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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: 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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