's signing. The French Embassy in South Africa said through the Agence Française de Développement (French Agency for Development), the country provided funding for development in several countries. The French government's development relations with South Africa date back to 1994. Through the AFD, the French government in partnership with the Development Bank of South Africa (DBSA) has supported projects worth more than R3.2 billion over the past five years in fields including the provision of affordable housing, basic utilities, support for the productive sector, and capacity building. Other recent examples of commitments undertaken by the agency include an agreement with the city of Johannesburg in August to finance the improvement of Soweto's water-supply worth 40 million Euros (360 million Rands) and an agreement worth 6 million Euros (54 million Rands) with Durban to capture methane emissions from a rubbish dump and produce electricity.

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LAND REDISTRIBUTION

UK and Belgium Back Land Reform Programme With R70m

The United Kingdom (UK) and Belgian governments have vowed to support the South African Land Reform Programme, jointly contributing R70 million in this regard. British High Commissioner to South Africa Paul Boateng and the Belgian Ambassador to South Africa Jan Mutton donated R70 million towards the programme September 20. The two governments also signed a memorandum of understanding, committing to help make the programme a success. "This programme will specifically address land restitution claims and focus on helping the South African government support new land owners and beneficiaries," Mr Boateng said. The lack of necessary skills among new land owners to keep their land economically productive has been identified as one of the challenges facing the land reform programme in the country. However the South African government has put measures in place to address the challenge. Government has emphasised time and again the importance of forming strategic partnerships with farming experts to transfer skills and to build capacity among new land owners. Among other measures, a training and close monitoring process is also observed to ensure that beneficiaries make the most of their returned land. Mr Boateng said the land reform process in the country and the principles that underpinned it were an important potential force for political stability and rural economic growth. "The Belgium and UK governments have been long term supporters of land reform but this will be the first time that such a joint partnership is formed," Mr Boateng said. He said the support demonstrated international donor's commitment to deliver a better aid in areas where they have a common interest to ensure that there was a bigger and positive impact on the poor. This, he said, was in line with the draft European Commission Country Strategy Paper, which commits donors to work more closely together to make aid to South Africa more effective. The Commission on Restitution of Land Rights, which was established following the amendment of the Restitution Act of 1994 to provide equitable redress and restoration of land to communities dispossessed of it due to past racial discriminatory practices, is on the verge of completing its duties. Up to thus far, out of some 79 696 land claims lodged by the cut-off date of December 1998, 72 927, including 64 748 urban and 8179 rural have been settled. This means that the Commission has settled up to 92% of claims lodged. The 6 769 outstanding rural claims which involve largely farmland and conservation land are now being fast-tracked to meet the March 2008 deadline. Through this programme of returning land to those dispossessed of it during the apartheid regime, government aims to contribute towards the equitable redistribution of land in the country, among other things. With regard to the entire land reform programme, government has managed to distribute 4 percent of land to blacks. It aims to transfer about 30 percent to black by 2014.

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MANUFACTURING

Mboweni Blasts Decision to Cut Imports From China

Reserve Bank governor Tito Mboweni put the boot into government over protection for the textiles sector September 22, saying the sector did not have a "dog's chance in hell" of being competitive, with or without protection. His comments to Parliament's finance committee give the lie to government claims that restrictions on Chinese clothing imports from next year are a short-term measure to give the sector the breathing room it needs to become competitive. "Since 1994, we've been trying to get the textile industry to be competitive. If, after all these years, we're still not competitive, we have no dog's chance in hell of being competitive," he said. Clothing retailers are outraged at the quotas, which will limit their imports from China from January 1, and have warned that they will push prices higher and cause stock shortages. The restrictions were due to come into effect this month, but were put off until next year after retailers objected. Not only were the quotas pointless, Mboweni warned, but they made no economic sense and could backfire. SA had done very well to align itself closely with emerging economic powers such as Brazil, India and China, which were expecting economic growth this year of 5%, 7% and 10% respectively. "So we can see that these countries we have arranged strategic alliances with, both politically and economically, are growing at a fast rate, which should benefit all of them in one way or another," Mboweni said. But if SA started banning their exports, they could do the same to SA's, which would be detrimental to the economy, he said. "There is a presumption that when people say we must stop buying goods from China by official decree, they are really saying China must stop buying from us by official decree, or Brazil must stop buying from us by official decree. "Because you can't say you must stop buying goods from China, but China must continue to allow you to export to it. This is illogical; it makes no economic sense whatsoever," he said. "And so, with the current growth prospects in China, and the greater demand in China for commodities, this means that SA should benefit if we are able to take advantage of the Chinese market by exporting to China the commodities which we have, but which it does not have." Imposing clothing quotas on China as a short-term method of protecting the domestic textiles industry was oversimplifying the issue, Mboweni warned. "It is not China only. China is just a proxy for Vietnam, Thailand, and other states. So, if you want to have a quota system, it has to be for those other countries as well." SA should accept that its textile industry was not competitive and focus on the sectors which were, Mboweni said, citing the example of Malaysia, which had dropped protectionism of its textile industry and trained people for its highly successful service sector instead. With Sapa

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MINERALS AND METALS

Iron-Ore Price Rise May Be Up to 10 Percent

Iron-ore price negotiations next year were likely to result in a settlement between a rollover of current prices to an increase of about 10%, Numis Securities analyst Simon Toyne said in a report September 19. Iron-ore price negotiations are critical to South African producers such as Kumba and Assmang, which are relatively small in global terms but significant companies to the JSE. SA's total iron ore sales in 2004 were worth R4,6bn, including R1,1bn sold locally, which made SA the eighth-largest iron-ore producer in the world, according to Chamber of Mines figures. Toyne said the latest statistics on Chinese production supported his view on price settlements. They showed Chinese crude steel production rose 18,6% to 272,5-million metric tons in the eight months to August compared with the same period last year. While China's own iron-ore production was growing rapidly, taking away some of the supply previously met from imports, this production was of low grade compared with Australian and Brazilian iron ore. It was also being mined from small, deep mines with high levels of pollutants, and the Chinese government was discouraging such operations. Longer term, the trend of situating large blast furnaces on the coast of China would spur imports of iron ore rather than high-cost, low-quality domestic products, Toyne said. These trends favoured companies such as Rio Tinto and BHP Billiton, with substantial exposure to the sector. In a separate report, Morgan Stanley chief economist Stephen Roach said the rush to commodities as a financial asset had taken on a life of its own. A recent study had suggested that commodities should have a weighting of 30% in a diversified, balanced investment portfolio.

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MINING

Anglogold $58m Russian Mining Alliance

Global gold miner AngloGold Ashanti has advanced its plans to build an exploration portfolio in Russia by entering into a strategic alliance initially valued at $58m (about R428m) with Russia's second-largest gold producer, Polymetal. The group said in a statement September 21 that it had entered into a 50:50 alliance with Polymetal and terminated its exploration alliance with Eurasia Mining over Eurasia's Chita and Buryat regions of Russia to avoid any conflict of interest. In its latest annual report, AngloGold said it was exploring a number of avenues to build an exploration portfolio, including an alliance with strategic local partners. AngloGold also had a technical consultancy agreement with, and representation on the board of, Trans-Siberian Gold, which is developing the Asacha and Veduga projects. According to Trans-Siberian Gold's website, Russia is the fifth-largest gold producing region in the world and is considered underdeveloped for gold mining. The country has been comprehensively explored by the state over many years but mining has been only seasonal and alluvial. Since 1998 changes to regulations, export duties and reductions in taxes and royalties have improved the operating environment. AngloGold said it had offered to acquire all of Trans-Siberian Gold's interests in the Veduga and Bogunay projects for $40m and if the offer was accepted, it would contribute these assets to the Polymetal venture. Trans-Siberian's board has recommended the offer to its shareholders and plans to use the proceeds to develop its Asacha project. AngloGold executive officer for corporate affairs Steve Lenahan said AngloGold retained its 29,9% stake in Trans-Siberian Gold, which meant it would still hold an interest in Asacha. In addition, Trans-Siberian's acquisition of the Kamchatka-based exploration company Sigma, announced September 21, would result in AngloGold holding an interest in a more regionally focused entity. Both Veduga and Bogunay are in the Krasnoyarsk region of western Siberia. Veduga is an advanced-stage exploration project which is at pre-feasibility study stage, with a measured and indicated mineral resource of 1,92-million ounces of gold and an inferred mineral resource (which means there is less certainty it can be mined economically) of 871000 ounces. Bogunary is an early-stage exploration project. Apart from these projects, the strategic alliance will also embrace two greenfields exploration companies, one in the Chita region and one in the Krasnoyarsk region, currently held by Polymetal. These contribute a value of $16m to the alliance and Polymetal will also make an initial payment of $12m to AngloGold Ashanti, which means that each partner will hold a stake worth $28m in the alliance. The alliance will cover three areas. In the "exclusive" areas, which is all of Russia east of the Ural Mountains, the partners will only pursue gold mining opportunities through the alliance, unless the alliance declines to pursue the opportunity. In that case, the partner that proposed the opportunity and supports it can pursue it alone. In nonexclusive areas, including Sverdlovsk, Kamchatka and Irkutsk, there is no restriction on either of the partners pursuing gold mining opportunities that arise. In "other areas", which is almost all of Russia west of the Ural mountains, either party can pursue a gold mining opportunity independently but not with a third party or in a consortium unless the alliance declines to participate. Lenahan said Russia was potentially an important region for AngloGold, although it was impossible to rank exploration activities in order of importance.

Gold Industry Consolidation

The consolidation of the SA gold industry looks pretty much over after Gold Fields stamped its claim on South Deep mid-September. But there could be one final flurry which could see Gold Fields and AngloGold Ashanti involved in a takeover battle or a merger. "There is real potential for further consolidation. Any move involving AngloGold Ashanti and Gold Fields is unlikely to be hostile. I think it would more likely be a meeting of minds," said an industry source. In May, AngloGold Ashanti chief executive Bobby Godsell, when asked about the firm's merger and acquisition strategy, said: "If merger and acquisition opportunities crop up and offer the chance to get ounces for real value, hopefully we will take them. Major gold companies speak to each other all the time." Steve Lenahan, an AngloGold Ashanti spokesman, was asked if AngloGold would still be interested in further consolidation opportunities in South Africa, specifically in terms of Gold Fields and South Deep. He said: " I would simply repeat what Bobby said about our focus on value-enhancing transactions, no matter where they might be." One fund manager suggested AngloGold, which has been selling assets in South Africa over the past few years, was unlikely to want to invest in more SA gold ounces, given that foreign investors had shown wariness about the country's deep-level mining. Lenahan rejected this. "This is patently not so; not only are we achieving the best cost management results among the SA producers [at about R60000/kg], we also effectively have five major projects at various stages of development in South Africa which will substantially lengthen the lives of these operations. This is not the hallmark of a firm seeking to exit the country." Gold companies are keen to add reserve ounces, and in AngloGold Ashanti's case, there could be another driver for a big deal. There has been speculation it may be keen to see Anglo American, which has stated that it wants to sell its gold assets, reduce its stake further through the dilution a major takeover would bring. A merger of Gold Fields and AngloGold Ashanti would create the world's largest gold company, with production of about 10.5million to 11million ounces a year at current output. John Munro, executive vice-president for corporate development at Gold Fields, declined to comment on the specifics of any possible further consolidation in South Africa. "If you look at the global gold industry, consolidation is stepping up a gear. This reflects that there could be a lot more action to come and this may involve South Africa one way or the other." Gold Fields said that, as part of a $2.5-billion investment to secure South Deep, it was buying Barrick Gold Minings' 50% stake in the mine for $1.5-billion. As part of the same deal, it has also entered into an agreement with JCI to buy its Western Areas shares, lifting Gold Fields' stake in Western Areas to 41%. This pretty much lays to rest the tussling between Gold Fields and Harmony for control of Western Areas' 50% in the massive South Deep mine. Harmony Gold CEO Bernard Swanepoel, who could not be reached for comment, has been reported as saying he may not accept the Gold Fields offer to Western Areas shareholders, believing that the terms are less favourable than those Gold Fields offered Barrick. Analysts, though, question whether Harmony would be wise, even for more money, to drag out the affair when the company has clearly been out-manoeuvred by Gold Fields. Harmony could, perhaps, put the money it has in Western Areas shares to better use elsewhere. By the time the Gold Fields' offer to Western Areas shareholders is settled (most likely sometime in December), Neal Froneman, CEO of Aflease Gold and SXR Uranium One, will hold about 5% of Western Areas through its stake in Randgold & Exploration. Earlier this year Froneman stated a fair value for Western Areas' shares was about R50 a share. "With a face value of R52, the transaction looks good," said Froneman. He added, though, that acceptance would depend on the share price on the day of settlement. "If it is much below R52 shareholders are not going to be happy."

De Beers Buys More African Diamonds

Diamond giant De Beers had bought another 1,22-million shares in diamond exploration company African Diamonds for £2,1m to raise its stake to 5,96%, African Diamonds said September 20. The deal is insignificant in relation to the size of De Beers but underlines the group's interest in African Diamonds' findings, particularly in Botswana. De Beers has a policy of partnering junior mining exploration companies in various countries, including Cratonic Resources, Firestone Diamonds, Mvelaphanda Resources and Tawana Resources. African Diamonds, which is listed on London's Alternative Investment Market (AIM) and the Botswana Stock Exchange, has diamond exploration activities in Botswana, Sierra Leone and Guinea. Three years ago African Diamonds and De Beers entered a joint venture to explore properties in Botswana, with priority given to areas around De Beers' Orapa mine, where there are 21 known kimberlites. Kimberlites are carrot-shaped geological structures known to hold diamonds but it is extremely rare for them to be economically mineable. Ownership of the joint venture is 49% African Diamonds and 51% De Beers, with De Beers funding exploration up to a bankable feasibility study, on completion of which De Beers' stake will rise to 70%. In a presentation in March, African Diamonds management said its AK6 discovery was likely to be the next high-value diamond mine in Botswana. The AK6 kimberlite pipe is estimated to contain 59-million metric tons of diamondiferous ore at a grade of 30 carats-plus per 100 tons and a value of about $180 a carat. The partners are busy with second-phase large-diameter drilling as well as geological, metallurgical, processing and financial studies. De Beers GM for group exploration James Campbell said in a presentation to the Westwind Partners Diamond Conference in May that the pre-feasibility study phase at AK6 should begin in the second quarter of next year and would take nine months. A feasibility study would take a further nine months.

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PROPERTY DEVELOPMENT

Dubai-Led Group R7 Billion Cape Town Development

Istithmar, the investment arm of the government of Dubai, and UK-based property giant London & Regional Properties beat nine other high-profile bidders to buy the V&A Waterfront for more than R7bn, the biggest single property transaction yet in SA. The successful bidders, who clinched the deal with the aid of a high-profile black empowerment consortium, aim to turn the prime seafront property, which attracts more than 22-million visitors a year and covers 603859m' of development rights, into Africa's Riviera. London & Regional will hold 50,1% of the shareholding in a new controlling company, Lexshell, while Istithmar will have a 24,8% stake and a broad-based group of black investors the remaining 25,1%. Among the failed bidders are Canadian property investment fund Cadillac Fairview, the investment arm of the Ontario Teachers' Pension Fund, Old Mutual SA, which did the valuation on the V&A, a consortium of RMB, the PIC and Liberty International. Others who missed out include the Chait property group and Wendy Luhabe, who previously tried to buy the V&A, and Hyprop, which dropped out early. The sale was announced by Transnet chairman Fred Phaswana, naming the biggest empowerment shareholding as DIH, the holding company of Decorum, a private equity concern with 12,7%. Decorum is headed by Arthur Mashiatshidi, who manages the R564m New Africa Mining Fund. Another empowerment shareholder is the Western Cape Women's Investment Alliance (6%), led by Roxanna Adams. Among the broad-based empowerment participants (6,4%) are Kgontsi Investments led by Dren Nupen, and which includes as its shareholders Nomusa Mufamadi, the wife of Provincial and Local Government Minister Sydney Mufamadi. Some of the empowerment entrepreneurs involved as investors are Vincent Maphai, chairman of Billiton SA; Jabu Mabuza, chairman of SA Tourism; Luyanda Mpahlwa, brother of Trade and Industry Minister Mandisi Mpahlwa, and Hassen Adams. Phaswana said the sale was part of Transnet's drive to dispose of noncore assets as it seeks to become a focused rail and logistics entity. The proceeds from the sale would also bolster Transnet's various pensions funds, which were shareholders in the V&A, and go towards funding Transnet's R64bn infrastructure expansion drive. Mahmoud Saleh, secretary-general of Dubai World, which is owned by the ruling al-Maktoum family, said the purchase would send a strong signal to global countries to attract tourism and investment to Cape Town, especially in the light of the 2010 Soccer World Cup. He said it was the intention to transform the V&A Waterfront into an African Riviera. James Wilson, CEO of Nakheel Hotels and Resorts, and part of Istithmar, who represented the L&R consortium consisting of London & Regional with main shareholders brothers Richard and Ian Livingston and Istithmar, said he saw no major changes being made to the landscape of the V&A. He said there would be improvements made through the use of the world's top architects. He said the intention was to bring more interests and funds to develop the V&A, but felt it was unnecessary to change something that "is already successful".

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