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SOUTH AFRICA

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Update No: 072 - (02/01/08)

SOUTH AFRICA’S LEADERSHIP IN BIG TROUBLE
President Thabo Mbeki suffered humiliation December 18 when he was voted out as leader of thr ruling African National Congress (ANC) in favour of Jacob Zuma, the party's populist leader. The result, precipitated by some of the worst feuding in the party's 96 year history, is arguably the most significant event in South Africa since the end of white minority rule 13 years ago. However, the lustre of Zuma's triumph was dulled by the threat of a trial on corruption charges, widely expected next year, as a conviction would stop him leading the country. Zuma has the support of the trade unions and the left and is widely expected to be South Africa's next president in 2009, given the ANC's overwhelming political dominance. His sweeping victory with over 60% of the vots of the 4000 delegates saw frenzied celebrations from his supporters. The vote was a rejection of the Mbeki camp, The ANC's five other leadership positions were all secured by backers of Zuma and by the same comfortable margin. When Mbeki succeeded Nelson Mandela as party leader in 1997 and as president in 1999 his authority had seemed impregnable. Now he may face 15 months as a lame duck president. Critics blame Mbeki's dangerous political miscalculation on his arrogance and detachment from the party's grass roots. His refusal to accept dissent, amd his blind support of loyal, but incompetent ministers, particularly in the areas of health and crime, has led to this rejection. Phumzile Mlam-bo-Ngcuka, Mr Mbeki's deputy president lost her executive seat, as did defence minister Mosiuoa Lekota and Essop Pahad, minister in th epresidency. Like Mbeki, the defeated ministers are entitled to serve out the remaining 15 months of their term. Mr Mbeki stated December 22 that he would not quit the presidency and would serve until the 2009 elections.

While, analysts have highlighted that the strong opposition to Mbeki is a sign of a healthy democratic spirit in the traditionally consensus driven ANC, party elders fear this election may be merely the beginnig of a more heated battle between the two factions. The prospect of a Zuma presidency terrifies many South African's, who fear the country would be in real danger of repeating the mistakes of many post-independence African nations. Winnie Mandela, the former wife of Nelson Mandela has been elected to the national executive of the ANC by the widest margin of any candidate. The revival of Winnie Mandela who, like Jacob Zuma, is a populist with a history of criminal charges is a sign of the restive mood coursing through the party. Finance minister Tevor Manuel was one of the few key figures from the Mbeki administration to retain his position after elections to the executive. this is a relief to the business community, who see him as a defender of Soth Africa's market friendly policies. A key question in business circles is whether those at the controls, such as Finance Minister Trevor Manuel and Reserve Bank Governor Tito Mboweni, will survive under Zuma and just how much influence left-leaning Zuma associates will have on future policy direction. Some analysts agree that sweeping changes are on the cards, but others believe that Zuma would be as tied to ANC policy and international dictates as Mbeki had been. Significantly, Zuma has responded by going all out to assure top international investors that "nothing will change" on the economic front under his watch. Cyril Ramaphosa and Tokyo Sexwale, two ANC veterans who became wealthy businessmen , were voted on to the executive in an indication that business interests will have some clout in the Zuma era. 

Negotiations on a bilateral trade deal between the European Union (EU) and the Southern African Development Community (SADC) have split the region down the middle, with South Africa and Namibia opting not to sign the economic partnership agreement (EPA), citing "unreasonable demands" from the EU. The EPA talks have been acrimonious from the start and observers say that the fallout could be potentially damaging to South Africa's relationship with the EU. But they are even more concerned about the regional rift it has caused. Of the SADC configuration, Botswana, Lesotho, Mozambique and Swaziland all conceded to the European Commission 's (EC's) demands and signed the deal in November. South Africa last year argued for its inclusion in the EPA negotiations, saying it would help advance regional integration. But that goal now seems compromised. The country's representatives December 5 accused the EC of unfair demands that would put onerous obligations on SADC countries. The government, business and labour representatives in the National Economic Development and Labour Council (Nedlac) said that new 11th-hour demands from the EC, tabled under the threat of the year-end deadline, threatened to push SADC states that accepted the EPA "far beyond an acceptable outcome". 

Job creation slowed in the third quarter of 2007, fuelling concern that faster economic growth is not generating the employment needed to meet an official goal of halving South Africa's jobless rate by 2014. Employment in the nonfarm formal sector rose 2,4% from the same quarter last year, down from 2,8% in the previous quarter, Stats SA data showed December 12. "These figures are disappointing," ETM economist George Glynos said. "SA needs to change its policies to achieve a different type of growth, focusing on production and employing unskilled or semiskilled workers." SA's economy has grown at an average pace of 5,2% over the past three years -- the fastest in more than two decades -- creating 500000 jobs each year. But so far this year only 96000 new jobs have been added, though growth accelerated to 4,7% in the third quarter from 4,5% in the second. Job cuts in the manufacturing sector, which is in a recession, offset employment growth in other areas, creating a net 30000 jobs between July and September. That took the number of employed people to 8,318-million and was an overall rise of just 0,4% versus the second quarter, when employment rose by 0,5%. Rising interest rates were one of the main factors blamed for the subdued pace of job creation, which is likely to gather momentum next year if economic growth subsides, as most analysts expect. 

Zuma Gets Mandela Thumbs-Up
ANC president Jacob Zuma has received the official seal of approval from Nelson Mandela, who has praised him as a unifier, reconciler and a man committed to collective leadership. He has also urged the divided ANC to rally behind Zuma. Mandela, who chose to step down as party leader after one term in favour of Thabo Mbeki in 1997, said it was inevitable the results of the Polokwane elections would be interpreted by some "as an overwhelming victory for one camp or faction over another". In a message of congratulation to the ruling party's new guard, he said: "Our experience of Comrade Zuma is of a person and leader who is inclusive in his approach, a unifier and one who values reconciliation and collective leadership. "We have no doubt that he will bring those well-known characteristics to his task of leading our organisation." Mandela, who opted not to take sides in the leadership battle, did not attend the conference in Limpopo. Instead he sent a message to delegates calling for unity, prompting a special word of thanks from Zuma in his maiden speech as ANC president December 20. Referring to the newly elected 86-member national executive committee which will lead the party for the next five years, he said: "Through the democratic processes of the organisation they as a collective have been mandated by the membership with the great responsibility of steering and guiding us through this challenging period ahead. "We have full confidence that they will approach and execute this important national task with wisdom, humility and dedication to the common good." Winnie Madikizela-Mandela made an impassioned plea to her ANC comrades to heal the deep rifts in the party and said she feared what would happen after Polokwane, given the divisions. Madikizela-Mandela, who on the eve of the conference launched a highly publicised but unsuccessful last-minute bid to mediate between Mbeki and Zuma, mustered the most votes during the election for additional NEC members. She returns to the highest leadership body in between conferences after an absence of five years.

'Zuma Will Be Charged'
The prosecution of Jacob Zuma is imminent, the acting National Prosecutions Authority chief, Mokotedi Mpshe, announced December 19morning less than 48 hours after Zuma was elected to lead the ANC. The announcement comes on the same day that a decision to disband the Scorpions the unit that investigated Zuma is set to be be rubber-stamped by the ANC at its conference plenary in Polokwane. Speaking on Radio 702 and 567 Cape Talk, Mpshe said the investigation into Zuma was complete and "loose ends" were being tied up. He said the Scorpions would have a case that could be "taken to court". Asked if prosecution was imminent, he said: "I should say so." Mpshe is dismayed by the possible dissolution of the unit after delegates voted during the conference plenary on Wednesday night to disband the Scorpions.

He said they should have been given a chance to reform before being given notice by the ANC. "If people were unhappy with anything the Scorpions had done, the matter should have been taken up with the NPA leadership." Scorpions investigators will find a new home in the police, while their prosecuting counterparts will remain in the NPA and the justice department. But Mpshe believed this was an over-reaction. "You don't solve problems by wishing away the unit," he said on Wednesday. Zuma has been a special target of Scorpion raids, causing some to allege that the unit is being used by the state to derail his presidential ambitions. The key reasons cited for the decision are the perceived targeting of Zuma; the suspension of NPA director Vusi Pikoli as he was about to arrest Police Commissioner Jackie Selebi; and the failure of the Khampepe Commission of Inquiry into the mandate of the Directorate of Special Operations. But Mpshe said the ANC should have tried to sort out any problems with the unit through discussion. He pointed out that the ANC had no direct power to disband the Scorpions. "The Scorpions is not a branch of the ANC, but a creature of statute." It was Parliament that would have to take a decision. Safety and Security Minister Charles Nqakula would not say whether he agreed with the decision, but confirmed that the conference's Peace and Stability Commission had endorsed the proposal, which had been made at the ANC Policy Conference in June. On the Selebi affair, Mpshe said a decision on whether to arrest him would not be taken until after Christmas, once Justice Minister Brigitte Mabandla had been given a chance to reflect on the findings of the review committee. "She has a right to request reasons for my decision," he said. He refused to say whether Selebi would be asked to step down pending an investigation into alleged corruption and racketeering. Professor Adam Habib, deputy vice-chancellor of Research and Innovation at Johannesburg University, said the ANC's bid to disband the Scorpions might not save Zuma from prosecution if that was indeed part of the motivation. He understood that the pending prosecution was a "done deal". "Whether they like it or not, the investigation is complete, so it can't actually be a means to protect Jacob Zuma. "It may be an attempt to protect certain (people) in certain circumstances in future. But my answer would be: what circumstances? If a person is guilty we should have the mechanisms to investigate them. I can't see this case disappearing." On possible political interference in a Zuma prosecution, Habib said: "His election as ANC president makes it incredibly unlikely.

"If there was interference, everybody will see it as coming from the president and there would be a major public outcry." Habib said it could not be assumed that Mbeki would fold and accept pressure for charges to be dropped. Similarly, prosecutors were independent and did not require anyone's permission to prosecute. He said that if he was Zuma's strategist, he would advise him to let the matter play itself out in court. Being found innocent would clear his name, and he could apply for a presidential pardon if found guilty. The DA spokesperson on safety and security, Dianne Kohler Barnard, said in an interview with the Cape Argus: "We are extremely concerned about a further move on the part of the ANC to centralise power under one single source. "Two, we're extremely concerned that the implications it may have on cases" such as the possible case against Selebi. "Third, it would be construed globally as a definite attempt on the part of Zuma and his supporters to quash any further case against him."

Zuma Urged to Avoid Mbeki's Costly Mistakes
Jacob Zuma might have recorded a tsunami-like victory over bitter archrival Thabo Mbeki for the top job in the African National Congress (ANC), but he would be wise to avoid repeating the mistakes that have led to Mbeki's downfall, said one commentator in reaction to the result of the Polokwane congress. The Democratic Republic of Congo's ambassador to SA, Bene Mpoko, said the people of SA had spoken, and echoed the thoughts of some analysts , saying that something leaders tended to forget was that they should always keep the electorate informed about their activities, and heed the wise counsel of their advisers. A Namibian diplomat told Business Day he believed Zuma's victory would not signal a change in the ANC's or the government's policies. "This is a change of faces, not a change of policies. The people at the helm of the ANC remain the same (in terms of upholding the party's policy and principles). "The ANC, just like Swapo, faces the same challenges of poverty reduction, policy implementation and party unity," the diplomat said. One diplomat, speaking on condition of anonymity, said his country's leaders remained a "little wary" of whether Zuma would be able to emulate Mbeki's achievements in the region and internationally. He said: "Mbeki has been at the forefront of a push for greater development in Africa and better economic integration in the SADC (Southern African Development Community) region. "I hope that Zuma will have the same approach, putting economics ahead of politics."

The diplomat said Zuma's election raised uncertainty about the effect the two poles of decision would have on the working relations between the party and the government. "Before -- when the ANC president was also the country's head -- there was no problem. How a Zuma-led ANC will affect government policies, no one knows." The question in the region echoes the sentiments raised by the group that campaigned against Mbeki's attempt to run the ANC for the third term with a view to electing a separate leader to govern the country. The tripartite alliance, including the ruling party's youth league, feared that two centres of power would pose a threat to political stability in the country. The alliance and the youth league argued that there could be conflicting ideas and problems should one leader seek to dictate to the other on issues of governance and economic vision for the country.

Jacob Zuma' Team
Fallen "Mother of the Nation" Winnie Madikizela-Mandela surged back into power as the ANC purged itself of many of President Thabo Mbeki's key lieutenants. It began with ANC delegates insisting on change and it ended in the early hours of this morning with exactly that: a new-look leadership with Jacob Zuma at the helm for the next five years. While Zuma preached unity in his closing address at the party's national conference at Polokwane, his supporters ensured that the majority of the additional members on the enlarged 86-member National Executive Committee (NEC) were either one of them, or at least approved by them. Leading the list was former ANC Women's League president Madikizela-Mandela, up to first place from sixth place in 2002; Jessie Duarte, up to sixth place from 58th; and the SACP's Jeremy Cronin, up to fifth place from 45th. ANC Youth League president Fikile Mbalula, a key Zuma ally, was elected in 15th place and received particularly warm congratulations from Zuma. One of the high-profile losers is former ANC chairperson Mosiuoa Lekota. He came 98th, while Phumzile Mlambo-Ngcuka, the woman who succeeded Zuma as deputy president of the country, followed at 99th. Both failed to return to the NEC. Among Mbeki's cabinet ministers who were sent packing were Public Enterprises Minister Alec Erwin, Public Works Minister Thoko Didiza, Safety and Security Minister Charles Nqakula, Intelligence Minister Ronnie Kasrils, Minister of Mbeki's Presidency Essop Pahad, Public Service and Administration Minister Geraldine Fraser-Moleketi and Provincial and Local Government Minister Sydney Mufamadi. Also out are the head of the ANC presidency, Smuts Ngonyama, and the director-general of the Presidency, the Reverend Frank Chikane. Finance Minister Trevor Manuel, who was number one on the ANC popularity stakes in 2002, dropped to number 57. His public spat with Zuma's supporters did little to endear him.

A surprise survivor was Health Minister Manto Tshabalala-Msimang, while government policy guru Joel Netshitenzhe scraped home too.

The new NEC is widely seen as another Zuma victory over Mbeki. Despite this, though, the top 10 represents the full spectrum of factions - those of Zuma, Mbeki and the Zuma-supporting Left. Survivors from Mbeki's Cabinet include Social Development Minister Zola Skweyiya, Housing Minister Lindiwe Sisulu, Transport Minister Jeff Radebe, Arts Minister Pallo Jordan and Justice Minister Brigitte Mabandla. Also included in the top 10 is former deputy secretary-general and Mbeki supporter Sankie Mthembi-Mahanyele. They are matched by leftists such as the SACP's Jeremy Cronin and Blade Nzimande, and top business leaders Tokyo Sexwale and Cyril Ramaphosa although the latter slipped from first place in 1997 to 30th. Although the NEC elections were not a clean sweep, the top 80 additional names are predominantly key Zuma supporters.

A new Capetonian member is former mayor Nomaindia Mfeketo. The new NEC list also contains the so-called "walking wounded", those who were purged by Mbeki or facing criminal charges, such as fraudster Tony Yengeni (up from 43 to 21), former Limpopo premier Ngoako Ramatlhodi, former intelligence chief Billy Masetlha, former Eastern Cape MEC Enoch Godongwana and sacked Deputy Health Minister Nozizwe Madlala-Routledge. Several premiers seen to be aligned to Mbeki were also roundly rejected, such as the Western Cape's Ebrahim Rasool (102) and the host premier, Limpopo's Sello Moloto (110). Mbeki, who will become an ex officio member of the NEC, was not present for the results and will hold a press conference this afternoon at his Pretoria official residence. A senior ANC source, speaking on condition of anonymity, said of the NEC: "It has some balance, it's not a factional list. "Some of the 'inner kring' (inner circle), the people who ran the Mbeki project over the past 10 years, have been kicked out. "They are the people who have lost touch with the membership. These are the people who led the ANC to be at war with itself."

Allies Seek New Deal On Policy Formation
The African National Congress's (ANC's) leftist allies have laid out what they expect from the ruling party under Jacob Zuma's presidency, saying that although he did not formulate policy on his own, they expected him to facilitate different rules of engagement.

The South African Communist Party (SACP) and the Congress of South African Trade Unions (Cosatu) said at the ANC's national conference in Polokwane that they had no intention of "hijacking" the ruling party. "We are not going to hang around JZ's neck like an albatross," SACP general secretary Blade Nzimande said. Zuma opponents have suggested that his leftist allies will exact policy rewards for their support of his bid for power. Cosatu general secretary Zwelinzima Vavi said, "Among minority groups there is a deep fear. Naturally people would be uncertain of the future. Many people perceive Zuma to be a real devil. "To say that there was chaos at conference -- and that that is what the future holds -- creates a soft landing for those who lost. But nothing could be further from the truth," The allies who were instrumental in Zuma's victory, said it was understandable that there was uncertainty, but they were at pains to emphasise that Zuma's economic policy was that of the ANC. The SACP and Cosatu welcomed the ANC's call for an alliance summit, saying they hoped for space in which to engage. The summit, in three months, is likely to chart the way forward on key economic and social policies in line with proposals ratified by the ANC's elective indaba.

It will be the first major gathering of the alliance since 2005 and signals a thawing in relations, which have taken a nosedive in the past two years.

The SACP is of the view that Zuma's presidency offers a "fresh start" for alliance relations characterised by tension and acrimony under President Thabo Mbeki's tenure. "The SACP believes that the electoral renewal of ANC leadership provides a platform on which to rebuild our alliance . For too long, intra-alliance relationships have been marked by recriminations and stand-offs," Nzimande said. The SACP said the ANC delegates had sent a clear message by electing Zuma, but cautioned that the outcome did not mean that the underlying challenges had disappeared. Nzimande said Cosatu and the SACP would still lobby the ANC on policy, but their only expectation from Zuma was to implement ANC policies and engage with alliance partners. But the two organisations spent days locked in fierce debate in the ANC's 14 policy commissions, trying to convince the ruling party to shift to the left. Nzimande said the SACP was encouraged by the ANC's emerging policy perspectives on a strong developmental state, and its accelerated land reform plans. Among the economic policies the ANC's allies are lobbying for is an easing of inflation targeting . The past two years have seen Reserve Bank Governor Tito Mboweni aggressively fight inflation by constantly raising interest rates in an attempt to curb spending. Vavi backed the SACP's call, saying he did not think it was appropriate for SA to have an unemployment rate of 38%. The SACP reiterated its call for the nationalisation of Sasol and Mitta l Steel because the country was paying international prices for local goods. The next 18 months are expected to be challenging because there are different presidents leading the ANC and the country. Mbeki is set to remain president of SA until 2009 .

Africa: EPAs Signed "Under Duress", Says South Africa
African governments have signed economic partnership agreements with the European Union "under duress", according to Dr Rob Davies, South Africa's deputy trade and industry minister. Some 35 of almost 80 African, Caribbean and Pacific (ACP) countries involved in negotiations aimed at reaching economic partnership agreements (EPAs) had accepted deals with the European Commission by December 19. Davies alleged that many of these trade accords were reached because the Commission had threatened to impose onerous tariffs on goods from ACP countries destined for the Union's markets should EPAs not be concluded this year. "This lead to a situation where a country that was unwilling to sign on did so under huge duress and with little enthusiasm," he told IPS. Although its neighbours -- Swaziland, Botswana, Namibia and Lesotho -- have entered into agreements, South Africa has decided not to. This is despite the fact that the five countries comprise the Southern African Customs Union. One of the major points of divergence to emerge during talks between South Africa and the EU concerned the latter's insistence that a "most favoured nation" clause be inserted into the agreement. Such a clause would require South Africa to ensure that any trade concession which it grants to a country enjoying more than a one percent share of world merchandise exports -- such as China, Turkey, India and Brazil -- is automatically conferred on the EU, too. "This would lock us into a primary relationship with the EU for ever more," said Davies. "It would be an unacceptable limit on our sovereignty." Nonetheless, Davies said he was encouraged by assurances from José Manuel Barroso, the Commission's president, during the recent summit between EU and African leaders in Lisbon, Portugal. Barroso promised that further discussions on the EPAs would happen in 2008 and that there would be an opportunity to revise provisions that ACP countries regard as contentious. Barroso's intervention has been considered as more conciliatory than the inflexible stance adopted by Peter Mandelson, Europe's trade commissioner, who has insisted that ACP countries must commit themselves to far-reaching trade liberalisation in order to comply with rules set by the World Trade Organisation. "It is certainly a pull-back from the 'take-it-or-leave-it, this-is-all-I-can-offer-you' approach that has governed negotiations, particularly in the last round," Davies said. The EPAs require that ACP countries remove at least 80 percent of the trade taxes they levy on imports from Europe. This requirement has been denounced by non-governmental organisations (NGOs), fearful that farmers and nascent industries in poor countries will be unable to compete with an avalanche of imports that are often cheaper than goods produced domestically and, in the case of food, highly subsidised. Mandelson hit back at those criticisms in a speech delivered in Ljubljana, Slovenia, on December 12. "The EPAs have been subjected to an aggressive NGO campaign," he said. "The EU has been accused of forcing open African markets to European companies; of bullying poor countries into liberalisation they do not want or need "What strikes me most about these arguments is that they carry such a profoundly distorted view of the value of trade. More importantly, they show no respect for the many ACP negotiators and reform-minded ministers who have worked hard with the EU to build agreements that do reflect development needs," said Mandelson. He claimed that South Africa, which already signed a trade agreement with the EU in 1999, does not "seem to speak for the many African countries who do need these agreements and who are signing up to them". But Davies dismissed the suggestion that his government has been trying to impede economic progress in Africa. "It's manifestly untrue that we are trying to hold everyone back," he said.

"We were not legally obliged to enter into the EPA (negotiating) process. But we did so because we thought it could be a step to regional integration (in Southern Africa). I'm afraid it has worked out in an endgame that could contribute to regional disintegration." Sophie Powell from the British fair trade campaign group Traidcraft echoed Davies' remarks. "It is very clear that countries have signed up as a defence against the threat of tariffs," she said. "No alternative was presented by the Commission, as it piled on the pressure. This really is no way to make a pro-development trade policy." The tariffs will not apply to 32 ACP states that are recognised by the United Nations as least developed countries (LDCs). These are eligible to benefit from a scheme known as Everything But Arms, under which most of their non-military exports can enter the Union free of duties or quotas. Yet EU governments decided earlier this month that any ACP country not categorised as an LDC will lose the current preferential access it enjoys to the Union's markets on 1 January unless it signs an EPA. Tariffs -- often exceeding 10 percent -- will be applied to those countries' exports, with an adverse effect on their earnings. Ten countries -- Gabon, Congo-Brazzaville, the Cook Islands, Micronesia, Tonga, Palau, the Marshall Islands, Naura, Niue and Nigeria -- could face such tariffs, as they had not yet signed EPAs as the Brussels institutions prepared for their Christmas holidays. The EU's threat came despite calls by development aid ministers representing four of its 27 governments that no ACP country should be put in a worse-off position if it cannot sign an EPA. Glenys Kinnock, a Welsh Socialist member of the European Parliament, said she was "baffled" that only ministers from Ireland, Britain, the Netherlands and Denmark had issued that plea. "I am also obliged to question whether EPAs in their current form can fulfil the promise that they can be tools for development," Kinnock added. "Many people concur that cohesive and planned regional integration will be a key driver of economic development. Yet the EPAs that the European Commission is pressuring ACP countries to sign will have an inevitable detrimental impact on regional economic integration, particularly in Africa."

Regional Trade Unity 'Can Survive Strain From EU Talks'
Economic partnership agreements that SA and its southern African partners are negotiating with the European Union (EU) are said to have severely compromised the regional integration process. SA's chief trade negotiator, Xavier Carim, was referring December 13 to Southern African Development Community (SADC) integration. The negotiations had also put the Southern African Customs Union (Sacu) at a crossroads, Carim said. He was confident relationships in the region could be mended and the union salvaged. "Our unity is fragile, but there is a sense from everyone we don't want the union to break up," he said December13. Carim was responding to the breakdown in talks with the EU, pitting Sacu members against one another. Botswana, Lesotho and Swaziland were the first to break ranks and initial an interim agreement . Namibia, facing potential ruin of its main export industries , also signed the interim accord December 12. SADC countries, bar SA, were faced with a looming January 1 deadline, when a waiver on the Cotonou Agreement expires. "We understand the type of pressures they were under. To be frank, we did not face the stark situation they did. But we believe this could have been facilitated without having to pay such a high price. You have to weigh up gains (from the agreements) against benefits of regional integration," said Carim. Carim said SA had not walked away from the talks -- next year it would join attempts to thrash out details of a more thorough deal. Carim said major concerns that stopped SA from going along with the deal included differential treatment, which would have divided the SADC, countering the push for regional integration that framed the talks. He criticised the European Commission for putting a slew of issues on the table in late stages of the talks. "The way in which (these issues) came together during the last negotiating sessions turned them into make-or-break issues. The looming deadline then became a critical issue, and as countries stood to lose preferences they began to cave in." Carim also criticised tight timelines demanded by the commission for the liberalisation of services, which would not allow for capacity-building in the region. Countries joining the pact had committed to negotiating services and investment for four years. "You could have comparative advantages and you need a period of time to give domestic service providers some kind of protection before opening up. "Members face stark choices and some difficult decisions will have to be made, but I believe there is a way forward," he said.

South Africa in Global Top 25 for Investment
South Africa has been ranked as the 18th most attractive foreign direct investment destination worldwide. This comes from the latest Foreign Direct Investment (FDI) Confidence Index by global management consulting firm AT Kearney. This year sees South Africa and the Gulf states of Bahrain, Kuwait, Oman and Qatar making their debuts in the index's top 25 FDI destinations, while Vietnam, Malaysia and Indonesia are making a return, reports Southafrica.info. China and India continue to rank first and second in the 2007 index, 15 of the most attractive 25 FDI destinations are developing markets. Brazil, the United Arab Emirates and Russia all rank among the top ten. "The assessment of senior executive sentiment at the world's largest companies found corporate investors optimistic about the prospects for developing nations and increasingly targeting them for more corporate investment in the years ahead," AT Kearney said in a statement issued December 10. In a reassuring sign, the detailed survey of top executives conducted after the sub-prime crisis found that troubles in the credit markets did not dampen corporate plans for new foreign direct investments. AT Kearney Chairperson Paul Laudicina pointed out that world's centre of power continued its "perceptible shift" from developed to developing markets. "While global FDI recovers further from its 2003 lows, the increasingly trans-national behaviour of corporations is reflected in their investment preferences," he said. "Developed countries are competing with developing countries for investment capital, and developing countries are increasingly winning out." According to AT Kearney, emerging markets also have registered the strongest investor optimism, with India, China, Brazil, the United Arab Emirates and Vietnam experiencing the most positive change in investment outlook during the last year. "While China and India remain the top destinations for first-time investments overall, developing country investors are more bullish about new markets such as Vietnam, Brazil and South Africa, while developed market investors tend to stick to familiar markets," FDI Confidence Index manager Janet Pau said. "Developing country investors also are likely to be responsible for more than half (54 percent) of the investments greater than $500-million over the next three years." Among developed countries, the US again placed third, while Europe's economic recovery has evidently helped Germany and the UK maintain their top ten rankings, while Australia ranked 11 and France, Canada and Japan placed 13, 14 and15 respectively. The index, regular survey of global executives, provides a unique look at the present and future prospects for international investment flows, with companies participating in the survey accounting for more than $3.8-trillion in annual global revenue. The 25 Most Attractive FDI Destinations according to Corporate Executives in order are China; India; United States; United Kingdom; Hong Kong; Brazil; Singapore; The United Arab Emirates; Russia; Germany; Australia; Vietnam; France; Canada; Japan; Malaysia; Other Gulf States; South Africa; Mexico; Turkey; Indonesia; Poland; Central Asia; South Korea and Czech Republic.

South Africa is 43rd in World Press Freedom Index
South Africa has been ranked 43rd in the Worldwide Press Freedom Index published late December by Reporters Sans Frontieres (RSF), performing slightly better than the so-called world's top guardian of freedoms and rights, the United States, which is ranked a distant 48th. However, no African country is listed among the top 20 and the continent will continue to live up to its 'dark reputation', as Eritrea is ranked 169th - the last place in the index measuring the levels of press freedom in 169 countries throughout the world. "There is nothing surprising about this," the Paris-based media watchdog said on its website. "Even if we are not aware of all press freedom violations in North Korea and Turkmenistan, which are second and third from last, Eritrea deserves to be at the bottom. "The privately-owned press has been banished by the authoritarian President Issaias Afeworki and the few journalists who dare to criticise the regime are thrown in prison. We know that four of them have died in detention and we have every reason to fear that others will suffer the same fate," RSF lamented. It has been a stressful year for SA independent media, with the government and its allies firing salvo after salvo at editors and journalists for 'going too far' and becoming 'law unto themselves', prompting fears that the country's hard-fought press freedom was on the verge of collapsing. The top three African countries in this press freedom index are Mauritius (25th), Namibia (26th) and Ghana (29th). Apart from Eritrea, a further nine countries are among the last 30 at the bottom of the index: Sudan (140th), Tunisia (145th), Egypt (146th), Rwanda (147th), Zimbabwe (149th), Ethiopia (150th), Equatorial Guinea (153rd), Libya (155th) and Somalia (159th) - reinforcing the notion that Africa's press freedom remains nothing but an empty dream. Founded in 1985, RSF (Reporters without Borders) fights for press freedom on a daily basis, and gives financial aid each year to 100 or so journalists or media outlets in difficulty (to pay for lawyers, medical care and equipment, as well to the families of imprisoned families).

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AUTOMOBILES

Renault to Manufacture in SA
RENAULT has had a tumultuous time with parts issues, slowing sales and the lady who had too much to drink and then tried to blame her airbag for crashing on the way home from a party. A few years ago Renault was one of the fastest-rising brands in SA and now it is looking to the introduction of a raft of new products to get back into profit. The company intends to launch 10 new models in the next three years, with three of them arriving next year. Renault SA is placing much emphasis on its value-for-money Sandero hatchback to boost volume and stop the financial woes. The Sandero is based on the budget-beating global car, the Logan, and is due to arrive in early 2009. The newcomer is to be made in SA by Renault's alliance partner, Nissan, at its Rosslyn plant -- the first new brand in many years to join the dwindling number of locally assembled vehicles. Renault has had a patchy history of contract assembly in SA, having been built at Car Distributors and Assemblers (now DaimlerChrysler) in East London, at Toyota SA's plant in Prospecton (Renault 5) and at the AAD facility at Blackheath, near Cape Town (Renault 9 and 11) in the '80s. Since then all Renaults have been imported as built-up units. Renault returned to SA in 1996 with the signing of an import contract with Imperial Car Imports (ICI), and in 2002, a joint-venture company, Renault SA, was established with Renault of France acquiring 51% of the ICI subsidiary. The fact that Renault will build the Logan, or a derivative of its cut-price car, in SA has been a fairly open secret for a while. The only confirmation that came from the media conference was that the Sandero would be built and sold in SA from 2009. Renault SA MD Jean-Jacques Le Goff said the Sandero would enable the company to double sales and market share in SA by 2011. This would allow the company to fulfil its objective of being the No 3 seller of passenger cars on the local market. Product-planning manager Sydney Sedi said the Sandero was well received at marketing clinics with target-market customers recently. The Logan sedan was launched by Renault in 2004 as its cut-price car for developing markets after the company had taken over the Romanian Dacia company in 1998. The so-called BO platform is based on that used for the current Renault Modus and Nissan Micra, while it was also the base of the previous-generation Renault Clio. The success of the Sandero on the local market, as well as the low-cost manufacturing concept and potential for export of Logan derivatives built in SA are likely to be watched with interest by all the other motor companies currently operating here -- as well as those still considering an entry to this market.

Interest Rates and Debt Burden Dampens Car Sales

High inflation and the cost to consumers of servicing record debts are aggravating the overall weakness in new car demand. The latest data show that total new vehicle sales improved somewhat in October after a sharp decline the month before. With the Reserve Bank having raised its repo rate 150 basis points to 10,5% since June in an effort to cool off consumer spending, new vehicle sales slipped 5,9% year on year to 54387 units in October. But this was a moderate decline compared with September. The National Association of Automobile Manufacturers (Naamsa) said November 23 that trading conditions, particularly in the new passenger car market, had deteriorated substantially in recent months, mainly because of interest rate increases. Total vehicle sales were helped by a strong recovery in sales of commercial vehicles. Sales of medium commercial vehicles grew 13,4% year on year last month, after dropping 21,8% in September, while sales of heavy commercial vehicles rose 28,2%, from 8% in September. Light commercial vehicles also fared better last month, but were still down 7,3% year on year, slightly better that the 11,4% decline recorded in September. Passenger vehicle sales also bounced back over the month, but sales remained below the levels reached last year. For the year to date, vehicle sales have fallen 3,2% compared to the same period last year, reflecting the effect of the Bank's tighter monetary stance and tight lending conditions. Vehicle exports rebounded to 17228 units in October, the highest number since November last year, after dropping sharply to 8680 units a month earlier. Exports of passenger vehicles improved last month, still down 2% on an annual basis, but were better than the massive drop of 48% recorded in September. In its latest quarterly review, Naamsa said the vehicle manufacturing industry was expected to remain under pressure for the next year. Nedbank economist Dennis Dykes said new car sales would remain under pressure in the months ahead as high household debt and stricter lending criteria continue to take effect. "Sales may also be affected by the normal seasonal factors during this last quarter of the year. "However, commercial vehicle sales should remain relatively resilient on the back of strong fixed capital spending," Dykes said. Although vehicle sales improved in October, the underlying trend remains down. Given high oil prices, rising food prices and rising domestic inflationary expectations, inflation is not only likely to remain above the Bank's target range of 3%-6%, but also likely to rise further. This probably implies another 50 basis point hike in December, after which slower domestic spending and credit demand are likely to permit a neutral stance. WesBank CEO Brian Riley said despite the challenging conditions in the new vehicle market over the past few months, certain segments of the bank's book had seen exceptional growth, in a direct contrast to industry expectations. "Strong growth in the black male market is contributing heavily to vehicle sales. "The percentage of black males financing cars through the bank has grown over 22,9% compared with last year, while the percentage for white males has dropped by a similar margin," Riley said.

Vehicle Exports Set to Top R60bn

Provisional National Association of Automobile Manufacturers of SA (Naamsa) figures show that vehicles with a value of R55bn were exported last year. That figure is set to rise to R60bn this year and projections suggest substantial growth next year. The association conducted an assessment of the effect of the Motor Industry Development Programme (MIDP) since its inception in 1995 - ostensibly to counter perceptions that the programme had been costly to the country and boosted the profits of a few multinational companies at the expense of the fiscus and South African consumers. Despite growing exports the industry, however, remains a net user of foreign exchange. The industry's trade deficit last year widened to R33,4bn, from the previous year's R27,7bn as imports grew to feed the strong demand for vehicles in the local market, while the relative strength of the currency temp-ered export growth. But Naamsa expects the deficit to narrow as exports gain momentum. Naamsa's figures show the industry and related sectors now employ 323900 people and last year contributed 7,53% to gross domestic product. Naamsa said that investment growth was substantial over the duration of the MIDP to date, with fixed investment in the vehicle assembly sector, for instance, growing to R6,2bn last year, compared with a modest R492m before the programme started. The marathon review of the MIDP to determine the structure the programme will take from 2012 onwards has been the cause of much acrimony between vehicle manufacturers and the trade and industry department. It appears, however, that the industry and the department have buried the hatchet as the department moved to improve communication on the process. The department has made firm commitments to unveil preliminary findings before the end of the year while the completed review would be released in the first half of next year. Naamsa executive director Nico Vermeulen said the industry's confidence in the review process had been restored. The MIDP is being reviewed by Anthony Black of the University of Cape Town, the original MIDP's author, and Justin Barnes, who heads consultancy B&M Analysts. He confirmed that the review team was closely scrutinising the Australian version of the MIDP - the Automotive Competitiveness and Investment Scheme (ACIS) - as it was an important model. ACIS evolved from an export-based incentive to a production allowance, to align the programme with World Trade Organisation (WTO) rules. The protection levels of that programme were also reduced drastically, but Black gave the reassurance that the MIDP would not take its cue on protection from ACIS with no threat of lower protection levels in the short to medium term. Ironically, it was a threat from Australia to challenge the MIDP at the WTO that prompted the review of the programme.

Nissan Diesel SA Increases Output

NISSAN Diesel SA is so confident that the recent growth in the local truck market will continue that it is currently investing R10,9m in expanding the production capacity at its Rosslyn facility outside of Pretoria. As a result, Nissan Diesel will be able to build up to 9000 trucks a year when the opportunity arises. "We sold about 3700 units last year and are targeting to get close to 5000 trucks this year and want to be in a position to be able to ramp up volumes at short notice if the market continues to expand," says Nissan Diesel SA's vice-president of operations, Rory Schulz, during a recent fact-finding trip to Japan with journalists from the South African transport and truck media. The self-funded investment will be used to expand the physical truck assembly building, as well as installing additional equipment, including a "chassis turn-over machine" to make assembly easier for the operators by having the chassis upside down during the early stages of the build process. Nissan Diesel SA, which is now owned 80% by Nissan Diesel Japan, and 20% by Japanese trading house Mitsui, is one of the biggest sellers of trucks locally and is intent on strengthening its position even further, especially with the benefit of the increased production capability. Schulz, who has been involved with all aspects of Nissan Diesel SA's truck operation over the past 18 years, says the changes to the plant will be completed during the year-end shutdown. He says the plant will continue to operate on a single assembly line basis, building trucks in batches of 20 medium commercials units and six heavy and extra-heavy models at a time. The company is also looking to expand its activities in Rosslyn into certain aspects of body building later in the year, mainly to ensure better quality. This will also cut the delivery time of completed trucks to customers, especially in the light of the current overload situation at many bodybuilders which has resulted from the growth in the South African truck market. Nissan Diesel has been selling trucks in SA for more than 45 years. Sales during this period exceed 60000 units and it is estimated that about two thirds of these trucks are still in operation. Nissan Diesel SA became a subsidiary of Nissan Diesel Japan in 2002 and the company expanded its business base when it was appointed as the SA's distributor of Nissan Forklifts last year, in addition to its growing range of medium, heavy and extra-heavy trucks.

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AVIATION

SAA Aims for 7.5 Percent Profit Margin

South African Airways (SAA) hopes to reach a 7.5 percent profit margin by March 2009, as a result of its restructuring process. The restructuring is aimed at renegotiating working conditions, cutting unprofitable routes and reorganising the whole business. SAA hopes to reduce its high operations cost base in order to grow revenue, after it lost more than R600 million outside Africa alone last year, Chief Executive Officer Khaya Ngqula told reporters November 8. "Voluntary severance package's have already been offered to cabin crew and currently we have about 900 applications which each division will seek to approve or disapproved due to scarce skills," Mr Ngqula said. Already 232 severance packages have been approved for manager positions. Mr Ngqula said despite this, SAA was committed to retaining scarce skills staff as they were putting in place measures to retain key staff. "We are looking at innovative ways to increase the business and we will make sure that our staff members are motivated, skilled, and given incentives as a way of investing on them. "We will use every resource at our disposal in retaining skilled people," Mr Ngqula said. SAA general manager for human resources Bhabhalaza Bulunga said by December this year the company would have the necessary staff it needed to operate. Finance Minister Trevor Manuel recently approved R744 million to assist SAA in dealing with the restructuring. Mr Bulunga updated reporters saying the deal was awaiting final approval. Due to these major changes, there will be no salary increases in this financial year for all staff members including top management, he added. SAA wants to save about R638 million by renegotiating certain working conditions that were implemented in the past and resulted in SAA's high cost base. There are 53 aircraft in operation. Mr Ngqula said: "Depending on our restructuring progress, we will begin to look at our own fleet plan and see what we can do in the future. SAA's acting Chief Financial Officer Clive Else announced that SAA has placed R136 million for the first six months of financial year 2007-2008 against the loss of R650 million in the first six months of the previous financial year. In September this year, the company announced its aim to ground the costly 747 - 400s in its fleet by the end of November and replace them with A380s. Negotiations are currently underway with a number of parties to either purchase or lease their aircrafts. It identified the Africa route network as a valuable contributor towards profitability and said it was a growing market. Other cost-cutting initiatives include the review and renegotiation of supplier contracts to ensure that SAA receives best services at the most competitive rates.

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BANKING

World Bank Arm to Take 10 Percent Stake in Wizzit

The International Finance Corporation (IFC), the investment arm of the World Bank, has agreed to buy a 10% stake in Wizzit Bank, a division of the South African Bank of Athens, IFC executive vice-president and CEO Lars Thunell said November 21. Wizzit, which is spearheading the use of cellphone banking among the previously unbanked, would use the funds to expand its services to people in rural areas in SA and other countries. "Helping the financial sector become more inclusive by extending bank services to the poor is an important part of IFC's strategy to strengthen Africa's private sector," Thunell said. "Wizzit's innovative technology and marketing strategy are already having a strong impact by helping create opportunity for more South Africans." The IFC would help Wizzit expand its operations, determine new markets for its services, and develop penetration strategies, including identifying local partners, he said. Wizzit CEO Brian Richardson said the "virtual" bank had increased its customer base more than 2000% since its launch in 2001. "Nearly 60% of South Africans do have mobile phones. The proliferation of cellular services has created an opportunity to provide social and financial services over mobile networks. Wizzit capitalises on this opportunity, employing nearly 2000 previously unemployed people -- known as Wizz kids -- who have the good local knowledge and contacts the company needs to market services directly to potential clients in neighbourhoods across the country." A number of countries in Africa, eastern Europe and Asia were keen for Wizzit to export the concept to their shores, where the unbanked would operate bank accounts using cellphones. Chairman Charles Rowlinson said access to financial services was "costly and limited" in Africa, particularly in rural areas.

Absa Claims Top BEE Rating

ABSA Group, SA's largest retail bank, said November 20 it had received a top rating for its empowerment credentials. Analysts said it was a calculated move to fend off a potentially bruising fight with the labour department as the government moved this week to prosecute companies flouting employment equity laws. Comair, which operates kulula.com and British Airways in SA, was on Monday hauled before the Labour Court, accused of flouting the legislation, but it denied the charges and said it would defend itself in court. The Employment Equity Act was passed to address discrimination related to work opportunities based on race, gender or disability, that could not be dealt with simply by repealing discriminatory laws. In terms of the act, employers must take steps to promote equal opportunity in the workplace and must submit reports and plans on how they are achieving this. Labour department spokeswoman Zolisa Sigabi warned that similar action would be taken against other companies not adhering to empowerment equity laws. The JSE's top 100 companies were being targeted to check compliance. Companies being investigated included Absa, Investec, Woolworths, Nedcor, Bidvest and its subsidiaries, Anglo Platinum, and Tiger Brands and its subsidiaries, she said. The probe was expected to be completed by the end of January. "The companies subjected for a review were not identified because they did anything wrong at that particular time, but the director-general deemed it necessary to review them to assess their compliance." Absa CEO Steve Booysen said the Financial Sector Charter Council, a body charged with monitoring the implementation of the financial sector charter, had awarded Absa an A rating for its empowerment credentials. The rating is the highest category awarded to financial institutions that achieve more than 56 overall scorecard points for their empowerment status. Absa scored more than 85 points for the year ending December last year, Booysen said. "The rating clearly demonstrates our commitment to the transformation process," he said. "It is also evidence of our compliance with the financial sector charter." But transformation activist and president of the Black Management Forum (BMF), Jimmy Manyi, said empowerment credentials of financial services companies were "laughable". "Absa has played the game by the rules of the financial sector charter but ... those targets are meaningless. I would have been happier if their scoring was based on the BEE (black economic empowerment) codes," he said. Manyi said the Employment Equity Commission, which he chairs, did not recognise the sector charter empowerment targets but those in the act. "The targets set in the charter are very low. They provide a false sense of comfort and that is why the BMF is advocating the scrapping of the sector charters, to replace them with codes." Peter Mageza, chairman of the Absa financial sector charter subcommittee, said the codes of good practice on BEE provided another opportunity for Absa to accelerate its empowerment and transformation drive. "Currently, the financial sector charter is being aligned with the codes of good practice. "We aim and hope to find common ground which will enable us to bring our empowerment status within the context of the codes."

Investec Takes R500m Knock on U.S. Subprime

INVESTEC became the first high-profile South African financial institution to announce hefty losses linked to the US subprime mortgage crisis and global credit crunch, November 15, saying it would write down £36m (about R500m) of US structured-credit investments in the six months to September. Absa group's parent company Barclays also said its investment arm, Barclays Capital, had taken a £1,3bn hit between July and end-October. Absa, however, said it had no exposure to the subprime market. FirstRand was exposed to the tune of $1,5m due to unsecured mortgage funding, but spokeswoman Sam Moss said the bank had sold its portfolio. This comes despite Reserve Bank Governor Tito Mboweni's assurances that the local banking sector was still safe from the fallout of a global credit squeeze sparked by problems in the US homeloan market. Investec MD Bernard Kantor said the group's exposure was limited to its UK operations. He expected no further write-downs due to the US subprime crisis. About £33m in assets of the South African bank and asset management company's £81m portfolio in the US was linked to the subprime market. "Total exposure to the US subprime market represents 0,3% of the group's loan portfolio. We have seen no reason to impair anything further at this stage." Investec is SA's fifth-largest bank by assets, after Standard, FirstRand, Absa and Nedbank. Kantor said that, despite the subprime woes, Investec's diverse and balanced revenue streams, geographic footprint and business mix enabled it to deliver continued growth, with half-year operating profit rising 23,8% to £254,3m from £205,3m a year earlier, while net income rose to £182,6m from £153,6m. "Despite the subprime exposure, which is small in the context of the group, the company's results were commendable compared to other banks in the UK that have reported losses," said Neville Chester, who helps manage the equivalent of $2bn at Coronation Fund Managers. Kantor said the group's financial and growth targets had been achieved, supported by strong performance from the majority of businesses, with SA and Australia delivering strong growth in operating profit before goodwill, nonoperating items and taxation of 38,7% and 61,4%, respectively, in the six months to September. Barclays' announcement November 15 comes after Citigroup, Merrill Lynch & Co and Morgan Stanley announced write-downs in the past month after Moody's downgraded $10,3bn of US collateralised debt obligations, most of them linked to US mortgages. Performance of Investec's UK operation remained flat, adversely affected by recent instability in the credit markets, he said. The key earnings drivers for the results (core loans and advances to customers) rose 31,5% to £11,8bn, while third-party assets under management grew 21,9% to £59,5bn. Investec's capital markets business, which provides loans and advisory services to companies, posted a 24% decline in operating profit to £43,2m because of the write-downs. Operating profit at its private clients business rose 10% to £100,1m, 13,5% at its asset management unit to £36,2m, and 45% at its investment banking division to £51,9m. "Market conditions in SA and Australia remain positive and we expect to deliver a good performance in these two geographies for the full year," CEO Stephen Koseff said. "Activities affected by current conditions in the UK credit markets are likely to be affected. "Investec continues to be well capitalised with strong risk management disciplines and established platforms for growth."

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ELECTRICITY

Eskom Awards Deals to Hitachi, Alstom

IN A key step towards the construction of Eskom's first new coal-fired power plant, the power utility has awarded contracts for the construction of the boiler and turbine of the Medupi power plant in Lephalale to Hitachi of Japan and France's Alstom, respectively. The contracts, with a combined value of R33,5bn -- R20,2bn for the boiler and R13,2bn for the turbine -- are the biggest in Eskom's history. Eskom's enterprises division MD, Brian Dames, said work on the projects had started, with work on site to start in early 2009. And Eskom is already negotiating with Alstom and Hitachi to provide turbines and boilers for its next coal-fired power station, near Emalahleni. This would optimise the delivery of the construction programme and standardise equipment, Dames said. In terms of the contract agreements, as much as half of the value of the contracts will be procured locally, in line with objectives in the Accelerated and Shared Growth Initiative, while the companies are committed to obtain as much of the required employment locally as possible. Dames estimated that at its peak the project would employ 9 000 people on site, most of whom would be sourced locally. The contracts also contain substantial skills-transfer agreements, which will see investment in developing local engineering, manufacturing and artisan skills capacities. The technology that would be used in the Medupi project included supercritical plant, which would be able to operate at higher temperature and pressure than previous boilers, Dames said. Klaus-Dieter Rennert, chief operating officer of Hitachi Power Europe, said at a signing ceremony at Eskom headquarters November 13 that this would reduce the coal and water input requirement 25%, resulting in more efficient resource utilisation, while a 25% reduction of emissions would make the plant more environmentally friendly. The 4800MW-plant is the first coal-fired power plant to be built by Eskom in 20 years and is part of the R150bn programme to increase power-generating capacity as Eskom strains to supply growing demand. Once completed, Medupi will be the biggest dry-cooled power station in the world.

U.S. Group Buys Country Nuclear Firm

United States based nuclear technology group Westinghouse Electric Company, a group company of Toshiba Corporation, has bought the South African firm IST Nuclear. Westinghouse opened its newly acquired South African operation November 5 under the name Westinghouse Electric South Africa. The value of the transaction has not been disclosed, reports Southafrica.info. IST Nuclear is a leading provider of services and systems for South Africa's Pebble Bed Modular Reactor (PBMR) project. "Westinghouse has long been a proponent of the PBMR, and this acquisition will allow us to become even more involved as PBMR moves toward commercialisation," Nick Liparulo, Vice-President of engineering services for Westinghouse, said in a statement. At the same time, Westinghouse views South Africa as a promising market for its particular brand of nuclear power plant, a third-generation pressurised water reactor system known as the AP1000. In September, state-owned power supplier Eskom said it had short-listed Westinghouse, along with French nuclear giant Areva, as potential builders of South Africa's second nuclear power plant. According to Engineering News, Eskom has set 30 June 2015 as the date by which it wants to have its first new nuclear reactor up and running by. The state supplier has indicated that it is looking to build as many as five new nuclear power stations by 2025. Rita Bowser, Westinghouse's regional Vice President for South Africa, said the IST Nuclear acquisition illustrated Westinghouse's commitment to the South African nuclear market. "The ability to work with a respected local company will allow Westinghouse to better serve this important market both now and in the future. "Clearly, we are even better positioned to help South Africa meet the critical demand for clean, safe and reliable energy in the coming decades," Mr Bower said. IST Nuclear was instrumental in the early development of the Pebble Bed Modular Reactor, working with Eskom and US-based investors including Westinghouse. More recently, IST Nuclear supplied a helium test facility for the PBMR. The company is also under contract to design key systems for a PBMR demonstration unit to be built at Koeberg, South Africa's only nuclear plant, by 2011. Westinghouse supplies nuclear plant products and technologies to utilities around the world. According to the company, its technology is the basis for approximately one-half of the world's operating nuclear plants, including 60 percent of those in the U.S.

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FOOD AND DRINK

Grolsch Accepts Sabmiller Bid

Dutch-based Koninklijke Grolsch's shareholders accepted SABMiller's € 816m takeover offer November 19. The purchase is in line with London-based SABMiller's intention to grow its share of the premium market in developing economies. The brewer, which produced 216-million hectolitres of beer last year, said the brand would be a key driver of growth in its premium segment, especially in emerging markets. Media relations head Nigel Fairbrass said that the premium segment was growing faster than others. SABMiller has received irrevocable undertakings from shareholders with 37% of the company. Management will recommend the offer once a firm intention is stated. Grolsch CE Ab Pasman said SABMiller's proposal offered the potential to unlock more value than Grolsch's existing strategy. SABMiller, which has guaranteed the staff employment terms, said it would seek to increase production at Grolsch's Enschede brewery. Grolsch, which would join the ranks of beers such as Pilsner Urquell, Miller Draft and Peroni, would add about 10% to SABMiller's premium-beer volumes. The iconic Grolsch Premium Pilsner accounts for more than 90% of the Dutch brewer's portfolio, which includes Grolsch Premium Weizen, Spring Bock, Autumn Bock and the Amsterdam brand. Grolsch and SABMiller reached conditional agreement on the deal, which will see shareholders receive € 48,25 a share, an 84,3% premium on the average closing price over the last month. Absa Asset Management Private Clients analyst Chris Gilmour said the premium was "cleverly constructed to ensure no other brewing companies make a counter bid". SABMiller CE Graham Mackay said Grolsch would be a "a powerful addition to its international brand portfolio", which was the fastest growing segment of the market. Through its operations in 60 countries on six continents, SABMiller said it had the scale to grow the brand and expand into new geographies. The brewer, which has recently been focusing on growing into emerging markets, would focus on growing the beer into the developing countries in which it had operations. "SABMiller sees significant potential across Africa and Latin America, where the premium segment is still in its infancy, and in the more developed markets of central and eastern Europe," the group said. Gilmour said Grolsch would "be in the super-premium category" and would augment SABMiller's range of premium beers "beautifully". In SA, where the company lost share in the premium market after Heineken revoked its licence to produce Amstel earlier this year, it saw a "key opportunity" that would give it a "particularly strong portfolio of highly differentiated premium brands in that market". Gilmour said the addition to the brewer's local portfolio would aid SAB in its market share battle after losing Amstel. "Grolsch has a loyal following in this country, and it will be interesting to see how it is priced here." He said it might be priced on a par with Amstel. About 80% of the Dutch brewer's volumes are from sales in the UK, the US, Canada, France, Australia and New Zealand through a network of alliances. SABMiller would retain its existing distribution agreements in the US, UK, Canada, Australia and certain smaller markets for now. In its financial year to March, SABMiller reported revenue of $18,6bn and pretax profit of $3bn, while 400-year-old Grolsch reported revenue of € 317,6m and net profit of € 19,2m. It has 15% of the Netherlands market. The companies expect the offering memorandum to be published in January, after which shareholders will vote. The offer would be subject to regulatory conditions.

Local Distiller Tops International Wine & Spirit Competition

Distell has been judged Distiller of the Year in the 2007 International Wine & Spirit Competition (IWSC) to come out ahead of some of the world's biggest names in spirits in the US, the UK and Europe. The IWSC is the largest spirits competition in the UK with close on 1,300 submissions made this year from 70 countries worldwide. Apart from a number of large-scale companies that own several global brands, Distell was pitted against many famous-name specialist producers, including a sizeable portion of the whisky fraternity, with over 340 whiskies entered from Scotland alone, according to competition director Frances Horder. Considered the most important spirits prize of the event, the V&S Distiller of the Year Trophy was presented to Distell by IWSC president, Gina Gallo at a gala event in Billingsgate, London November 6. The competition organisers praised the company for its "high quality range portfolio offering on spirits" and the "dedicated, resolute approach to the highest standards of distilling, blending and bottling". The judges whittled down the number of contenders for the trophy to a shortlist of 26 and finally settled on Distell, based on the outstanding results achieved by Mainstay, Amarula Cream and brandies from the Klipdrift, Van Ryn, Oude Meester, Richelieu and Nederburg distilleries. Ironically, Mainstay, an original South African cane spirit, won the trophy for the best vodka in the competition, outclassing Russian, Polish and Finish producers. Amarula, South Africa's biggest liquor brand on the international market, won the IWSC trophy for the best liqueur, while Distell's brandy portfolio came away with two gold and eight silver medals, as well as four best-of-class ratings. Horder said the entire spectrum of producers was considered for the trophy. "This is not an easy award to win and everyone who made it to the finals can be proud of their achievement." The company's Van Ryn's Collection Reserve 12 Year Old potstill brandy has twice been judged the IWSC Worldwide Best Brandy.

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HIV/AIDS

UN Slashes Global Aids Estimates

The United Nations (UN) sharply reduced its estimate of the number of people worldwide infected with the AIDS virus, from 39,5-million to 33,2-million November 20. The news is important because it is likely to result in revised estimates of the resources needed to prevent new cases and treat those already infected. The report did not contain country-specific details, which are expected to be released only in five or six months' time, but it says SA remained the worst-affected country. The report shows that there has been a decline in annual new infections in sub-Saharan Africa since 2001, falling from 2,2-million to 1,7-million. UNAIDS, the UN's joint agency on HIV/AIDS, attributed the drop to improvements in the quality of data supplied by countries and changes to its methodology for analysing these figures, rather than to any dramatic change in the effect of efforts to combat the disease. "The qualitative interpretation has not changed -- this remains the leading infectious disease challenge to global health," said Kevin de Kock, head of the World Health Organisation's HIV/AIDS department. The latest AIDS epidemic update from UNAIDS, released November 20, says 2,5-million people became infected with HIV this year, and 2,1-million people died from AIDS-related illnesses, 76% of them in sub-Saharan Africa. UNAIDS said it had lowered its estimates of the number of people needing anti-retroviral therapy, and determined that the epidemic was not growing as fast as previously thought. As a result, the resource requirements for 2010 were expected to be adjusted down about 5%, and those for 2015 10%, said the monitoring and evaluation director of UNAIDS, Paul de Lay. The figures had been revised downwards largely because of improved data supplied by India, which accounted for 50% of the decline in HIV cases, as well as better figures from Angola, Kenya, Mozambique, Nigeria and Zimbabwe, De Kock told reporters in a teleconference from Geneva. These countries together accounted for 70% of the decline in HIV cases. More countries had conducted population-based household surveys, which enabled better estimates for countries with similar epidemics that had not conducted these surveys. UNAIDS had also changed its mathematical models to reflect the latest knowledge about how HIV progressed; for example, the estimates of how long people survived after infection without treatment had been increased from nine to 11 years, he said. De Kock stressed that these kinds of changes were to be expected as experts learnt more about the disease, and developing countries improved their surveillance systems. He cautioned against comparing this year's report to that published last year, saying the latest report contained revised figures for the global HIV/AIDS burden as far back as 1990. UNAIDS executive director Peter Piot said: "Unquestionably, we are beginning to see a return on investment -- new HIV infections and mortality are declining and the prevalence of HIV levelling. "But with more than 6800 new infections and over 5700 deaths each day due to AIDS we must expand our efforts in order to significantly reduce the impact of AIDS worldwide," he said.

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INTERNATIONAL ECONOMIC RELATIONS

Too Many New Bilateral Accords Spoil Trade Broth

A trade expert has warned that the proliferation of bilateral trade deals by countries, in the absence of a comprehensive multilateral trade pact, is compounding the difficulties of doing business in the global arena. Rather than facilitating trade flows, different rules of origin, tariff phase-downs and regulations marking each unique bilateral deal were complicating matters for the private sector, said Mills Soko of the UCT Graduate School of Business and a research associate of the South African Institute of International Affairs.
"The global production system is fragmented and dispersed. If a country has several bilateral agreements it becomes a nightmare for supply chain management," he said at an institute roundtable on the relevance of the World Trade Organisation (WTO) November 28. Countries are opting increasingly for bilateral free trade agreements as the WTO process to deliver a multilateral trade deal falters. SA is pursuing preferential trade deals with Latin American trade bloc Mercosur and India, and is exploring a similar deal with China. In the face of a seemingly insurmountable challenge to cater for all the divergent interests of its 150 members, the WTO has become the latest in a line of prominent institutions, such as the World Bank and the International Monetary Fund (IMF), whose role and relevance are questioned. The IMF and World Bank have recently been heavily criticised for their failure to acknowledge the importance of fast-emerging economies, such as India and China, in their structures. Soko, also a member of the Warwick commission investigating reform options for the WTO, echoed such concerns in relation to that institution. The rising leadership of developing countries needed to be balanced with the role of traditional leaders, but there was increasing protectionism from developed states, threatened by the rise of the new economic powers. "There is an instinct to close up," said Soko. The traditional power of economies such as the European Union (EU) and the US ensured that the WTO agenda was essentially set by a "clique of countries," compromising the legitimacy of the WTO process for all its members, he said.
Soko said the role of the WTO could be bettered by creating space for improving the management of agenda-setting and decision-making, as well as defining more strongly the relationship between trade and development.

Cuba Welcomes Country Support to End Embargo

A top Cuban diplomat has extended her country's gratitude to South Africa for its contributions and support towards ending the long-standing embargo against the island nation by the United States. "I would also like to reiterate Cuba's gratitude to the government of South Africa for its support to the draft presented by Cuba on the need to put an end to the economic, financial and commercial blockade on our country by the government of the United States," said Cuba's Foreign Minister Martha Lomas Morales, at the 5th SA-Cuba Joint Bi-national Commission (JBC), November 8. The minister said her country counted on support from South Africa and other African states in helping them reach an end to the U.S. embargo, in place since 1961, following the unsuccessful Bay of Pigs invasion. "We would particularly like to thank the government of South Africa," Minister Morales said, at the JBC, which she co-chaired with Minister Nkosazana Dlamini-Zuma. "Dear Minister, allow me to provide you with some information about our national situation," said Minister Morales. "The Cuban economy is still undermined by the limitations that are a result of more than 48 years of a very strong financial, economic and commercial blockade imposed on our country by the government of the United States." The Cuban minister explained that, the goals for 2007 are based on a flexible plan capable of adapting to the changeable circumstances imposed by the international economy and that demand continuous transformations on Cuba's part. Co-operation between the nations extends beyond the political realm, explained Minister Morales. According to figures she supplied, 347 young South Africans have studied and graduated in Cuba since 1961. "There are currently 181 students studying in Cuba, two in higher education, seven in the National Institute of Sports and Physical Education and Recreation and 171 in the Health Sector as doctors and one in the Ministry of Education." For her part, Minister Dlamini Zuma explained that in the seven years of the JBC's existence, the two countries have had very exciting programmes of co-operation, some of which are going very well and performing steadily. "This JBC has become amongst the biggest we have with 18 government departments participating over the past seven years," said Minister Dlamini Zuma. "We are very happy with this especially because one of the anchors of this programme is the Human Resource Development (HRD) programme with which Cuba is assisting us. Of course, HRD is one of our main priorities over this period in our development." The South African minister expressed the government's hope that co-operation in the communications field would take root. "We are aware that our Deputy Minister of Communications visited Cuba but we need to have a proper follow up of that visit and I am told that there are exciting projects in the pipeline but we need to take them out of the pipeline, since they have been in the pipeline for a while," Dr Dlamini Zuma said. "And off course, the SABC and Cuban Television co-operation is also an important project." This minister also emphasised the importance of co-operation in science and technology. "Because science and technology is important not only for industry but for health, vaccines, for all manner of areas that will enhance our co-operation. "It will be in areas of climate change. We will be happy to learn from your experiences and to share whatever experiences South Africa has." Dr Dlamini Zuma said government was satisfied with the two countries' joint work in diverse areas such as the auxiliary social worker programme, community development workers, and youth development.

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MANUFACTURING

Strong Rand and Motor Industry Strike Cut Factory Output

Manufacturing fell in September for the first time in three-and-a-half years -- knocked mainly by a strike in the motor industry, but also by a slowdown in consumer demand blamed on rising interest rates. Factory output, which accounts for more than 16% of the economy, fell 1,4% in the year to September after a rise of 5,2% in August, marking the first annual contraction since February 2004. A rebound is expected for October, but analysts said the outlook for the economy's second-biggest sector had deteriorated due to gains in the rand, which both erode the competitiveness of SA's exports and make imports more affordable. "The manufacturing sector remains plagued by relative rand strength, slowing household demand, high production costs and an easing in global manufacturing conditions," Standard Bank economist Danelee van Dyk said. She singled out the effect of gains in the rand, which rallied 3,8% last month against a trade-weighted basket of currencies, in which the euro carried most of the clout. This is a more significant measure of the rand's value than its level against the dollar, which has dived against most currencies this year. "The rand's strength has heightened import substitution by retailers and wholesalers, negatively affecting the sector's growth outlook for the rest of the year," she said. In a separate report November 8, the Bureau for Economic Research said that for the first time in four years, there was clear evidence of a slowdown in SA's economic growth, which reached 5% over each of the past three years -- a 25-year peak. Growth was still likely to amount to 5% this year, but would moderate close to 4,5% next year, before gathering momentum in 2009. It said this forecast was in line with estimates from the treasury in its medium-term budget policy statement issued last week. But the Reserve Bank is unlikely to put much weight on data showing that growth in retail sales, credit and manufacturing are all moderating when it makes its decision on interest rates next month. With inflation set to climb further above its 3%-6% target and remain above the upper limit until the middle of next year, there is still a good chance the Bank will hike lending rates again after raising them by 3,5 percentage points since June last year. "For monetary policy, the Bank is likely to look past the data with its focus largely on the inflation target ... a not-so-comforting outlook," Absa Capital said. Manufacturing fell a seasonally adjusted 4,9% in September, after rising a meagre 0,9% in August, yesterday's Statistics SA data showed. Production in motor vehicle components dived 30% in September due to a three-week strike, which also hit car production. But output in nine out of 10 industries slowed, suggesting the trend was broad-based. Even though this month's numbers are distorted by the strike, the underlying trend appears to be softer, albeit moderately so," Nedbank economist Nicky Weimar said. The data showed that in the third quarter of this year, manufacturing fell 0,6% compared with the second quarter -- the first quarterly decline since 2003, when the sector mired in a recession. "For the economy to return to 5% growth, the manufacturing sector must once again start to pull its weight. The rate of expansion will not create the jobs required by the economy to increase its overall welfare," said Efficient Research economist Nico Kelder.

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MINING

Kalagadi and Mittal in R4,2bn Venture

Empowerment mining company Kalagadi Manganese has signed a strategic equity partnership with steel giant ArcelorMittal for the development of a manganese mining and beneficiation project in Northern Cape at a cost of R4,2bn. Kalagadi Manganese is 80% owned by empowerment company Kalahari Resources, with state-owned development financier the Industrial Development Corporation holding the balance. The joint venture project will see the development of a mine and sinter plant at Hotazel in Northern Cape, which will produce 2,4-million tons of sinter product a year, while a ferromanganese alloy production facility will be built in the Coega Industrial Development Zone outside Port Elizabeth with an initial annual production capacity of 320000 tons, eventually to be ramped up to double that output. Kalagadi Manganese secured the agreement on extremely favourable terms, which include the steel giant financing much of the project, providing business and technical assistance and having agreed to take up half of the sinter plant's output at market-related prices. Kalagadi has also signed an agreement with Eskom in terms of the developmental electricity pricing programmes, which means it will obtain power at a favourable price. It was finalising its memorandum of understanding with the Coega Development Corporation November 20. According to Kalagadi Manganese chairman Daphne Mashile-Nkosi, the sinking of the shaft and construction of the mine would commence in March next year while construction of the smelter at Coega would start at the end of next year and take 18 months to complete. At R2bn, the smelter will take up the bulk of the development costs while R497m would be spent to develop the mine and mine infrastructure. Power and rail would respectively take up R300m and R182m of the development costs. The project would be financed through a combination of debt and equity, with the debt:equity ratio set at 35%-65%, Mashile-Nkosi said. ArcelorMittal will come to the party with $222m. "The deal will allow us to come on stream very quickly. With ArcelorMittal's contribution we will be able to go to any bank (to raise debt). With this being a greenfields project, to attract such a large company as investor is very exciting," she said. The parties had also signed a business assistance agreement, in terms of which the steel group would assist with the business and technical aspects of the project. In terms of an offtake agreement, ArcelorMittal will take up a minimum of 50% of production at market-related prices. With ferromanganese prices having reached highs of $1750 a ton, Mashile-Nkosi said potential customers for the rest of its output were "already knocking on our doors". According to ArcelorMittal spokesman Mark Mann, the 2,4-million tons of production volume was enough to supply half of the ArcelorMittal group's need, but that it had yet to decide if it would take up more product. Managanese is used in the steel-making process to strengthen steel and to remove impurities such as oxygen and sulphur. The bulk of manganese is used in manganese ferroalloys and manganese metal in the production of iron and steel, while manganese metal is also used in the production of nonferrous products such as aluminium alloys. The mine and smelter will employ 1300 workers once operational while 800 people will be employed during the construction phase. The project overlies the Kalagadi Manganese Basin, which contains 80% of the world's known manganese, estimated at 12-billion tons.

Uranium One Goes From Profit to Loss

URANIUM miner and developer Uranium One turned from profit to loss in the September quarter as sales of uranium to a customer dropped sharply. But president and CEO Neal Froneman said in a conference call the group had only one legacy contract with this much flexibility, and new contracts were being signed which would offset this. The company, which has one producing mine in Kazakhstan and is developing others in SA, Australia and Kazakhstan, sold 70000lbs of uranium in the September quarter compared with 99200lbs in the three months to October last year and 244200 in the June quarter. It produced 463000lbs of uranium from 513000 in the third quarter last year. But the steep increase in uranium prices over the past year helped grow revenue to $8,1m ($4,2m). The average uranium price realised was $115/lb, compared with $42/lb a year ago. After higher expenses, a net loss of $17,3m was made against a previous profit of $25,9m. The main test for Uranium One, following an aggressive expansion strategy over the past two years, will be the delivery of projects as promised. Production at the Akdala mine in Kazakhstan was ahead of schedule at 1,99-million pounds for the nine-month period, management said, and the mine would not be affected by the temporary sulphuric acid shortage in Kazakhstan. Its other two projects in the country, South Inkai and Kharasan, could be delayed by the sulphuric acid problem which could also make its initial production lower than expected.
In SA, first commercial production from the Dominion Reefs mine near Klerksdorp was late, but the company expects the mine will produce 2-million pounds next year.

First Uranium Profit Up On Currency Gains

Gold and uranium producer First Uranium Corporation, whose main shareholder is Simmer & Jack, moved from loss to profit in the past six months as it started production at Ezulwini and Buffelsfontein, the miner said November 12. The company, which is listed on the Toronto and Johannesburg stock exchanges, earned $0,07 per share for the six months to September compared with a loss of $0,02 in the same period last year, when it was in start-up phase. It reported its first revenue of $8,4m for the six-month period, derived from 10124oz of gold processed through the Mine Waste Solutions plant at Buffelsfontein, which it acquired in June, together with three gold and uranium tailings dams. Although it made an operating loss, the bottom line was boosted by foreign exchange translation gains and interest earned. First Uranium has also begun hoisting material at its Ezulwini mine. Since the end of the quarter, it has reached an agreement with a third party to treat the ore mined at Ezulwini until it completes its own gold processing plant in April. In the current quarter, the company expects to increase mining at Ezulwini to produce 5500oz of gold and to produce a further 9600oz of gold at Buffelsfontein. It will also upgrade the capacity of the processing plant at Buffelsfontein to 630000 tons a month from 500000 tons. By June next year First Uranium expects to be able to process uranium at Ezulwini, and by November next year to process uranium at Buffelsfontein. It has agreed with the Nuclear Fuels Corporation of SA to calcine the yellowcake it produces into U308 and to buy its uranium production for 12 months from January at a rate based on spot prices. The spot price of uranium is about $90/lb, although it went as high as $136/lb this year. Most longstanding uranium producers are supplying long-term contracts at less than $20/lb.

Lonmin Expects to Boost Its Platinum Sales 13 Percent

Platinum miner Lonmin expects to sell about 900 000oz of platinum in its current financial year, a 13% increase on the past year when it was hit by processing and labour problems. It will spend $400m-$450m on capital projects this year, up from $276m in the year to September, to complete shafts at Marikana, continue extending its Limpopo mine to the east and planning a mine at Akanani. By 2012 Lonmin expects to be able to produce about 1,2-million ounces of platinum from its new mechanised shafts at Marikana and expansion at Limpopo. It has completed a study on expanding Limpopo, but is now undertaking further work on the possibility of building an even larger mine, including upgrading the concentrator and building another on the eastern side. By end-December a study on the joint Pandora venture, a conventional, standalone mine, should be completed. This could see Lonmin, focusing on mechanised mining, exit the project. Lonmin revenue rose to $1,9bn, or 4,6% more than in the previous year, driven mainly by higher prices. It realised a 23% higher price for its basket of platinum group metals at $1196/oz. Production was below forecast because of a longer Christmas break, industrial action at Marikana and a leak at its number one furnace, which took months to rebuild. The Merensky furnace was re-commissioned to reduce reliance on the number one furnace, and the process division got new management. CE Brad Mills said it was impossible to identify either technical issues or human error as a single reason for the accident, but the structure was weakened by previous incidents. Total operating costs after base metals credits were likely to rise 15% next year, versus a 29,7% increase previously to R3434/oz, due mainly to lower volumes. Underlying earnings fell 5,2% to $295,9c per share. The final dividend was 9% up at 90c per share, bringing the total for the year to 115c ( 100c).

Jubilee Platinum to Raise £11m for Feasibility Study

Platinum explorer Jubilee Platinum -- which is quoted on London's AIM and listed on the JSE -- will place 13-million shares to raise £11m (about R150m) to fund its bankable feasibility study into the Tjatje project, it said November 7.
The Tjatje project is a potential platinum mine on the eastern limb of the Bushveld complex near Implats' Marula mine and Angloplat's developing Twickenham project. Jubilee holds 49%, with an option to increase its stake to 63%. According to a recently completed scoping study, it could be economically feasible to build a mine at Tjatje at a cost of $470m (about R3bn) to mine 200 000 tons of ore a month at a grade of 5g a ton of platinum group metals, with nickel and copper byproducts. A bankable feasibility study is the next step to increase the level of confidence on whether the mine would be viable. Jubilee expects to start the study next year and be able to start production from the mine in 2011. The shares will be placed with institutions at a price of R12,50 on the JSE and 89p on AIM -- which is a 4% discount to the 30-day weighted average share price on AIM. A company spokesman said 4,35-million shares would be placed on the JSE. According to a recent research note from Growth Equities and Company Research, the Tjatje project could be sold to Angloplat or Implats or would become part of a production-sharing agreement with one of those companies.

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TELECOMMUNICATIONS

Telkom Hit Hard After Vodafone, MTN Deals Flop

TELKOM's plans to reinvent itself have been destroyed as talks to sell assets to Vodafone and MTN collapsed November 28. The news was partly a surprise and partly no surprise at all, as many analysts expected a proposed deal with Vodafone to proceed, but a more nebulous deal with MTN to fail. However, Telkom disclosed that the two deals had been intertwined so axing one instantly killed the other. Telkom shares took a savage 11% hit, at one stage shedding almost R18 to trade at R143,50, knocking its market cap to about R76,5bn, down R9bn on the day. MTN rose 7,65% to R129,50, with buyers relieved that it no longer risked being tied up in months of business-battering competition authority hearings. Telkom aimed to sell part of its 50% stake in Vodacom, worth about R75bn, to the UK's Vodafone and publicly list some remaining shares. It seemed a clear-cut move, with only the price to resolve. Yet it apparently hinged on a separate plan for MTN to buy "certain or all of Telkom's fixed-line businesses", which collapsed after the strategic, operational and regulatory aspects were examined. Earlier in November Vodacom CEO Alan Knott-Craig described the deals as "very complicated". Of the MTN deal, he said: "I wouldn't be surprised if nothing ends up happening. I think almost every company in this country is going to go to the competition board." Telkom said the MTN deal also failed because anticipated costs did not match benefits. That confirmed market doubts about how MTN would gain by absorbing Telkom's infrastructure, especially as MTN was already laying cables of its own. The news does not, however, hang up on Telkom's much-needed restructuring. Its results for the six months to September showed a 19% dive in profit for fixed-line voice calls, emphasising the need to offer combined fixed and mobile voice and data services. Telkom said it would continue to pursue its options to offer converged services. Vodafone also confirmed it was still interested in taking control of Vodacom to end the unworkable ménage-â-trois. The talks had not ended because of problems between Vodafone and Telkom, but because of difficulties between Telkom and MTN, it said. Kaplan Equity Analysts MD Irnest Kaplan expected Vodafone and Telkom to revive the share-sale talks. But he was pleased MTN would not attempt to buy anything from Telkom. MTN was interested in Telkom's national backbone, but Telkom probably wanted to foist much more onto MTN, including 30000 staff. "MTN's shares are labelled internationally as an awesome high-growth operation of choice in Africa and the Middle East. If it bolted on Telkom it would change its whole investment profile," Kaplan said. "It's very challenging now for Telkom with a lot of uncertainty. We don't know if the Vodafone deal will be resurrected and Telkom has a lot of management posts to fill." Telkom also needed robust strategies to defend its turf against rivals such as Neotel and Internet Solutions, he said.

Vodacom Finally Ready for BEE Deal of R7,5bn

VODACOM is finally ready to strike its R7,5bn empowerment deal, despite uncertainty about its future ownership. The lack of black shareholders is inhibiting the company so much that its board has stopped procrastinating after delaying progress for five months. CEO Alan Knott-Craig said an empowerment deal was not something to do for fun, but for good commercial reasons. "We just can't delay it any longer. The commercial imperative was more important than any other activity." In the months ahead Vodacom's parent company, Telkom, is expected to sell up to 20% of the business to Vodafone, the other joint owner, while the remaining 30% may be listed on the JSE. Knott-Craig said potential black partners had already been ranked and three groups would take a stake -- its own staff, a broad-based black group and a strategic partner. "We have to get into the next stage of finding out if they are actually the right selection," he said. They are believed to include a group led by Nkenke Kekana, a former head of Parliament's communications portfolio committee. Cash will change hands as those groups pay for their shares in some form, but much of the negotiation will involve finding a way to finance the deals to make the shares affordable. Vodacom has settled on a sale worth R7,5bn as the government counts a company as black equity-compliant at that level. Knott-Craig would not say what percentage of its shares R7,5bn would buy, and assessing the value of Vodacom's arm in SA in isolation is difficult. Analysts have pegged the price for Vodacom as a whole at about R150bn. In the past six months its operation in SA generated R5,4bn of its R5,7bn operating profit, making it by far the largest and most expensive part of the enterprise. Knott-Craig said the share-trading deal between Vodafone and Telkom was complicated, not least because the government was a 38% Telkom stakeholder, so politics will override purely commercial decisions. Knott-Craig is also not convinced listing Vodacom is a good move, as it does not need extra cash or a higher profile. The only benefit would be to let the black shareholders realise some value by selling their shares on the open market. Knott-Craig was speaking after presentation of Vodacom's interim results, which showed continued phenomenal growth. Revenue rose 17,2% to R22,8bn and net profit rose 17,5% to R3,7bn for the six months to September 30. The profit margin slipped 0,5% to 33,3% but it lifted its dividend by 10% to pay R2,75bn to shareholders. Customer numbers jumped 22,6% to 31,6-million. Vodacom has easily maintained its dominance over MTN in SA, despite wiping 2,9-million names off its list -- subscribers inactive for 13 months. The average monthly spending of customers has fallen 4% to R119 each as the less affluent join. Knott-Craig sees the answer to that as converged services of broadband internet access, music, TV and mobile video. At present, 1,2-million people use its mobile internet website, 265000 connect their personal computers and laptops to the internet over its cellular network and 35000 people watch its mobile TV channels.

Sea Cable Venture Lands Big Investors

An undersea cable promising cheap bandwidth for Africa finally named its backers, November 13, signing up enough well-connected local investors to guarantee its landing rights in SA. Investment heavyweight Venfin is sinking $75m into the project, taking a 25% stake in the 15000km cable linking SA to India and Europe. Cyril Ramaphosa's black investment house Shanduka is taking 12,5%, worth $37,5m. Another 12,5% goes to Convergence Partners, a group of black investors led by Andile Ngcaba, the chairman of Dimension Data Africa and a former director-general of the communications department. Nedbank Capital and Investec will provide financing for the $650m project. SA's second network operator, Neotel, is pumping in a far more modest R20m, and using its telecoms licence to guarantee that the cable can dock in SA. The local ownership is sufficient to ensure that Seacom meets controversial new conditions being drawn up by Communications Minister Ivy Matsepe-Casaburri, dictating who can land a cable in SA. The minister is insisting that any cable must be majority owned by African investors to come ashore. South Africans hold 50% of Seacom, and that rises to 75% African ownership thanks to 25% held by the Aga Khan Fund for Economic Development's Industrial Promotion Services, a development agency based in Kenya. The remaining 25% lies with New York's Herakles Telecom, a development group that has invested $4bn in Africa. Neotel is investing only in the local landing station, but its licence to operate in SA conferred on it the right to land a cable, said MD Ajay Pandey. "Our understanding is that the country needs international capacity, and the way international cable landing protocols have been defined means we have the opportunity here." Venfin CEO Jannie Durand said Neotel's licence to land a cable in SA meant everything had been done "legally and correctly". Venfin was backing Seacom for two reasons, he said: "We are hopefully going to make a lot of money out of it and SA needs more bandwidth. We want to bring SA affordable bandwidth to the rest of the world." Although the cable will cost $650m, it would be partly funded by loans as well as equity, allowing Venfin to take 25% for less than the book value of the project, Durand said. Pandey believes Seacom will be the only new telecoms cable completed in time to give SA enough international bandwidth to successfully broadcast the 2010 World Cup. The consortium has already invested more than $10m in a marine survey and engineering of the cable. The actual production of the fibreoptic cable and undersea facilities has now begun. Seacom will connect Mtunzini in SA to Mumbai in India and Marseilles in France via Mozambique, Madagascar, Kenya and Tanzania by June 2009. Terrestrial links will be built to take its bandwidth to numerous other inland countries. Its capacity of 1,28 terabytes per second is 10 times the capacity on the existing Sat-3 cable around Africa's west coast. The consortium has promised that it will charge other voice and data carriers significantly less for its bandwidth than they pay to use Sat-3 or satellite services, which should trigger a massive decrease in the cost of phone calls, internet access and data transmissions for African consumers and businesses. "Improved access for business and individuals in Africa to communications, broadband services and new technology offerings can improve lives and help grow the economies of our countries," said Ngcaba, the chairman of Convergence Partners. "The linking of southern and east Africa with India and Europe is crucial for enhancing development and trade between these key regions."

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