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SOUTH AFRICA

Books on South Africa

Update No: 063 - (11/04/07)

An Embarrassing Neighbour
Signs of division are growing in the ruling African National Congress over the crisis in Zimbabwe, after a government reaction repeating its 'quiet diplomacy' theme and a mild ANC statement expressing "concern". Others have expressed "grave concern" over the current situation in Zimbabwe, saying that torture, assault and acts of violence against any citizen cannot be condoned. Under fire for failing to speak out on human rights abuses in Zimbabwe, the South African government issued a cautiously worded appeal for its neighbour to respect the rule of law March 13. In a statement issued in Pretoria, Aziz Pahad, the deputy foreign minister, also called on Zimbabwean opposition leaders to help create "a climate that is conducive to finding a lasting solution" to the crisis there. Earlier, both the Congress of South African Trade Unions (Cosatu) and the Democratic Alliance were reported to have criticised the government's policy, which they view as too lenient towards the government of Zimbabwe. Democratic Alliance leader Tony Leon was quoted as saying President Thabo Mbeki had "all but given up trying to resolve the conflict" in Zimbabwe.

On March 11, the Zimbabwean state began a blitz, capturing and torturing key church, civic and opposition leaders at a prayer meeting in Harare. There was unprecedented international reaction to the beatings inflicted by the Zimbabwe police on members of the opposition including the leader of the Movement for Democratic Change, Morgan Tsvangirai. The United States condemned the action as ruthless and repressive, while the British government called for the upping of pressure on officials close to President Robert Mugabe. The chairman of the African Union, Ghanaian President John Kufuor, insisted that the AU was trying hard to resolve the crisis. For seven years South Africa has been actively ignoring Zimbabwe. The insistence that the Zimbabwe crisis is an internal affair that must be resolved by Zimbabweans makes a mockery of the efforts of Zimbabweans who have marched and protested day after day for the past decade. If Zimbabweans had said this to South Africans during apartheid, those who stood for peace and justice would have treated them with the contempt they deserved.

Zimbabwe - Economy in Meltdown, Bank Chief Warns
Amid continuing brutal attacks on the government's opponents, Zimbabwe's Reserve Bank governor has admitted for the first time that the economy is in meltdown - and opposition leader Morgan Tsvangirai says the crisis is "at tipping point". With the World Bank predicting inflation of 4000% by the end of the year, bank chief Gideon Gono said unless political manipulation and corruption of the economy were halted, the consequences would be "too ghastly to contemplate". Gono, a favourite of President Robert Mugabe, writes: "If we continue with this casual and sometimes selfish approach, we risk subjecting the majority of our people to continued suffering under the inflationary yoke, foreign currency shortages, transport hardships, inadequate pay levels, shortage of basic commodities, parallel market operations and negative growth." He warned: "Unless the problem is addressed, the country can kiss goodbye to any hopes of recovery over the foreseeable future." Tsvangirai, in a phone interview with the BBC, said Zimbabwe was facing a critical time that could see the end of President Robert Mugabe's "dictatorship". "Things are bad," he said. "But I think this crisis has reached a tipping point, and we could see the beginning of the end of this dictatorship in whatever form." The German presidency of the EU expressed "outrage" over the assault on Nelson Chamisa, public information officer of the MDC, who was clubbed with an iron bar at the entrance to Harare airport. Australian Prime Minister John Howard accused South Africa of not doing enough to try to resolve the crisis. And his government is to hold talks with cricket authorities about calling off the scheduled tour of Zimbabwe. The state-run Herald news-paper reported that Tsvangirai, MDC faction leader Arthur Mutambara and 40 other opposition activists arrested were barred from leaving the country until their cases are heard. Two injured members of an MDC faction, Grace Kwinjeh and Sekai Holland, were arrested as they were about to fly to South Africa for medical treatment. The Herald reported an official denial that police had stolen and buried the body of Gift Tandare, the activist who died after an attack on an opposition rally.

Engaging With AIDS
South Africa has launched an ambitious five-year plan to combat Aids, as new research suggested 1,500 citizens were infected with HIV every day. The government aims to halve infections by 2011, extend its anti-retroviral drug programme, and raise awareness. The plan was broadly welcomed by Aids activists as a significant turn-around from past policies, which they say failed to address the epidemic. South Africa has one of the world's highest HIV infection rates. When South Africa's Deputy President Phumzile Mlambo-Ngcuka presented the country's new strategy for combating Aids, she was facing a potentially hostile audience. Aids activists have longed accused the government of under-playing the threat of the epidemic, and diminishing the value of anti-retroviral drugs. Under the plan, the government aims to change the behaviour of young people most vulnerable to HIV infection, to dramatically extend its anti-retroviral drug programme, and to cut new infections by half by 2011. The minister released her plan as a study by the Human Sciences Research Council suggested that young women are particularly vulnerable. Up to 40% of women aged between 25 and 29 are HIV-positive, and for youths aged between 15 and 24, females accounted for 90% of all recent infections. South Africa has 5,4-million people infected with the disease. Key five-year targets also include ensuring 70% of adults have an HIV test at least once in their lifetime; getting anti-retroviral medicines to 80% of the adults who need them; and providing treatment to at least 45000 children. By 2011, 95% of pregnant women should be tested for HIV, and 90% of their babies should be screened for HIV at six weeks. The plan also says 90% of all TB patients should be tested for HIV by 2011, and vice versa, as people infected with HIV are particularly vulnerable to TB.

Draft Aids Plan Hailed As Far-Sighted but costly
Legalising commercial sex work, programmes against alcohol and drug abuse, subsidies for people who adopt orphans and food support for HIV positive moms who breastfeed exclusively are some of the innovative new interventions contained in government's draft plan to fight HIV/AIDS. The new HIV/AIDS national strategic plan for 2007-2011 was debated in the most representative HIV/AIDS meeting ever held in the country, March 14. Deputy President Phumzile Mlambo-Ngcuka opened the meeting together with health officials, trade union leaders and world health authorities. Mlambo-Ngcuka, as head of the SA National AIDS Council (SANAC), and deputy health minister Nozizwe Madlala-Routledge have been driving the development of the plan. This is the final consultation before the plan is adopted as government's official strategy for the next five years. The primary aims of the plan are to halve the number of new HIV infections and to offer treatment, care and support to 80% of all people with HIV within five years. The latest draft, dated 12 March, is far more comprehensive - and expensive - than the one released in October last year and rejected as lacking in ambition by the Treatment Action Campaign. Virtually all obstacles to HIV prevention, treatment and care have been identified and steps to address these have been laid out. Young people between 15 and 24 are identified as the priority target group. The down side is that the much expanded plan may exceed the entire health budget by 20% - and cost up to R45-billion. By far the biggest cost is antiretroviral drugs (40%) followed by support for orphans and children affected by AIDS (7%). "It's one of the most far-sighted strategic plans on the globe at the moment," according to the AIDS Law Project's Mark Heywood, who has been working flat-out with government to refine proposals and targets. But it is in response to a very grim situation. The plan acknowledges that there is a "generalised HIV/AIDS epidemic" affecting over one in ten people (11.2%) in the country. Unlike the previous five-year plan, implementation of the new plan will be closely monitored every six months by SANAC and there will be a mid-term review in 2009. - Health-e News Service.

Mbeki on Racism
President Mbeki has launched a vehement attack on anti-crime campaigns which he claims are a result of "deeply entrenched racism". Writing in ANC Today, the president said there was still a significant proportion of white South Africans who continued to live in fear of blacks, especially the African majority. 
Repeating what he had written in 2004, Mbeki said the "fear factor" had always been a feature of white politics in South Africa. He said "the demon of racism" remained a daily feature of South African life that needed to be "confronted openly and on a sustained basis" to achieve a non-racial society. The ANC has also criticised the BBC for its coverage of crime in South Africa. "It is perfectly obvious that the BBC report in question was composed in a manner that sought to suggest the existence of a mass national revolt against our government on the issue of crime," said Mbeki.

Employment Growth
Employment in medium to large privately held businesses in South Africa grew 7% last year, according to a report released by Grant Thornton March 26. This is four percentage points up on last year's findings, which reflected only a 3% growth as a result of hampered employment growth within the manufacturing sector. In 2005, Grant Thornton's employment growth index showed 6% year-on-year growth in employment in South Africa. Grant Thornton SA chairman Leonard Brehm said March 26: "Growth in employment is the best news we could ask for. It appears that we are well past the years of jobless growth. The index forms part of the Grant Thornton international business report. The research was carried out among the owners of 7200 medium to large privately held businesses in 32 countries, including 200 in SA, between November and December last year. The major industry sectors in South Africa all reported an increase in employment. For the second year in a row, the construction industry reported a significant employment increase, with 13% growth, up from 11% previously. The manufacturing sector, which previously recorded a 3% decline in employment growth, now reports year-on-year growth of 5%.

Zille Pledges Shake-Up As She Enters DA Leadership Battle
Mayor Helen Zille stepped into the battle for the leadership of the Democratic Alliance (DA) March 15, pledging a complete overhaul of the party's top ranks and a transformation of leadership style. Zille announced her intention at a function of the Cape Town Press Club, saying she would not relinquish her position as mayor of the city if she won the leadership contest. She said that after months of intensive work on a new "co-ordinated management plan" for the party, which links the party leadership with her present position as mayor, she would be able to manage both jobs. Zille's announcement brings to an end months of speculation about whether she would contest the leadership of the DA. Federal chairman Joe Seremane has already thrown his hat into the ring in the race to replace leader Tony Leon when Leon leaves in May, as has Eastern Cape DA leader Athol Trollip. Zille said her decision to stand was a result of requests and pressure on her that came from all quarters to make herself available for the DA's top job. She "was placed under enormous pressure following a decision in December not to contest the leadership position". "After the past two months of persuasion, encouragement and persistence, and working through management models", she said she had decided it would be possible to combine her executive mayorship of the DA-led multiparty government with that of leader of the DA. "I'm not stepping down as mayor," said an adamant Zille. Zille is fast emerging as the iron woman of the party, having led a coalition government in Cape Town for more than a year. She has managed to prevent the coalition's downfall in the face of immense pressure from the African National Congress and, initially, the Independent Demo-crats in the past year. She has since taken on board the Independent Democrats as coalition partners in the city. She said she had discussed her new management model, which provides for a strong DA parliamentary leader and a strong CEO to manage the party, at various levels within and outside the city, as well as within her party structures. Zille had already informed the DA leadership about her intention to stand. She said she did not know who the parliamentary leader would be, as the DA caucus would elect that person. Cape Town would be her base "if she won the party leadership race". Zille said there would be "more faces and heads" involved in co-ordinating her "collaborative structure" for the party. Her priority would be to get the management model working and implement the DA's plan to reposition itself ahead of the 2009 election. Top of her personal agenda as national leader would be to retain the DA's electoral base. Her next task would be to win Western Cape, presently in ANC hands, and another would be to win back the votes the DA lost in KwaZulu-Natal -- "mostly Indian votes". The "fourth priority" would be to work hard to grow the DA's black support. "This will be challenging, as will be doing all of those things at the same time," said Zille. Her new structure for the DA provides for a DA satellite office in the council that links closely with the mayor's office through an electronically linked diary system between Parliament and DA structures. The satellite office would ensure the mayoral office remained apolitical, Zille said.

EU to Contribute Over R9 billion for South African Development
The European Union (EU) is to contribute more than R9 billion for its development programme in South Africa over the next six years. The development programme set to take place between 2007 and 2013 is, however, still being finalised between South Africa and the EU, Director-General of South Africa's Foreign Affairs Department Ayanda Ntsaluba, said March 29. It will be aligned to some of the pressing challenges currently facing South Africa including skills, support for Small Micro Medium Enterprise (SMME) development and strengthening the capacity of institutions in South Africa. Dr Ntsaluba met with the EU's Director-General for Development Stefan Manservisi to launch negotiations around the renewal of the Trade and Development Co-operation Agreement (TDCA) between South Africa and the European body. The agreement was signed in 1999 after about five years of negotiations, after which it was provisionally applied from January 2000, Dr Ntsaluba explained. It entered fully into force on 1 May 2004 after being ratified by all members of the EU, a process which was completed in April 2004. The agreement builds the SA-EU partnership on five pillars: political dialogue, trade, development co-operation, economic co-operation and co-operation in other areas. Dr Ntsaluba said South Africa valued the broad scope of co-operation with what essentially was the country's most important trading partner - the EU. He pointed out that the EU accounted for almost 40 percent of South Africa's imports and exports and that last year alone the EU's foreign direct investment (FDI) into South Africa amounted to over R44.5 billion (€4.6 billion). The director-general explained that the parties, at the time of the TDCA's conception, built into it a compulsory mid-term review after five years of operationalisation of this agreement. "Despite initial delays, we have, in the last few months informally exchanged views and we are pleased to today officially launch the TDCA review process. "We have already made substantial progress in negotiations regarding texts and trust that the TDCA will soon reflect the depth of relations that has led us to begin discussing the establishment of a Strategic Partnership between the EU and South Africa," Dr Ntsaluba said. He added that both parties had identified the potential for broadening their co-operation through the review of the TDCA and had therefore seized the opportunity to discuss issues of global concern, including the Millennium Development Goals (MDGs). "We will after this session, discuss issues involving the African agenda, non-proliferation and development co-operation," said Dr Ntsaluba, adding that they were preparing for a meeting of the Ministerial Troika of the European Union with South Africa to be held in May. Director-General Manservisi committed the EU to continue to be active in assisting South Africa with its development. He said with the new financial assistance the EU was providing, South Africa would become one of the five top assistance recipients from the EU. At the end of the current implementation of the agreement, 95 percent of South African goods will enter the EU duty free and around 80 percent of the EU's goods will be exempt from duties when entering South Africa, explained Mr Manservisi. "We are already well advanced and I am confident that our relations can be strengthened and further opportunities created for the region," he said. In terms of trade, the relationship is conducted within the context of SADC and Economic Partnership Agreement (EPA) where we agreed to negotiate with South Africa. "I think this is an important negotiation also for the development of the region. It therefore transcends the bilateral relationship," he said.

MPs, World Bank And IMF Mull Poverty Reduction
A network of international parliamentarians has heard Africa needs two to three decades of sustained economic growth to make a substantial dent in the level of poverty on the continent, writes Shaun Benton. Finance Minister Trevor Manuel impressed upon international MPs meeting in Parliament mid- March the need for a system of improved global governance that is representative and effective. This, as the effects of world economic integration reach deeper into the social, economic and political lives of billions of people. The MPs were gathered in Cape Town as part of the annual conference of the Parliamentary Network on the World Bank, which was hosted by South Africa's Parliament, making it the first time that this gathering of MPs and officials from the leading international financial institutions had met outside of Europe. Created in 2000, the Parliamentary Network on the World Bank is an independent and non-partisan network of 800 parliamentarians from 110 countries concerned at fighting poverty and promoting transparency and accountability in development, providing a platform for policy dialogue and officials from the World Bank and IMF. Also present was the president of the World Bank, Paul Wolfowitz, and the managing director of the International Monetary Fund, Rodrigo de Rato, who joined Mr Manuel in a panel discussion on economic issues facing Africa and the developing world and the role in this of the international financial institutions (IFIs). In a wide-ranging speech that appeared to be well-received by the delegates who ranged from as far afield as Paraguay and the Philippines, Mr Manuel also emphasised the need for developing-country governments to continue creating fiscal space. This needed to be done through reducing debt service costs and other means, which would allow more resources to be spent social services and economy-boosting infrastructure. "Our multilateral institutions have tended to dissuade us from focusing too much on fiscal space issues, but I think it is critical to moving African economies and governments from a condition of dependence to one of independence," Mr Manuel said. "It's very important that elected governments - and with all the elements of democracy - can account to their people for their decisions - it's fundamental to sustaining peace in the world." Recently, many African governments including South Africa have recorded surpluses or moderate deficits, said Mr Manuel. This ocurred in the context of Africa's economic growth averaging 5.2 percent last year. Mr Manuel said "the efforts of recent decades to improve governance needs to be strengthened, accelerated and made irrevocable, in large part by ensuring that we make major strides forward to improve global governance." Increased aid to Africa continues to support poverty alleviation as it creates new employment opportunities, said the Finance Minister, adding, however, that "the volatility and unpredictability of aid flows presents a significant obstacle to proper budgeting and quality spending". Aid to Africa, he said, began rising after the early 1970s, growing from 16 per cent of global aid in 1974 to 28 per cent in 1992. After this, however, the continent experience a sharp downturn in aid that lasted until 2000, followed by a recovery but one which has recently been affected negatively by wars in Iraq and Afghanistan, which have put pressure on donors to support redevelopment there. As a result, the share of aid going to sub-Saharan Africa declined, according to the Organisation for Economic Cooperation and Development, from 35 per cent in 2003 to 30 per cent in 2005. "I think one needs to take it a bit further and recognise that if the donor aid were driven to deal with deficits of the budgets, where there is public accountability for the way in which money is spent, the world could make very significant advances," Mr Manuel said. International development aid should be raised substantially higher, he said, reminding delegates that agreements on international partnerships - particularly North-South partnerships - made at a landmark international conference on financing for development held in Monterrey, Mexico in 2002, still need to be met. Another area where international co-operation needs to be deepened is in the multilateral forum governing trade. The collapse of the Doha "development" round of the World Trade Organisation is "a serious indictment on the intention of developed countries to increase market access to the developing world". Trade-distorting agricultural subsidies and other non-tariff barriers - practised largely in the north - remain "significant obstacles to increased trade between Africa and the developed world", said Mr Manuel. Half of the continent remains poor, said Mr Manuel, using IMF data to point out that Africa's aggregated gross domestic product (GDP) in 2006 was only about US$2 trillion. This compares poorly with India's contribution of US$4 trillion to world GDP of US$65 trillion, China's US$10 trillion share and the United States at US$13 trillion. On a per head basis, Africa's GDP based on a purchasing-power-parity comparison ranges from a low in US$645 in Malawi to a high of US$17 426 in oil-rich Equatorial Guinea, one of the oil-rich economies on Africa's west coast. The billions of dollars pouring into the continent from oil money has in turn raised concerns among the elected representatives, with Mr Wolfowitz later agreeing with one senator, that more transparency is required over the destinations of the US$300 billion in oil money that has poured into the continent in recent years.
A Danish MP later acknowledged the danger to Africans of the agricultural subsidies, asking whether, with 80 per cent of Africans engaging in subsistence agriculture, it was really to the benefit of consumers in developed countries to continue to see these subsidies in place. Mr Wolfowitz agreed that the agricultural trade subsidies "are hurting the poorest people in the world ... the people we care most about", and that they might not eventually be in the interests of people in the developed world. He added that US$260 billion is coming out of the pockets of consumers and taxpayers in the United States, Europe and Japan, saying the World Bank would do anything it could to help push "for more effective trade negotiations". He added that lack of accountability around oil revenues coming into Africa means these resources can "more often than not turn out to be a curse rather than a blessing", saying that a move towards getting all the oil companies and all the countries they operate in to declare what the revenues from oil are "would be a start". Mr Wolfowitz also suggested that MPs in developed countries could increase pressure for stronger legislation combating bribery, pointing out "every corrupt transaction has at least two parties" and that bribe-payers in multinational companies could be more effectively prevented from such actions. Mr De Rato of the IMF later said unless Africa's economic growth is actually accelerated over the next 10 to 15 years rather than sustained at current levels, "things will not change". If Africa continues to grow at its current rhythm it will not achieve the millennium development goals, "so the challenge is not small", the head of the IMF added.

Deal-Making in South Africa
Ernst & Young's latest mergers and acquisitions survey shows SA's deal-making industry continues to motor ahead, with the value of deals growing from R269bn to R284bn and the number of "mega deals" doubling to 14. Where black empowerment had been the big driver in previous years, private equity emerged as one key trend last year. Cross-border deal-making was another key driver -- more so if one takes into account the foreign money involved in several of the private equity transactions. Cross-border deals loomed large on the table of last year's mega deals. And the nature of the deals raises at least some questions about what's happening to patterns of investment into and out of SA. In a nutshell, a lot more capital is flowing out of SA by way of outward investments and dis-investment than is flowing in by way of foreign direct investment. It's just as well SA has been seeing such spectacular inflows of portfolio investment, into equity and bond markets, otherwise the capital account of our balance of payments might be in the red, just as the current account is. Fortunately, SA's well-developed financial markets and good economic fundamentals continue to put it up there with the largest emerging markets as a recipient of portfolio flows, and some would argue these are not as volatile as they once were. But on the direct investment front, we are, it seems, becoming an ever larger net exporter of capital. That's in line with a global trend where emerging markets are increasingly investing outwards, particularly in other emerging markets. And it's good for SA, too, that its companies are becoming ever larger and more influential players on the global stage. Most notable of these last year was cellphone operator MTN, which invested nearly R38bn in three offshore acquisitions, the largest of which was its R33,5bn purchase of Middle East and Africa cellphone group Investcom. That deal was the largest done last year. But the implications of the cross- border flows aren't always comfortable. Take disinvestment. Ernst & Young's survey shows the number of disinvestments from SA by foreign companies increased from 19 to 26, and the value from R5,4bn to R34,6bn. Much of that is in two mega deals in gold mining, with Barrick Gold selling its half of South Deep to Gold Fields, and Russia's Polyus cashing in its 20% of Gold Fields. Arguably, both deals were good for Gold Fields and indeed for SA's gold mining industry. South Deep did not fare well under its previous ownership and Gold Fields has the capital and expertise to develop it. Gold Fields wasn't core for Polyus (which came out of Norilsk Nickel), nor was this shareholding relationship ever a happy one. In that sense, the dis-investment trend in mining wasn't a bad thing. The problem is it isn't being countered by big new investments into SA's mining industry. And that's at a time when other resource-rich countries, in Africa and elsewhere, have been benefiting from huge flows of local and foreign investment. The Chamber of Mines has sounded the alarm about the regulatory burden and government seems to be responding. Hopefully, this year's investment figures will look a lot better. Outside mining, there were a few big foreign inflows last year, with foreigners buying into the V&A Waterfront, Illovo Sugar and Highveld Steel, but though the number of inward investment deals rose, total value declined to R18,4bn. Meanwhile, outward investment increased to R64,5bn, in 69 deals. The big picture question is what returns SA's economy will earn on those investments, long term.

Is Black Economic Empowerment Working? It's impressive!
Invented by South Africa's white controlled huge mining and finance corporations in the early 1990s, BEE as it is now affectionately called, is now a magic wand that can turn previously disadvantaged black politicians into instant millionaires. Whites in South Africa invented Black Economic Empowerment, you ask? The same people that invented apartheid! It may sound unbelievable but it happened. When Mandela came out of prison in February 1990, in the first public speech that he made, he restated his party, the ANC's, Manifesto, or Freedom Charter, which amongst other things advocated the nationalisation of the mines, the banks and other commanding heights of the South African economy. This understandably struck fear in the hearts of South Africa's white business oligarchs. So they tried to find a way to placate Mandela and his radical associates. After a time, they came up with Black Economic Empowerment. BEE looks deceptively like a form of reparation. By putting some ownership of companies into the hands of previously disadvantaged groups, it appears as a way of South Africa's rich whites, atoning for their sins of exploiting cheap black labour to dig for the fabulous diamonds and gold that South Africa is world famous for. The reality however is very different. It is a formula for co-opting - and perhaps even for corrupting - ANC leaders by enriching them as private individuals. The objective was to play on their weakness of many years of depravation in prisons and in exile by dangling in front of them unimaginable riches that would be given to them by the oligarchs, all for free. One of the first companies to implement the magic formula was Sanlam, the second largest insurance company in South Africa, which had been closely associated with the apartheid regime. It had a subsidiary, MetLife, with assets of several hundred million dollars - small change in Sanlam's world, but unimaginable wealth in the eyes of erstwhile black political activists who had spent much of their lives in jail. Sanlam helped obtain loans through a state bank to enable a number of key figures in the anti-apartheid movement, and leaders of other black organisations to buy shares in MetLife. Through further financial wizardry the black-owned shares were given a higher vote weighting than conventional shares, thus by owning a tiny portion of shares, the company could be controlled by the black shareholders. Needless to say once they controlled the company, the black shareholders paid themselves large sums in directors' fees. Several of them built themselves palaces a few kilometers outside of Johannesburg that make Kubla Khan's stately home in Xanadu look like a bungalow. As they say in the movies, the rest is history. The ANC has long forgotten about nationalising the commanding heights of the South African economy. And you will be hard pressed to find a current or former ANC minister or senior civil servant who is not in, or working on, a BEE deal. But what about the black masses? Well, the English have a famous song - sung to the tune of the red flag - which goes: "The working class can kiss my arse; I've got a foreman's job at last."

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AUTOMOBILES

Revenue Lifts As SA's Car-Part Exports Fire Up

South African car component exports increased 32% between 2005 and 2006, boosting industry revenues to R30,3bn. According to the National Association of Automotive Component Manufacturers (Naacam), catalytic converters were the most exported parts from SA, up 58,2% to R15,9bn. Catalytic converters also accounted for about half of all car components exported last year. Other parts included engines (up 29,1%), silencers and exhausts (78,7%), car radios and sound systems (40,3%), radiators (65,9%), and axles (86,1%). "The fact that exports of automotive components continued to increase is an indication of the high level of capability and competitiveness of the local industry," said Naacam executive director Roger Pitot. Pitot said the recent weakening of the rand would open up even more export opportunities this year. "The wide range of parts supplied is a confirmation that we can manufacture most automotive components right here in SA," he said. "We believe that this is an indication that local vehicle assemblers have significant opportunities to increase their local content above the current relatively low levels." Local content on locally assembled vehicles had decreased gradually over the past three years, from an average of 59,7% in 2004, to 58,5% in 2005 and 56,5% last year. "This trend is of concern to Naacam. There are no technical reasons for not using local suppliers, many of whom are producing safety-critical, high-technology components, as demonstrated by our success in exporting these items," said Pitot. He argued that the industry and government urgently needed to address the current trade deficit, which reached its worst levels last year. A total of R89,8bn worth of vehicles, components and parts were imported, while only R57,5bn worth of vehicles and parts were exported. This, Pitot said, represented a trade deficit of R32,3bn, which was worse than the R27,7bn in 2005 and R17,6bn in 2004. Pitot said Naacam was pleased that an increasing number of countries were sourcing components from SA. "Naacam believes that since the level of vehicle imports is likely to continue to rise because of new entrants and new models, there are only two ways to address the trade imbalance. "Firstly, vehicle assemblers and component makers need to increasingly look to overseas markets to find fresh opportunities for export contracts, both to existing markets and in developing countries." "The second opportunity is for vehicle assemblers to increase their parts sourcing from local companies," said Pitot.

VW Exports Reach 300000 Milestone

Some of the pent-up demand for Volkswagen (VW) vehicles in the Asia-Pacific region has boosted VW SA's exports to the 300000 mark. VW exports more than 30000 new Golfs and Polos a year to the Asia-Pacific region. Spokeswoman Heidi Bantam said 35575 new Golfs and Polos were exported last year, generating more than R6bn in foreign exchange earnings. The car maker made its first foray into the export market when it clinched a deal to send 12500 left-hand drive Jettas to China in the early 1990s. In the past, VW has also received orders for third-generation Golf GTIs for the UK and a significant order for fourth-generation Golfs for Europe. In 2004 it started exporting Polos and new Golfs to the Asia- Pacific region. A total of 50000 second- generation Polos and 80000 new Golfs have been exported over the past three years. In February 36653 new pas-senger cars were sold in SA. This represents a 0,5% decline when compared with February last year. However, the year to February showed passenger market growth of 3,26% compared with the same period last year. Mike Glendinning, director of sales and marketing at VW, said: "In analysing the market, it is important to note that February contained two fewer selling days than January. "Furthermore, from the perspective of seasonal demand, the new passenger car market in February is traditionally about 5%-6% weaker than in January." VW led the February passenger vehicle market with 24,6% market share and total sales of 9019 units. This was due largely to a strong performance from the Citi Golf and Polo Classic ranges. "Notably, Audi enjoyed all- time record monthly sales, with 1224 sold, an outstanding, achievement in the tough premium segment. "The all-new Audi TT recorded sales of 248 units in its debut month in SA," said Glendinning. VW commercial vehicles' performance was led by the Caddy Panel Van, with 237 sales. March is seasonally a strong month, which could be further bolstered by consumers buying ahead of possible second-quarter industry price increases driven by a weaker exchange rate. "This year will undoubtedly be characterised by slower growth than seen in the past three years," said Glendinning.

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AVIATION

Ailing SAA to Undergo Major Restructuring

National airline South African Airways (SAA) has unveiled what it calls a "comprehensive and fundamental restructuring process" in a bid to stem spiralling costs and bring the loss-making airline to profitability. The restructuring will include cost savings, a review of supplier contracts, simplifying the fleet, ditching unprofitable routes, as well as retrenchments. In addition, some business units could be sold off, or have partners found for them, as a capital-raising and revenue-enhancing exercise. The group also said it would increase its losses for its full financial year to end-March. It posted a R652m loss in its interim period to end-September. A number of the restructuring initiatives are designed to address what SAA CEO Khaya Ngqula said is a lack of urgency and accountability about the problems at SAA, the bureaucratic mindset, and the assumption that government will not let SAA fail. Among these, SAA's business model will be corporatised to a degree. Where before the carrier was run in a centralised way, with one executive committee, Ngqula said that the divisions will be run as separate business units, each with its own executive committee taking the operational decisions. It was inevitable that some of these units, which would become profitable, would end up being privatised. Ngqula said a business plan containing the finer details of the restructuring will be completed next month and presented to government, SAA's sole shareholder, in May. It was expected the restructuring would be completed within 12-18 months of the business plan being approved. Government's support for SAA was not unconditional and it was vital for it to make a business plan that made sense.

Consultants Move in to Help Craft SAA Survival Script

The restructuring of national carrier South African Airways (SAA), unveiled March 27, is likely to go a long way towards allaying fears about its future but it won't banish them altogether, largely because the hurdles it has to surmount are formidable. The future of the century-old airline has become a dinner party topic, with most people believing it should be privatised to stop government pouring more money into what is perceived as a bottomless pit. SAA has been limping along for the past 10 years since its then parent, Transnet, tried to restructure it. In 2004 it was given a R6bn bale-out after a hedging loss. It posted a R652m loss in its interim period to September. And SAA chief financial officer Gareth Griffiths said that even though the second half of the airline's financial year was traditionally a stronger period, the loss trend had continued, albeit at a slower pace. The airline will be posting a loss of more than R652m for its full year to March. To end the potted history of SAA's unhappy recent past, late last year SAA CEO Khaya Ngqula was quoted as saying the airline needed a R4bn injection. As a result of these events, government -- now SAA's shareholder -- has lost patience with the airline, and expects it to return to profitability. Transnet sold SAA to government for R2bn in June and responsibility for the airline will soon vest with Public Enterprises Minister Alec Erwin, who believes it can be turned around. It is good news then that the airline's chosen consultants to guide them through the restructuring process are highly acclaimed. US-based Seabury, which operate Seabury Airline Planning Group, are a specialised management consulting firm focusing on aviation planning and management. The group has choreographed eight out of 10 of the world's largest airline restructurings, including Air Canada, which Ngqula says shares many characteristics with SAA, along with Lufthansa and Air France. The choice of Seabury as a consultant has been welcomed as a good sign, with one industry insider who did not want to be named saying the group is extremely competent. Seabury offers a lot of "sound and fundamental international best practices", he says. The restructuring will take place across the organisation, with Ngqula saying there will be "no holy cows". Initiatives include a cost-conservation programme. All discretionary spending has already been revoked, while staff travel and staff cellphones that aren't essential have been limited. A review of contracts with suppliers is also on the cards, with the terms due to be renegotiated to better serve SAA. The group also plans to simplify its fleet and review its routes, eliminating any unprofitable flying. The decision to use separate divisions for separate business units had proven to be a successful one in the restructuring of Lufthansa, and was a strong success model for SAA to follow, said one commentator. He says it is also a good move to bring business partners into the group's successful business units, such as cargo. Adding third-party revenue reduces costs and boosts turnover, which is exactly what SAA needs to reverse the current trend -- where costs are growing faster than the 10% revenue growth. However, a precursor for the model to succeed is good and dedicated staff, and it is debatable how many of those SAA can rely on, the commentator says. Democratic Alliance spokesman for public enterprises Mannie van Wyk says a restructuring of SAA is overdue but it is good news that consultants have been called in. He points to the fact, raised recently in Parliament, that the top management team at SAA is stretched too thin in terms of directorships to focus on the successful running of the airline. The average SAA board member holds 20 directorships -- Ngqula was said to have 38 directorships, and another director 51, it emerged in Parliament. Van Wyk says the restructuring points to the beginning of the airline's privatisation, "which would be a good thing". Retrenchments are also on the cards, with Ngqula quoted last year as saying they would number more than 1000. Yesterday, however, SAA said it would be able to confirm the numbers only once a business plan for the restructuring had been finalised. South African Transport and Allied Workers' Union (Satawu) general secretary Randall Howard says any forced retrenchments will be rejected by labour. He says the figure of 1000 job losses "has no foundation, in fact it's a thumb suck". "We reject forced retrenchments and workers cannot bear the brunt of any turnaround strategy at SAA." Government has had to walk a tightrope in the restructuring of state-owned enterprises, including SAA, with labour insisting on being included and consulted throughout the process. At a political level, the restructuring has been a sticking point in the tripartite alliance as the process has resulted in job losses. Labour leaders have often accused government ministers of riding rough-shod over their concerns that restructuring masks wholesale privatisation. Although both government and labour are agreed that SAA needs to be re-capitalised, the devil lies in the detail. Since the agreement between Satawu and Erwin that SAA would exit Transnet's balance sheet, labour and SAA have been locked in sensitive talks on how to turn around the floundering airline. At the time, unions insisted that the airline remain state-owned, that job security not be at issue, and that there would be no changes to conditions of employment.in February Satawu held talks with Ngqula and his executives at which the union requested the airline to suspend its section 189 notice on retrenchments in favour of a comprehensive analysis of the problem areas. SAA issued the notice in November. Howard says the airline cannot announce a figure until each unit is comprehensively assessed to establish reasons for increased operational expenditure. If the losses were, for example, due to poor management, workers should not be at the receiving end of the turnaround strategy, he says. "It's not a numbers game. We need to find out why SAA cannot run at a profit." Howard says an agreement has been reached between SAA and Satawu that shop stewards will serve on a task team with consultants brought in by the airline to develop a draft business strategy that will be made public in April. "Whatever the outcome, we need to ensure that the restructuring process has credibility and at this stage we reject any suggestion that forced retrenchments are on the cards before the process is concluded."

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ELECTRICITY

Big UK Offshore Wind Farm Deal for Siemens SA

Siemens SA has secured a major order for two offshore wind farms worth hundreds of millions of euros. The order, from British Gas parent company Centrica, is part of an overall investment of about 440m euros. Siemens will supply 54 wind turbines with a combined maximum capacity of 180MW for the Lynn and Inner Dowsing projects in Lincolnshire, on the east coast of England. Andreas Nauen, CEO of Siemens Power Generation, said the group would assume responsibility for operation and maintenance of the wind farm for an initial five years. This would be the second offshore deployment of Siemens 3,6MW wind turbines. "Last year we doubled our turnover, and our declared objective is still to make our wind-power business grow faster than the market. "Securing the two projects in Britain will bring us a good step forward in this respect. We can thus also further expand our leading position in the growth market sector of offshore wind farms," said Nauen. Siemens also had two other offshore projects, Lillgrund in Sweden and Burbo Banks in Liverpool Bay on the British west coast. Both projects are scheduled for commissioning late this year. "Last month the Siemens power transmission and distribution division announced the supply of the grid connection for both projects, Lynn and Inner Dowsing," said Nauen. He said the projects would play an important role in Centrica's portfolio. "On completion by the end of 2008, Lynn and Inner Dowsing will be Britain's largest offshore wind farm development. The turbines will supply about 130000 household customers served by British Gas and Scottish Gas with environment-friendly, wind-based electricity," said Nauen. Centrica already operates the 26MW onshore wind farm, Glens of Foudland near Huntly in Scotland, which was also supplied by Siemens. Dingaan Ndaka, executive director of investment company Ndabenhle Group, said Siemens' move to wind power was a clever one as the world moved towards cleaner power. "It is said that by 2025, the earth will be home to nearly 8-billion people -- 2-billion more than today -- and most of them will be living in cities." Ndaka said life expectancy would keep rising in both the developing and developed nations. Siemens was positioning itself to take advantage of tomorrow's world, by investing in technology and expanding its global presence. The company has improved its empowerment credentials. Black-owned companies hold 26% of Siemens SA. Sekunjalo Investment Holdings and New Africa Millennium Telecommunications became the company's first empowerment shareholders in 2001 and 2002 when they each purchased a 13% stake. "Shareholder arrangements have always been constructed on the basis of business synergies, not only in terms of knowledge but also in terms of like-minded business, specifically in the environment of technology. In this spirit our shareholder relationships are partnerships in the true sense of the word," said Nauen. In 2003, another empowerment transaction saw Sifikile Investment Holdings purchase a 30% share of Siemens Business Services.

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FOOD & DRINK

Amstel Loss Leaves SAB With $80 Million Hangover

South African Breweries (SAB), a subsidiary of SABMiller and the dominant local brewer, faces real competition for the first time with the loss of its leading premium beer brand, Amstel, after Heineken revoked its licence. SABMiller said it would lose $80m in earnings in the next financial year because of the loss of sales of Amstel, which represent 9% of its beer volumes in SA. Heineken, the Dutch owner of Amstel, invoked a clause that allowed it pull out of the 40-year-old licence agreement with SAB as a consequence of the acquisition of South American Bavaria brewery by London-listed SABMiller. Heineken and SABMiller competed in the bidding for Bavaria, which SABMiller won in October 2005 with an offer of 15% of its shares worth about $7,8bn. Heineken said the Bavaria deal constituted a material change of control in SABMiller, allowing it to terminate the licence agreement. It said the deal was contrary to its interests and that the profit generated by Amstel was being used to fund SABMiller's global expansion. It said its intention with the termination of the licence was to restrict SABMiller's South African operations and its international success. Amstel rapidly gained market share with the introduction of large-format returnable bottles. Amstel has been brewed and distributed by SAB for 40 years. Its success in SA was the result of years of marketing, SAB officials said March 13. Julian Wentzel, a beer industry analyst at Macquarie, said the loss of Amstel meant SAB had a gap in the premium-beer section of market. "This is particularly significant because all the growth in the beer market has been at the top end." The growth in the consumption of premium beer in SA stood at 22,5%, while the rest of the market, which accounted for 85% of consumption by volume, grew at 1%-2%.
"Although SAB had 96% of the market, in the absence of a leading brand in a growth market, SAB faces real competition for the first time," said Wentzel. "There is a real possibility that Anheuser Busch (the world's biggest brewer) might team up with Heineken before the 2010 World Cup in SA." "That could pose a real challenge to SAB's dominance," Wentzel said. Anheuser Busch is the official World Cup beer. A Heineken statement said the company would import Amstel from its breweries in Namibia, Nigeria and Europe to supply Amstel consumers in SA. Heineken was also considering establishing a plant in SA. SAB spokesman Michael Farr said that for as long as Heineken did not have the production capacity in SA to produce large-format returnable bottled beer, it would not be able fill the gap. Farr said also it was a surprise for SAB that the licence agreement had been terminated so suddenly. Legal counsel for Heineken said, however, that there was nothing untoward about the decision. "SAB enjoyed the benefits of the brand for a long time and Heineken elected to terminate it." Farr said that SAB stopped brewing Amstel immediately it got word of Heineken's move through a press release. He said also that SAB had started instituting measures to mitigate loss of volume. "Fortunately, production lines can be switched with least effort." He did not envisage any effect on staffing. Earlier, SAB MD Tony van Kralingen said that he found it difficult to believe that SABMiller's new 15% shareholder in South America posed a threat to Heineken's interests in SA. Van Kralingen said although the financial effects of the termination would be minimised, there was no doubt that there would still be a negative financial effect on the SABMiller parent. "In the current financial year, on a pro-forma basis, SABMiller expects that this would have been about earnings before interest, tax and amortisation, equivalent to pro-forma earnings of about $0,03 per SABMiller share," he said.

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INTERNATIONAL ECONOMIC RELATIONS

President Mbeki Concludes Successful Visit to Saudi Arabia

President Thabo Mbeki concluded a fruitful two-day visit to Saudi Arabia, March 14 during which the two nations sought to enhance bilateral co-operation and signed a number of important agreements. Delegations from the two nations held a number of meetings to strengthen bilateral economic and political relations. The South African delegation comprised Minister of Foreign Affairs Nkosazana Dlamini Zuma; Defence Minister Mosiuoa Lekota; Trade and Industry Minister Mandisi Mpahlwa; Minerals and Energy Minister Buyelwa Sonjica and senior government officials and business representatives. Amongst others, agreements on the Avoidance of Double Taxation and on the Prevention of Tax Evasion were signed between Dr Dlamini Zuma and His Excellency Ibrahim Walaz of the Kingdom of Saudi Arabia, the Department of Foreign Affairs said. Whilst in the capital Riyadh, President Mbeki met His Royal Highness King Abullah bin Abdulaziz Al-Saud and they discussed amongst other issues, the status of bilateral political and economic relations between the two countries. The two also exchanged views on the Middle East with a particular focus on Iraq, Iran and the Palestinian situation, said the department. President Mbeki also had an opportunity to interact with the Saudi business sector, hosted by the Council of Saudi Chamber of Commerce and Industry and the Saudi Arabian General Investment Authority. "During the interactive session Saudi Arabians indicated a keen interest in investing in South Africa which would increase Foreign Direct Investment into the country," said the department. To further strengthen economic links, the president and his delegation also met senior Saudi government officials including the Chairperson of the Kingdom Holdings, Prince Alwaleed bin Talal bin Abdulaziz and the Secretary General of the Gulf Co-operation Council Mr. Abdulrahman bin Hamad Al-Attiyeh. "The visit took place in the context of South Africa's commitment to strengthening and consolidating relations with the countries of the Gulf with a view to increasing the flow of investment and economic interaction to ensure a faster and shared economic growth in South Africa," the department said. Saudi Arabia is a major supplier of crude oil to South Africa. The countries have in the past, had a number of interactions aimed at strengthening bilateral political and economic relations In March last year they held the South Africa - Saudi Arabia Joint Commission in Saudi Arabia, where the nations identified numerous areas of co-operation in a bid to strengthen trade and investment. Saudi Arabia expressed its readiness to export various petrochemical products to the country while South Africa pledged to increase exports in mining, electro-technical, financial services, agricultural equipment, agro-processed products and automotive components, among others.

South Africa and Oman Sign Agreement to Boost Relations

South Africa and the Sultanate of Oman have signed a co-operation agreement that will see the two countries working together in areas of science and technology to accelerate their mutual economic growth. Science and Technology Minister Mosibudi Mangena and Oman's Minister of Higher Education, Dr Rawya Al Busaidi, signed the agreement in Pretoria March 12. The signing formed part of an unfolding programme to establish and develop economic relations between South Africa and countries in the Middle East. In April 2005, a Science and Technology delegation of the Sultanate of Oman visited South Africa to continue negotiations to agree on technological and scientific co-operation between the two countries. During their visit two years ago, the delegation held discussions with South African role players in the fields of science and technology, as well as education. Trade between South Africa and Oman is on the increase with South African exports to Oman totaling R408 million in 2006 - including chemicals, machinery and mechanical appliances. Over the same period, imports, mostly petroleum and electronic equipment from Oman totalled just over R1, 3 billion. According to the Department of Science of Technology, the Agreement will promote co-operation in the fields of science and technology.

Business Delegation Heads for Jordan

A high-powered business delegation will visit Jordan in April to explore opportunities in the Middle East. Denis Worrall, chairman of Omega Investment Research, which is co-ordinating the visit, said: "Jordan's strategic geographical position combined with internal stability and sound relations with all its neighbours make the country an ideal gateway to the Middle East, a market virtually untapped by SA companies." He said the mission would include a gala dinner and business introduction meeting in Jordan's capital, Amman, from April 15-17. "The initiative is a follow-up on our successful 2005 Amman business mission. It brings together South African, Jordanian and Iraqi companies with similar business interests." He said there was particularly strong interest from Iraqi companies to do business with local companies. "With so much destruction going on in Iraq, there are a lot of opportunities for South African companies to help in rebuilding the country," said Worrall. He said the mission would accommodate only 20 local companies, and there were still places available for interested companies. 

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MINERALS & METALS

'Super Dominant' Mittal Ripped off Steel Users

The Competition Tribunal in a damning report March 29 found that Mittal Steel SA had abused its dominant market position and was charging excessive prices for flat steel products, to the detriment of its customers. The ruling could have sweeping implications for the broader market, with the tribunal mooting structural changes designed to change the prevailing pricing system of the steel market. Mittal said it was disappointed with the ruling. CE Rick Reato said the group believed it had a strong legal case and would consider its options. Mittal's share price took a hammering at the news, closing the day 2,3% lower at R117. The steel giant now has a fine of up to R1,6bn -- the maximum fine that can be imposed constitutes 10% of flat steel turnover -- hanging over its head. More grave for the steel maker is a set of "structural remedies" the tribunal envisages. However, it reiterated that it would not introduce price regulation to force excessive steel prices down. The competition body is yet to release the proposed set of remedies, which a commentator said might include a break-up of Mittal's joint venture with steel trader MacSteel International. The tribunal said that, should the structural remedies prove unsuccessful, Mittal's divestment from its flagship Vanderbijlpark works or Saldanha Steel might prove the only "appropriate remedy" to its abuse of its super-dominant market position. An analyst said the finding "would send a warning to anyone engaged in that kind of pricing". The suggestion of structural remedies could likely bring some real relief to steel users in the form of lower prices. But it is also being seen as a veiled warning to other abusers of the import parity pricing model. In its report, the tribunal referred to other companies' use of import parity pricing, which came to its attention with the merger applications of Tongaat-Hulett and TSB sugar, and Sasol and Engen -- both of which were turned down by the competition authority. The finding follows a complaint brought before the Competition Commission in 2003 by gold producers Harmony and DRDGold against Mittal's use of the import parity pricing model. The commission in 2004 did not find evidence of a contravention, which spurred Harmony to take its case to the tribunal. The tribunal swept many of the arguments put forward by Mittal's legal team off the table and was unequivocal in its finding. Mittal SA, it said, was "no mere 'dominant firm' -- it is 'super-dominant', a 'monopoly' in the parlance of US anti-trust law. It is, for all intents and purposes, an uncontested firm in an incontestable market". It furthermore found that Mittal employed its super-dominance to achieve its target price -- the excessive price -- by ensuring that excess supply was removed from the domestic market. It achieved this through its agreement with MacSteel International, which as the sole trader of its product, confined its trading activities to the international market. The tribunal dismissed a further complaint from Harmony -- that Mittal induced its customers not to deal with a competitor -- on the basis that it was not satisfied with the facts presented. The tribunal said it would hold off announcing the structural remedies until it had heard evidence relating to the administrative penalty.

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MINING

Coal Group Bisichi Seeks Court Aid to Axe BEE Partners

Bisichi Mining, the South African coal producer listed on the London Stock Exchange, is attempting to secure a court order to eject its black empowerment partners, the Mhlaba Dube Memorial Trust, from its subsidiary Black Wattle Colliery. The group said March 27 "certain difficulties" had emerged in its relationship with the trust, and it had removed the trust's representatives, Sipho Dube and Duku Mogoai, as directors of Black Wattle. It had also cancelled the agreement under which the trust held a 37,5% stake. Once the matter had been resolved, it would invite a new black empowerment partner to join the company. Bisichi Mining MD Andrew Heller said he understood that the trust was opposing the court action. Dube confirmed that the trust was opposing Bisichi in court, and was taking steps to have Black Wattle's mining licence cancelled. Mhlaba Dube Memorial Trust was a nominee company, and the real owner of the stake in Black Wattle was Endulwini Resources. In terms of an agreement entered into almost 10 years ago, Endulwini brought in all the reserves and resources to Black Wattle, which was nearing the end of its life at the time, in return for its 37,5% stake. If Endulwini's stake fell below that level, Black Wattle would lose those reserves.
Dube is well known in the local coal mining industry. He is a director of the South African Mining Development Association, and chaired the coal forum established to lobby for an export allocation at the Richards Bay Coal Terminal (RBCT) to be granted to new entrants and for their participation in the Phase Five expansion. Endulwini was granted a coal export allocation in 2004. Bisichi Mining and Endulwini, according to a Competition Tribunal document last year, hold a 6% share of SA's domestic coal market. Bisichi also said Endulwini Resources had not provided its portion of the financial guarantee needed to buy Pegasus Resources from Ingwe Collieries (since renamed BHP Billiton Energy Coal SA) under a joint venture agreement between the parties. Dube said Endulwini did not agree with the terms of the joint venture agreement, and it would not surrender its rights to Pegasus. Bisichi said that even if the deal on Pegasus did not proceed, there were numerous other opportunities to acquire other high quality coal reserves. Asked about the implications of the split with the trust for Black Wattle's RBCT coal export allocation, Heller confirmed Black Wattle had been exporting coal using Endulwini's allocation but was no longer using that allocation. "We do not have an RBCT export allocation but we are selling in the domestic market or free on rail. "There is plenty of export allocation out there so from our point of view the value of having one is not what it used to be. "There is such a shortage of coal in SA that instead of coal chasing allocation, allocation is chasing coal. "The rail deals we have done are excellent, and so is the domestic market for coal."

Pretty in Platinum

One of the next most likely acquisition targets for the major platinum groups in the current round of consolidation in the industry could be Ridge Mining. Ridge has a proven resource of 5,34-million ounces of four platinum group metals at its Blue Ridge project on the eastern limb of the Bushveld, which it is developing into a mine. A pre-feasibility study at its second project, Sheba's Ridge, showed a resource of 19-million ounces of platinum, palladium and rhodium, together with 1,4-million metric tons of nickel and 0,5-million metric tons of copper. These resources compare with 92-million ounces of four platinum group metals (PGMs) at African Platinum's Greater Leeuwkop property and 33,7-million ounces of three PGMs at AfriOre's Akanani project. Afplats is the subject of a takeover offer by Impala Platinum, and Lonmin bought control of AfriOre last year. Apart from Anooraq Platinum, whose mineral resource ranks in size between Afplats' and AfriOre's (according to a diagramme in Afplats' latest annual report), Ridge Mining is the next most attractive target among the junior platinum miners. Asked whether Ridge Mining had received any approaches from a major platinum company, commercial director Francis Johnstone said March 22 that Ridge would prefer not to comment and if it were in the situation where it had to notify shareholders, it would do so. Asked whether Ridge would welcome an approach, he said Ridge was moving towards production from Blue Ridge and would like to see it through. Still, if Ridge were to be targeted by a major mining company, there is little hint on who it would be. Ridge has signed an offtake agreement with Implats for production from Blue Ridge, but Johnstone said Implats held no shares in Ridge. Ridge's joint venture partner on its Sheba's Ridge project is Anglo Platinum. Ridge's major shareholders are China's Zijin Mining Group and the Merrill Lynch investment funds.

Mining Rights Claims Deadline is Extended

The minerals and energy department said March 22 it had extended the deadline for mining companies to file for compensation for the loss of mining rights by about two-and-a-half years. An amendment to the Minerals and Petroleum Resources Development Act would be tabled in Parliament this week to enable companies to file claims for compensation by April 30 2009 plus 180 days, said director-general Sandile Nogxina. The act required claims to be filed by April 30 this year. By 2009, conversion of old-order to new-order rights should be completed. Then it would be clear if expropriation had taken place or not, he said. But the move is unlikely to affect a R2,5bn claim by Italian investors in granite companies in SA who have taken government to international arbitration for the expropriation of their mineral rights. Webber Wentzel partner Peter Leon, acting for the Italian investors, said their claim was filed under international law and not affected by the South African law on prescription of claims. Leon said the move was an admission that government would have a big problem if it did not extend the deadline. It wanted to help the mines but was also trying to avert a flood of claims in the next six weeks. The act, introduced in May 2004, effectively put all mining rights under state custodianship. Mining rights not being used were lost and mining companies had to apply for new-order rights on properties being mined under rights granted by the previous legislation. A press conference in Pretoria on the amendments was delayed about 90 minutes as the department, Chamber of Mines, National Union of Mineworkers and SA Mining Development Association held last-minute talks. Chamber president Lazarus Zim said it supported the amendments.

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TELECOMMUNICATIONS

Telkom Acquires 75 Percent of Nigeria's Multi-Links

Telkom is gaining momentum in its plans to march across Africa with a $280m deal to gain control of Multi-Links Telecommunications in Nigeria. The R2bn deal will see Telkom acquire 75% of the privately owned operator with 162000 subscribers. The deal is not yet finalised as unspecified conditions are still to be fulfilled by both parties. The deal represents a far smaller entry into Nigeria than Telkom initially hoped for, as it had aimed to take 51% of Nitel, which operates fixed and mobile services throughout the country. But Multi-Links may prove a better buy than the state-owned Nitel, as Telkom will gain control of the board and the operations and could "manage its investment more effectively and efficiently," said Telkom CEO Papi Molotsane. The present owner of Multi-Links is Kenston Investments, which will retain a 25% stake. Multi-Links holds a unified access licence, allowing it to provide fixed and mobile telephony for national and international calls, and wireless and broadband internet access and data services. The deal would be a good diversifier for Telkom and give it a "decent" foothold in Africa's fastest-growing telecoms market, Renaissance Asset Management fund manager Khulekani Dlamini told Bloomberg. Cadiz African Harvest portfolio manager Rajay Ambekar told Reuters that Multi-Links had all the key technologies for Telkom to build on. "It is a great acquisition and the price they paid seems not to be over the top," he said. It offered good growth opportunities, particularly if Vodacom got involved on the mobile side. Telkom holds 50% of Vodacom and is keen to provide a joint package of fixed, mobile and internet services to other African countries to diversify its revenue stream. Molotsane described the deal as another step forward in Telkom's expansion beyond SA. "The size and nature of growth of the Nigerian telecoms market, its low tele-density of only 20% and its pent-up demand for internet access demonstrates that there is immense potential for future growth, making this an ideal acquisition," he said. He also sees the deal as a potential precursor to more expansion, particularly into west Africa, as this "medium-sized" investment would let Telkom demonstrate its management skills and capabilities abroad. That may be important after Telkom won a less harmonious deal last month by paying £10,32m for internet service Africa Online. Telkom outbid Africa Telecoms Company of Kenya, prompting the East African newspaper to state that Telkom would need to patch up some relationships if it was to make a success of the business in east Africa.

Telkom Buyout of IT Company 'Would Harm the Economy'

If Telkom won permission to buy out Business Connexion, the economy would suffer as competition was eroded in the telecommunication and technology sectors and price fixing and cross-subsidising flourished, opponents of the deal said March 12. The Competition Tribunal has set aside 17 days to debate Telkom's planned R2,4bn takeover of the technology company, with wall-to-wall legal experts wading through masses of evidence and cross-examining witnesses. Dimension Data and the Internet Service Providers' Association (Ispa) oppose the deal because Telkom supplies the core infrastructure that other voice and data networking companies rely on. Acquiring Business Connexion would give Telkom a stranglehold over more of those services and make its rivals less able to compete. The Competition Commission gave an entertaining explanation of why it recommends that the deal be vetoed. If the deal went ahead, Business Connexion could persuade its customers to buy their leased lines from Telkom, rather than from the new national operator, Neotel, or any other supplier, said the commission's lawyer, Owen Rogers. Telkom could similarly persuade its customers to buy IT services from Business Connexion. "All it needs is a bad experience here, some whispering there and a bit of delay. Nothing that could be proved as sabotage, but enough to create a perception that things are less likely to go wrong and more likely to run smoothly if you use a combination of Telkom and Business Connexion solutions," he said. Telkom's opaque prices made it impossible for customers to see if they were being charged discriminatory prices, and it could extend its cross- subsidies if the acquisition went ahead, Rogers said. "Telkom will exploit its opportunities to the fullest extent to maintain its de facto monopoly." The merged entity could supply bundles of products and services that no rival could match, said Alfred Cockrell for the Ispa. "They will say, hand on hearts and scouts' honour, that they are not likely to do anything that the interveners suspect them of doing," Cockrell said. But Telkom's track record of anti-competitive behaviour spoke for itself, he said. If Telkom swallowed Business Connexion the dominant telecoms player would gain dominance over the IT market too. Rivals could be hampered in their ability to access Telkom's services, with catastrophic consequences for customers and the economy, Cockrell said. Cockrell said "it will take a considerable time and great deal of money" before Neotel had the facilities to become a real rival. David Unterhalter SC, for Telkom, said the opponents were making a number of "implausible assumptions" about the degree to which they would combine their services or impose predatory pricing to force rivals out of the market. Business Connexion did not have such a good relationship with its customers that it could persuade them to buy leased lines from Telkom if another supplier had a better offer, he said. Running the voice and data networks for corporate customers was highly competitive, and Business Connexion was a minor player in that niche. If the merger went ahead and Business Connexion was lost to the market it wouldn't be a big loss, he said. Nor would the IT market suffer, as it was highly fragmented between large, well-established players and the merger would not affect that, Unterhalter said.

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TOURISM

Protea Hotels Sold for R1.48 Billion to Australian Group

Australian travel services and hospitality company Stella Group has bought Protea Hotels, Africa's largest hotel management company, for R1,48bn, or A$255m. The deal means the Stella Group's footprint extends across Australia, New Zealand, the African region as well as Europe via its stake in Golden Tulip Hospitality Group. Protea Hotels MD Arthur Gillis, who started the Protea Group in 1984 with Chairman Otto Stehlik, said the deal was an excellent opportunity to globalise the brand. The company is being acquired as a going concern. Protea would benefit from being part of a bigger group -- in part from economies of scale, which is an important element of the hotel business, as well as being able to compete globally "at the appropriate level," he said. Protea was also fully committed to continuing its expansion. "I have a desk full of projects at the moment and we are going ahead with all of them," Gillis said. Nine hotels are due to open in the next 12 months and there are numerous other projects on the go, including conversions and new hotel projects. Gillis could not give details on the projects as the "ink is still wet" on the Stella acquisition, but said the group, which is already a serious force in Africa, would entrench its regional dominance. In addition, Stella expects to see the Protea group replicate its regional success globally in new regions, he said. On March 1, Protea announced that it had formed a joint venture with the Sharaf Group of the United Arab Emirates (UAE) in a move to penetrate the Middle East market. The newly formed firm, Sharaf Protea Hotels Middle East, was created to address growing demand in the UAE market for high-quality hotels to cater for international visitors to Dubai, the group said. As part of the current deal, the two leisure groups said that the Stella Group had also agreed to sell "a significant interest in Protea to the current black economic empowerment (BEE) shareholders in Protea, who will realise 50% of their current investment in Protea while retaining a 26% shareholding in the local company". In 2005 Protea increased its black empowerment shareholding to 54% from 18%, resulting in it receiving an AA rating for BEE from Empowerdex. This is the highest rating in the tourism industry. What the deal effectively means is that once Stella takes ownership, it will hold 74% in Protea, while the black empowerment partners will hold 26%. Gillis said that while the empowerment partners had sold down their stake by about half, this should be offset by the fact that Protea was expected to grow significantly. Protea Hotels chairman Otto Stehlik said: "Through the Stella Group's wide reach in Australia and New Zealand and its strategic investment in the Golden Tulip chain in Europe, this deal secures Protea's future outside Africa as part of an established, global leader in the tourism and hospitality industry." Protea is Africa's largest hotel management company, and the world's 21st biggest, operating 126 hotels in 13 countries. The properties include seaside resorts, country hotels, mountain retreats, private game reserves and city centre hotels. The Protea acquisition gives the Stella Group more than 9000 rooms in Africa with more than 3000 more to come by the end of next year. The Stella Group's existing portfolio comprises about 15000 rooms across the corporate and leisure markets in Australia and New Zealand.

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