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SOUTH AFRICA


  
  

 

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

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Update No: 075 - (28/03/08)

ARMS IMBROGLIO RUMBLES ON
Just weeks after ANC president Jacob Zuma flew to Mauritius in a bid to frustrate the state's bid to obtain evidence of corruption against him, President Thabo Mbeki visited that country meeting high-ranking government officials, including members of the judiciary. While in Mauritius for its 40th Independence Day celebrations, Mbeki met its president, prime minister and chief justice to discuss "political and economic matters". Mbeki is the only head of state to attend the celebrations, but officials said Zuma's case was not on the agenda. Mbeki's discussions with the Mauritian chief justice could well add impetus to Zuma's allegations that there is a political conspiracy against him aimed at denting his chances of succeeding Mbeki next year as South Africa's president. In court papers, Zuma argues that his legal troubles are the result of political conspiracy. As head of the ruling party, Zuma is first in line to take over when Mbeki steps down next year. 

Zuma and Thint Say State Misinterpreted Law
Jacob Zuma’s lawyer said the point where the criminal proceedings commenced was when the accused had pleaded. In Zuma's case, the state relied on section 2(2) to gather information that could later be used as evidence because the charges against Zuma were struck off the roll in September 2006. " (Section 2(1)) is the mechanism of the trial court while 2(2) is an executive tool used to investigate crime. Investigation also means gathering all evidence so as to prosecute the case," Trengove said. J Kemp SC, for Zuma, argued that the primary purpose of section 2(2) was for the state to get information to enable it to decide whether to prosecute. Kemp said the state had not shown how it intended to use the originals in its investigation. "This is an attempt simply to get documents to present them at trial." he said. The court reserved judgment. The first two days dealt with the challenge of Zuma, his lawyer Michael Hulley and Thint against the validity of the search and seizure warrants issued by Transvaal Judge President Bernard Ngoepe in August 2005. The warrants resulted in the state seizing 93000 documents from the offices of Hulley and Thint and from the homes and former offices of Zuma.

Manuel Wins Court Order
Finance Minister Trevor Manuel has won a high court order to stop arms deal activist Terry Crawford-Browne from publishing defamatory allegations about him. Judge Andre le Grange ruled March 6 that Crawford-Browne had not provided a "shred of evidence" to support his claims in relation to Manuel and the controversial arms deal. Judge Le Grange said "a strong prima facie right to the court's protection had been established" and ordered Crawford-Browne to desist from making further defamatory allegations of corruption against Manuel, and to remove them from his website. "In my view freedom of expression does not include the right to falsely attack the integrity of a fellow citizen for selfish reasons or for reasons which have nothing to do with public benefit," the judge said. Crawford-Browne said he viewed the judgment against him as the "opportunity to reopen the whole arms deal issue

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Power utility Eskom has asked the National Energy Regulator of South Africa (Nersa) for a nominal 60% hike in electricity tariffs, which could put further pressure on inflation and interest rates. If granted, the increase will replace the 14,2% hike Eskom was allowed by the regulator in December. Nersa's regulator of electricity, Thembani Bukula, confirmed March 18 the request had been filed. Eskom's motivations for the additional tariff hike were the increase of primary energy costs and accelerated demand side management costs. Eskom's requested tariff increase would apply only to electricity generated by Eskom. Municipalities are likely to also increase the price for distribution, which, if inflation-related, could see power costs soar almost 70%. If the hike is granted it would also wipe out South Africa's global advantage as the investment destination with the cheapest power, bringing prices in line with the nearest price rival, Canada. The price escalation of Eskom's build programme, which will now cost R300bn over the next five years and is estimated to reach R1-trillion over 20 years, also means that low electricity prices in SA are unsustainable. 

Eskom was probably emboldened by admissions from President Thabo Mbeki in his state of the nation speech and comments in the budget statement that the era of cheap power in South Africa was over. With cost pressures already weighing on inflation, economist Colen Garrow said Eskom's request could be "one push too far". "The question is how the Reserve Bank will react. This will put pressure on inflation targets and the Bank may be tempted to put up rates again. This will be another nail in the coffin of consumers." Business Unity South Africa (Busa) economist Simi Siwisa said the priority for the organisation was security of supply. "We accept that pricing might have to be reviewed in the context of the current challenges and Eskom's funding requirements. South Africans must choose between availability and non-availability of electricity. It is clear that the cost of non-availability of power exceeds availability at slightly higher prices," she said.

Zimbabwe
The National Assembly has again decided to send an observer mission to Zimbabwe to monitor parliamentary and presidential polls that will take place on March 29. The last parliamentary delegation that formed part of an election observer mission to Zimbabwe, in April 2005, ended in uproar with a Democratic Alliance MP and an Independent Democrats MP returning home early in protest over the programme set for the delegation by the African National Congress (ANC) majority. This month's 15-member delegation from Parliament will form part of the Southern African Development Community (SADC) group and will again come from all parties. It will report to Parliament on its observations and the SADC mission's findings. The 2005 delegation came apart at the seams when ID MP Vincent Gore left early, saying the election was clearly unfair, followed after the poll by DA MP Roy Jankielsohn, who came home three days early. Jankielsohn earned the ire of the ANC when he issued public statements disputing the finding of the mission. Labour Minister Membathisi Mdladlana had announced that the mission had found the elections were reflective of the fair will of the Zimbabwe people.

RETAIL CONFIDENCE
Retail confidence has plunged to a five-year low, in a sign the key sector might slip into a recession this year, the Bureau for Economic Research (BER) has warned. Its index for retail business, which comprises 14% of the economy, fell to 52 points in the first quarter of this year from 71 points in the previous quarter, suggesting sales volumes contracted in that period. Rising inflation and slower consumer spending, the main engine of economic growth had devoured profit margins and sales were also expected to fall in the second quarter, the BER said. Two successive quarters of contraction would technically put the retail sector, which has been hardest hit by rising interest rates, into a recession.

Electricity Crisis 'Could Tip Country Into Recession'
South Africa's economy could slide into recession this year if official steps to deal with power shortages failed to limit their effect on the production of goods and services, the South African Chamber of Commerce and Industry (SACCI) warned March 4. The warning came as the SACCI said its business confidence index dived to a new four-year low, and would continue to weaken this year. The index did not yet fully reflect the blow to business confidence of a spate of electricity blackouts in February, which halted mining production for five days running, it said. "If we don't manage the electricity crisis properly, our economy is heading for a serious slowdown," said SACCI CE Kwandi Kondlo. "If the interventions — short-, medium- and long-term — don't work, we are facing the risk of a recession head-on. If we don't solve this problem it's going to kill our economy." The government has declared the inability of Eskom to meet rising demand a national emergency, and announced steps to deal with the crisis. These include a 10% mandatory cut in electricity consumption by households, companies and industries, to last until 2010. Electricity prices are set to double over the next five years to help finance Eskom's ambitious expansion plans, but top officials say they want to offer power at reduced rates for new energy- intensive projects, in an apparent bid to reassure investors. Many economists have sharply lowered their economic growth forecasts for this year to account for the power constraints, which are set to last until significant new generating capacity comes on line in 2012. Most are predicting the pace of growth will subside to just over 3% this year from an average of about 5% over each of the past four years — still well down from a 25-year peak of 5,4% in 2006. SACCI economist Richard Downing said growth may slow to between 1% and 2% this year in response to the direct and indirect effect of power rationing — and he believes that is not the worst-case scenario. "Even if the loss in output could be limited to 5%-10% of gross domestic product, it will be difficult to attain any growth in the economy in 2008," he said. SACCI's business confidence index fell to 93,8 last month from 94,8 in December — its lowest since October 2003. The rand dived to a two-year low to the dollar March 4, and has slid nearly 12% so far this year against a trade-weighted basket of currencies. That could stoke rising inflation and force the Reserve Bank to raise interest rates again. The rand has been pressured by the sell-off in South African shares and bonds, which can be blamed largely on global risk aversion fuelled by rising concern about the effect of a US recession. But if that trend carries on, the unit will extend its losses. A swing to the left in leadership of the ruling African National Congress late last year has also curbed appetite for South African assets. However, this had now been overshadowed by the magnitude of the power crisis, Kondlo said. Absa Capital's chief economist, Jeff Gable, has revised his growth forecast for this year down to 3,6% from 4,5% before. He predicts growth in the first quarter of this year will amount to just 2,5%, reflecting the mining shutdown. "If the very worst of the electricity supply problems persist for months, then a short, technical recession would be possible," he said. "But we don't think this would be the result of a 10% drop in power supply over the medium term."

Mbeki Warns Eskom Over Job Losses, Power Chaos
Amid growing concern about job losses and slower growth, Eskom came under mounting pressure March 6 to get its act together to see SA and its economy through the power crisis - without compromising jobs or growth. The power utility was also told in no uncertain terms to streamline its communications, so as to avoid causing confusion and alarm among foreign investors. This comes a day after Eskom rocked the construction industry with another confusing notice, this time warning of delays in processing applications to supply new construction projects requiring more than 100kVA. The delays could threaten projects lined up as part of the state's multibillion-rand infrastructure drive. In reply to questions in Parliament March 6, President Mbeki conceded Eskom's announcement was "unfortunate". He insisted the utility manage the power crisis -- largely the result of faster growth and state underinvestment in new generating capacity -- in such a way that jobs were not lost. "We insist that we do everything we can to ensure that this does not impact negatively on economic growth and negatively in the sense of job losses. Eskom must handle this matter in a way which addresses those challenges," Mbeki said. The government is under pressure, especially from its trade union allies, not to allow the power crisis to cause job losses, with the Congress of South African Trade Unions warning of a strike if a single job was lost. Yesterday, the government relented in its insistence on drastic power saving in SA's crucial mining industry, saying power availability would be stepped up, from 90% to 95%. Mbeki again apologised unreservedly for the crisis and said the cabinet took collective responsibility for the decisions taken over 14 years. He thanked South Africans for their resilience in dealing with the crisis. Asked by Democratic Alliance (DA) parliamentary leader Sandra Botha about Eskom's policy on new building developments, Mbeki said he would be "very, very concerned" if a decision by Eskom led to job losses. The DA criticised Eskom's announcement and called for clarification on whether it had consulted on the "harmful effect" its "unilateral" action would have on the economy. The African National Congress (ANC) also weighed into Eskom, saying the proposed delays undermined SA's growth effort. It said the delays were "irresponsible", and called on Eskom to reconsider its decision. "Such delays could undermine efforts to grow the economy, and slow the rate of important capital investment," it said. 

EU to Press Ahead With EPA
The EU will go ahead and sign the Economic Partnership Agreement (EPA) with willing SADC states whether or not South Africa comes on board, says European Commissioner of Trade Peter Mandelson. He was speaking after a review meeting of the interim EPA signed between the EU and five SADC nations late last year. Mandelson emphasised the commitment of the EU to signing the EPA for the "massive benefit" to be accrued to both parties. Botswana, Lesotho, Namibia and Swaziland broke ranks with South Africa late last year and signed an interim EPA. At a SADC ministerial meeting at the GICC two weeks ago, South Africa expressed concerns about the EPA, calling it to be negotiated afresh. Among South Africa's concerns were liberalisation of services and the elimination of export taxes, which it said could limit the region's drive to advance beneficiation. South Africa is also worried about prescriptions on procurement which it says could dilute its empowerment drive as well as demands that would limit ability to source local content, which would undermine that country's industrial development drive. "Whatever happens," Mandelson said, "we will press ahead with the other SADC EPA signatories if they feel that what is at stake for them in terms of trade, economy, market access to Europe, development and co-operation is far too important to forgo, then we will sign. "Also, the South African (trade) minister has said that his country will not stand in the way of any country in the Agreement, and I think that is a very important statement." Asked if that will not effectively mean the collapse of SACU, Mandelson said although he was aware that they were members eager to see SACU dissolved, in and of itself, the signing of EPA should not lead to such an eventuality. There are fears that South Africa could use the other SADC states' signing of the interim EPA as an excuse to dissolve SACU. It is because of this that Mandelson took the negotiations to the highest political level by meeting President Thabo Mbeki to discuss South Africa's policy towards the EPA and regional integration on Saturday. "Politically, the breakup of SACU would go against commitments to forge closer regional ties," said a South African commentator, "but economically, SA would benefit. It is known that the treasury is unhappy about the vast distributions from the customs pool to BNLS countries (Botswana, Namibia, Lesotho and Swaziland)," However, with Mandelson shooting down South Africa's demands for the EPA to be negotiated afresh because that would not be in the best interests of other SADC states, chances of finding common ground are fading away, and could lead to the dissolution of SACU, the oldest customs union in the world. The Minister of Trade and Industry, Neo Moroka, has defended the signing of the interim EPA, saying it was done to maintain trade flows between the countries and Europe following the end of the December waiver. "South Africa had a standing economic trade and development agreement with the EU," Moroka pointed out. "Some Least Developed Countries (LDCs) such as Mozambique and Lesotho could still trade under the Everything But Arms(EBA) arrangement. The time frame threatened to hinder our trade with Europe and leave us out in the cold." The minister added that when it became clear the deadline would not be met, BNLS countries were under enormous pressure to sign the Interim EPA so that some members did not resort to the Generalised Systems of Preferences (GSPs) where they would have to pay punitive tariffs when exporting goods to Europe. "In the meeting that we held today, we decided to have a two-pronged approach to the negotiations as some of our members raised concerns with the Interim EPA and the EU has agreed to look at these areas," he said. "Therefore, while negotiations on trade and investments continue, the EU will at the same time review the concerns that have been raised. "Our relationship with the EU goes a long way and we are looking forward to signing the comprehensive and final EPA by December 2008." Negotiations will now continue for the next 10 months for a full EU-SADC EPA, with key issues such as liberalisation of trade in services and rules on investments, as well as the implementation of the current Interim EU-SADC EPA on trade in goods expected to be tabled.

Hope for Exports Even As Output Dips
Manufacturing output is contracting at its fastest pace for nine years, knocked by power shortages and waning consumer demand, but producers are betting that the rand's sharp slide this year will help them boost exports, a leading survey showed March 17. Business conditions in the economy's second-biggest sector plummeted in the first quarter of this year, with a confidence index compiled by the Bureau for Economic Research (BER) falling by 23 points to 46 -- its lowest since 2003, when manufacturing was last mired in a recession. The survey reinforces the gloomy message from SA's purchasing managers index (PMI) last month, which suggests output from the sector -- which accounts for more than 16% of the economy -- fell for the first time in five years, after a series of power outages in January. Like the Investec PMI -- which is seen as a reliable barometer for manufacturing -- the survey also shows that employers in the sector have started to cut jobs, which may hinder efforts to lower an official unemployment rate of about 25%. "Unfortunately, employment seems to be bearing the brunt of the deterioration in business conditions, with most respondents indicating that they have, or plan to, decrease the number of factory workers," BER economist Christelle Grobler said. Manufacturing accounts for about 14% of overall employment, but comprises a hefty 18% of jobs in the formal non-agricultural sector. The BER survey also shows that the rand's substantial depreciation so far this year may have benefits as well as drawbacks for the economy, making local exports more competitive on global markets even as it fans inflation, which is forcing interest rates up and curbing consumer demand. "Going forward there is one positive thing -- manufacturers of intermediary and capital goods plan to increase exports," Grobler said. "Although the global economy is slowing the more competitive exchange rate may help these manufacturers to gain some global market share." The rand plunged to lows against the dollar in March, hitting R8,25 March 16. 

Collapse in Business Confidence Confirms Country's Dark Mood
Business confidence dived to its lowest level in seven years in the first quarter of this year, as the cyclical economic downturn started to bite. But rolling blackouts in January and concerns about political changes have also contributed to dampen the mood in the country, Rand Merchant Bank (RMB) said March 12. The bank's business confidence index, compiled by the Bureau for Economic Research (BER), fell by 19 index points to 48, from 67 in the fourth quarter of last year -- its biggest single drop between successive quarters in 24 years. The drop means that fewer than half of respondents were comfortable with the prevailing business conditions, compared with more than two-thirds being satisfied only four months ago. The index paints a gloomy picture. High inflation and rising interest rates were the usual suspects. They squeezed consumer spending and also dampened private sector fixed investment. But the quarter also suffered from the hangover of the African National Congress leadership change, while the Eskom crisis further blackened the mood. Apart from the gloom at home, international prospects augmented the misery. Surging oil prices, equity market volatility, huge losses by international banks in the subprime crisis and fears of a looming recession in the US, the world's largest economy, further rattled business. "The environment contains all the elements of the perfect storm. There is the bleak international picture. Then the cyclical downturn has been with us for a while, and now the political situation and the power crisis have been stirred into the pot," said BER economist Pieter Laubscher. The drop in confidence undoubtedly translated into a drop in output, Laubscher said. "There is a close correlation between business confidence and GDP growth. The growth rate was 5,1% last year and on the basis of a decline in the index last year we had already tempered growth expectations to 3,4%. With the latest results we're inclined to lower expectations to 3%." According to RMB the sharp fall in business confidence reflects a deepening slowdown in business volumes. Profitability is coming under pressure as producers are unable to fully pass on higher input costs to consumers in an environment of weaker demand. Adding to the sombre mood were growing jitters about political uncertainty. This was the first survey of business confidence since Jacob Zuma replaced Thabo Mbeki as leader of the African National Congress in December. Concerns about possible changes in economic policy were reflected in the survey, with the proportion of manufacturers rating the political climate as a constraint rising from 34% in the fourth quarter to 49% now. The survey covered 2980 business enterprises in five sectors -- manufacturing, retail trade, wholesale trade, new vehicle trade and building. Confidence remained strongest in the economy's second- biggest sector, the building industry, but still fell from 83 to 69. As the fieldwork for the survey was completed before Eskom announced it would delay the issuing of electricity certificates for large new building projects, confidence in this sector could decline sharply in the next survey. In other sectors, manufacturing has dropped below the median level of 50, plunging from 69 to 46. Among new vehicle dealers, whose confidence had already dropped below 50 last year, confidence declined further from 34 to 30, while retail confidence plummeted from 71 to 52. But Laubscher cautioned against an alarmist view. "Confidence did take a knock and investment prospects are lower, but much will depend on how the power crisis is handled and how the politics play out."

Trade Activity Out of Negative Territory
Trade activity is clawing back, indicating a likely bottoming out of trade conditions after slowing substantially towards the end of last year. The South African Chamber of Commerce and Industry (SACCI) said March 13 its trade activity index, which measured trade conditions across the economy, recovered from 44 in December last year, to 48 in January, and stood at 50 last month. December's figure was the lowest level since May 2003 -- just before interest rates started to decline in June 2003 and set in motion the favourable trade conditions that lasted well into last year. The figure remained subdued in January, but trade conditions now appeared to be out of negative territory, SACCI said. The trade activity index measures all trade across the economy. Its sub-index on current sales volumes improved from an exceptionally low 41 in December to 47 in January and strengthened further to 55 last month, and while not as strong as sales, the new orders sub-index followed a similar recovery up from 49 to 52 in February. The trade expectations index, after moving up slightly in December to 57, declined to 54 in January but recovered to 58 in February. Since July last year, when the index was at 67, it declined steeply to the more recent levels. The low expectation levels recovered from a low 54 in January to 58 last month, which was further evidence that conditions might be stabilising at a somewhat improved level, SACCI said. The sub-index on sales expectations also recovered from 58 to 64 last month, while the expectations on new orders index improved by two points to 60. Commenting on the results, SACCI economist Richard Downing said inflationary pressures remained a problem and appeared to be gathering momentum.

U.S. Concerned About Police Use of Force
The US government's 2007 Report on Humans Rights Practices hailed SA's stable democracy and economic policies, but expressed serious concerns over human rights problems arising from the use of excessive police force against suspects and detainees, among other ills. US Secretary of State Condoleezza Rice released the state department's 2007 Report on Humans Rights Practices March 12 covering various countries around the world. The US's human rights reporting mechanism has become one of the most significant tools available to the US government to help determine foreign policy strategies that promote the development of democratic systems, and remedy abuse and disregard for human rights. South African government spokesman Themba Maseko said the government had not yet seen the report, but would consider it and respond at a later stage. Under the subtitle, Arbitrary or unlawful deprivation of life, the report said that while there were no politically motivated killings by the government or its agents in SA, the police service had often used lethal force during arrests, resulting in a significant number of deaths, as well as deaths in police custody. It said police efforts to control vigilante violence also resulted in deaths. It quoted statistics from the Independent Complaints Directorate 's 2007 report, which said there were 698 deaths in police custody or as a result of police action from April 1 2006 to March 31 last year, which was an 11% increase on the previous year. Authorities attributed 185 of these deaths to natural causes, suicide, or injuries sustained before detention. The directorate reported that shootings accounted for 54% of the deaths in police custody, with the majority of shootings during official police operations. However, negligence was cited in 23 deaths, and domestic violence and off-duty shootings in 56 deaths. The directorate expressed concern in the report that four innocent bystanders were killed in crossfire between police and criminals, and that 44 people were killed by police vehicles. However, the report acknowledged that the government had investigated and punished some abusers. The report also warned about rising vigilante violence and mob justice resulting from racial and ethnic tensions and conflicts with foreigners due to xenophobia. Factors cited as contrary to the spirit of the constitution were lengthy delays in trials and prolonged pretrial detention, pervasive violence against women and children, and societal discrimination against women and people with disabilities. It said these were still rampant.

South Africa Defends UN Sanctions Vote on Iran
The government March 4 defended its decision to support a United Nations (UN) Security Council resolution imposing further punitive sanctions on Iran. SA's vote has raised eyebrows in international circles as it runs counter to the country's earlier call on the council to suspend the resolution until the director-general of the International Atomic Energy Agency (IAEA) had tabled his report and the agency's board of governors had had a chance to consider the matter. SA's board representative, ambassador Abdul Minty had expressed optimism in the IAEA's ability to resolve the matter. He said Iran was responding positively to the IAEA's request to inspect its facilities, and it had been getting answers about the uranium enrichment programme in that country. The IAEA has yet to find any evidence of diversion of nuclear material and all material has been accounted for. Foreign affairs chief director for the UN Xolisa Mabhongo said the resolution was adopted by 14 votes in favour of the sanctions, with only one country abstaining. He said ambassador Dumisani Kumalo supported the resolution because SA felt that Iran had not complied fully with the council's expectations. "Even though we voted in favour, we have said that it is now imperative to work creatively to diffuse the tensions and find a peaceful solution to the problem," Mabhongo said. He said Kumalo had impressed upon the council member states that the IAEA was the only international authority that could verify and provide assurance on the peaceful nature of Iran's nuclear programme. SA's vote also ignored the release of the US National Intelligence Estimate, which concluded that Iran did not have a current nuclear weapons programme. Despite the vote that has shocked Iran, Kumalo pleaded with the five permanent members of the council -- France, Britain, US, Russian and China -- to increase their confidence in the peaceful nature of the Iranian nuclear programme. "It is important to allow the IAEA verification process to proceed on its current course. It is important not to jeopardise any of the gains made," Kumalo said. Mabhongo emphasised SA did not want to see a war break out over the nuclear programme in Iran. However, it also did not wish to see an Iran possessing nuclear weapons nor the denial of the right of any signatory to the Nuclear Non-Proliferation Treaty to exploit the peaceful applications of nuclear technology with appropriate safeguards. Mabhongo said SA believed the sanctions were temporary and would be lifted once the IAEA had addressed the remaining issues. Mabhongo denied that SA was pressured to vote as it did, despite suggestions to the contrary following French President Nicolas Sarkozy's recent visit to SA.

Inter-Parliamentary Union to Address Poverty
The 118th Inter-Parliamentary Union (IPU) Assembly, which opens in April, will see national Parliaments from around the world gather in Cape Town to address issues of global concern such as poverty. Between April 13 and 18, 140 national parliaments worldwide with a minimum of 10 delegations per country will meet under the theme "Pushing back the frontiers of poverty". The IPU theme is further enhanced by Parliament's 2008 theme of "Empowering communities for poverty eradication". Both themes are in line with the advancement of the Millennium Development Goals (MDGs), specifically the goals of eradicating extreme poverty and hunger by the year 2015. Other topics to be discussed in the assembly touch on the political, economic and social challenges that blight global communities worldwide, the plight of migrant workers, human trafficking, xenophobia and human rights. The IPU is a world organisation of Parliaments that work for peace and co-operation with focus on worldwide dialogue. It supports the efforts of the United Nations whose objectives it shares and works in close co-operation with it. It also cooperates with regional inter-parliamentary organisations as well as with international intergovernmental and non-governmental organisations which are motivated by the same ideals. The IPU seeks to strengthen parliaments as crucial pillars of democracy, focusing on future co-operation on a number of key areas including national budget processes, action by parliaments in advancing the MDGs and in the implementation of among others, poverty eradication strategies. The union fosters contacts, co-ordination, and the exchange of experience among parliaments and parliamentarians of all countries. It also considers questions of international interest and concern and expresses its views on such issues in order to bring about action by parliaments and parliamentarians. The IPU contributes to the defence and promotion of human rights, an essential factor of parliamentary democracy and development and contributes to better knowledge of the working of representative institutions and to the strengthening and development of their action.

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AUTOMOBILES

Market Set to Be Tested in 2008

The National Association of Automobile Manufacturers of SA (NAAMSA) has released its quarterly review for the end of 2007 and its overview of the prospects for 2008. While all the signs point to a slowdown in the sales of new passenger cars, it is clear that the market will still continue to grow. Growth in the commercial vehicle market will be the major area of focus, although continued infrastructure problems such as Eskom's power delivery and poor roads will play a significant role in whether this growth is abruptly stemmed. Announcements regarding investment and new export contracts are welcome, but these too will rely on significant infrastructure investment by the government and stakeholders to ensure that international manufacturers do not choose more attractive markets. Looking back on 2007, Naamsa director Nico Vermeulen pointed out that "the automotive industry was affected by a series of negative events. These included progressive increases in interest rates, the introduction of the National Credit Act legislation during June, which introduced stricter disciplines governing the granting of credit by financial institutions, the e-NaTIS vehicle registration problems and, during the third quarter of 2007, the negative impact of industrial disruption in the component supplier industry. These developments impacted negatively on new vehicle sales, particularly new car sales. "During 2008, market sentiment and automotive industry trading conditions will be tested by the high interest rate environment, record high levels of household debt, rising inflation and volatile and increasingly vulnerable international financial markets. Consumers and businesses are likely to face a higher cost base in 2008, which in turn will dampen their ability to spend on new cars," he said. "2008 will be a more challenging year for the South African economy with GDP growth expected to moderate to about 4%. On the productive side of the economy, large-scale investment in infrastructure development and expansion should sustain a relatively high level of economic activity. Further support should be forthcoming as a result of strong commodity and precious metal prices. However, vehicle manufacturers and importers continue to face significant rising cost pressures as a result of domestic inflation and, more recently, substantial exchange rate weakness. To the extent that increased costs are recovered through vehicle pricing, vehicle affordability is likely to deteriorate during 2008." "In terms of current projections for 2008, the new car market was expected to contract by about 6%, the light commercial vehicle market by a nominal 2,2% -- while sales of medium and heavy trucks and buses were expected to grow by about 8%. The projections are premised on the current prime rate of 14,5%." He said that if there were further increases in interest rates, the projections would be revised downwards. In contrast to the weaker domestic sales environment, production of new motor vehicles was expected to increase substantially during 2008, Vermeulen said. This was on the back of sharply higher vehicle export sales, "rising from 534490 vehicles in 2007 to about 630000 vehicles in 2008, an improvement of close on 100000 units or about 18%".

Toyota to Export 147 000 Cars to Europe, Africa
More than 147 000 Toyota automobiles will be made in South Africa and exported to Europe and Africa in the coming year. This year the automotive giant is to manufacture a total of 220 000 units of which 147 000 would be exported, it announced March 4 in Durban, at a ceremony commemorating its first passenger vehicle exports to African and European countries. The first exports of Toyota Corolla Sedans had been to Turkey, with the first shipment leaving Durban's harbour February 28. Toyota would be distributing more of the vehicles produced at the Prospecton Plant in Durban by rail and negotiations are said to be underway with Transnet. Speaking at the ceremony, Transport Minister Jeff Radebe praised the company for its investment and its drive to export. "I am also glad to note that the impact of the Toyota SA 220K project is far-reaching and almost 50 percent of the total upgrade investment has been spent with local suppliers with established Black Economic Empowerment credentials, resulting in the creation of new jobs." About 4 000 new job opportunities have been created by the initiative. The company employs around 10 000 people in South Africa. Mr Radebe said vehicle exports accounted for 7 percent of the country's total exports, and he attributed the success of the vehicle exports to the government's Motor Industry Development Programme. "This programme has boosted exports by enabling local auto manufacturers to include total export values as part of their local content total, then allowing them to import the same value of goods duty free." Investments by the company in South Africa gave the company a R20 billion export potential. This is almost the equivalent of 1 percent of South Africa's current gross domestic product. The 147 000 units Toyota intended exporting in 2008 would account for 60 percent of the country's vehicle exports. In 2007, Toyota South Africa exported 59 378 units, amounting to 34.5 percent of the vehicle export market. Apart from the R300 million the company had invested in training during the past three years. This will include sending 174 people to Japan for training. The minister noted that this is an appropriate answer to the challenge of skilled labour shortage, which continues to dampen growth prospects in the automotive industry - with skilled artisans leaving the country. "We need to ensure that our retention strategies are in place to keep our skilled workforce." With regards to environmental problems such as air pollution, global warming and the exhaustion of energy resources, the minister said demands of the automotive industry and all affected needed to respond to these challenges. "We have indeed noticed that the automotive companies are placing maximum importance on tackling and overcoming environmental and energy-related issues. I am confident that your industry is making every effort to develop technology that will lead to cleaner, more fuel-efficient vehicles," Mr Radebe said.

February Sees a 12 Percent Drop in New Vehicle Sales
South Africa's new vehicle sales decreased in February, with year-on-year sales falling by 12 percent, due to interest rates and high personal debt levels which affected consumer spending. This is according to statistics released by the industry body, the National Association of Automobile Manufacturers of South Africa (NAAMSA) March 4. "Aggregate combined new vehicle sales at 46 248 units had registered a decline of 6 278 units or 12.0 percent compared to the 52 526 vehicles sold during the corresponding month last year. "Taking account of sales not reported in detail to NAAMSA, total aggregate sales declined by 13.5 percent," the body said. According to NAAMSA, the new vehicle sales had continued to reflect the trend of the past six to nine months and recorded a mixed performance with the new car market remaining under pressure, but new commercial vehicle sales achieving further improvement. Sales of new light commercial vehicles, bakkies and minibuses at 15 514 units during February 2008 reflected a decline of 1 863 units or 10.7 percent, compared to the 17 377 unit sales in February 2007. A large portion of the light commercial vehicle segment is also bought by private individuals subjected to the same economic factors affecting the passenger car market, NAAMSA noted. "Supported by strong investment sentiment and infrastructural spending, sales of vehicles in the medium and heavy truck segments of the industry had maintained their strong upward momentum," it said. Sales improved to 1 262 units and 1 967 units, respectively. This was an improvement of 2.2 percent, in the case of medium commercials, and 19.8 percent in the case of heavy trucks and buses, compared with the corresponding month last year. Despite the decrease, the aggregate new vehicle export sales showed a significant improvement of 23.3 percent compared to last year. In this light, the growth in exports would benefit the South African vehicle and component industry's production volumes, the country's trade balance and enhance the automotive sector's overall contribution to the country's gross domestic product. According to NAAMSA, the additional infrastructure investment allocations in the recently announced Budget is expected to support savings, investment and future economic growth and would therefore positively influence new vehicle sales over the medium to long term. It also added that the reduction in the corporate tax rate to 28 percent and the emphasis on supply side measures to boost the productive capacity of the South African economy will also show positive growth in new vehicle sales. The proposed adjustment to personal income tax and car travel allowances to compensate for inflation will also contribute to sales, NAAMSA said.

Mercedes Boosts Production
Mercedes-Benz SA (MBSA) is set to in-source its commercial vehicle production from March, to increase its local vehicle supply. The company will also make an investment of approximately R45m, some of which will be used for the redesign of the commercial vehicle assembly plant. Construction is expected to start by the middle of this year. MBSA management board member for manufacturing Joachim Follmann said the decision to insource the commercial vehicle manufacturing division came about as a result of the growth in the truck market. "In 2001 commercial vehicles were mainly imported and manufacturing made up a small part, about 400 vehicles per year. Ikhwezi Truck Tech took over the assembly of all MBSA's semi-knocked-down trucks, including Mercedes-Benz, Freightliner and Mitsubishi models from 2001. "Last year MBSA produced more than 6000 commercial vehicles locally. With further expected growth, the manufacture of commercial vehicles has once again become a core business, requiring considerable investment." Ikhwezi Truck Tech is part of Eastern Cape-based Ikhwezi Investment Holdings that was formed in 1997. The contract was initially awarded as a two-year tenure in 2002, but was renewed on a six-month notice period. Ikhwezi director Pieter Bosch said, "The contract was an opportunity that came our way and we made most of it." The Truck Tech employees will be transferred to MBSA. Follmann said, "The co-operation with Ikhwezi over the past years was very successful and beneficial for both parties. The commercial vehicle component suppliers will not be affected by this change." Mercedes-Benz has assembled trucks in East London since 1962, although its name changed from Car Distributors Assembly (CDA) to United Car and Diesel Distributors (UCDD) to Mercedes-Benz SA and, most recently, DaimlerChrysler SA. The first Mercedes-Benz truck built in SA in 1962 was the LP911, the first in the L-series, with its rounded lines and distinctive snub-nose.

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BANKING

Standard Bank Earnings Growth Target Slashed

Standard Bank Group has slashed its 2008 earnings growth target by half, dragged down by worsening economic conditions and the short-term effects of the sale of a 20% stake to a Chinese lender that led to a dilution in earnings. But CE Jacko Maree said March 5 Standard Bank's medium-term growth targets remained unchanged, with a normalised return on equity pegged at 22,5% and headline earnings per share growth forecast to be 10% above the South African rate of inflation. SA's largest lender by assets had cut its earnings forecast to 5% higher than South African inflation from an earlier 10%, making it the second South African bank within two days to cut 2008 earnings projections. FirstRand warned March 4 it was unlikely to meet its earnings growth target because of volatile markets and rising inflation and interest rate hikes. Standard Bank's 2008 returns were expected to fall, sliced by tough domestic and global economic conditions and the short-term financial effects of the $5,5bn sale of the bank's shares to the Industrial and Commercial Bank of China (ICBC), which increased the number of shares in issue, leading to some earnings dilution. He said although growth rates in the markets in which Standard Bank operated were expected to slow this year, the operating conditions were also expected to create both risks and opportunities for the group. "Over the next few years the group will focus on identifying suitable capital deployment opportunities for the capital inflow arising from the transaction with ICBC to ensure appropriate shareholder returns. Geographic diversification paid off for us last year and will continue to do so in the future. "The new capital injection from ICBC is dilutive in the short term, but extends our growth horizons in the longer term. "We believe strong capital ratios are a competitive advantage right now, allowing us to consider further acquisitions," Maree said. Patrice Rassou of Sanlam Investment Management said Standard Bank had "weathered the offshore storm well, with only a â‚ 1m loss compared with FirstRand's equity trading loss of $200m." Standard Bank's headline earnings for the year to December grew to R13bn -- up 22% on the previous year. Headline earnings per share grew 21% to 960,6c, and return on equity was 24,8%. A final dividend of 205c per share was declared, up 16% on 176c a year before. Net interest income grew 35%, driven by a 26% increase in average assets across the group's banking operations coupled with wider net interest margins. The 68% increase in the group's credit impairment charge to R4,6bn comprised an 86% increase in the charge for non-performing loans and a 16% increase in portfolio-based provisions for performing loans. Maree said the tough economic environment had resulted in Standard Bank's personal and business banking's credit loss ratio rising from 1% to 1,34%. The group's credit loss ratio increased to 0,78% from 0,60% -- slightly outside the group's target of 0,75%.

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BLACK ECONOMIC EMPOWERMENT 

New Set of Fat Cats Will Milk Zuma-Era BEE

President Thabo Mbeki's much-vaunted black economic empowerment (BEE) policy is set to change now that there is a new regime in charge of the ruling African National Congress (ANC). On the face of things, the new guard is making all the right noises, saying that BEE should not be limited to the usual suspects and that it should be broad-based. Yet early indications point to the very real possibility that one set of business people who are politically connected may well be replaced after the next general election by a new crowd that has better contacts with the new ANC leadership. At this stage, the new approach is still unclear, save for the intention to make BEE much more broad-based and in keeping with sentiment arising from the party's national conference in Polokwane two months ago. But already trouble is brewing since it has become clear that old connections, such as those between Mbeki's administration and the new Jacob Zuma-led group, will continue to determine beneficiaries in profitable transactions, such as Vodacom's unbundling of its lucrative BEE stake. Rated among the most substantial to date, Vodacom's proposed R7,5bn deal has come under scrutiny after businessman Bulelani Ngcuka was sidelined from a consortium bidding for the prized stake. Married to Deputy President Phumzile Mlambo-Ngcuka, the former National Prosecuting Authority (NPA) head is associated with Zuma's legal woes. Ngcuka's consortium, which also includes another Mbekiite, Saki Macozoma, was among a group that was on the verge of snapping up the empowerment stake, which now appears destined for a more politically palatable consortium. Rumour has it that ANC heavyweights Mathews Phosa and Tokyo Sexwale, both of whom are part of the new regime, and serving on the ANC's all-powerful national executive committee, are touted as possible alternatives to Ngcuka. Although the new BEE strategy remains wrapped in intentions, it reflects the leftist leanings of the post-Polokwane leadership. The ANC has previously voiced its abhorrence for opulence. Its "strategy and tactics" document deplores "greed", "crass materialism" and "conspicuous consumption" that go beyond "the necessary spirit of entrepreneurship, ambition, daring competition and material reward" inherent in a market-based system. The director of the University of Pretoria's Centre for Business and Professional Ethics, Deon Rossouw, says the proposed changes would take BEE policy in line with its original intention of facilitating the upward mobility of beneficiaries. "Anything that can cascade the benefits down the economy should be welcomed," he says. Since its adoption as a policy, BEE has largely become synonymous with mega deals empowering only a few with close links to the upper echelons of the government and the ANC. Sexwale, Cyril Ramaphosa and Macozoma are some of its most prominent faces at press conferences where the latest deals are announced. But many others have also been associated with various consortiums and taking minority stakes in major corporations. The Elephant Consortium, for instance, is remembered more for the prominence of its shareholders than for its actual business interests. Names associated with the consortium included former telecommunications director-general Andile Ngcaba, Gloria Serobe, Dali Mpofu and the former ANC head of the Presidency, Smuts Ngonyama. "All you have seen as success stories is when individuals have become rich and become role models," ANC secretary-general Gwede Mantashe says. The party has no problem with individuals becoming rich through their own devices but where the state is in a position to facilitate empowerment deals, it should pay attention to ensuring that this touches as many lives as possible, engendering a "sense of community prosperity". The Congress of South African Trade Unions (Cosatu) shares this view. "We don't want to disempower individuals. What we want to do if empower far more," spokesman Patrick Craven says. ANC deputy president Kgalema Motlanthe says a key target will be people in rural areas who must own a viable stake in surrounding mineral and tourism wealth where this will lead to a reduction in dependence on social grants. With access to finance being the biggest problem on they way to economic empowerment, Motlanthe says BEE has benefited mainly the banks."The merchant banks have made more money out of BEE than the target beneficiaries," he says. The proposed strategy will seek to "stream" financial institutions such as the Industrial Development Corporation (IDC) to play a complementary role. However, United Democratic Movement (UDM) leader Bantu Holomisa says the envisaged broad-based empowerment approach will not work "because this is a capitalist state". Some BEE transactions are done through family companies and are therefore not open to much bidding, he says. Furthermore, he says, even the revised policy is a smokescreen for the new ANC leadership, which is beginning to show "their true colours" by wanting a share of the spoils. "We've heard the song before of broad-based empowerment. We've also noted that the unions have been the main recipients," Holomisa says. The starting point should be an audit of the individuals who have actually received dividends. "It should start within the tripartite alliance, whose members have benefited nine out of 10 times." Craven says some union investment vehicles have benefited but this has not substantially trickled down to general members. Co-operative ventures would ensure " that the benefits of empowerment are spread". Ironically, as a party, the ANC itself has not escaped direct involvement. Although now under a probe for possible conflict of interest, its highly profitable investment vehicle, Chancellor House, helped the party close a ga ping hole in finance by turning a surplus. No less unpopular among some companies is the challenge of compliance, which often results in abuse through fronting. Craven is not convinced. "It sounds to me like an excuse on the part of companies which are dragging their feet," he says. But, in Holomisa's eyes, the Vodacom empowerment deal -- which seems to have sucked in the party's new leadership in the choice of politically desirable beneficiaries -- exposes the ANC leadership's real motive while also discrediting the company. "The challenge of the new ANC leadership is how do you take BEE transactions outside the elite?" Holomisa asks. He says the Vodacom transaction borders on "institutionalised corruption", gives SA a bad name and is likely to discourage foreign investment. If the company wanted politicians' help, rather than ignore the present government, it should have shelved the transaction until after the next election when the new ANC leadership is likely to have won a mandate from the electorate, Holomisa says.

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HIV/AIDS

Government Mends Bridges With TAC

The African National Congress (ANC) has extended an olive branch to the Treatment Action Campaign (TAC), sending senior leaders to address the AIDS lobby group's national congress in Gauteng mid-March. In stark contrast to the apparent détente between the organisations, Health Minister Manto Tshabalala-Msimang snubbed the meeting. She had been invited to address the 550 delegates from TAC branches around SA as they gathered to plan strategy and elect a new leadership. The congress resolved to call on the Presidency to "evaluate the ministry of health or revamp it". Although the statement is a departure from the TAC's usual call for Tshabalala-Msimang to be axed, it again emphasised the strained relationship between the parties. Tshabalala-Msimang has been the object of ridicule, both in SA and abroad, for her unorthodox views on HIV/AIDS treatment. While she has championed dietary remedies, the TAC has taken its campaign to force the government to provide anti-retroviral drugs to the streets in protest, and to court. ANC national executive committee member Zweli Mkhize, who addressed the meeting March 14, called on the government and the TAC to bury the hatchet and unite in the fight against HIV/AIDS. "I am aware that there was quite a lot of strain between the TAC and the government and I said to some of the members that I hoped we could bury that as a chapter of the past. We hope that we will try to reduce all the tensions and bring ourselves to a point where we will move forward as one army taking on one common enemy," Mkhize said. In the face of government efforts to counter damaging impressions that it has failed to deal with AIDS, Deputy President Phumzile Mlambo-Ngcuka addressed the TAC meeting March 16, offering a partnership with the government. "This congress happens at a point where we can comfortably say that, as partners, we have a clearer view of strengths, weaknesses and, indeed, comparative advantages of each other as we join forces in the fight against HIV and AIDS," she said. The TAC's fourth national congress saw the AIDS lobby group's founder and chairman, Zackie Achmat, step aside. Nonkosi Khumalo and Vuyiseka Dubula were elected uncontested as the TAC's new chair- woman and general secretary.

TAC Seeks Ban On Rath Treating Aids With Vitamins
Treatment Action Campaign (TAC) lawyers March 12 asked the Cape High Court to instruct controversial vitamin entrepreneur Matthias Rath and his associates to stop promoting his products as alternatives to AIDS drugs. The case goes to the heart of SA's legal framework for medicines, and has potentially wide-reaching implications for the growing complementary health products market. "It (the case) has very important implications -- to protect public health and to protect people from unscrupulous money-makers," TAC chairman Zackie Achmat said. TAC and the South African Medical Association (Sama), SA's biggest doctor organisation, have charged Rath with systematically contravening the Medicines Act by distributing unregistered medicines, conducting unauthorised clinical trials, and publishing "false and misleading" advertisements that claim vitamins and micro-nutrients reverse the course of AIDS. They have also drawn the government into the case, claiming it failed to fulfil its duties to protect citizens from harm by not taking reasonable steps to investigate and halt Rath's allegedly unlawful activities. The court was asked to issue a structured interdict compelling health department director-general Thami Mseleku and the government to probe Rath's activities, stop him if he was indeed breaking the law, and report their findings to the court. Rath's employees, David Rasnick and Alexandra Niedwiecki, the government, Mseleku, the chairman of the Medicines Control Council (MCC), the registrar of medicines and the MEC for health in Western Cape were cited as co-respondents. TAC and Sama originally included Anthony Brink and his Treatment Information Group in the application, but the parties settled out of court last week. TAC lawyer Geoff Budlender told the court that the Medicines Act defined a medicine as any substance that was used, claimed to be suitable for, or was manufactured and sold for diagnosing, treating, or preventing disease. The act required medicines to be registered with the MCC, prohibited the sale of certain medicines except by qualified people such as pharmacists, and made it illegal to make unauthorised claims about medicines. All experiments intended to assess the safety and efficacy of medicines had to be registered with the council. The purpose of the act was to protect patients and prevent quackery, he told Judge Dumisani Zondi. Rath's products were medicines, Budlender argued, because he had distributed them for treating AIDS. They were therefore subject to the act's provisions. He said Rath had breached the act by failing to register his products and had broken the law by failing to register his experiments on HIV-positive people living in Khayelitsha. Rath's lawyer, Dumisa Ntsebeza, said his client had never claimed his products were medicines. "We are saying they are nutritional supplements. " As for the issue of clinical trials, Rath donated vitamins to the South African National Civics Organisation for distribution, while participants in so-called trials were told they were getting vitamins, not medicines, and willingly took them. With Sapa.

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INFORMATION TECHNOLOGY

Datatec Takes $77m Bet On Brazil Venture

Datatec has decided the best way to tackle the vast Latin American market is by teaming up with a native company to form a new joint venture in a move costing it $77,2m.Datatec will do the deal through its Logicalis subsidiary, which will merge its Latin American operations with Brazilian network integrator Promon Tecnologia. That encompasses its operations in Argentina, Uruguay, Chile, Peru and Paraguay as well as in Brazil. Logicalis will take a 70% stake in the new venture and will pay Promon Tecnologia's owner, Promon, in cash and shares. The new venture would have almost 500 staff and is expected to generate annual revenue of $250m. Datatec shares temporarily shed more than 15%, or R4,50, to trade at R25 March 17 after the deal was announced. Datatec CEO Jens Montanana said this was a key deal as it would make Logicalis the leading technology integrator in Brazil and the whole of Latin America. It would add a significant new geographic revenue and profit stream to Logicalis, he said. Both companies would be able to access each other's skills so they could tackle new markets and customers across the continent. Promon Tecnologia is the largest partner in Brazil for networking technology supplier Cisco, which also accounts for the majority of Datatec's revenue. It has more than 200 employees, including 140 technicians and project managers in Sao Paulo and Rio de Janeiro. Last year it generated more than $140m in revenue and $18,3m in pro-forma earnings before interest, tax, depreciation and amortisation. Its customers include most telecoms operators in Brazil, as well as large oil, gas, financial, manufacturing and public sector organisations. Datatec had been operating in Brazil for 10 years and this merger was "a rare opportunity to secure a market-leading business with a strong management team", Montanana said. Datatec has been working to spread its geographic footprint into more emerging markets for the past few years, after streamlining its operations and pushing them back to profitability after a substantial downturn in its fortunes a few years ago. In January Montanana spoke about plans to enter the Indian market and said the company was also exploring opportunities to launch operations in other African countries, to generate more cash from emerging markets where the surface for technology and telecoms services had barely been scratched. Last week the group issued an earnings update for the year to February 29, saying its financial performance had improved for the fifth successive year. Its upcoming headline earnings per share and earnings per share should both come in at between $0,42 and $0,46, up from $0,40 last year. The Brazilian deal would see London and JSE listed Datatec pay $25m from its cash resources and issue 6,6-million shares at 185,33p each, worth $25m. Another $27,2m will be paid over the next two years, depending on the performance of Promon Tecnologia.

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INTERNATIONAL ECONOMIC RELATIONS

South Africa to Strengthen Ties With Bulgaria

The government welcomed a decision by Bulgaria to increase its activities in Africa, and the New Partnership for Africa's Development (Nepad) programme stood to benefit, Deputy Foreign Minister Aziz Pahad said on March 14. He said that Bulgaria had historically been viewed as the gateway to eastern Europe and was known to be one of the stabilising countries in the Balkans. Pahad was hosting his Bulgarian counterpart, Deputy Foreign Minister Feim Chaushev. He thanked Bulgaria for declaring SA a strategic partner and for having contributed for many years towards SA's freedom by sponsoring students from liberation movements such as the African National Congress. Bulgaria's position as a European Union member would open mutually beneficial economic opportunities. "We will continue to discuss the African challenges, not only the conflict situations, but the broad progressive developments in Africa, in all fields of the African developmental agenda through Nepad and opportunities for Bulgaria, " Pahad said. Thousands of students from Africa had studied in Bulgaria and were employed in key positions in their respective countries, Pahad said. SA is hoping to involve Bulgaria in its Accelerated and Shared Growth Initiative for SA (Asgi-SA) and Joint Initiative on Priority Skills Acquisition programmes to deal with its acute skills shortages in every field. Diplomatic relations with Bulgaria reopened in 1992 and trade with the country is worth about R500m a year. Pahad said this was insufficient compared with what the economic and business potential could be. "I am very pleased that Chaushev has identified many areas in which we can extend our co-operation, such as energy, transport, infrastructure development, health and especially in the agricultural field. "But most important, the minister has now given us concrete recommendations rather than general statements about areas of co-operation in all of these fields and we will discuss these with the relevant ministries to see how we can further develop our relations with Bulgaria," he said. Ties with Bulgaria could enhance SA's influence in helping to resolve problems involving Kosovo's independence, as well as the long-running crisis in the Middle East, which had an effect on the entire region, including Iraq, Afghanistan and Iran, Pahad said. "We hope that the president of Bulgaria is going to visit the region," he said. "It will give an impetus the potential that exists," Pahad said.

Indonesia to Work Toward Essential Air Link

President Thabo Mbeki and his Indonesian counterpart, Dr Susilo Bambang Yudhoyono, have agreed that establishing an air link between the two counties will be mutually beneficial. "One of the matters that we have agreed will facilitate co-operation is seeing how quickly we can conclude and implement an agreement on air links between the two countries," said Mr Mbeki, speaking at the Union Buildings March 17. President Mbeki said it was important that people are able to move with ease between South Africa and Indonesia. This could only add further impetus in the areas of tourism, business co-operation and economic growth, he added. Trade between South Africa and Indonesia totalled $641.7 million in 2006, expanding by 18 percent on the previous year. Discussions between Dr Yudhoyono and Mr Mbeki focussed on the strengthening of bilateral relations between the two countries, with a focus on furthering collaboration within the sphere of multilateral institutions, said Mr Mbeki. A number of agreements between various ministers were signed. These included a Joint Declaration on a Strategic Partnership for a Peaceful and Prosperous Future, a framework statement on the new Asia-Africa Strategic Partnership, a Memorandum of Understanding (MoU) on Co-operative Activities in the Field of Defence, as well as an MoU on Cultural Co-operation. "I'm very optimistic about the future co-operation between Indonesia and South Africa which will be expanded significantly especially after the signing of the Joint Declaration on a Strategic Partnership for a Peaceful and Prosperous Future. "We have also agreed that the next Asia-Africa Summit should be held in South Africa before April next year, it is important to hold that summit following the one held in Jakarta in 2005." Mr Mbeki said they had also discussed the issues of capacity building in Palestine. "We [as South Africa] expressed our appreciation for the manner in which Indonesia and South Africa are co-operating as members of the United Nations Security Council," he said. The Indonesian President said economically, South Africa was an advanced and fast growing country in Africa, and Indonesia was the largest economy in South East Asia. "If we combine the potential of our two countries the benefits of co-operation the benefits will be enormous for both," said Dr Yudhoyono. He highlighted that trade between the two countries grew by 28 percent in 2007 in comparison to 2006, and that if both continued to harness opportunities the benefits will be great. To build on the 28 percent increase in trade between the two countries, Mr Mbeki highlighted that it was necessary for each to expose their economies to the other and for the private sector to get involved. Accessing the Indonesian market will further expose South African business to Asia's rapidly expanding markets. Indonesia and South Africa will continue to address global issues such as climate change; food and energy through the various multilateral forums that exist, said Dr Yudhoyono. Indonesia, similar to South Africa is facing various electricity challenges, and Dr Yudhoyono said this had come as a result of rising oil and gas prices and climate change. He added that Indonesia was investing in renewable energy and reducing greenhouse gas emissions.

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LAND REDISTRIBUTION

Farmers Vow to Fight New Expropriation Legislation

Organised agriculture has vowed to fight the government's Expropriation Bill following the approval by the cabinet in March of the draft policy on expropriation. The bill is due to be tabled in Parliament in June. Cabinet spokesman Themba Maseko said the envisaged act would align more than 100 pieces of legislation and ordinances, including the government's right of expropriation, with the constitution. A significant proposed change is from the legal principle that expropriated land must be used for a public purpose, to the requirement that an expropriation must be "in the public interest", allowing for a wider interpretation of the law. Another change is the interpretation that the constitutional requirement of "just and equitable" compensation would be interpreted as not necessarily market related. Farmers' union Agri SA said March 14 it had serious reservations about the wide powers the new act would give to the public works minister, the limitations on the rights of the property owners of full access to the courts, the possible watering-down of market-related compensation and the undue haste with which the bill would be pushed through Parliament. Agriculture and Land Affairs Minister Lulu Xingwana has repeated with increasing frequency a threat to use expropriation to accelerate the processes of land restitution (land claims) and the redistribution of land. She has blamed white land owners for abusing the willing buyer, willing seller principle by demanding exorbitant prices for land, while the land claims commission has accused land owners of "giving it the run around" in reaching acquisition agreements. A report in The Weekender, however, showed that the delays in restitution are largely because of inadequacies in the way the land claims commission has gone about the validation and verification of land claims. This has resulted in many spurious claims, claimant communities competing for the same land, claimants participating in multiple claims and claims so vague that they do not make sense. The report said that the commission's assertion that 92% of land claims under the Restitution of Land Rights Act had been settled was a misrepresentation of what it had achieved. Although a relatively small number of claims (about 4900 out of 79696), remained to be settled, these claims represented the majority of individuals waiting for restitution. The unsettled claims also represented the vastly greater proportion of land under claim. Land owners who objected to claims on their land had recourse to the Land Claims Court, though this was a factor in delaying restitution, the former chief land claims commissioner, Tozi Gwanya, said in the commission's penultimate report last year. TAU, a predominantly white farmers' union, said farmers need not be overly concerned or intimidated by the proposed amendments to the law since they might be in contravention of s ections 1, 2 and 3 of the constitution. TAU president Paul van der Walt said the union would ensure farmers' property rights. Van der Walt said the process was an intimidation and propaganda exercise.

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MANUFACTURING

Outlook for Country's Economy is Grim

Manufacturing activity slumped to a four-and-half-year low in February, knocked by slowing consumer demand for cars and furniture and the power crisis, according to the latest Investec purchasing managers index. With manufacturing the second biggest contributor to SA's economy (16%) after financial services, the slump points to softening growth in the first quarter. Expectations for business in the next six months hit a record low as output and new sales orders contracted during the month, and tight conditions were aggravated by the increase in input price inflation. "With five out of nine of the components under the key 50 level, economic difficulties are indeed taking hold," ETM analyst Karen Chow said March 3. "Rising inventories, falling new and backlog of sales orders, and a decline in business activity indicates that manufacturers are less confident of the outlook going forward and have cut back in production." SA's seasonally adjusted PMI, which measures manufacturing activity, fell to 46,4 in February from 52,1 in January. A reading above 50 points to an expansion, and one below points to a contraction. "In all likelihood, the decline reflects not only the effect of a softening real economy, but also the effect of the electricity crisis on the sector," Andre Roux, fixed income head at Investec Asset Management, said. "The results indicate that the manufacturing sector is taking strain. Purchasing managers expect conditions to improve somewhat in the next few months. However, their expectations with respect to conditions in six months' time were adjusted downward to the lowest level since 1999," Roux said. Large manufacturers, together with the mines, have borne the brunt of power rationing which has had a negative effect on both output volumes and order books. Industry, business and households have been asked to cut consumption up to 10% until 2010 to stabilise supply in a step that will add to other constraints and may curb growth to just above 3% this year from 5% last year. Along with mining, the manufacturing sector is likely to be hit hard. Chow said that, given the pessimism surrounding Eskom's power supply over the next few years, manufacturers would be reluctant to commit to contracts that might not be fulfilled due to power constraints. "This is reflected in the decline in the employment component which fell below the key 50 mark for the first time since May 2006, as manufacturers were forced to cut jobs," she said.

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MINING

Mines are an 'Unfair Target'

The mining industry was not satisfied with the situation on electricity supply, Anglo American CEO Cynthia Carroll said February 29. "There will be significant shortfalls on the production side and we certainly want to protect the platinum industry in this country," she said. In February SA's mines were restricted to using 90% of their normal power consumption. At the end of January, SA's mines were suspended for all but essential maintenance for four days when Eskom experienced an acute power shortfall because of maintenance backlogs and low coal supplies. But while the mines operate at 90% power, the rest of SA has experienced no recurrence of the three weeks of intermittent load-shedding that occurred in January. SA's mines use about 15% of its power but contribute 7%-8% of gross domestic product. They employ 490000 people directly with an indirect effect on another 5-million dependants of mineworkers. "It is important that the minister of minerals and energy recognises that the disciplines and the agreements have to apply universally," Carroll said. "We should not single out mining as a target, given its significance today and in the future. It is massive in projects and investments and capital spending." She said this was not an issue to be faced by one company or one industry. "We have to work together and support one another, recognising that this industry is so critically important." Anglo Coal had agreed to provide 2,9-million tons or 60% of the 5,4-million tons of coal that Eskom requires over the next three months, Carroll said. Carroll said there were some discussions around taking the mines back to 95% power but the concern was that it would have to be taken away from other industries and that could create an unreliable power situation. Carroll also said Anglo American was not planning to appoint another CEO for its South African operations. She said Anglo was looking at a different model. The job of Anglo American SA CEO was a representative position, not managing the assets in SA which were all different. But it was important to approach stakeholders, whether government or communities, in a similar way.

BHP Billiton Warns of Looming Job Cuts
Resources group BHP Billiton's possible shutdown of two potlines at its wholly owned Bayside aluminium smelter in Richards Bay could affect up to 900 workers as it cut production because of the electricity shortage, the group said Marc 12. The closure of operations at parts of the Bayside smelter and the company's plans to reduce production at its other two smelters, Hillside and Mozal, will cut BHP Billiton's total annual production by 120000 tons, as heavy electricity users are expected to reduce their power consumption by 10%. BHP's warning of possible job losses comes after Eskom ordered mining companies to cut power usage by 10% to help solve the power crisis. That order prompted some mining companies to reduce production forecasts and warn of job losses. Eskom spokesman Andrew Etzinger said the utility would discuss BHP's decision. Smelters and mines are among the biggest consumers of power. BHP Billiton spokeswoman Brownwyn Wilkinson said the group's three smelters used altogether 2400MW. BHP announced the possible closure of the potlines and reduction in output March 12. The group said of the expected 120000 tons loss in production that the Bayside smelter would account for 92000 tons. Wilkinson said the changes would affect "at the most" 400 permanent employees and 500 contract employees. "Job losses are a possibility. But we will do everything to minimise the number of job losses," she said. The company said that it had started talks with its employees on the possible part-closure of the smelter. Wilkinson said most of the affected employees were members of the National Union of Metalworkers of SA (Numsa) and the United Association of South Africa (UASA). She said the negotiations had started, but she could not say how long the talks would take. UASA's Andre Venter said March 12 the union knew of the looming job losses. "We have been informed of the developments but we are still awaiting a formal notification in terms of section 189." The Labour Relations Act regulates retrenchment of workers. Numsa spokesman Mziwakhe Hlangani said yesterday the union was not aware of the negotiations with its members on possible job losses. The National Union of Mineworkers (NUM) has been fighting threats of job losses since the electricity crisis began earlier this year. The union has been vocal in its rejection of the possible cuts. "We have made it clear that we will oppose any form of retrenchment as a result of the power shortages," NUM spokesman Lesiba Seshoka said. "We know that the industry will say it (the electricity shortage) is not of their own doing. But they must also accept that workers are not to blame either," The local mining industry, which ground to a halt for five days at the height of the electricity emergency in January, has warned of possible job cuts. Talk of job losses in the mining industry has, however, subsided since the government announcement last week that the supply of electricity to mines would increase by a further 5% to 95%. The Chamber of Mines welcomed the move.

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PETROCHEMICALS

Oil Prices Boost Sasol Profit 15 Percent to R14bn

Sasol’s 15% increase in operating profit to R14bn in the six months to December was boosted by high oil prices and offset somewhat by the stronger rand and losses on an oil hedge that expires in May. The petrochemicals group appears to be back on track after a couple of seasons when it was held back by technical problems at key investments, unplanned shutdowns and lower sales volumes. In the six months it lifted sales volumes of synthetic fuels 4% and appears to have sorted out technical problems at its Oryx gas-to-liquids (GTL) plant in Qatar, which contributed to the bottom line for the first time. Headline earnings grew 18% to R14,56 per share. CE Pat Davies said the group benefited from high oil prices, but a turnaround strategy at its chemicals business, which Sasol previously had for sale, had paid dividends, and there were also efficiency improvements, particularly in its energy cluster. There were operational improvements at the Oryx plant. It had experienced catalytic problems, which led to fines being imposed, hampering the plant's ramp-up. Group GM Lean Strauss said the fines had been brought down by 80%, and while the fines were still above the level the plant had been designed for, the ramp-up was progressing well. The plant, which eventually will have a production capacity of 34000 barrels a day (b/d, was producing 16000 b/d by the end of December and some days now exceeded 20000 b/d, Davies said. Coronation Fund Managers analyst Henk Groenewald said while he was unsure whether the catalytic problems had been sorted out decisively, there were clear improvements. "They will sort out the problems. Once it is up and running, Oryx is going to be a fantastic project," Groenewald said. The Arya polymers project in Iran was also making progress with the cracker producing on-specification product. It was expected to start contributing to profit in the second half. However, at the Escravos GTL plant in Nigeria the capital cost of the project was expected to increase materially. Sasol could not quantify the cost increases, but one analyst believed costs had trebled since the project was originally proposed. Project Turbo at Secunda was nearing completion, Davies said. Last year the catalytic cracker had to be shut down, as it was under-performing and needed modification. Sasol's olefins and surfactants business, held as a discontinuing business in the comparable reporting period, had an operating profit of R458m on improved margins and cost savings. Sasol's prospects for the rest of the year were even more promising. With the rand having weakened considerably since the start of the year, with polymer margins intact, sales volumes increasing and efficiencies set to improve with Project Turbo nearing completion, the group was set for a "wonderful" second half, Vunani analyst Campbell Parry said. Sasol lost R465m on the realised portion of the hedge, while the unrealised loss it needed to account for amounted to R882m. Sasol has bought back 5,9% of its issued share capital, increasing its gearing to 32%. Details of the empowerment deal, which would see 10% of the group transferred to black investors, were expected to be announced within a month. The interim dividend was raised 18% to 365c a share.

Sasol Looks At R56bn Plant to Cut Oil Imports
In the strongest signal yet that Sasol is determined to press on with developing another coal-to-liquids plant for SA, the petrochemicals group said March 10 its board had committed R300m to examine the project's viability.At an estimated cost of $5bn- $7bn (up to R56bn at current exchange rates) the Mafutha project would be SA's largest greenfields investment to date, and could add capacity of 80 000 barrels a day. If the project gets the nod, it would be in line with the government's desire to diversify energy sources. Sasol said yesterday it was in talks with the Industrial Development Corporation (IDC) and the trade and industry and minerals and energy departments about its development. The group indicated previously it would not be the sole investor in such a large-scale project. That talks are already taking place with the IDC, which provided the capital injection through which Sasol was established, is probably an indication of how seriously the government takes the project. Sasol's technology has for long been punted as strategic to mitigate SA's dependence on imported oil, and it has a positive effect on the balance of payments. With the country now spending more than 15% of its total import bill on oil, increased domestic production could achieve a considerable saving in foreign exchange while going some way to tempering SA's reliance on foreign suppliers. Speaking at Sasol's results presentation March 10, Benny Mokaba, executive director of Sasol responsible for energy businesses in SA, said the "financial feasibility has shown it to be excellent". Sasol is still considering sites, including in Free State and the Waterberg. It is likely to build inland, where demand is concentrated. Coronation Fund Managers analyst Henk Groenewald said: "The economics obviously makes sense at higher oil prices, and at current levels the project would seem more attractive." Groenewald said there was, strategically, scope for the project: "SA is heading for a fuel shortage in a couple of years, so the project makes sense from balance of payments as well as security of supply points of view." But Sasol was unlikely to go ahead without backing from the state. Even if no funding was forthcoming, some form of state support, such as a tax break, would be required, he said. The project would, however, come at considerable environmental cost as Sasol's process for converting coal to liquid fuel, is three times as carbon intensive as conventional refining. The trend is to build coal-to-liquids plants near oil wells for possible re-injection of carbon dioxide into oil wells to mitigate carbon emission. But SA's oil refineries are at the coast, while Sasol will build the plant inland. Moreover, SA's water scarcity, as well as the electricity shortage which is expected to last for another five to eight years, could also present formidable challenges, the analyst cautioned. "There has been talk that the project could happen by 2010, but it will take longer. The timeline should probably move back some three years," the analyst said. "Philosophically, Mafutha should not happen because of environmental concerns. The state should rather promote the establishment of small oil import companies and renewable projects." The project was, however, politically important for the government. "There is a big political lobby behind Mafutha. The government wants to see it happen," the analyst said.

Sasol In Black Empowerment Move 
South African energy and mining giant Sasol has announced the final details of the Black Economic Empowerment (BEE) sale of a 10% stake in the business. Sasol said it would sell 63.1 million shares worth 25.9bn rand ($3.19bn; £1.6bn) to black staff and investors, in the country's largest BEE deal. First proposed in September of last year, the deal is expected to be passed at a shareholders meeting May 16. The government-backed BEE scheme aims to increase black economic ownership. "We will make a difference by creating significant economic opportunity for more than one million potential beneficiaries ranging from individuals to rural women's groups who can invest in Sasol," said chief executive Pat Davies. Under Sasol's BEE proposal, black employees will be eligible for 4% of shares in the company. In addition, a 1.5% stake is being marked for black investor groups, 3% for black members of the public and 1.5% for a new charity foundation. Sasol's image has traditionally been of a white, male-dominated corporation that grew rich during the apartheid years and therefore was often targeted by anti-apartheid campaigners for sanctions. But since Mr Davies took the post of chief executive two years ago, the company has undergone a rapid pace of change, with more diversity apparent in senior management. 

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RETAIL

Retail Recovery Tipped Next Year

South Africa's retail sector was expected to remain under pressure for the rest of the year before growth picked up next year, retail analysts said March 5. Retail has come under intense pressure as the frenetic growth experienced between 2001 and November last year has slowed. Standard & Poor's corporate ratings director Philip Temme said durables and semidurables retailers were likely to be hit hardest, a trend already seen in the equity market and in falling vehicle sales. In February, Statistics SA said retail sales fell for the first time in nearly seven years, signalling that rising debt costs and inflation had put strain on consumers. Retail sales fell 0,5% in December after a 0,2% decline in November -- which was revised down from an earlier estimate of 0,2% growth, Stats SA said. The sector is the economy's third- largest and news that it has contracted for the first time since the start of 2001 backs the view that higher interest rates will curb growth sharply this year. Cellphones, baby food and convenience stores were expected to continue growing. Globally, convenience stores were a growth area, Temme said. Locally, the emerging middle class had aided this growth, Temme said. He expected retailers to continue investing in this type of industry. Standard & Poor's South African and sub-Saharan MD Konrad Reuss said underlying structural aspects were expected to benefit the sector. Growing formal job creation, infrastructure spending, pent-up demand and a lack of online competition would benefit retailers. Temme said while there were short-term cyclical pressures, the market would be supported by these structural aspects over a two- to three-year period. Far from being a period of doom and gloom, Reuss saw the slowdown as beneficial to the long-term sustainability of the sector. Years of recent double-digit rate growth were not sustainable, he said. However, SA was still in the early stages of the cycle and the effects of eight successive rate hikes were only being felt now, Reuss said.

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TELECOMMUNICATIONS

Foreign Operators Expected to Bid for Telkom

Mergers and acquisitions in the technology and telecoms sector will grow so intense in the coming months that Telkom will be taken over by an international operator, the CEO of MTN Network Solutions believes. There were "plenty of choices" as to which foreign operators will make a play for Telkom, said Mike Brierley, who heads the internet division of Africa's largest mobile operator. Last year, MTN itself negotiated to acquire Telkom, giving Brierley an insight into its strengths, weaknesses and its overall attraction as a takeover target. "I think Telkom will be acquired this year by somebody. I think an international company will buy it," Brierley said at a technology conference hosted by the online publisher ITWeb. Telkom CEO Reuben September has previously acknowledged that Telkom is at a crossroads and needs new revenue streams as traditional voice calls become less profitable. The operator proved it was potentially up for sale by opening the negotiations with MTN. In January, Saudi operator Oger Telecom also bid for a stake in Telkom. Telkom confirmed it had received a non-binding expression of interest from Oger on January 22, and said it would consider Oger's approach along with other options to enhance its position in the industry. Telkom said it would communicate a decision in due course, but has yet to do so. The scope of the potential deal with MTN was never fully disclosed, nor were the reasons for its failure. It is believed the talks collapsed because MTN realised taking over a bloated organisation and inheriting some legacy systems would be more expensive than rolling out a fresh infrastructure of its own. MTN is now laying its own fibre-optic networks in a R1,3bn project to boost its voice and data capacity. Brierley said he expected to buy some backbone capacity from the new fixed-line operator, Neotel, last year, but Neotel could not supply the service. Brierley also criticised government "interference" in the telecoms sector, particularly by creating uncertainty for consortiums laying undersea cables and insisting that cables landing in SA be majority African-owned. The ensuing delays could push up the price of bandwidth again, he warned, as capacity on the sole existing cable out of SA neared saturation. Vodacom Business executive Ermano Quartero said at the conference that Vodacom would soon offer more services to rival Telkom. In April it would switch on 120 base stations using WiMax technology to transmit signals to homes and offices. That would dent Telkom's dominance severely as Vodacom would no longer have to lease the "last mile" of copper cable to reach its customers. Vodacom would also begin using microwave technology to reach large corporate customers, again ending its reliance on Telkom's last mile. Vodacom was forced to buy a 10% stake in another operator, iBurst, to access a licence to use WiMax. Numerous companies had applied to the Independent Communications Authority of SA (Icasa) for a WiMax licence, but Icasa had "procrastinated" for two years, and significantly retarded progress in the industry, Brierley said.

'Lying' Vodacom in Tribunal's Firing Line
Vodacom's purchase of at least four service providers over the past few years is under suspicion, after the Competition Tribunal accused the cellular company of lying to it during a hearing mid-March. Vodacom says its purchase of Global Telematics' South African business for R206m -- through its subsidiary, Vodacom Service Provider -- will strengthen ties with customers. But the tribunal says Vodacom actually wants to buy out the company, giving it access to its customer base, to get rid of competition and improve its margins. In February, the Competition Commission referred the deal to the tribunal, recommending it be allowed without restrictions. However, tribunal chairman David Lewis has pointed out that Vodacom's rationale for the deal, in papers presented to the commission, differs from what its own internal documents say. The documents -- requested by the commission but not delivered to either authority until March 10 - said Vodacom wanted to improve margins and reduce competition. The commission recommended the deal go ahead because Global Telematics' licence expired at the end of February, despite the fact that customers of Global Telematics would see their cellular rates increased as Vodacom cut back on discounts. The deal would also see another company lose revenue from a customer base it had built up. Global Telematics, a subsidiary of French multinational Thales Group, has an agreement with Glocell Service Provider Company allowing Glocell to on-sell Vodacom products. Before Vodacom's purchase can go ahead, Global Telematics would have to acquire Glocell and its subscriber base. Global would then sell the cellular business to Vodacom Service Provider, thus allowing Vodacom to cut out the middle man. Vodacom has already acquired all its other service providers, such as Teljoy, apart from Autopage and Nashua, which do not have exclusivity agreements with Vodacom. Lewis said: "This competitiveness report you've presented us, at least in the area that we've looked at, is blatant lies.... "I'm sure there's a more polite ... way of putting it, but that's precisely what it is by contrast with what is provided in the internal documents." Lewis said during Wednesday's hearing that the commission should re-examine the matter. The hearing also cast doubt on the legitimacy of Vodacom's previous purchases of other service providers. "How many other mergers of this sort have we approved? I'm sure on the basis of equally false information and equally false rationale ... I recall four to six acquisitions of Vodacom service providers in the last three or four or five years, probably representing ... in the neighbourhood of 20%, 30% of sales of Vodacom contracts and prepaid time," said Lewis. He asked why Vodacom would pay R206m when Global Telematics's licence expired at the end of the month anyway. It was not likely that Vodacom would renew the licence. Vodacom's chief communications officer, Dot Field, declined to comment as the "matter is not yet finalised and is therefore sub judice". The matter was postponed and Vodacom was requested to supply the tribunal with information on what would happen to Glocell if the matter dragged on after the end of March.

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