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Update No: 074 - (05/03/08)

The future of the Scorpions
Safety and Security Minister Charles Nqakula confirmed February 12 that the Scorpions would be dissolved despite a torrent of opposition and criticism of the decision. The elite unit will be disbanded and a new unit formed under South African Police Service (SAPS) auspices. Organised business has spoken out with Business Against Crime saying it was "fundamentally opposed" to the move. President Thabo Mbeki has strongly defended the decision to scrap the Scorpions. Mbeki spoke about the future of the Scorpions investigating unit. He said the decision to amalgamate the Scorpions with the police's organised crime unit would go ahead as planned. He said the decision had been made as a result of the review of the criminal justice system, and was taken in the context of the government's unwavering commitment to fight organised crime.

After harsh criticism from opposition parties, President Mbeki February 14 rejected charges that he had misled the nation on the issue of charges against police commissioner Jackie Selebi. It is also claimed that the real reason behind the suspension of National Prosecuting Authority (NPA) head Vusi Pikoli was to cover up the corruption claims against Selebi. Mbeki has repeatedly said there was no evidence to suggest there was a corruption case against Selebi. But an affidavit filed by acting NPA head Mokotedi Mpshe in the Pretoria High Court alleges that there was "constant communication" between Pikoli, Mbeki and Justice Minister Brigitte Mabandla about the Selebi investigation. Selebi, has been charged with three counts of corruption and one of defeating the ends of justice. The Presidency invoked the sub judice rule February 12 to avoid commenting on Mpshe's affidavit, which contradicts President Thabo Mbeki's assertion that he did not know about evidence against police commissioner Jackie Selebi.

Finance Minister Trevor Manuel moved to dispel speculation that the conservative fiscal policies maintained in his budget for this year were out of step with policies advocated by the newly elected leaders of the ANC. The budget surpluses unveiled in Manuel's budget February 20 were widely seen as an affront to some of those leaders, who are perceived as more left-wing than their predecessors and in favour of more liberal spending and looser monetary policy. The Congress of South African Trade Unions criticised the surplus and a surprise decision to cut the corporate tax rate to 28% from 29% -- a move that has reassured business and investor communities. Manuel also said he was confident the treasury's forecast for growth in the economy to slow to just 4% this year from 5% last year was not too optimistic. The treasury's previous estimate was for growth of 4,5% this year, but independent economists have tended to revise their forecasts down more sharply, after taking into account power constraints, a broad global slowdown and volatile financial markets. 

South Africa's economic growth accelerated unexpectedly in the final quarter of last year, buoyed by a rebound in manufacturing and shrugging off a slowdown in consumer spending prompted by higher interest rates. Economic activity jumped by an annualised 5,3%, up from a revised 4,8% in the third quarter and defying forecasts for a slump to 4,3%, figures from Statistics SA showed February 26. The news showed the economy's resilience in the face of deepening power constraints set to take a heavy toll on mining output this year. However, the Reserve Bank will find it difficult to cut interest rates to boost demand, as inflation is set to climb further after breaching its 3%-6% target for nine months. 

New ANC President Jacob Zuma held a meeting with French President Nicolas Sarkozy February 29. Sarkozy, who arrived in South Africa February 28 said earlier that he planned to meet Zuma during his official trip hosted by President Thabo Mbeki. "Jacob Zuma is the president of the ANC. It is natural that I should meet him," he said. 

State of the Nation Address - Beyond Mbeki to Zuma
Thabo Mbeki was in an unenviable position when he stepped up to the podium to deliver his penultimate State of the Nation address at the annual opening of Parliament in Cape Town February 8 In the past, his approach during these annual addresses has been to focus on the government's strategies and work achievements, often ignoring what was on the public mind. His challenge was that he had to speak to the nation, yet be vigilant that he did not offend the section of the ruling African National Congress (ANC) led by newly-elected party leader, Jacob Zuma, and his team. The president played it safe by uncharacteristically giving considerable time to acknowledging the deep unease about the future of South Africa. It was not only about what Mbeki was saying; it was about what Zuma will be saying and doing. When Mbeki mentioned Zuma's name while listing visiting dignitaries, the gallery and assembly applauded. Mbeki needs to prepare for a smooth handover of the reins of power to a new leadership in 2009. His conduct and those of his supporters at Polokwane offer some assurance of a peaceful transfer of power. What Mbeki does in his last months in power matters less than what Jacob Zuma and his team do this year. They have their work cut out. By July or August, they will be faced with the difficulty of choosing a candidate for the presidency at precisely the time Zuma goes on trial on corruption charges. Mr Mbeki said that while the public had the perception there was about to be radical change in terms of policy direction, this was not the case. "It might be that people have ... a perception that there's some radical change in terms of the political direction in which we're going, and there isn't." Mr Mbeki said it would be "Business Unusual" in the coming year. "We speak of Business Unusual not referring to any changes in our established policies but with regard to the speedy, efficient and effective implementation of these policies and programmes, so that the lives of our people should change for the better, sooner rather than later," the President had said. 

Democratic Aliance Slams Scrapping of Scorpions
The ANC is disbanding the Scorpions to protect the criminals in its own ranks and possibly also to cover-up even greater corruption in the Arms Deal than has already been made public, DA leader Helen Zille has suggested. Zille said she was clear in her own mind that, by disbanding the Scorpions, the ANC was undermining the fight against criminals to protect the criminals in its own ranks. "The disbanding of the Scorpions is certainly not about enhancing the fight against crime. Every single argument that the ANC has put forward for the dissolution of the Scorpions can be refuted on the grounds that the Scorpions have been incredibly successful in prosecuting high priority crime." Also, the Scorpions provided an essential check on rampant police corruption the key reason cited by President Mbeki for the unit's establishment in 1999. "Would National Police Commissioner Jackie Selebi be facing corruption charges if the Scorpions had been part of the SA Police Service? "It is highly doubtful he would have been aware of the investigation from the outset and would have moved to block it." The DA and United Democratic Movement have said they have briefed lawyers and legal experts to establish how the Scorpions could be saved from efforts by the ANC to "dissolve" the crack crime-fighting unit. 

Mbeki in Opposition's Firing Line
A sombre looking President Thabo Mbeki and his cabinet came under intense criticism February 14 from opposition parties for the apparent suggestion that the president misled the nation when he said no evidence of misdeeds by national police commissioner Jackie Selebi had ever been placed before him. Also on the agenda of day two of the debate on Mbeki's state of the nation address was the electricity crisis, which numerous speakers suggested happened because race had been put ahead of competence in the management of key state utilities. Democratic Alliance (DA) MP Tertius Delport began by challenging Mbeki's theme of "business unusual" for the speech. He said this was a "damning indictment" of Mbeki's administration of SA because it was "an unequivocal admission that business as usual landed our country in the quagmire in which we find ourselves". "Nothing illustrates the four ills of our administration better than the (suspended Scorpions head Vusi) Pikoli, Selebi, Scorpions saga. This saga must also be judged against the alarming background that the public has no faith in the SAPS (South African Police Service), which is shown through the high rate of people not reporting crimes. "In addition, it has since been revealed that the president was briefed repeatedly about the National Prosecuting Authority (NPA) investigation into Selebi, and thus his statement that nobody had brought him evidence of wrongdoing on Selebi's part is now questionable. "But the most alarming of all is that the government is going ahead with disbanding the Scorpions. Surely 'business as usual' -- business as expected! "Is there nobody in the ANC (African National Congress) with the courage and integrity to stand up and say no?" Freedom Front Plus (FF+) leader Pieter Mulder said the country was in the midst of a "corruption crisis; in the midst of a service delivery crisis; in the midst of an energy crisis; in the midst of a crime crisis". "In the health department, the president fired the wrong minister; now the ANC is closing the wrong crime-combating unit, the Scorpions. The FF+ totally condemns this as throwing the baby out with the bath water. " Mulder, referring to the energy crisis, said: "In the midst of one of the biggest crises which this country has ever experienced ... some ANC members are still busy with racial ideologies and affirmative action. "I want to ask a question: What is of the biggest importance to the ANC? Rash, racially obsessed transformation at municipalities -- or service delivery through which millions of people obtain water, toilets and houses? The majority of these people without services are black. "No organisation in the world can continue to function effectively following such a large turnover in personnel as that which had taken place in the last couple of years at Eskom. This is not a racial argument, but an ordinary business principle." DA chief whip Ian Davidson, referring to the electricity failures, said he agreed with Mbeki that there should be no recriminations but insisted those accountable should be identified. " Minister (Jeff) Radebe, who as minister of public enterprises 10 years ago, was warned over a period of five years that Eskom had insufficient capacity to keep pace with the country's rate of development if no new power stations were built -- and yet he failed to act."

Pikoli Wants His Job Back
Suspended National Prosecuting Authority (NPA) head Vusi Pikoli wants his job back. That is his expected petition to the Ginwala commission of inquiry, to receive his submission February 15. It is widely believed that Pikoli will put forward a case to the commission -- chaired by former National Assembly speaker Frene Ginwala -- arguing that he was unfairly suspended by President Thabo Mbeki late last year. Pikoli is expected to strongly tie his suspension to his failure to seek political approval before the NPA sought an arrest warrant for national police commissioner Jackie Selebi. Pikoli's argument would be bolstered by Selebi's eventual arrest on charges of corruption and defeating the ends of justice. Pikoli's back has been up against the wall since his suspension last September. While the Presidency has denied media reports linking Pikoli's suspension to the Selebi investigation, the NPA's probe into African National Congress (ANC) president Jacob Zuma has also left Pikoli with few allies in the new leadership of the ruling party. It is understood that while the government has invoked national security to prevent the inquiry being made public, Pikoli will cite national interest and call for documents submitted to the inquiry and any hearings to be in the public domain. This comes after the Presidency tried to distance Mbeki from the Selebi investigation, saying that he did not know about the evidence against the police chief. This was, however, disputed by the NPA in an affidavit that its acting head, Mokotedi Mpshe, submitted to the Pretoria High Court contradicting the president's assertion. Mpshe reportedly said in his affidavit that the NPA had briefed Mbeki at least 10 times on the Selebi investigation. The affidavit was made in response to Selebi's application to stop the case against him. He is facing charges of corruption and defeating the ends of justice. Pikoli's submission to the Ginwala commission is also expected to contradict Justice Minister Brigitte Mabandla and her director-general, Menzi Simelane. The justice bosses, who are leading the charge against Pikoli, reportedly gave the commission 11 reasons why they thought he should be axed. Among them is the NPA's handling of the investigations into Zuma and Selebi, as well as what is known as Special Browse Report. According to the government, Pikoli's suspension was motivated by the alleged breakdown in the relationship between Mabandla and Pikoli. But the inquiry into Pikoli's fitness for office came only after he informed Mbeki of an arrest warrant obtained for Selebi.

Pikoli Denies Siding With Mbeki Against Zuma
Suspended director of the National Prosecuting Authority (NPA) Vusi Pikoli February 21 denied he had conspired with President Thabo Mbeki to lay corruption charges against Jacob Zuma in a bid to diminish Zuma's political power. In his first statement regarding the case against Zuma, Pikoli said he had been "surprised" when informed about allegations made in Zuma's affidavit before the Mauritian Supreme Court, where Zuma is trying to prevent the NPA from obtaining access to documents that would help their corruption case against him. Pikoli said there was no truth to Zuma's contention that complaints submitted to the Ginwala Commission by Justice Minister Brigitte Mabandla include d claims that Pikoli acted improperly in commissioning known apartheid operatives in a search and seizure at Zuma's residence. He also denied that Mabandla said in her submission that he (Pikoli) commissioned a report that investigated Zuma's interactions with African leaders and whether Zuma posed any threat to the security of the state. Law firm Deneys Reitz, which is representing Pikoli, said: "The allegations are not true. Neither the minister nor government has purported to base the decision to suspend our client on the search of Mr Zuma's residence or his having commissioned such report. In due course it is hoped that Dr Frene Ginwala will make the state's submission available to the public and, once she does, it will become clear that the alleged complaints do not form part of the state's case." The Law Society of SA criticised the delay in Pikoli's investigation and discussions to merge the Directorate of Special Operations (the Scorpions) and the police, saying it created an impression that there was government interference. The body, representing more than 1800 attorneys, including members of the Black Lawyers' Association, said it was concerned by what many South Africans might see as a "deliberate and sustained attack on important institutions involved in upholding the rule of law and in protecting the administration of justice". The Law Society said that despite calls for a speedy resolution of the Pikoli matter, five months down the line the enquiry had still not been resolved. "A breakdown of communication between him and m inister of justice could have a serious impact on the administration of justice," it said. It questioned why time frames proposed by the justice and constitutional development department had not been complied with and no investigation given. "This delay... can create the impression that the delay in resolving the matter might not be inadvertent."

Cosatu Whips Zuma Into Line Over Labour Reform
In an astonishing flip-flop on labour policy, African National Congress (ANC) president Jacob Zuma has been whipped into line by his trade union allies over his recent comments in support of a more flexible labour policy. So emphatic has Zuma's about-turn been that he apparently told the Congress of South African Trade Unions (Cosatu) that he would "lay down his life" for the rights of workers - and the federation says it will "hold him to it". Sources said Zuma was summoned to Cosatu House late February to explain his comments in an interview in the Financial Mail, in which he made the case for uplifting SA's " second economy", asking: "is it not possible to have the flexibility so that you can address both the first and second economy?" His embarrassing somersault since then confirms that the "honeymoon" between Zuma and his leftist allies has all but ended. It also raises questions about the extent to which Zuma appears to be beholden to his backers, and will prompt criticism that he is a policy lightweight who is being used to further the ends of his allies. It also speaks volumes about the relationship between the ANC and its allies, in which the ANC was always the dominant force. Now Cosatu is flexing its muscles. The federation has been vocal in its opposition to labour market reform, promising "blood on the floor" if policy and legislation is changed. Cosatu's support is of particular significance to Zuma, who is first in line to be the ANC's presidential candidate when President Thabo Mbeki steps down next year. Cosatu used its muscle in the tripartite alliance to ensure Zuma's success at the ANC's 52nd conference in December. But with a corruption trial pending against him, Zuma will need Cosatu's support to ensure sufficient backing for his presidential aspirations. Addressing the media on the outcomes of its central executive committee meeting February 28, Cosatu leaders emphasised that it would no longer give the ANC "a blank cheque" at elections but would tie it to "deliverables." Cosatu will formally request that its leaders are included in the ANC's national executive committee as ex-officio members. "At Polokwane we did not succeed, not because we did not have support but because of technicalities. We need the ANC to reflect its core constituency, the workers," Cosatu's acting president, Sdumo Dlamini, said. As a means to influence ANC processes, Cosatu has urged its provincial structures to "identify" its preferred local leaders ahead of ANC provincial congresses. Cosatu general secretary Zwelinzima Vavi said the "honeymoon" after Zuma's election was now over. "In the first two months after Polokwane, Cosatu and the SACP (South African Communist Party) committed a mistake of celebrating and admiring the sterling work of the new ANC leadership. "When that (ANC) leadership makes mistakes and make statements that have a potential of reversing the gains of Polokwane, Cosatu must speak out." Vavi said that because ANC resolutions were open to interpretation, it was possible for "defeat to be clutched from the jaws of victory". "We must be vigilant. The issue of interpretation is contested. That is a war that starts now," Vavi said. As a means to influence government policy, Cosatu has resolved to set up a political commission that would work with a task team of experts to create policy. This is expected to be presented at a tripartite alliance summit later this year. Cosatu said it sought to ensure that the future "cabinet, the Presidency, premiers, mayors and strategic staff such as DGs (directors-general)" were loyal to the agenda of the working class.

SA-EU Trade Row Puts Customs Union At Risk
Foreign Minister Nkosazana Dlamini-Zuma is engaged in a flurry of diplomatic talks with her counterparts in the Southern African Development Community (SADC) to forge a common approach to European partnership agreements (EPAs) ahead of a meeting with European Trade Commissioner Peter Mandelson early March. Dlamini-Zuma held discussions with Botswana ministers, and will consult other member states before the meeting with Mandelson in Botswana. This meeting will be critical in determining whether there is any scope for reviewing the EPAs already signed by a number of African states. The meeting will also be critical for the future of the Southern African Customs Union (Sacu) as all countries except SA have signed EPAs. The future of the Southern African Customs Union (Sacu) hangs in the balance, even as engagement takes place at the highest political level to save the world's oldest customs union from collapsing. Sacu was split last year when Botswana, Lesotho, Namibia and Swaziland broke ranks with SA and signed an interim economic partnership agreement (EPA) that would govern trade with the European Union (EU). Now, angered by the other members' decision to initial the pact, it is feared that SA might use their move as a reason to break up the union. This would have grave economic implications, especially for Lesotho and Swaziland, which rely heavily on revenues from the customs pool. It is understood that EU. SA opted out of the EPA at the end of last year, citing unfair demands by the EU. Under article 31 of the Sacu Agreement, member states may not enter into new preferential trade agreements with third parties without the consent of other members. "SA was initially surprised when Sacu member states broke ranks, but it can now use this to break up the union. The signs are not positive," said a commentator. The implementation of the EPA is also severely hampered by SA's decision to opt out. Kalenga said the region would have difficulty enforcing the common external tariff with SA outside the agreement, because of conflicting tariff regimes. The EU, for instance, agreed to the reinstating of a 5% tariff on beer, to shield Namibian brewers against European imports. However, with SA not party to the agreement, beer imports into SA attract no tariff, creating a loophole to circumvent the tariff. Politically, the break-up of Sacu would go against commitments to forge closer regional ties, but economically SA would, in fact, benefit. It is known that the treasury is unhappy about the vast distributions from the customs pool to BLNS countries (Botswana, Lesotho, Namibia and Swaziland). Dlamini-Zuma has criticised the EU for using the partnership agreement process for purposes beyond trade negotiations. "They are using them to regain ground they think they have lost in their quest for hegemony in Africa. The panic button was pressed by Africa's relations with China, India and South American countries." The EU had "suddenly realised" Africa could have economic relations with other nations. In the past, the EU was the dominant factor in Africa, Dlamini-Zuma said. 

Fourth Quarter GDP Comes in At 5.3 Percent
South Africa's fourth quarter Gross Domestic Product (GDP) continued with its upswing registering yet another increase of 5.3 percent. Figures released by Statistic South Africa (Stats SA) February 24 showed that the increase is the highest of 2007 with the revised growth figures of the first, second and third quarters at 5.1, 4.4 and 4.8 percent respectively. The main contributors to the increased economic activity was the finance, real estate and business services, retailers, construction, transport and general government sectors, said Stats SA. Finance, real estate and business services constituted 1.8 percentage points, whilst wholesale, retail and motor trade were 1.3 percentage points. Construction and the general government services came in at 0.5 percentage points each, sector registered 0.4 of a percentage point of GDP. The hospitality industry, the transport, storage and communication industry contributed 0.3 of a percentage point each of the GDP. "The seasonally adjusted real value added by non-agricultural industries increased by 5.1 percent, 4.3 percent, 5.1 percent and 5.4 percent during the four quarters of 2007 respectively," Stats SA said. "The unadjusted GDP at market prices increased by 5.8 percent, 5.1 percent, 5.2 percent and 4.6 percent during the fourth quarters of 2007 respectively." Sectors contributing to the slow-down in 5.3 percent growth were the mining and quarrying sectors with -0.1 percent and electricity, gas and water, with 0.0 percent, said Stats SA Deputy Director General for Economic Statistics, Dr Rashad Cassim Dr Cassim attributed the slow -down contribution in these sectors to security reasons and the mining industry strike in 2007. Safety concerns prompted the government to force some companies to shut mines in the fourth quarter and prompted a strike which involved about 240 000 workers and 60 companies. On electricity, Dr Cassim said the decrease was mainly due to increased consumption rate and the decrease in its production. "The decrease in electricity can not be attributed to load shedding," he said adding that load shedding started in January, which did not affect the fourth quarter. For the whole of 2007, Dr Cassim said the GDP increased by 5.1 percent following the 5.4 percent in 2006. He said the main contributors to the increase in economic activity in 2007 were finance, real estate and business services, wholesale trade, retail trade, hotels and restaurants, manufacturing and construction and transport, storage and communication industries.

Power Crisis Over in Six Months - Erwin
Public Enterprises Minister Alec Erwin moved to allay foreign investors' concerns about the electricity emergency February 11, which he said should be overcome within the next six months. However, he stressed that the "tight" supply situation would persist for another four years while new generation capacity was installed. During this period, new industrial projects, which consumed large amounts of electricity would have to be carefully planned with the government. Despite government assurances that the crisis would not affect foreign investment inflows, there have been reports of uncertainty among investors as to its duration. The government planned a communication drive over the next few months in SA's major investing countries to clarify the electricity situation and reassure prospective investors of the fundamental strength of the national grid, Erwin said at a parliamentary media briefing. Erwin said the present electricity reserve margin of 8% should move quite quickly to between 10% and 15%. This would flow from the implementation of the government's emergency energy plan to reduce consumption and bring in new supplies through co-generation, initially via gas-fired turbines. This plan involves both energy-efficiency measures such as the extensive introduction of solar water heating, and rationing of big users through quotas and price incentives should they not achieve reduction targets voluntarily. The programme should take effect from April onwards. The National Energy Regulator of SA has set 16% as a desirable reserve margin, and Erwin said this could be reached "fairly quickly". The reserve margin is the spare generation capacity that allows for sudden peaks in demand and for maintenance shutdowns. Erwin said having a "tight energy supply" would put SA in "exactly the same position as other developing countries".

Coal Markets Rocked By Eskom's Ambitious Plan
Eskom's plan to buy an additional 45-million tons of coal to replenish depleted stockpiles has been met with incredulity internationally, with analysts saying it overlooks severe global coal supply constraints, logistical challenges and price concerns. This could be the first time that SA, a net exporter of coal, imports coal. A New York-based analyst said February 15 Eskom's plan could be hampered severely by tight global supply caused by Indian and Chinese demand. "The markets here have been abuzz with the news (of Eskom's coal procurement plan)," the analyst said. There was concern that Eskom had not taken into account extraneous factors that could affect its plans. Coal supplies have been constrained severely by disruption in Queensland, Australia, one of the world's top coal-producing regions, where torrential rains and flash floods led to six big coal producers, including Rio Tinto, BHP Billiton and Xstrata, declaring force majeure, saying they could miss coal deliveries. Eskom said it would buy the 45-million tons of coal over and above its running requirements of 125-million tons a year. The additional coal would be added over the next two years to raise coal reserves at power stations to at least 20 days' supply. Brian Dames, new head of Eskom's primary energy, generation and enterprise cluster, conceded that the procurement would have a significant effect on operating costs, giving rise to higher electricity prices. "If one becomes a significant importer of coal one needs to be acutely aware of problems one will encounter to get the coal there," the analyst said. The cost implications for Eskom might also have been underestimated. The analyst said South African collieries could probably supply only half of the 45-million tons of coal Eskom planned to buy. The rest would have to be imported. Dames estimated that the coal would cost Eskom R150-R250/ton, as opposed to the average of R90/ton it pays under long-term contracts. The spot price of coal reached $100 (about R750) a ton on Friday, and has been moving upwards steadily over the past month. Chamber of Mines economist Frans Barker said February 17 that price was "certainly one of the issues we are looking at, and Eskom has indicated that there would have to be interactions with the national energy regulator". "All of these factors are in the pot in the discussions with Eskom," Barker said. On the coal price, figures of R400/ton had been mentioned, he said. At R400-R750/ton, Eskom's additional coal purchases could cost the utility anything between R25bn and R33,7bn. Barker said there had been many interactions between local coal suppliers and Eskom. Apart from supply constraints, Eskom also faces formidable challenges getting the coal to SA, with the Richards Bay coal terminal notoriously congested, while road and rail transport to the utility's power stations in Mpumalanga would also present a big headache. Eskom put out requests on Friday for proposals for co-generation projects as part of its plan to bolster faltering electricity supplies. Eskom spokesman Andrew Etzinger said that "co-generation" was when industrialists sold waste by-products that could be used to generate electricity. Wood shavings and chips from a paper mill could be burnt to generate electricity. The gas seen burning as orange flares coming out of chimneys at steel mills and petrochemical companies could also be used. Last year the company issued requests for interest, hoping to secure 900MW of electricity this way, and indications were that it could receive 5000MW. That "was an encouraging response", said Etzinger. "For every megawatt generated by such a scheme, it is one more megawatt on our national system, which will help tremendously."

Power Users Hit With Levy
The government will give Eskom more than R60 billion over the next five years to help the beleaguered power utility out of its woes. But in addition to the boost from government's coffers, Finance Minister Trevor Manuel announced that electricity consumers would also be called on to help fund Eskom's expansion programme, by paying a newly introduced levy of 2c per kilowatt hour. This would not affect costs for households and businesses that reduced power consumption by 10%. The government has already given Eskom the green light to increase its tariffs by 14.5%. The minister said Eskom's current tariff structure - which made South African electricity some of the world's cheapest - was not sustainable. Manuel was adamant that the cash boost from government was not a gift but a long-term investment. "Madam Speaker, the House should record and the nation needs to know that this is not a grant. The return on an investment in power generation is very long term," he said during his Budget speech in the National Assembly February 20. "But we would not be supporting these investments if we were not confident that they are economically and financially viable." Eskom has embarked on an extensive capacity expansion programme that will cost it R343bn over the next five years. The final cost, once the programme is completed in 2025, is expected to be more than R1.3 trillion. Manuel said the Budget also set aside R2bn over the next three years to support programmes aimed at encouraging more efficient electricity usage, generation from renewable sources, installation of electricity-saving devices and co-generation projects. South Africa had to use the electricity crisis to find and adopt new sustainable ways of producing power. "Our economic growth over the next decade and beyond cannot build on the same principles and technologies, the same energy system and the same transport modes, that we are familiar with today." Manuel said the government's R20bn "contingency fund" would also be used to pay for possible expenses incurred by Eskom over the next three years. Eskom CEO Jacob Maroga told MPs during a briefing yesterday that there was a huge gap between the regulated 22c per kilowatt hour that the utility charged users and the 30c to 40c per kilowatt hour it cost Eskom to produce the power. Maroga said Eskom would pursue an optimal balance between price increases, efficiencies, shareholder support (the government) and alternative credit-maintenance solutions to ensure electricity costs remained "competitive".

Thumbs Up for R121Bn Education Budget
An education specialist has hailed Finance Minister Trevor Manuel's R121.1 billion budget allocation for education as key to growth and development in the country. "Trevor Manuel has been an enthusiastic supporter of programmes that could make a difference while growing capabilities and opportunities by improving quality and access to education," said Graeme Bloch, an education specialist from the Development Bank of Southern Africa, February 21. "South Africa is lucky to have a Finance Minister who understands the need to commit funds to the long term growth of our human potential and skills," he added. During his Budget Speech February 20, Mr Manuel allocated the largest share of the budget, R121.1 billion, to education with priorities in building schools, childhood education, school books and educator remuneration. The minister said over three years, provinces have budgeted to spend over R18 billion on schools infrastructure and equipment "so that we can indeed eradicate unsafe schools." Mr Bloch said the 30 percent growth in school nutrition was recognition of the impact of poverty on schooling. Additional allocations were also proposed for higher education, the National Student Financial Aid Scheme and further education colleges have been re-capitalised. "The desire to utilise skills funds creatively to fund Further Education and Training [FET] colleges is innovative and essential to step up artisan-level skills and the money has been provided to achieve these goals. "All South Africans will have to focus on improving our education if the money spent is really to find its measure in quality outcomes across the board. "This will help our children to focus on learning and great opportunities that may come," said Mr Bloch. However, he said education problems in the country were deep and complex and there were no quick answers that could be expected. "Nonetheless, one would like to see the funds spent wisely and properly by the provincial education authorities who are the key implementing agents. "Officials should do their job properly and on time. In addition, more needs to be done to support teachers and to move them from being opponents of government on labour relation issues and partners in the building of quality education," said Mr Bloch. He said the promise to improve teachers' financial circumstances was welcomed while it put increased responsibility on teachers to rise to the challenge. "With the real focus of on achieving a critical leap in education outcomes, we could as a country examine the inevitable need to really ramp up education expenditure in the medium term so that all schools can have the minimum," he added. This, Mr Bloch said, included laboratories, libraries, sport fields and computers that all schools deserved as this was still a distant dream. "However, the capital expenditure program is a good start that we hope all provinces will implement effectively," said Mr Bloch.

UN and AU Security Councils to Meet
The United Nations Security Council (UNSC) has invited the African Union (AU) Peace and Security Council (PSC) to meet in New York April 16, to strengthen co-operation. "This week, the security council agreed on a letter being sent to Addis Ababa inviting the PSC to New York April 16 2008," said Foreign Affairs Chief Director for UN Political Affairs Xolisa Mabhongo, February 28. The date for the debate on the strengthening of relations between the UN and regional organisation, in particular the AU has also been set and will take place April 17 2008. These two back-to-back meetings will hopefully lead to the agreement of a resolution as well as a joint communiqué between the two multilateral bodies. South Africa will be hoping for concrete outcomes from engagements between the two at the meetings in April. With regard to the situation in the Middle East, Mr Mabhongo said the UNSC met February 26 2008 to discuss the political development in the Middle East. At this meeting they were briefed on the humanitarian crisis unfolding in Palestine. "The security situation has not improved, with many more people, particularly Palestinians, being killed and injured. It was noted that the majority of those victims were children. "Despite the situation on the ground, negotiations on core issues between Israel and Palestine are continuing," said the chief director. The council was also briefed on a number of issues blocking progress in the peace process such as the issue of the release of prisoners, the Israeli military operation in Gaza and the West Bank and the settlement expansion programme. Chairperson for the South African Council for the Non-Proliferation of Weapons of Mass Destruction, who also sits on the Board of Governors of the International Atomic Energy Agency (IAEA) Ambassador Abdul Minty, said he is currently in Oslo, Norway, for a two day meeting on the global efforts to achieve a world free of nuclear weapons.

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AUTOMOBILES

Suzuki Motor Corp Returns to SA
Japan's Suzuki Motor Corporation has announced that it will resume selling its range of cars on the South African market from June, after an absence of four years. The manufacturer has established a subsidiary company, Suzuki Auto South Africa, to act as its importer and distributor, reports SouthAfrica.info. While an agreement to distribute Suzuki vehicles through General Motors' dealer network came to an end in 2004, the company says feasibility studies indicated that an expanded range of vehicles being sold by a dedicated dealership network would be well received in South Africa. In a statement in February, Suzuki said the projected growth in the South African economy, and particularly automotive sales, had also prompted it to establish a subsidiary company in the country. "Suzuki Auto South Africa has been jointly established between Suzuki Motor Corporation, who owns 85 percent of the equity in the newly formed company, and Suzuki South Africa, the authorised importer and distributor of Suzuki motorcycles and outboard motors," the statement reads. Kazuyuki Yamashita, who has been involved in sales and marketing in several international positions with Suzuki Motor Corporation, has been appointed MD for Suzuki Auto South Africa. "We are confident that the Suzuki automotive brand will do very well in the South African market and are looking forward to introducing the exciting Suzuki Swift hatchback, SX4 Crossover Vehicle, Jimny and Grand Vitara range of Sport Utility Vehicles to this market during 2008," Yamashita said. "We intend to expand the model line-up during 2009 through importing strategic models from international assembly plants." He added that dealerships would be established in most of South Africa's major centres by mid-year, and that the buying public could expect to see the first Suzuki vehicles on the showroom floors by June.

Exports to Offset Vehicle Industry's Woes This Year

The automotive industry expects a difficult year with several dealerships facing closure, but export programmes are likely to keep the industry growing. Rising inflation, high household debt and interest rates continue to put pressure on new vehicle sales, which declined in January for the first time in five years. National Association of Automobile Manufacturers of SA data showed that combined new vehicle sales slumped to 47296 units, a drop of 9,4% from the 52212 units sold in January last year. Since June 2006 the Reserve Bank has hiked interest rates four percentage points to curb inflation. Domestic spending kept credit demand high, pushing household debt to a record 77,5% of disposable income in the third quarter of last year. "This is going to be a difficult year for the industry with power cuts also posing a threat. It's early on in the process to find out how the electricity crisis will impact on the industry though," said National Association of Automobile Component and Allied Manufacturers of SA director Roger Pitot. He said in the long term the slump in new car sales was likely to be counteracted by a rise in export programmes by big motor manufacturers. Retail Motor Industry Organisation CEO Jeff Osbourne said the new vehicle market faced a variety of challenges this year because of the significant levels of investment made by retailers. "Franchise dealerships built state of the art show rooms which was imposed on them by vehicle manufacturers and now they find themselves with fixed costs and lower turnover because of a decline in the market," Osbourne said. So far at least 13 franchise dealership outlets have closed down with people losing their jobs in the process. "All dealerships will be re-evaluating businesses which means trying to cut costs, and the sad reality is that people will lose jobs. We expect more dealerships to close down in the coming months," Osbourne said. However, it was not all gloom and doom because the spending power of the black emerging market was expected to continue. "We expect this section of the market to continue growing steadily which will help the market. The other positive is that because of intense competition in the market, people will now be able to lease cars without paying a 10% deposit and can extend their paying period to 72 months," he said.

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AVIATION

CSIR, Airbus Research 'Eco' Planes
South Africa's Council for Scientific and Industrial Research (CSIR) in partnership with commercial aircraft maker Airbus are researching new technologies and processes to create a new generation of ecologically friendlier aircraft. The CSIR said that the one-year agreement in the area of computational fluid dynamics (CFD) has an approximate value of around R1.5million, The partners aim to research and define technologies in numerical modelling that can make an important contribution to the design of clean and efficient next-generation jetliners. The project forms part of Airbus's research and technology partnership with South Africa, which was launched with the departments of Science and Technology and of Trade and Industry in 2006. Through the project, the CSIR is now a member of Airbus's global research and technology network. The project will see South African aeronautics engineers playing a vital role in the development of mathematical software intended to aid Airbus in its design and manufacture of next-generation aircraft aimed at providing a more eco-efficient means of travel. Airbus Research and Technology Senior Vice President Axel Krein said the project demonstrated his company's recognition of both the CSIR and South Africa's capabilities in hi-tech engineering science and technology. He added that harnessing knowledge from around the world was the only answer to managing air transport growth while reducing its impact on the environment. "Computational mechanics is an extremely exciting field where the sky is no longer the limit, but the next frontier," he said. "The CSIR believes it has a valuable contribution to make in furthering understanding and developing solutions in this science." CSIR computational aerodynamics principal researcher Dr Arnaud Malan said it was the first time that Airbus was making use of the skills of his institution's researchers and was confident that it would be a mutually beneficial partnership. "This is a rapidly growing engineering field and is highly competitive. "In a nutshell, our research in this area of computational mechanics will help to enable the design of an aircraft in cyber space," he added. During the course of the research project, CSIR researchers will make use of the Centre for High Performance Computing (CHPC), a Department of Science and Technology initiative that is managed by the CSIR's Meraka Institute in cooperation with the University of Cape Town.

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BANKING

Standard Bank Expects Good Returns
South Africa's largest bank by assets Standard Bank Group said February 20 that it expected full-year profit to rise as much as 28%. The banking industry generally expect s a tough year ahead. The group, which is also the biggest lender in Africa, said earnings per share for the year ended December rose between 22% and 28%. Per-share profit before once-off items and goodwill amortisation rose between 18% and 22%, the bank said. "South African banks are still delivering strong earnings growth even though the shares are priced for declines," said Coronation Fund Managers analyst Neville Chester. "Everyone will now be looking to the year ahead," Chester said. Rising wealth among the nation's black majority, which is benefiting from government policies to increase employment among blacks, has boosted credit demand. However, rising inflation and the highest interest rates in four years have made it more difficult for consumers to repay loans, spurring bad debts. Analysts estimated a 20% advance in Standard's earnings per share before once-off items, to R9,53, and a 19% gain in net earnings per share to R9,75. Standard Bank reports its final earnings on March 5. Absa Group posted a 22% rise last year in net income to R9,6bn, its slowest rate in five years. Second-half profit rose 13% after a 27% gain in the first half. Standard Bank's first-half profit advanced 29%. "We're seeing the same trends at Standard Bank as we did at Absa -- a slower second half," said Jan Meintjes an analyst at Gryphon Asset Management in Cape Town. "The tougher market conditions haven't completely filtered through." Standard Bank fell 190c, or 1,98%, to R93,90 for a market value of R128bn , which matches the decline by Old Mutual 's Nedbank Group and FirstRand . Standard Bank has slid 18% from a record R119,50 on October 26, while the FTSE/JSE Africa Banks Index lost 21%. South African banks have followed a drop in global banking shares because of the fallout from the US subprime crisis.

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BLACK ECONOMIC EMPOWERMENT

Angloplat Edges Closer to Meeting BEE Goals
Anglo Platinum added another string to its empowerment bow February 11 with an employee share option plan that will put 1,5% of Angloplat into the hands of people who until now have not participated in any other company share incentive scheme. It should benefit about 44000 employees. This is in addition to the transactions involving Anooraq and Mvela Resources which were announced last year and now being finalised. But there is still no word on when Angloplat can expect to have all of its old order mining licences converted to new order ones, a process that has dragged on for years amid a great deal of controversy. Angloplat has to achieve full conversion by April next year. If it has not yet satisfied the minerals and energy department on its empowerment status, it would be very difficult to put another empowerment deal together in a matter of months. Francis Petersen, Angloplat's head of strategy, said there were no other empowerment deals on the table. He also said Angloplat was in close discussions with the department. That must imply it was close to satisfying the department's empowerment requirements, though Petersen did not go as far as confirming it.

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FOOD AND DRINK

SABMiller Keen On Asian Market
SABMILLER, the world's largest brewer by volume with a provisional 231,7-million hectolitres sold last year, is seeking more expansion opportunities in developing economies. Media relations head Nigel Fairbrass said February 21 the group was keen on Asia and southeast Asia, which was "one of the last white spaces for us". The, group, which recently acquired premium brand Grolsch, yesterday admitted that it had considered buying Scottish & Newcastle. SABMiller "undertook a preliminary evaluation" but decided against buying it. Scottish & Newcastle has interests in developed and developing markets. Chris Gilmour, an analyst with Absa Asset Management Private Clients, said SABMiller's next focus could either be Mexico, where purchasing Femsa would also give it an entry point into Brazil, or Russia. SABMIller had considered premium Russian brewer BBH (which brews Baltika), but this company would be acquired by Carlsberg when its bid with Heineken to buy out Scottish & Newcastle was concluded. However, Carlsberg might have overextended itself and could be ripe for takeover by SABMiller, Gilmour said. Fairbrass said SABMiller's Russian operations were focus ed on the premium market. However, there was no developed pub trade, the mainstream market was squeezed by the entry of economy labels, and there was no beer legacy or brand following in that country.

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INFORMATION TECHNOLOGY

Google Sees Cellphone as Ticket Into Continent
Google, the world's most popular search engine, had to tailor its offerings to work better on cellphones if it was to make real headway in Africa, the group said February 18. In a continent with a dearth of computers, the cellphone is the only way most people can get online. And as only 22% of cellphone users have computers, even in relatively wealthy SA, Google's local branch is making mobile search technologies its priority. Google set up an office in SA last year, poaching Stafford Masie from networking company Novell as its country manager. Yesterday it held its first local media briefing, and was big on promises if thin on figures. Masie would not say how many people it employed in SA, although "a lot" were South Africans who had worked abroad for Google and had come home to launch the local branch. Most of the staff are sales people out to convince advertisers to switch some of their adspend from TV and radio to online. "We are seeing an increase in advertisers in SA since we announced our presence here. We are building capacity because there's a need for direct interaction," Masie said. "Our goal is to hire as many really brilliant people as we can," said Google's vice-president of engineering, Douglas Merrill. Google was launched in the 1990s with the ambitious aim of organising all the information in the world and making it universally accessible. Considering that 80% of information is still not online, it has a long way to go. But the information already online had to be made available to everybody, and in Africa that meant via cellphones, Merrill said. "The majority of people coming online will be doing it through mobile. We have to find better ways to conduct a search over a mobile phone." That could involve entering key search words by SMS or speaking into the phone to tell the search engine what you are looking for. Users should also be able to consult maps on their phones and have the directions sent to them via SMS. "We have a lot of work still to do on mobiles," Merrill said. The race to migrate traditional internet services to the far more densely populated cellphone market has already seen rival player Yahoo declare that more people would soon use its services via cellphones than through computers. So far, 600-million people have downloaded Yahoo's oneSearch software so they can search for internet content via their cellphones. Masie said he avoided a life of crime only by being schooled abroad and gaining a different perspective. He said he passionately believed that Google could expose young Africans to a better way of life. Google's technologies allow people to create their own websites and conduct secure financial transactions on them. Google assists businesses to make the most of their sites and ensure a relevant search from anywhere in the world that would propel their website onto the results list. Google is working with Internet Solutions and the internet division that Vodacom is due to launch this weekend to help companies get the most from their websites. With hundreds of thousands of people due to visit SA for the 2010 World Cup it was crucial for companies to ensure their services received maximum prominence online, since most visitors would search for information before travelling, Masie said. Entrepreneurs could also make money from their websites because Google shared the revenue from advertisements on those pages. Google's support for multiple languages sees it offer its search services in Afrikaans, Sesotho, Zulu and Xhosa. Merrill said he was keen to add SA's other indigenous languages, but the local branch would guide how much priority that received, given SA's internet user demographics.

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INTERNATIONAL ECONOMIC RELATIONS

President Mbeki Welcomes Deeper Ties With France
President Thabo Mbeki welcomed several agreements signed between France and South Africa February 28 - at the start of a state visit by French President Nicolas Sarkozy - as marking a "deepening of what are already excellent relations". The agreements were signed by France's Secretary of State for Co-operation, Jean-Marie Bockel, and several South African Cabinet ministers and covered science and technology, skills - in the context of JIPSA (the Joint Initiative for Priority Skills Acquisition) - and transport-related matters. Another agreement was for a joint application to a United Nations body by the two countries, to extend their continental shelves off the South African islands of Marion and Prince Edward and the French archipelago of Crozet. Should the latter agreement to the Commission on the Limits of the Continental Shelf in accordance with Article 76 of the United Nations Convention on the Law of the Sea, the two countries would in effect become neighbours, sharing a common maritime border. Another agreement was around energy, with President Mbeki announcing that France would be sending to South Africa several engineers - the current short supply of whom in South Africa is exacerbating current problems around the provision of electricity. These engineers would be arriving "in the next few days", said President Mbeki, underscoring the results of the dialogue between the two partners, while at the same time an agreement was struck on the building of a Euro 1.4 billion power station in South Africa. This assistance, said President Sarkozy was "totally irrespective of any bids French companies will be sending in the next few days" around the building of another nuclear power station in South Africa, which is part of the government's longer-term energy plan to double electricity production in the next two decades. Representatives of French energy companies Areva, Alstom, EDF and Bouygues are understood to be accompanying the French president on his visit, and expected to be participating in a South Africa - France Business Forum being held at Cape Town's Waterfront February 29. South Africa is France's number one trading partner in Africa, and there are about 160 French companies operating in South Africa, including large multinationals like Total, Alcatel, Renault and Danone. Bilateral trade between the two countries totalled about R26 billion in 2006/07, according to a briefing on the visit given to the press earlier by South African Department of Foreign Affairs senior official Gert Grobler. France is also South Africa's eighth-largest trading partner, although the balance of trade currently falls in France's favour, as a major economic power, while South Africa is working to increase its exports to France and opportunities there. According to Ambassador Grobler, whose brief at the Department of Foreign Affairs covers Europe and the Americas, the significant increase in French tourists over the past few years has seen almost 50 000 French citizens visiting South Africa each year. Matters before the United Nations Security Council, which South Africa is to preside over for one month this year, as it concludes its non-permanent two-year membership, were also raised. President Sarkozy said that France would be looking for a "third wave" of sanctions on Iran over its nuclear ambitions and said he would be looking for South Africa's support in this regard. Broader economic matters - including the current stand-off between Europe and South Africa on the Economic Partnership Agreement - were also discussed by Presidents Mbeki and Sarkozy. President Sarkozy also noted that South Africa should no longer be relegated to the "tail-end" of G8 meetings, but that, as a member of the G5 group of advanced developing countries - along with Mexico, India, Brazil and China - become part of what should be an enlarged, equal grouping of the G13. South Africa has "a full role to play" in such a forum, he said, and, by the same measure, he added in a speech later, a role in the possible extension of the UNSC permanent members as well a stronger role in international financial institutions such as the International Monetary Fund, as a country forging ahead in the "avant-garde" of the continent. "I think it is unthinkable to solve world issues without Africa," President Sarkozy told reporters. President Sarkozy announced a package of investments for sub-Saharan Africa of more than R100bn over the next five years.. He announced targeted initiatives to support economic growth in sub-Saharan Africa involving the French Development Agency. These will include a R2,5bn investment fund, which would develop and encourage African companies. The second was a R2,5bn guarantee fund to provide bank credit and capital to African small and medium enterprises. He also announced that the French Development Agency commitment to support to the private sector would double to R20bn over the next five years. This would help create 2000 African companies and create 300000 jobs. It brings the total commitment of France to sub- Saharan Africa to R100bn over five years. 

South Africa and Malawi to Enhance Defence Co-Operation
South Africa and Malawi have signed a Memorandum of Understanding (MoU) which will enhance defence co-operation through the exchange of experiences and knowledge. Defence Minister Mosioua Lekota signed the MoU with his Malawian counterpart Aaron Sangala February 23. Speaking at the singing ceremony, Minister Lekota said the agreement would affirm the importance of the relations between the two countries and their commitment in the developing the defence relationship. Echoing Minister Lekota's sentiments, Malawian Defence Minister, Sangala stated that the MoU signified another milestone between the two governments and in particular the two Ministries of Defence. "I strongly believe that the MoU is indeed a means of consolidating the co-operation the two nations have enjoyed over the years," he said. He added that the MoU would sought to achieve industrial co-operation in the field of defence related research, development and procurement of defence equipment. Among other things, the MoU will also develop and formulate procedures for military co-operation between the armed forces and promote training of military personnel. This will be done through an exchange of training instructors and observers, as well as the exchange of military information on matters agreed to. Co-operation in the exchange of knowledge and training in the field of the United Nations and the African Union peacekeeping operations and the exchange of military personnel at all levels to enhance sporting and cultural links between the armed forces. The two countries will also unveil the RSA/Malawi Joint Commission for Joint Co-operation that will create a platform for the continued engagements in political, economic, social and military issues. "I firmly believe that the establishment of the RSA /Malawi Defence Committee is a critical confidence and security building mechanism and will play a vital role in maintaining and expanding our defence diplomatic relationship. "I am certain that this will strengthen the good and friendly relations by means of close defence co-operation to enhance good defence working relations between our two countries. It will also demonstrate the mutual commitment and to form and develop defence relations between our two countries," he said. The two countries will also work towards strengthening the good and friendly relations by means of close defence co-operation and acknowledge while demonstrating their mutual commitment and development of their relationship.

South Africa and India Strengthen Strategic Partnership
South Africa and India have concluded their 7th Joint Ministerial Commission increasing the number of bilateral sub-committees and deepening social, political and trade relations, February 22. In her closing remarks at the culmination of the two-day inter-ministerial talks, Foreign Affairs Minister Dr Nkosazana Dlamini Zuma said: "We are pleased that the number of sub-committees [between South Africa and India has grown] to include, amongst others, those on political, defence, trade and industry, health, education, minerals and energy and agriculture." Dr Dlamini Zuma said India has submitted a list of possible joint agricultural projects and is awaiting South Africa's reciprocated list before identifying the intended projects. South Africa has signed a number of Memoranda of Understanding (MOUs) in the fields of science and technology, sports and recreations, immigrations and citizenship, trade and economic affairs, agriculture, and arts and culture, amongst others. The minister highlighted the increased economic trade between the two countries as a very positive development in further strengthened relations. India is a key strategic partner for South Africa. In March 2006, Deputy Minister Pahad held bilateral political and economic talks with India's Minister of State for External Affairs, Anand Sharma, in South Africa. Several South African and Indian businesses belong to the Indo-South Africa CEOs Business Forum that was established in 2004 to help stimulate trade and investment between the two countries. The existence of opportunities for closer co-operation between South Africa and India have been identified in the capital equipment; agro-processed products; autos and components; services; information and communications technology (ICT), science and technology; health; and small, medium and micro enterprises sectors. India's Minister for Foreign Affairs Pranab Mukherjee, said: "I would like to indicate how satisfied I and my delegation are on how discussions have gone over the last two days. "South Africa and India are two countries market by common values and a united respect of human rights, and as such, our relationship is ready to face the challenges of a rapidly globalizing world." Mr Mukherjee highlighted that bilateral and trilateral trade has gathered momentum and expressed his hope that the momentum would be taken forward to implement the signed agreements energetically. He said the last two days have given both countries the opportunity to investigate the complex and in-depth review that comprises their strategic partnership. "My meeting yesterday with President Thabo Mbeki and his deputy, has furthered enhanced my conviction that the two countries have much to offer each other," said Mr Mukherjee. He concluded expressing his hope that agreements be executed vigorously so that the intended dividends can be reaped by both countries. South Africa has well established relations with the sub continent, both bilateral and in various fora. The India-Brazil-South Africa (IBSA) Dialogue Forum, established in 2004, remains of strategic importance to all three countries as a powerful global forum to drive South-South co-operation, the agenda of the South, and to champion the needs of the developing world. Total trade between South Africa and India increased from 2004 to 2005, with exports rising by 100 percent and imports rising by 55 percent, making India South Africa's 13th-largest trading partner in terms of exports and imports. India is among the top 10 investing countries in South Africa, with investment estimated at R10 billion.

South Africa and New Zealand Strengthen Sporting and Cultural Ties
South Africa and New Zealand have agreed to strengthen cultural relations and sporting ties between them. After their meeting in Pretoria February 18, South African Foreign Minister Nkosazana Dlamini Zuma and her New Zealand counterpart, Minister Winston Peters, expressed a need to concretise their nations' links in areas that have not been discussed before. "We discussed issues around cultural exchanges that will obviously include sporting exchanges particularly to try and ensure special co-operation in rugby," said Minister Dlamini Zuma. "We have had a very fruitful discussion on co-operation including students visiting New Zealand for training purposes as well as on working holidays." Bilateral issues and international issues, climate change, were among topics discussed by the ministers. Commenting on the visit, Minister Peters said the visit has enhanced their relationship and a firm plan for the future has been laid down, while acknowledging that more still needs to be done. Future work included sharing contributions on people to people relations, arts and culture, training and skills and on international engagements "We look at South Africa knowing how crucially important it is in the African Union and on this continent, where we can join South Africa to improve the economic and social future of the people here and on the wider continent," said Minister Peters. Answering questions from the media regarding their standing on current post-election turmoil in Kenya, the ministers said they discussed what was happening and also discussed what assistance might be needed in the medium to long term. Because, in the short term, Minister Dlamini said: "there is a team led by Kofi Annan, discussing the immediate needs. We think most of us will be most useful in that period rather than now because as I have said, there is a team looking at the now." On the upcoming Zimbabwe elections, the ministers hoped that the country would implement the laws passed by Parliament around security, information, and media. South Africa's President Thabo Mbeki has been mandated as a facilitator of talks in Zimbabwe between the opposition and ruling party.

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LAND REFORM

Support is Vital for Land Reform Programme
Land Affairs Minister Lulu Xingwana has stressed the importance of support to land beneficiaries, speaking at the unveiling of the Settlement and Implementation Support (SIS) strategy. Unveiling the strategy on February 18, a collaborative effort between the Ministry of Agriculture and Land Affairs and the Belgian Government, the minister highlighted the role of post-settlement support in the land reform process. "Post-settlement support has been identified as essential for the sustainability of the land reform programme, and the SIS strategy provides useful insight accumulated from a number of sources, including the land beneficiaries, into land and agrarian reform," said Ms Xingwana. The SIS strategy is the result of 18 months of extensive consultation with internal and external stakeholders including land reform experts, researchers as well as consultants to address the issue of lack of necessary skills and access to resources by land beneficiaries. Providing background on the strategy, acting Director General (DG) in the Ministry of Land and Agricultural Affairs Thozi Gwanya said: "The Belgian government and South Africa have enjoyed a long relationship through the Oversees Development Assistance [ODA] fund managed by the National Treasury. "Just before the end of 1998, they [the Belgian government] supported us in the Start Your Claim Campaign. In 2002 they made available R13.2 million for the claim and validation stage in the land reform process. "In support of the speeding up of land reform, they also pledged R45-R50 million in the claim and verification process and through post-settlement support," said the DG. Mr Gwanya said out of a number of land reform projects and consultation that all sign pointed to the need for post-settlement support, as "we can't just drop land off with people and hope for the best. "We have identified that there is a significant failure rate of the land we hand over and it's as much as 50 percent, we therefore need to ensure that they are sustainable." Belgian Ambassador to South Africa Jan Mutton told the conference that having met a number of the land beneficiaries at the launch of the strategy, it had made him a staunch supporter of land reform in South Africa. "I'm happy that we as the Belgian government can give support to this process. For about 10 years now our government has given particular attention to land reform and has over the years committed about Euro 20 million to the process. "Land reform is so important for South Africa's social and economic development, and crucially restores the dignity of past injustices, creates employment and can provide growth in agricultural production," said the ambassador. Mr Mutton highlighted that it has become clear that post-settlement support is essential for the sustainability of the land reform programme and can help secure food security, job creation, long term economic growth, and provide sustainable livelihood for the country. The ambassador in closing said he hoped the SIS strategy will promote the swift implementation of land and agrarian policies in South Africa. By August of 2007, the Land Claims Commission had settled 93 percent of claims lodged by claimants before the 31 December 1998 deadline. This represents a settlement of 74 559 of the 79 696 claims lodged. The commission is mandated to transfer 30 percent of commercial farm land to black beneficiaries by 2014, translating to about 25 million hectares of land.

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LEISURE

Tsogo Sun, Gold Reef Talks Back On
Folowing the recent collapse of a R9,8bn Ethos-led private equity buyout, gambling group Gold Reef is once again being targeted by rival group Tsogo Sun, with talk of a possible offer. While no prices have been mentioned, both Gold Reef and Tsogo confirmed February 21 that a sale may be in the making. The announcement sent Gold Reef's share price soaring, closing 16% up at R26,50 and valuing the company at R7,7bn. Gold Reef advised shareholders it had "had a preliminary meeting in which Tsogo Sun indicated that it is contemplating a potential offer for Gold Reef". Tsogo Sun director Marcel von Aulock could not comment beyond confirming that the two were in discussions. He emphasised the talks were at a "very preliminary" level. The question that shareholders will now be asking is how close Tsogo's offer will come to the R34,50 a share Tsogo was willing to pay last year. At a hearing before the Securities Regulation Panel last month, some Gold Reef minority shareholders believed Tsogo was attempting to delay the deal beyond its deadline when it complained that its offer of R34,50 had not been properly dealt with before being thrown out. Minorities challenged Tsogo to make its offer of R34,50 again should the private equity deal fall through. The deal collapsed after it failed to obtained the blessing of the country's various provincial gambling boards. Kurt Benn, portfolio manager at Cadiz African Harvest, said he expected pressures on global markets and a slowdown in SA's gaming industry would make it difficult to raise a price equal to last year's R34 offered by a private equity consortium. Ethos Private Equity is not allowed to bid for a year, after its bid collapsed on February 1.

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MANUFACTURING

Power Cuts Dim Outlook for Mines and Factories
Manufacturing slowed in December and mining output also fell, official data showed February 12, fanning concern the economy's two main power consumers will suffer from electricity constraints this year. At the same time, the Bureau for Economic Research (BER) warned that power shortages may trim the pace of economic growth to 3,4% this year, from 5% over each of the past four years. The effect of power outages on mining production - which has fallen for two years in a row - would to a large extent determine the severity of SA's economic slowdown this year, the BER said. The bureau predicts that output from the sector - hardest hit by a 10% mandatory cutback in power use - will subside by either 1,7% or 4,8% this year, depending on how quickly it rebounds from a 20% contraction in the first quarter of the year. "The list of negative growth factors has increased significantly following unprecedented mining shutdowns in January," BER economist Hugo Pienaar said. He was referring to a five-day shutdown in January after Eskom was forced to cut electricity to mines. Mining directly accounts for just 5,5% of gross domestic product (GDP), but its indirect effect amounts to 18%, through links to other sectors -- especially manufacturing, the economy's second-biggest sector. It also punches above its weight in other ways, accounting for about 60% of export revenue and employing about half a million people. "Mining has been in the doldrums for quite a while, and the risks now are definitely to the downside," Pienaar said. "Some companies think things will be worse if they have only 90% of power for a sustained period." Mining output declined 0,2% last year compared with 2006, when it dived by 1,5%, data from Stats SA showed, suggesting SA has not been able to reap the full rewards of rising prices for gold and platinum. Factory production - which accounts for more than 16% of GDP - edged up by an annual rate of 0,3% in December, its second-lowest reading in 20 months, figures from Stats SA showed. Compared with November, output fell 2,5%, the second monthly decline in a row. Economists believe the sector emerged from a recession in the final quarter of last year. But the effect of higher interest rates on consumer demand and the cost of rising inflation will continue to take a toll on manufacturing. "The manufacturing environment is likely to stay pale on the back of weakness in global economies and local electricity concerns," Standard Bank economist Danelee van Dyk said. "This presents a worrying picture as the sector is now expected to add to, rather than counter, the household demand-led slowdown in the economy." The BER predicts factory output will grow between 1% and 1,4% this year. Its baseline scenario predicts overall growth in the economy will slow to just 3,9% this year, but it has highlighted the difficulties in predicting the effect of the power crisis. "The lack of information means that at this stage we are cautious not to take an overly pessimistic view," Pienaar said. "We regard the probability of a recession as being low." Citigroup economist Jean-Francois Mercier said the data helped to justify the Reserve Bank's decision to keep interest rates steady this month, despite rising inflation. "We expect the Bank to remain in neutral mode in the coming months."

Blow to Local Textile and Clothing Sector as Country Shuns EU Deal
South Africa's decision not to sign an economic partnership agreement with the European Union (EU) is a major blow to the embattled clothing and textile industry. South African clothing and textile producers are now unable to benefit from less-restrictive rules that would have eased access of clothing and textile products into European markets, said Eckart Naumann, an associate of the Trade Law Centre for Southern Africa said at a conference of the think tank in January. The more relaxed rules of origin agreed to under November's economic partnership agreement will greatly benefit Swaziland and Lesotho. SA's exclusion, however, could see battling South African manufacturers relocating operations to these countries to take advantage of the new dispensation, leaving thousands of employees stranded. Jack Kipling, chairman of the Export Council for the Clothing Industry in SA, said the industry was " very disappointed" that SA did not sign the agreement. The change makes EU rules of origin for clothing and textiles comparable with the beneficial rules of the African Growth and Opportunities Act (Agoa), under which African countries enjoy preferential access into the US market. The key factor was that the new EU rules of origin would be far more permanent, while Agoa's requirements could be amended at will by US policy makers, Naumann said. For a product to be considered of local origin, it is usually required that some degree of local value add takes place during the production stage when imported materials are utilised. SA and Namibia pulled out of the agreement that Botswana, Lesotho, Mozambique and Swaziland signed in November, citing unreasonable demands on the part of the EU. Earlier last year SA argued for its inclusion in the negotiations, saying it would help advance regional integration. While South African manufacturers will not benefit from the new rules, things are also complicated elsewhere. Some companies with cross-border operations in the region were able to take advantage of cumulation -- a stipulation under which more than one country can jointly comply with the rules of origin to benefit from a beneficial tariff regime. With SA not party to the agreement, manufacturers that have joint operations in, for instance, Lesotho and SA, can no longer receive that

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MINING

Gold Fields Warns Power Crisis Puts 6900 Jobs at Risk
GOLD Fields, SA's second-biggest gold producer, could cut up to 6 900 jobs, or 13% of its 53000 workforce, and defer a R5,4bn project to meet the 10% cut in power use imposed by Eskom, it said February 25. It was "paradoxical" that Gold Fields should be downscaling production when the rand gold price was at its highest yet, said Terence Goodlace, head of South African operations. Gold Fields plans to close marginal shafts and shafts nearing the end of their lives at Kloof and Driefontein, and defer the planned deepening of the No9 shaft at its Driefontein mine. Its Beatrix mine, which uses less power and has power-saving projects, will not be affected. CEO Ian Cockerill said the group's South African production would fall 20%-25% in the current quarter because of the power outages, power rationing and the Christmas break. This would be partly offset by improvements from offshore operations, resulting in a 12% drop in total output for the March quarter compared with December. Gold Fields is the only gold miner so far to have responded to the power shortage with looming job losses. Harmony cut almost 5000 jobs in the December quarter, before the worst of the January power outages, as part of a strategy to cut costs. Harmony said earlier in February it had also closed some high-cost operations nearing the end of their lives and was operating within the 90% power constraint. AngloGold Ashanti, SA's biggest gold producer, has not announced any job cuts. Spokesman Alan Fine said AngloGold did not know if jobs would be lost. "It depends how we can organise things." AngloGold was not closing any shafts but saving power in other ways, such as leaving ore stockpiles underground, he said. In the past month other mining companies have raised production concerns over reduced electricity supply, but the extent to which they will be affected depends on such factors as whether they operate smelters with spare capacity or have opencast, as opposed to underground, mines. Underground mines use more energy. Gold Fields spokesman Willie Jacobsz said the jobs were at risk, which meant the group was looking at various alternatives, including moving workers to other shafts, early retirement or offering voluntary retrenchment. He did not know if Eskom could supply more electricity to Gold Fields, but "obviously if Eskom can shift some of the burden to other industries instead of the bulk of it falling on the mining industry, it could help. "We believe the mining industry is shouldering the main burden, and it follows logically it will have a greater impact on jobs. This is a very labour-intensive industry," he said. Asked if AngloGold agreed the mining industry was shouldering an unfair burden of electricity cuts, Fine said "it isn't helpful to put it that way". AngloGold was working with the Chamber of Mines, the government and Eskom to find ways to mitigate the situation. Chamber of Mines CEO Mzolisi Diliza said that not all industries were implementing load-shedding. He felt mining had been unfairly targeted at the end of January, when it had to suspend all but minimum maintenance for four days. Diliza said other industrial users had to come on board. In a recent meeting between the chamber, the government and Eskom it had been agreed to form a committee of intensive energy users and bring in experts to work out energy-saving measures. Although majority-white trade union Solidarity said Gold Fields was suffering tremendous losses and was operating with its "back to the wall", the National Union of Mineworkers (NUM) was less sympathetic. NUM spokesman Lesiba Seshoka said Gold Fields was not fighting with Eskom, it was fighting with workers. If Gold Fields intended to retrench workers, "we will bring them to a standstill," he said. "We will tell our workers not to volunteer for retrenchment." It was not the NUM's members who had caused the power crisis, and they should not have to suffer because of it.

Platinum 'Will Stay in Demand'

Demand for platinum, palladium, rhodium and nickel was expected to remain strong in the next six months on sturdy consumption and uncertainties about supply, Northam Platinum marketing manager Jerry White said February 13. He said Northam expected palladium to trade at between $400/oz and $500/oz in the second half of this year. Platinum was expected to trade between $1750/oz and $2200/oz; rhodium between $7000/oz and $9000/oz; and nickel at an average of $30000/ton. Yesterday, the spot platinum price was $1914/oz, while palladium was about $428/oz. Rhodium was about $8650/oz and nickel about $28000/ton. Metals group Heraeus, the European company that refines Northam's precious metals, said in its Precious Metals Weekly that despite predictions of a platinum price of $2000/oz, there was no sign of panic buying from the engine catalyst sector. "Longer term, keeping in view a possible recession in the US, we see a chance that prices could come down considerably in the second half of the year," it said. Heraeus warned of the possibility of significant falls in the palladium price if there was a US recession, not only because of ebbing industrial demand but also the sale of some long positions. About 50 tons of palladium or one-fifth of global annual production was believed to be held by exchange-traded funds and speculators, it said. White said deficits for platinum and rhodium were likely to widen. The platinum price was driven by continued demand from the engine catalyst sector for platinum used in diesel vehicles, particulate filters and after-treatment applications. Sales of platinum jewellery were resilient, and exchange-traded funds were gaining support from investors. Rhodium was essential for controlling nitrogen oxide emissions from vehicles and was also in demand from the chemicals sector. Although palladium had risen less than other platinum group metals, it was also experiencing increasing demand from the engine catalyst and electronics sectors, White said. Nickel had eased on stainless steel production cutbacks, but he expected the mills to increase output.

Xstrata Alloys in $12m Nkwe Deal

XSTRATA Alloys, part of global diversified miner Xstrata, has taken plans to expand its platinum portfolio in SA one step further with the $12m acquisition of the new order prospecting rights to the De Wildt property from Nkwe Platinum. De Wildt is adjacent to Xstrata Alloy's Elandsfontein property near Brits, which the group bought last year through the $1bn purchase and delisting of Eland Platinum. A mine is being built at Elandsfontein at a cost of about R1,5bn. Xstrata spokesman Songezo Zibi said no exploration work had been done on the De Wildt property. According to Nkwe Platinum's latest annual report, De Wildt has an inferred resource of 4,4-million ounces of platinum group metals (PGM) at a grade of 3,4g a ton over a 6km strike length, with a favourable platinum palladium split. This will be Xstrata Alloys' third platinum property in SA. It also has a 50% stake in Mototolo on the eastern limb of the Bushveld complex, with Anglo Platinum as its partner. Xstrata Alloys CEO Peet Nienaber said in October that Xstrata was not looking to build up size in the platinum sector as much as quality assets. "This acquisition marks a small but decisive step in the extension of Elandsfontein mine, and in the fulfillment of Xstrata's PGM growth strategy," he said. Two weeks ago a dispute involving Angloplat, the minerals and energy department and Nkwe's partner Genorah Resources was resolved after the department granted prospecting rights to Genorah on a property to which Angloplat believed it had a right. "With the recent removal of the Anglo Platinum claim over its core asset and more than $25m now available to fast track the exploration and feasibility process on our flagship project, Nkwe is well placed to deliver on its aggressive growth," MD Maredi Mphahlele said.

AngloGold Might Sell Mali Stake to Partners

Gold producer AngloGold Ashanti's partners at its Mali gold mines are likely to be the first to consider buying the stakes that AngloGold has said it would like to sell. AngloGold CEO Mark Cutifani said at the year-end results presentation recently it would look at the full upside potential of its Sadiola and Yatela mines before initiating the process of disposing of its interests in Mali. Previously the group said it would hand operational control of the Morila mine to partner Randgold Resources and was considering selling out of the mine. AngloGold owns 40% of Morila, with Randgold Resources holding 40% and the Malian government the rest. AngloGold also owns 38% of Sadiola and 40% of Yatela. Its biggest co-shareholders in both mines are Canadian mining group IAMGold. AngloGold spokesman Alan Fine said yesterday that the reason for identifying the mines in Mali for disposal was not related to conditions in that country. The reason was that AngloGold held minority stakes in all three of those operations. AngloGold's view was that where it was devoting energy and attention to an operation, it made sense to earn as much return as possible from that asset. In line with this view, it had recently bought out minority shareholders in its Cripple Creek & Victor mine in the US. There would always be mines where AngloGold could not hold 100% but its intention was to hold a significant stake, Fine said. According to AngloGold's latest report, the total mineral resource at its mines in Mali was 2,95-million ounces of gold at the end of last year, of which only 1,224-million ounces were attributable to AngloGold. That represents about 1,7% of the group's total gold resources. Asked whether Randgold would be interested in buying AngloGold's stake in Morila, Randgold Resources CEO Mark Bristow said February 12 it depended on the price. The mine's resources were declining and it was expected to cease operations in 2012. Based on Randgold's positive view on the gold price over the next two years, it considered its 60% stake had good value, he said. But buying cash flow did not make sense unless it could be bought at a price that would give a good return.

'Tough Year' for Angloplat As Costs Top R18bn

Labour issues pushed up cash operating costs at Anglo Platinum, the world's biggest platinum miner, 22% to R18,5bn in the year to December compared with 2006 figures, the company said February 11. The group was hit hard in the past year by temporary safety shaft shutdowns after a spike in fatalities in the first half of the year. Parent Anglo American's insistence on zero fatalities was cited as one reason for the departure of Angloplat CEO Ralph Havenstein last year. Joint acting CEO Duncan Wanblad said it was an "incredibly tough year". The group's new approach to safety, skills shortages and labour turnover had affected the Rustenburg mine most. This is the group's biggest operation. At full production, it should be turning out 850000oz-900000oz of equivalent refined platinum production but last year its output dropped to 665400oz. Group refined platinum production of 2,47-million ounces was 6% down on the previous year's with an 8% bigger workforce. The group was gearing up for a rise in output but did not achieve it. Labour efficiency was hit by tension around mid-year pay talks, which continued into the second half of the year. Wanblad said about half the workforce was employed by Angloplat and the other half by contractors. Labour unrest was evident in the contractor workforce. To address the problem, Angloplat would increase the proportion of miners it employed directly. Sanlam Investment Management analyst Stephen Roelofse said the rise in costs was not a good number, but it was driven by lower volume as a lot of costs in mining were fixed. If Angloplat could increase volumes, more likely next year than this year because of the power shortages, costs could start to fall. The higher platinum price was also compensating for loss of output and higher costs. Soaring platinum group metals prices and the rand weakening against the dollar (Angloplat earns all its income in dollars) helped grow net sales 19% to R46,6bn. The price of the group's basket of platinum group metals rose 31%. But after a squeeze in gross profit margins to 40,7% from 42,2% and a higher tax rate, headline earnings fell 3% to R52,39 per share on an increased number of shares in issue. The group maintained its policy of distributing all its earnings, which resulted in a dividend of R52 a share from R53 last year. Wanblad said Angloplat was looking at options to boost energy efficiency and co-generation projects to assist with Eskom's electricity shortage. On 90% of its normal electricity usage, platinum production from Angloplat's own and joint venture operations would fall by about 120000oz this year. Angloplat was "continuing unabated" with its replacement and expansion projects. Last year capital expenditure rose 63% to R10,7bn. The board has approved spending R5,9bn on the Twickenham expansion project, which would reach steady state production in 2016 with production of 180000oz a year. Wanblad said Angloplat's previous forecast of achieving compound annual growth in refined platinum production of 5% a year was still within reach, despite last year's setback. The group had projects that would enable it to meet this target in the medium term, but the caveat was the energy supply constraint.

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MINERALS AND METALS

Eskom's Power Rationing Forces Mittal Slowdown
ESKOM's power rationing programme is proving to be a significant constraint on steel making, with ArcelorMittal SA losing 1000 tons of liquid steel production daily as a result. If rationing continues until the end of the year, as expected, Mittal's production shortfall for the year would be about 360000 tons, CE Rick Reato said yesterday with the release of group results for the year to December. The power blow to production comes on top of lower steel volumes last year, when 10% of volume was sacrificed, mainly due to the rebuilding of Blast Furnace D at Mittal's key Vanderbijlpark Works. With steel inventory levels at their lowest in years and demand of 5,7-million tons last year only slightly below record highs, curbed power supplies could put further strain on an already tight steel supply situation. Reato said Mittal would have been in a position to import steel to alleviate supply constraints in an import parity pricing environment. But under pressure from the government, the group adopted a weighted basket pricing mechanism, which meant importing steel to bolster supply was simply not viable. "With our current pricing arrangement (importing) is unworkable. Freight costs have more than doubled and that is a cost to the importer. It is not viable. We can only give what we have," Reato said. But Mittal undertakings to build a power plant, estimated at a cost of R1,2bn, to feed an extra 110MW into the national grid are being frustrated by delays on Eskom's side with finalisation of a power-purchase agreement. The power plant would see Mittal use gas it flares at its Vanderbijlpark plant converted into power as part of Eskom's co-generation project. The project, which would take two years, could have been at an advanced stage, had the group been given the go-ahead, Reato said. Despite the dim power supply situation, Reato was confident that output this year would be slightly ahead of the 6,37-million tons produced last year, when Mittal went through a particularly disruptive period of its R9bn capital expansion programme. While sales volumes were down due to the dip in production, Mittal increased operating profit 27% to R7,7bn, largely on higher international steel prices and a weaker rand-dollar exchange rate . Rising raw materials costs spoiled the party somewhat, with the cash cost per ton of hot rolled coil and billets rising 18% and 16% respectively on the previous year. Headline earnings rose 21% to R5,6bn. Reato expected demand to stay strong. While higher interest rates have curbed demand from the durable goods, automotive and residential construction industries, demand was now underpinned by expanded public works and infrastructure development. Local users last year consumed 76% of Mittal's total sales, up from the previous year's 71%. Prospects for the first quarter were good, with domestic and international demand expected to remain strong. While sales are expected to be somewhat lower, this is likely to be offset by further price increases. A final dividend of 196c a share was declared, bringing the total for the year to 429c, which excludes a R14,25 a share windfall when the steel giant announced a capital reduction of R6,35bn in August.

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RETAIL

Retailers' Seven Years of Plenty End in Slowdown
Retail sales have fallen for the first time in nearly seven years, signalling that rising debt costs and inflation have put consumers under strain, and making interest rate hikes this year look unlikely. Retail sales fell an annual 0,5% in December after a 0,2% decline in November -- which was revised down from an earlier estimate of 0,2% growth, Statistics SA said February 13. The sector is the economy's third-biggest, and news that it contracted for the first time since the start of 2001 backs the view that higher interest rates will curb growth sharply this year. Power outages last month are likely to have put more pressure on retailers, whose profits were already being eroded by receding consumer demand. "I think it will look a bit nasty for a while. Retail sales are likely to remain in negative territory in the first quarter," said Nedbank chief economist Dennis Dykes. Retail sales for the whole of last year grew 5,1% at constant prices, slowing from 9,6% in 2006 and the lowest rise since 2003. During the final quarter of last year they grew 0,3% -- also the lowest pace since early 2001. "The data appear to provide clear evidence that tighter monetary policy is having a significant dampening effect on consumer spending," said Citigroup economist Jean-Francois Mercier. "Such growing evidence of moderating economic activity probably offsets in part upside inflation risks, suggesting to us that interest rates will remain on hold in the foreseeable future." The Reserve Bank has raised interest rates by four percentage points since June 2006 in a bid to restrain rising inflation, which has breached its 3%-6% target range for nine months running. That has pushed debt service costs as a ratio of household disposable income above 10% for the first time in eight years. The Bank kept its key repo rate steady at 11% early this month, giving more weight to the threat to growth than to the deteriorating inflation outlook. Many economists believe the expected slowdown this year -- after four years of 5% growth -- will prompt the Bank to start cutting rates later this year. But others think this is unlikely until inflation is clearly heading lower, which may not happen this year. The annual rise in the CPIX gauge monitored by the Bank rose 8,5% in December and is expected to stay outside its target range until the end of this year. Stats SA said the slowdown in retail sales began in June last year, when stricter lending criteria were introduced to curb rapid credit growth. Sharp falls in sales of durable goods like furniture and household appliances -- which are most sensitive to changes in interest rates -- have spurred the trend. In December, this category dived by an annual rate of more than 15%, deepening from a fall of nearly 13% in November. But sales of specialised food retailers picked up during the month, while sales of textile, pharmaceutical and general retailers also performed well. The data followed news of a sharper than expected slowdown in manufacturing during the same month, when output rose by an annual rate of just 0,3%. Manufacturing is the second-biggest sector of the economy, making up more than 16% of gross domestic product. But consumer demand is its main growth engine. "A crashing retail sector will not be in the interest of the economy and may force a rethink on the monetary policy stance," Standard Bank said. This could prompt a rate cut in the third quarter. "Although economic and financial conditions are going to be tight in 2008, a total collapse in consumer spending is unlikely."

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TELECOMMUNICATIONS

Vodacom On Repositioning Expansion Drive
The Vodacom Group will reposition itself from being a mobile-centric network operator to a provider of converged information and communication solutions through a capital investment of R2.5 billion over the next five years, the company announced February 23. "We are standing on the brink of a significant change in the way corporate South Africa communicates and in this environment Vodacom plans to be a next-generation network service provider delivering on mobile and fixed voice, video and data requirements of all businesses," said group CEO Alan Knott-Craig. "In a playing field that has quickly become crowded, we will differentiate ourselves with the services that are provided on top of the network infrastructure layer," he said. New division Vodacom has established a new division called Vodacom Business to provide end-to-end converged solutions and services for the corporate and SME markets. "In a maturing South African market where cellphone SIM card penetration is already over 90%, our future lies in expanding our business horizontally. We believe that substantial changes will take place in the telecommunications world this year, with the main drivers being within the regulatory and competitive environments," Knott-Craig said. He added that Vodacom plans to remain the cellular market leader, but aims to leverage off these changes and developments in order to lead with an aggressive converged solutions strategy in the market place. "Secondly, the demand for broadband is growing exponentially whilst being stifled by the country's limited transmission capacity. Vodacom has now started the process to build our own transmission capacity for the Vodacom network, as well as for our corporate customers," Knott-Craig said. ICT landscape rapidly developing He added that the information communication technology (ICT) landscape has been developing rapidly over the last 18 months. "Vodacom Business has been positioned to offer centralised network architecture combined in a hosted environment to offer a full range of converged communication solutions by the second quarter of 2008. The resulting economies of scale will generate significant cost savings for customers, as well as improvements in network efficiencies, security, back-up of data and applications, and power redundancy." Vodacom is building a fibre optic network and the first ring will be completed in Gauteng by April. The network is being built with links to many of South Africa's top blue-chip companies, which have already indicated a commitment to infrastructure and service contracts with Vodacom Business. The slow but steady liberalisation in the ICT industry, as well as the introduction of new licensed operators, has set the stage for fixed and mobile network operators to compete directly with ICT vendors, value added network service providers (VANs) and Internet service providers (ISPs). Differentiate itself With the changes in the Electronic Communications Act, the number of players providing information communication infrastructure has grown. Vodacom Business intends to differentiate itself at the service end of this new and developing playing field with four main towers of services to market: Access Services will build state-of-the art access networks to provide last-mile connectivity and broadband access with service level agreements to ensure optimum uptime and availability. Hosted Services will give customers the ability to outsource functions such as hosting, application services, storage and security functions, allowing companies to take advantage of the scale and diversity of a large infrastructure and focus their attention on their core business. Managed Network Services will provide high-quality first-tier Internet and managed network services to businesses. This includes a range of Internet access mediums, virtual private network (VPN) solutions and a next-generation network that will provide a wide variety of simultaneous voice, video and data communication options. Converged Application Services streamlines the access and management of mobile applications and their various service providers into a seamless service that is globally operational, supporting a full range of communication devices, from cellphones to laptops to PDAs.

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