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SOUTH AFRICA


  
   

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 104,235 113,300 127,900 35
         
GNI per capita
 US $ 2,600 2,820 3,060 94
Ranking is given out of 208 nations - (data from the World Bank)

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Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki


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Background:
The Union of South Africa that followed the Boer War (1899-1902) operated under a policy of apartheid - the separate development of the races. The 1990's brought an end to apartheid politically and ushered in black majority rule. Southern Africa as a whole is a very different place than it was two decades ago. Old single-party dictatorships and white minority government have given way to nascent democratic governments with varying degrees of success and maturity. On 10 May 1994, Nelson Mandela took office as the first president of the 'new' South Africa'. His inauguration marked the end of a long struggle to achieve a non-racial political regime and the beginning of an equally difficult and protracted process of state and nation building that is intended to lead eventually to the realisation of a stable democracy. 
The 1990's can be viewed as a success. The diminution of political violence, the relatively peaceful transfer of power, the continuation of the transformation process, albeit painfully slow, can be regarded with pride and promise. The retirement of Mandela as president in 1999 saw the second round of successful majority-rule elections. The succession process was amazingly smooth. Thabo Mbeki was officially named to ANC's candidate for president back in 1997. Mbeki may lack Mandela's charisma, and his capacity for fairness and sensitivity, but his style is different and more efficient and businesslike. Mbeki will remain unchallenged as president in 2002, but the ANC remains deeply divided.
South Africa is the most developed country in southern Africa, and the regional leader economically and politically. But South Africa (and every other country in the region) has its own problems. The political transition from a race-based polity to one based on majority rule is almost complete, yet subject to tensions. Changes have occurred with relatively little violence. Aside from the former Soviet-bloc countries, no nation has experienced greater change than South Africa over the past decade. The non-racial democracy is still in its infancy and still requires nurture and development. 
South Africa has the most sophisticated economy in black Africa. Unlike other African countries its manufacturing sector is relatively advanced. It is the largest sector of the economy, contributing about a quarter of the GDP. Agriculture is also relatively diversified, producing wine, citrus products and wool for export and maize for internal consumption. Agriculture accounts for about 4 percent of the GDP. The population is growing fast at 2.6% pa. In 1999 it totalled 45 million - 76% African, 13% white, 8.5% coloured, and 2.5% Asian. The GNP per head is over $3000 (compared to $300 in Nigeria) but this figure masks inequitable distribution of wealth between the races.
In Southern Africa as a whole, South Africa accounts for less than one-third of the population but for more than 75 percent of the GDP. Its economy is 3.4 times larger than the combined economies of the other members of the Southern African Development Community - SADC (Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, Zimbabwe). This suggests that South Africa occupies a position in Africa similar to the United States within the global economy. While the United States accounts for 26 percent of global GDP, South Africa accounts for about 44 percent of Africa's GDP. South Africa's economic outreach into and beyond the region grew substantially after the ending of apartheid, and shows every sign of continuing to do so. Many of South Africa's largest conglomerates, banks, and financial institutions have found openings for investment in some twenty countries in Africa. The countries of greatest immediate interest are Angola because of its oil and mineral resources, and the Democratic Republic of the Congo with its huge potential for mining development. 

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Update No: 30 - (01/07/04)

Parliament elected five members to represent South Africa in the Pan African Parliament (PAP) June 25. South Africa is battling to host the Pan African Parliament along with Egypt. Foreign Affairs Minister Nkosazana Dlamini-Zuma said June 3 that Pretoria was confident it would be chosen. Libya has pulled out of the political race while Morocco did not submit a bid since it is not a fully-fledged African Union (UN) member. A final decision on which country will host the PAP will be made in Addis Ababa, Ethiopia, in July during the AU Summit. 

Chinese Vice President Zeng Qinghong began talks June 27 in Cape Town on his three-day visit, the last leg of his four-nation African tour. The vice president is scheduled to discuss enhancing trade and economic ties with China's top trading partner in Africa. Trade between China and South Africa has been booming, from a total volume of $1.5 billion in 1990 to $3.7 billion last year. South Africa is hoping that China is willing to come forward with direct investment that would create jobs, which is a top priority of Mbeki's government. While British exports to China dropped by 9% last year, South Africa's sales to Beijing rose by 42%. South Africa and China are in agreement on issues like Iraq, the importance of the United Nations as a forum for solving international problems and ensuring fairness in global trade rules. In a gesture to Beijing, South Africa will declare China a free-market economy, joining a handful of other countries that have made the move despite a World Trade Organisation decision to classify it a non-market economy. 

The government has opted again to keep the logistics of deposed Haitian president Jean Bertrand Aristide's stay in South Africa secret, saying the former leader could do what he liked except launch an armed struggle. Foreign Minister Nkosazana Dlamini-Zuma said in Pretoria June 2 that Aristide, who was ousted from power in Haiti at the end of February this year, would be allowed to indulge in politics. Aristide was given a red-carpet welcome by President Mbeki, despite protests by opposition parties that South Africa would gradually become a haven for fallen despots. 

Democratic Alliance (DA) leader Tony Leon continues to accuse the ANC of "centralisation of power", with its growing hegemony used to keep Parliament and the cabinet in check. As a result the ANC has a "stranglehold" over top positions, not only in government but also over the media, business, sport, and civil society. He also claims that a closer look at black economic empowerment, for instance, revealed a "silent nationalisation" of industries at the expense of the poor. 

A new survey by the World Economic Forum (WEF) and International Finance Corporation says macro-economic policies are good for business, but what really creates prosperity are business regulations and the institutions enforcing them. It says Botswana's economy is more competitive than those of Nigeria and South Africa. Nigerian and South African economies are the biggest in the African continent, but the report says Botswana has the best institutions and macroeconomic climate for business to thrive. Among 25 African countries scored in the survey, Botswana came behind South Africa in technological capability and know-how, but ranks highest in the quality of its public services and policies. The Reverse Boycott campaign lauched by Action for Southern Africa (Actsa) could help boost the South African economy and create jobs. With every 1,100 bottles of South African wine bought in the UK, another job is created in South Africa. This is according to the group urging Britons to buy South African goods and visit the country - 45 years after a small group of South African exiles and its British allies launched the original boycott of goods. June 26 was the 45th anniversary of this boycott. By 1960, trade unions, and the Labour and Liberal parties had thrown their weight behind the campaign, and, one by one, schools and factory canteens refused to stock South African produce. The boycott campaign turned into the Anti-Apartheid Movement, which went on to devote the next 30 years calling for sanctions and putting pressure on big businesses not to deal with the nation.

Politics - Mbeki Signals Policy Shift to the Left
President Thabo Mbeki set the seal June 23 on a decisive broad policy shift to the left for his final term in office, lashing out at what he called the "new conservatism" sweeping the world, which enshrined the individual and denigrated the state in a way which could never bring a better life for South Africa's millions. In a full-frontal attack on free-market economics, and, apparently, on Democratic Alliance leader Tony Leon, Mbeki's remarks may explain some of the comments of his ministers in recent weeks. These include a new questioning of the property rights of foreign investors, and a verbal assault on mining companies this week by Minerals and Energy Minister Phumzile Mlambo-Ngcuka, who said they were "sabotaging" empowerment in the sector. The president's comments, which might prove to be a watershed in South African politics, came as he introduced his budget vote in the National Assembly. They signal not so much a return to the old socialism of the exiled African National Congress (ANC), but a retreat from the ruling party's wholesale conversion to free-market economics just before it came to power. Implying that he wanted to begin a new debate in the country about the shape of its economy, Mbeki devoted the last half of his speech to an attack on those who supported the liberal and so-called neo-liberal values that characterised American conservatives. His remarks yesterday follow a visit earlier this month to the home of the "new conservatism", the US, as a senior member of an African delegation to the Group of Eight conference. The delegation came home largely empty-handed. Mbeki said that the ANC was clearly aligned with the ideas characterised as "the left" because the "obligations of the democratic state to the masses of our people do not allow that we should join those who celebrate individualism and denigrate the state".

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AUTOMOBILES

Tata Motors of India enters South Africa

The South African vehicle industry has a new entrant in the form of heavyweight Indian manufacturer Tata Motors. Tata Motors, the world's sixth largest commercial vehicle manufacturer, June 21unveiled a range of passenger cars, utility, light commercial vehicles and trucks, which it will import to SA. The light commercial vehicles will be sold in SA immediately, while the rest will be available before the end of the year. Tata Africa, Tata Motors' subsidiary, has established a joint venture with the Imperial group and its black economic empowerment partner Ukhamba for the distribution and marketing of the light commercial vehicles in SA. Imperial CEO Bill Lynch said that Imperial and Tata would each hold 40% of the joint venture, with Ukhamba owning the other 20%. Tata group chairman and member of President Thabo Mbeki's International Investment Council, Ratan Tata, said Africa was an important market for the group, "not only in the automobile sector, but in other areas where the group has interests". He said the South African vehicle industry was a sophisticated market, presenting growth opportunities for the company. SA's advanced technological and skills base would be valuable to Tata Motors, he said. The diversified group has 85 companies in seven sectors. The sectors include materials, chemicals, energy, communication and information technology, consumer products and services. The group's revenue of 11.21bn is equivalent to 2.4% of India's gross domestic product. Tata said, in addition to the vehicle industry, the group was considering entering the local power supply sector. The group is also one of the six bidders short-listed for government's multibillionrand taxi recapitalisation project. Minister in Mbeki's office Essop Pahad applauded Tata Motors' commitment to SA and hoped for an increased presence. While the vehicles to be sold in SA would be cheaper, Tata stressed that it was not Tata Motors' strategy to gain market share through lower prices. He said the group was able to price its products cheaply because it was operating from a low-cost base. On how the joint venture would work, Lynch said: "We will start carefully, but we have big ambitions. It is important that we ensure dealer stability and viability. So we will approach this with prudence and ambition." He was confident that there was a market for affordable vehicle in the South African market. Tata Africa has a presence in several other African countries, including Zambia, Malawi, and Ghana.

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AVIATION 

SAA Joins Elite League

The South African Airways (SAA) has been admitted into one of the world's prestigious airline network, joining some of the elite airlines on a mission to offer customers global reach and a smooth travel experience. The Chief Executive Board of Star Alliance June 5 unanimously approved SAA's application to join the alliance. SAA President Andre Viljoen described the feat as a historic and important day for the airline and the country. "Now, more than ever before, South African Airways will bring the world to South Africa and a world of benefits to our customers," he said. SAA, which celebrates its 70th anniversary this year, has one of the youngest fleets in the world serving more than 20 destinations across Africa as well as flying to 34 cities in 26 countries on six continents. When it joins Star Alliance next year, members of the airlines' frequent flyer programme, Voyager, will be able to accrue and redeem miles on any of the other member airlines. They will also be eligible to achieve Star Alliance Silver or Star Alliance Gold status, both of which offer a wide range of benefits. Star Alliance CEO Jaan Albrecht said with SAA in the fold, this would significantly strengthen their position in Africa in terms of schedule, network reach and service quality. "We're thrilled to have SAA on board and look forward to the official inauguration in 2005," he said. Star Alliance was established in 1997 as the first truly global airline alliance to offer customers global reach and a smooth travel experience. Members are Air Canada, Air New Zealand, ANA, Asiana Airlines, Austrian, BMI, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Singapore Airlines, Spanair, Thai Airways International, United, US Airways and VARIG Brazilian Airlines. SAA joins TAP Air Portugal and the first Star Alliance regional member airline, Blue1, as future members of the alliance. Following their official inaugurations, the Star Alliance network will comprise over 15,000 daily flights to 833 destinations in 152 countries.

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FINANCE 

JSE plans new African listings board

The JSE Securities Exchange SA (JSE) is ready to launch an African board alongside AltX and its main board this year, offering South African and international investors the chance to buy stocks from Zimbabwe, Namibia and Zambia. This appears to be the first step towards building the much anticipated Pan-Africa exchange, linking all 11 African exchanges. Speaking at the World Economic Forum summit, JSE CEO Russell Loubser said June 3 the plan was to bring Zimbabwe and Zambia onto the JSE's existing trading system, to join Namibia, which already uses it. Although the JSE could launch this board before the end of the year, this depends on whether these countries can get the funding necessary together. But once in place, the African board will give these countries a far more reliable trading environment in which to trade their shares and expose their companies to a greater pool of international investors as well as laying the platform for the planned Africa board. "Every country (that joins this platform) will still have their own exchange, but they will also get the benefit of a regional exchange," Loubser said. Given that African stock markets are not luring sufficient international investment to the region, these plans could be a notable boon to improving the liquidity and strength of South Africa's and Africa's capital markets. Loubser said that once the mechanism to link the equities markets of the four countries had been established, this model could be replicated for bond markets. This would also help boost the profile of Africa's other exchanges. As it is, South Africa dominates equities trading on the continent, accounting for 99% of trade. Ghana is also looking at joining this platform.

Accounting rules among world's best

South Africa's accounting standards are now fully aligned with international accounting standards, bringing a 10-year project to closure. The Accounting Practices Board has approved eight new and revised accounting standards for SA, bringing the country finally in line with international financial reporting standards. However, the Companies Act and the JSE Securities Exchange SA will still require listed companies to provide some additional disclosures, such as directors' emoluments and corporate governance rules. Linda de Beer, senior executive of standards at the South African Institute of Chartered Accountants (Saica), says as far back as 1995 SA decided to harmonise its accounting procedures with international standards. This process, completed early in 2001, paved the way for the recent alignment, under which SA takes the same implementation dates and texts of accounting rules. By 2005, just under 100 of the world's stock exchanges will comply with international financial reporting standards. This means that 9500 listed companies will use a universally acceptable single set of accounting standards. Garnett says some European Union countries and companies are still lagging behind SA. The UK, for example, does not have an accounting standard for derivatives. SA made the decision to adopt accounting standard 133, relating to the recognition and measurement of financial instruments, some years ago, which was a costly exercise.
finance - Standard Bank's Rating Improved to AA+ By Fitch
International ratings agency Fitch Ratings has upped Standard Bank SA's (SBSA's) credit rating, making it the top-ranked of the country's big four banks. Fitch upgraded Standard Bank SA's national long-term rating to AA+ from AA June 9. By comparison, Absa and FirstRand both have ratings of AA, while Nedcor was downgraded last year to AA-. Fitch's highest rating is AAA. "There are a couple of reasons for the better rating," said Fitch senior director Ed Thompson. "It is a better-capitalised bank, has better asset quality, good risk management systems and has been consistent over time." Thompson said Nedcor's financial problems last year had necessitated its downgrade, while Absa's difficulties with microlender Unifer hampered its progress. He said that while FirstRand had shown a consistent performance, it was less capitalised than SBSA. "From a credit rating perspective, we place a heavy emphasis on capital," Thompson said. The upgrade means that if SBSA were to issue any further preference shares or bond instruments in the market, it would be able to place them at a cheaper rate as a company. "As the corporate bond market is in its early development stages, investors rely a lot on ratings agencies," said Bronwyn Long, credit analyst at African Harvest Fund Managers.

Fitch aids South African business

Local companies received a shot in the arm June 17 when ratings agency Fitch Ratings assigned SA a country ceiling rating of BBB+, one notch above the country's sovereign rating of BBB. Fitch introduced its new country ceiling ratings earlier this month, and of 63 nations assigned these ratings, SA had the rare distinction of being one of 20 to receive a ceiling rating above its sovereign rating. Until now, South African companies with international ratings could in theory only be assigned a maximum debt rating equal to SA's sovereign rating of BBB an investment-grade rating denoting adequate credit quality. But the new ceiling ratings mean South African companies can now qualify for a top rating of BBB+, enhancing their ability to borrow at a cheaper rate. Fitch said SA was one of a few "more-developed" emerging markets, alongside Mexico and Taiwan, to qualify for a ceiling rating above its sovereign rating. Fitch's new ratings were designed to "better reflect underlying credit fundamentals" of companies operating in a new globalised environment. Fitch Ratings' South African CEO, Stephen de Stadler, said SA's ceiling rating "means Fitch believes top-rated corporates could be rated higher than they are limited to by the sovereign rating due to increased globalisation". In practice, only six South African companies have international ratings and stand to benefit. Those six the top five banks and Eskom are intimately tied to SA's sovereign rating and are unlikely to be able to make use of the ceiling rating. De Stadler believes, however, that many South African companies that have only national ratings could soon apply for an international rating and could benefit from this new system. And, while this may not produce tangible benefits now, Fitch's ceiling rating is an endorsement of the relative strength of SA's corporate environment.

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FOOD & DRINK

SABMiller's R1bn profit in China

SABMiller bowed out of the contest for control of Hong Kong-listed Harbin Brewery June 3 with a good profit when it sold the 29.4% stake it acquired in the brewery last year for R556.84m to rival Anheuser-Busch, the maker of Budweiser and Bud Light. Anheuser-Busch, the world's biggest beer maker, topped a rival takeover bid by SAB-Miller and snapped up a controlling stake in Habrin Brewery Group for R1.36bn. The move, widely expected as SABMiller had said it would not overpay, frees it to pursue other options in China. SABMiller said it considered the price of HK5.58 a share offered by Anheuser-Busch "more than fully values the potential of the company". This is a third higher than SABMiller's own offer to Harbin shareholders of HK4.30 a share. The contest began in May when Anheuser-Busch said it had bought a 29% stake in Harbin, China's fourth-biggest brewer and a close rival to SABMiller's joint venture operations, China Resources Breweries (CRB) in China's northeastern province. SABMiller said it had indicated Harbin was not an essential asset at any price, and it had an established position in China through its interest in CRB, which owned 32 breweries. CRB would continue to grow organically, and consider acquisitions if the value was appropriate and it strengthened CRB's strategic interests in China.

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FOREIGN AFFAIRS 

DRC - South Africa: Cooperation 

A military cooperation agreement between South Africa and the Democratic Republic of Congo (DRC), signed June 18, is critical to cementing the peace process in the DRC, a security analyst told IRIN. South African Minister of Defence Mosiuoa Lekota signed the Defence Cooperation Agreement and Memorandum of Understanding (MOU) with his counterpart from the DRC, Minister of Defence, Demobilisation and Veterans, JP Ondekane, in Pretoria. Henri Boshoff, of the Institute for Security Studies in South Africa, told IRIN that the memorandum of understanding and defence cooperation agreement between the countries would underwrite the disarmament and demobilisation process of the various armed groups in the DRC, and their integration into one armed force. Among its provisions the defence agreement regulates cooperation in military training, including peacekeeping training, the procurement of defence equipment and technical cooperation. Under the MOU, South Africa will also provide practical assistance to the DRC for the integration of the country's armed forces. "Following the unfolding peace process in the DRC, the government of the DRC has requested the government of the Republic of South Africa to provide assistance with the integration and training of members of the Armed Forces of the DRC," the South African defence ministry explained. Boshoff said this was key to cementing the South African-brokered peace agreement in the DRC, which has been stymied by the lack of progress in security sector reform. The peace agreement between President Joseph Kabila and the protagonists calls for "the transitional government to begin a [reform] process around the military. Secondly, it calls for Kabila to chair the military council. This has not happened ... so the criteria for integration have not been met, and this is [retarding] the whole process of demobilisation and disarmament and integration" of the various armed groups into the national defence force, Boshoff explained. "That's one of the reasons we have had [the incident] in Bukavu [when rebel soldiers briefly took the town], because of the non-implementation of these provisions [in the peace agreement]," he added.

Zuma hosts Cuban Vice President

Deputy President Jacob Zuma hosted his Cuban counterpart Carlos Lage in Pretoria June 25 for bilateral political and economic discussions. Vice President Lage is visiting South Africa following last month's celebration of ten years of diplomatic relations between both countries. The two governments entered into bilateral cooperation agreement in 1994, covering various spheres such as health, education and economics. Foreign Affairs Department spokesperson Ronnie Mamoepa said discussions in this regard were expected to focus on bilateral economic and political relations and developments in Africa, in respect of the operation of the African Union's Peace and Security Council and the inauguration of the Pan-African-Parliament. Other issues include the revitalisation of the Non-Aligned Movement (NAM) and the reform of the United Nations (UN) and other international issues including South-South co-operation and the global fight against terrorism. Mr Mamoepa explained that one of the most significant agreements signed between South Africa and Cuba had been the establishment of the Joint Bilateral Commission (JBC) in 2001, when Foreign Affairs Minister Nkosazana Dlamini Zuma visited that country. This is the second JBC that South Africa has had with a Latin American country, following the signature of a similar agreement with Brazil in December 2000.
"Following this, both countries have committed themselves to an action programme to advance and deepen bilateral commercial relations to be implemented by the South African Department of Trade and Industry and the Cuban Ministry of Foreign Trade," said Mr Mamoepa. He said official trade figures in 2002 indicated that South Africa exports to Cuba stood at R10 530 689 and R2 966 627 for imports. Following the successful cooperation in the sphere of health - a collaboration that involves Cuban doctors and medical professors working in South Africa and South African medical students studying in Cuba - various government departments had began pursuing projects in diverse areas. "A trilateral agreement between South Africa and Cuba has resulted in the deployment of 101 Cuban doctors to Mali, with financial resources provided by South Africa. "Within the same context, Rwanda approached South Africa and Cuba to enter into a Tripartite Agreement such as that with Mali. Cuba has also deployed 400 medical doctors to the Gambia, explained Mr Mamoepa. The two countries also have entered into an agreement to cooperate in the fields of trade and investments, housing construction, water resources, merchant shipping, agriculture, science and technology, education, arts and culture, sports and provinces' sisterhood exchange.

African, G8 leaders meet

Six African leaders and the leaders of the world's eight richest countries concluded their meeting in Georgia, in the US June 10, with a pledge to work together to ensure better living conditions in the African continent. Presidents Thabo Mbeki (South Africa), Olusegun Obasanjo (Nigeria), Yoweri Museveni (Uganda), Abdelaziz Bouteflika (Algeria), John Kuffour (Ghana) and Abdoulaye Wade (Senegal) met with the Group of Eight (G8) leaders on the invitation of US President George W. Bush. The two parties discussed a range of issues and re-emphasised the need for partnership between Africa and the G8 particularly given efforts aimed at poverty reduction and dealing a blow to under-development. The Sea Island encounter was the fourth meeting between African and G8 leaders with a view to building and consolidating partnerships aimed at advancing the continent's economic developmental programme-Nepad. Previous interactions between the leaders took place in Japan (2000), Italy (2001), Canada (2002) and France (2003). Foreign Affairs spokesperson Ronnie Mamoepa said African leaders briefed the G8 leaders on peace and security initiatives. Issues discussed include the recent launch of the Peace and Security Council; progress made in respect of reviews undertaken under the African Peer Review Mechanism, Agricultural Development; and concerns of African continent regarding the logjam in multilateral negotiations. "In response, President George Bush made a commitment to ensure that AGOA III is passed as soon as possible," said Mr Mamoepa, adding that it was further noted that AGOA had assisted in the creation of over 300 000 jobs on the African continent. AGOA -the African Growth Opportunity Ac t- provides an opportunity for the African continent to trade with the US, opening markets for the latter to the lucrative US market. Still on trade issues, G8 leaders joined African leaders in expressing their concern regarding the logjam that has arisen in multilateral negotiations with particular reference to World Trade Organisation (WTO) and committed themselves to act to assist in unlocking the impasse. "In respect to the Peace and Security Support Operations and Resource Flows, G8 and African leaders agreed on the need for the NEPAD Steering Committee and the Personal Representatives of the leaders of the G8 to develop concrete proposals for consideration by both leaders in the next G8 meeting," explained Mr Mamoepa. This year's meeting took place against the background of the agreement by G8 leaders in Canada, committing themselves through the G8 Africa Action Plan in support of NEPAD and a further commitment to allocate 50 percent or more of the increase to development assistance announced in Monterrey for Africa. The Plan was aimed at promoting peace and security; strengthening institutions and governance; fostering trade, investment, economic growth and sustainable development; implementation of debt relief; expanding knowledge; improving health and confronting HIV/AIDS; increase in agricultural productivity; and improving water resource management. "It was reconfirmed that a comprehensive review of progress with the implementation of the G8 Africa Action Plan will be conducted in 2005," said Mr Mamoepa. United Kingdom Prime Minister Tony Blair stressed that the work of the UK Commission for Africa would focus on developing a holistic response for issues of trade governance, peace and security, human development and resource flows.

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FOREIGN INVESTMENT 

World Economic Forum Summit

Public Enterprises Minister Alec Erwin says SA has set a target to achieve foreign direct investment (FDI) of 2% of gross domestic product (GDP) in the coming years, to boost economic growth. FDI totalled R5.768bn last year, which is about 0.5% of SA's GDP. SA has battled to attract significant FDI inflows despite a more stable macro economy and significant trade liberalisation in the last decade. A lack of investment is usually cited as one of the main obstacles to faster economic growth in SA and, with the domestic savings rate being low compared with other emerging market economies, foreign investment has been seen as filling the investment gap. Erwin said at the World Economic Forum's Africa summit June 4 that government's focus on infrastructure development was key to attracting foreign investment into SA. He said government wanted domestic investment, which was currently about 18% of GDP to increase to 20% to lift economic growth in the country. Alan Gelb, chief economist for the African region at the World Bank, cited uncompetitive labour intensive sectors as one of the reasons for investment levels in SA being well below potential. Erwin agreed with this, but said the challenge was to improve the "sophisticated part of the economy" rather than on focusing on wage rates. "We cannot drift back to a low-wage economy. Many people point to China and India (which have been competitive because of low wages), but wage rates are increasing rapidly there," said Erwin. The minister also said government needed to keep a close check on the type of foreign investment flowing into the country to avoid running into problems on the balance of payment account. "We have a target of FDI of 2% of GDP. We will only seek to increase that if there is an improvement in value addition in the South African economy, so that we are not just sucking in imports. You have to watch that closely. Our main target is to increase value addition, to increase the competitiveness of our economy," the minister said. Another factor limiting investment in Africa was the low level of scale of production. Erwin said investment in small and medium sized industries in SA had been the "hardest by far to attract". The minister said it was only possible to lure investment into these industries if the sector was already successful.

International Investment Council

President Thabo Mbeki's international advisers on investment have complimented SA on its sound economic policies, and said the country is ready to achieve a higher growth rate. The 7th meeting of the International Investment Council (an advisory body of influential world business leaders) has agreed that there is a need for higher economic growth to help open job opportunities for South Africans. President Thabo Mbeki and some Cabinet members met with 11 members of the council at Steenberg June 19 and 20. South Africa's successful branding as a tourism destination will be expanded to market the country to foreign investors, Trade and Industry Minister Mandisi Mpahlwa said June 20 after the three-day meeting. "We need to broaden that (tourism) marketing and branding to ensure that you also market South Africa as a solid investment destination," Mphalwa said. Unilever co-chairman Niall Fitzgerald said the principles applied to marketing South Africa as a tourism destination could be used to market the country as an investment destination. "The government and all of us - and you (the media) - should now have the self-confidence to be able to go out there to sell the story positively," he said. Mphalwa said the government had briefed the council on its Investment Climate Survey, a study involving the World Bank, covering 800 firms. The World Bank would then benchmark the country against other similar economies. "We are competing with other economies for foreign direct investment," he said. "We should market our own competitive advantages, while addressing areas where other countries do better." Mphalwa said there was a need for South Africa to communicate better about what was happening in the country, since investors were influenced by events happening elsewhere in Africa. Mbeki said perceptions that the government aimed to seize 20% of all companies and hand it to black business people without paying for it, had to be rectified. The Council has given its vote of confidence on the sustainability of economic conditions in SA. The council believes this will help the country realise real growth for the first time in 10 years. However, the council cautioned that as SA was competing with other economies for foreign direct investment, it needed to "effectively market its comparative advantages". This would help raise the rate of domestic and foreign investment in the local economy. 

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HIV/AIDS

Global fund clarifies position on South Africa

Health Minister Manto Tshabalala-Msimang has expressed satisfaction that issues regarding funds from the Global Fund to fight AIDS, TB and Malaria have been resolved. The Executive Director of the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria, Professor Richard Feachem, clarified the Fund's position on the current status of its grants to South Africa in a statement released on June 3. Clarification became necessary after a media interview in London, during which Feachem reportedly expressed concern over a delay in the disbursement of Global Fund grants to local beneficiaries. However, according to South Africa's Ministry of Health, the Global Fund was provided with the details of grant money received and transferred to local organisations. The statement by the Fund indicated that they had no plans for withdrawing any funds from South Africa, and collaboration between the Global Fund and the South African government was "productive and positive". "With a seat on the Global Fund Board, South Africa plays an important role in the governance of the Global Fund. We are encouraged by recent progress, and are confident that the programmes supported by the Global Fund will contribute substantially to South Africa's struggle with HIV/AIDS," the statement said. Health minister Dr Manto Tshabalala-Msimang was reportedly satisfied that misconceptions around the projects supported by the Fund had been cleared up. Feachem reiterated the Global Fund's commitment to working with the South African government to find joint solutions to bottlenecks, in order to ensure the rapid and efficient implementation of local programmes financed by the Fund. So far the Fund has approved proposals for HIV/AIDS prevention, treatment and care worth US $234 million over five years for South Africa. The global public-private partnership is dedicated to attracting and disbursing additional resources to prevent and treat AIDS, tuberculosis and malaria. The partnership between governments, civil society, the private sector and affected communities represents "a new approach to international health financing". The Fund works in close collaboration with other bilateral and multilateral organisations to supplement existing efforts dealing with the three diseases and has committed US $2.1 billion to 225 programmes in 121 countries to date.

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MINERALS & METALS

Potential Iscor merger 

Iscor's potential merger with London-based LNM would offer "extensive benefits" to the company and South Africa, the steel producer said June 7. LNM would "be able to provide the company with high-value proprietary technological support, which had hitherto not been available to Iscor since this cannot be shared with the company until the merger has been concluded". "LNM's involvement with Iscor has been extremely valuable in respect of the business, technical, marketing and purchasing support provided by LNM to Iscor in terms of a business assistance agreement between the two companies. "To date, this has amounted to an annual sustainable saving of R388-million for Iscor," Iscor spokesperson Phaldie Kalam said in a statement. However, Kalam said: "As a commodity business, where one's competitive advantage is often based simply on the quality of the product offering and the company's efficiencies, it is essential that Iscor become part of global steel advancements and does not fall behind in its endeavours to be competitive." "The merger with LNM is precisely designed to keep the South African steel producer at the cutting edge of the steel industry," said Kalam.

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PETROCHEMICALS

Oil Price Boosts Sasol's Second-Half Earnings

High oil prices have helped boost petrochemicals group Sasol's second-half earnings, prompting the company to forecast a lesser drop in full-year earnings than it originally expected. Sasol said June 7 second-half earnings to June would be substantially better than first-half earnings, with improved chemicals business and reduced costs also contributing. Consequently, the company said that earnings for the full year would now be between 10% and 30% lower than the previous year. This was better than the group's earlier prediction that earnings would drop more than 30%. The news saw the group's share price rise 1% to R99.66. In May, the stock hit its lowest price so far this year of R91.81. Sasol was still adversely affected by the strong rand, but said this was " more than offset" by higher international oil prices, an improvement in the performance of the chemical businesses and reduced costs. High oil prices drove chemicals prices up over the second half, analysts said. Global polymer prices particularly had strengthened. This was also driven by high demand in Asia and limited new global supply. "Sasol's polymers business is flying, especially in Asia," said an analyst. Sasol did not distinguish between its South African and European chemicals businesses in the trading update, but analysts said it was likely that the group's troubled European Condea chemicals business was still suffering. The Condea operations supply mainly Europe. One analyst said Sasol would probably have been unable to effect chemicals price hikes at its European operations to the same extent as the group's South African chemicals businesses. The company's South African synfuels business which one analyst said was the group's big profit generator benefited directly from higher oil prices. "Reduced costs" cited by Sasol as another reason for the better second-half performance was likely to relate to "Project Rand", the analysts said. The group implemented the programme to cut about R2bn out of its cost base following the rand's appreciation against the dollar. Earnings are likely to decline in the first half of the new financial year starting July, as oil and chemicals prices come off their peaks, one analyst said. However, the rand is also expected to weaken, which would help performance. In March this year, Sasol reported a 49% drop in attributable earnings at R2.5bn for the six months to December, compared with the year-ago period.

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TECHNOLOGY 

Multinationals in Black Empowerment debate 

Multinational technology companies will abide by South Africa's black economic empowerment requirements including selling equity to local partners provided government makes the country economically attractive, says a US executive. Martin Vergunst, country manager of US technology company Computer Sciences Corporation, said June 3 that US and European businesses saw South Africa as the gateway to Africa, and would conform to its demands if government ensured the population was well educated and gainfully employed. His comments come as multinational companies, including Dell, Microsoft and Oracle, lobby against recommendations in the draft information and communications technology (ICT) charter that at least 25% of ownership should be in black hands. Specific targets for equity ownership are still being thrashed out by the sector. "There is a lack of understanding in the international community about black empowerment. It has the negative connotation in that it involves somebody taking 25% of your company for free. So the education aspect is very important," said Vergunst. Government has to ensure that companies operating in South Africa have a strong base of skilled workers to draw from, and have to boost job creation so most consumers had money to spend on goods and services offered by the foreign investors. US technology players and the SA-American Chamber of Commerce will meet the charter drafting committee to discuss the equity issue. The chamber's executive director, Luanne Grant, said its members supported transformation within the industry and had taken significant steps to increase broad-based black empowerment. However, its members wanted the sale of equity to be optional and to be compensated for a loss of points in that category by extra efforts in areas such as black management, social responsibility investment, affirmative procurement and support for fledgling black firms.

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TELECOMMUNICATIONS 

Foreign shareholders sell up

Telkom's foreign shareholders are starting to bail out of their shareholdings in the state-owned phone company. It's foreign strategic equity partner, The Thintana Communications consortium successfully sold nearly half its stake in JSE and New York-listed Telkom to institutional investors by June 18. Local investors like Investec and Sanlam had indicated they would be keen to snap up more of the shares after the fall in the price in the run-up to the sale put the share into what they said was value territory. The offer was taken up by local and foreign institutions. Thintana, which consists of SBC Communications and Telekom Malaysia, now holds a remaining 15.1% stake in Telkom, which will stay in lock-up until after Telkom releases its interim results in November. SBC and Telekom Malaysia now hold 9% and 6% stakes respectively. SBC is selling off non-core assets like Telkom to raise cash for other corporate activity. Before allocating the shares. Telkom shares rose as high as R87 in mid-April, but spiraled from around R85 to R74, June 15, in just a week. This was despite reporting full-year results that exceeded all expectations.

Vodacom's success and failure

Vodacom has won the continent's first licence to provide new generation, or '3G', mobile telecommunication services. Vodacom's biggest shareholder, the South African monopoly fixed-line phone company Telkom, on Monday said full-year operating profits jumped by 40% to 9 billion rand ($1.3bn), while operating revenues climbed 8.8% to 40.8 billion rand. Vodacom, 35%-owned by British mobile phone giant Vodafone, said it was on the lookout for alternative investment opportunities in Africa. Mobile telecoms have proved a business success story in Africa, with usage stimulated by the poor state of fixed-line networks across much of the continent. Vodacom's biggest shareholder, the South African monopoly fixed-line phone company Telkom, on Monday said full-year operating profits jumped by 40% to 9 billion rand ($1.3bn), while operating revenues climbed 8.8% to 40.8 billion rand. However, Vodacom's decision to pull out of Nigeria will not see the company escape a damages claim for $1.8bn lodged by rival Econet Wireless International. Vodacom is facing a lawsuit from Econet for allegedly inducing the board of Vee Networks in Nigeria to renege on a deal giving Econet the right to buy any shares that were offered for sale. Under Vodacom's persuasion, that agreement was ignored and the shares were offered to Vodacom instead, claims Econet CEO Strive Masiyiwa. According to Kevin Kachidza, EWI's head of investor relations and communications, the motivation behind the claim of $1.8 billion is based on a calculation of total damages suffered by the company. Vodacom says its trust in Nigerian Vee Networks was broken when Vee Networks (previously Econet Wireless Nigeria, or EWN) paid brokerage fees in contravention of an agreement Vodacom walked away from a management contract to run Vee Networks and an opportunity to invest in the company. It also fired its deputy CEO, Andrew Mthembu, and cited good corporate governance as the reason for pulling out. The central issue was the payment of fees to brokers who helped Vee Networks to raise money. Although the fees are legal, they opened the company to accusations that the commissions were really bribes.

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