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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)

Books on South Africa

REPUBLICAN REFERENCE

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: 29 - (28/05/04)

In his State of the Nation Address to the third democratic parliament in Cape Town May 21, President Mbeki said government will continue building a social security net to meet the objectives of poverty alleviation in the country. He has promised all households will have running water within five years and electricity within eight years. Unusually, Mr Mbeki also mentioned the fight against HIV and Aids in his State of the Union address to parliament. He said 113 Aids health centres would be fully operational, treating 53,000 people, by next March. Mr Mbeki has been criticised for not doing enough to combat Aids, which affects five million South Africans. The president also touched on crime and ways to combat unemployment. GDP Economic growth more than doubled in the first quarter, rising 3.1%% in the first quarter 2004, from a 1.3% increase in the fourth quarter 2003, according to Statistics South Africa (Stats SA), after record low interest rates helped pull the manufacturing sector out of its recession. The positive figures, although in line with market forecasts, improved the outlook for gross domestic product (GDP) for the rest of the year. Government expects South Africa's growth rate for the past few years to be adjusted upwards when Statistics SA completes its revision of gross domestic product (GDP) figures in November. Speaking at the annual Euromoney conference in Cape Town May 20, national treasury deputy director-general Andrew Donaldson said an upward re-rating of the growth rate would improve South Africa's allure to the rest of the world, and provide a greater incentive for foreign investors to put money into South Africa. 
In what he called his final address to parliament, former president Nelson Mandela praised his successor, Thabo Mbeki, May 10 as the leader who had done more for his country than any other in its history, and praised ordinary South Africans for the country's extraordinary transformation. World football governing body FIFA has awarded the 2010 World Cup to South Africa -- the first time the tournament has gone to an African nation. Amid celebration over South Africa's successful 2010 Soccer World Cup bid, the spotlight now shifts to how government and business can capitalise on the success to get a windfall return on the R2.3bn needed to be spent to upgrade infrastructure for the spectacle. With 235,000 visitors expected for the World Cup, the event is likely to provide a R21.3bn injection to South Africa's gross domestic product, as well as myriad other benefits for government, the taxman, business and the unemployed, among others. 
Anglo Gold CE, Bobby Godsell, disclosed that he had been told by London-based fund managers and analysts that they rated South Africa as a higher risk than Russia or China. This shows the level of concern and confusion which could have resulted from the debate around the mining charter. It also highlights the challenge of improving perceptions about South Africa. He warned that many outsiders had a single view of Africa "that everything in Africa is bad resulting in it not being globally competitive". "There is also a neighbourhood logic which suggests that what happens in Zimbabwe will impact on SA."

South Africa's Trade Balance in Good Shape
Exports showed solid growth in March, despite the relative rand strength, helping the trade account record another sizeable surplus. The trade surplus narrowed slightly to R2.084bn in March, down from the R2.346bn surplus recorded in February, according to figures released by the South African Revenue Service's customs and excise department on early May. Both exports and imports showed strong growth, with exports rising 14.3% to R25.8bn in March, while imports surged 17.26% to R23.717bn. However, the import figures were skewed by the purchase of aircraft amounting to R1.169bn. While the trade figures surprised market analysts, who had expected a bigger drop in the trade balance, many believe that the trade figures will deteriorate as a result of the recent slump in commodity prices. Commodity prices fell dramatically last week, with the gold spot price reaching a six-month low of 379/oz, after China said that it would take drastic steps to slow down its economy. China, which grew 9.7% in the first quarter, has been a major driver of demand for commodities such as platinum, gold and palladium, and the move by Chinese authorities to slow the economy before it overheats would be negative for commodity demand and prices. The trade figures show a rise of almost R1bn in base metal exports in March, while vehicle, aircraft and vessel exports grew R900m. Exports to all trading destinations increased, while imports from all countries, except Asia, were higher, according to the trade figures. Kagiso Securities economist Elize Kruger said favourable trade figures for February and March did not signal a reversal in the current account deficit.

Exports to US
The value of South africa's exports to the US increased 53.9% to $558.5m for March, but only because precious metals and stones surged 110% to 297.6m for the period. The figures compiled by the US commerce department, US International Trade Commission and US treasury were also boosted by a $44m adjustment to sectors not included in the top 10 export products. The South African Chamber of Commerce (Sacob) said that without the sharp rise in precious metals and stones, and the adjustment, exports would have fallen $4.7m. The largest drop was in iron and steel exports, which fell 53% to 20.8m from $45.35m. Many South African exporters blamed the strength of the rand for the drops in their earnings. Despite the rand putting pressure on exporters, vehicle parts and accessories increased 5%, from R50.8m to $53.8m. Sacob said that although there was a recovery in exports of vehicle parts and accessories, the cumulative value of these products was 21% lower than the first quarter of this year. US imports for March increased 24.3% to $272.9m, while figures for the first quarter also increased 26.1% to $724.5m. Sacob said March's trade balance of $286m with the US improved in South Africa's favour, doubling from $142m. The trade balance for the quarter rose 6% to $564m.

Government Restructuring OF State Enterprises
Public Enterprises Minister Alec Erwin yesterday dispelled fears that government's privatisation strategy had been shelved, but suggested the overriding priority had been shifted to using large state companies to unlock South Africa's economic growth. The restructuring of state enterprises such as Eskom, Transnet and Denel would go ahead as planned, Public Enterprises minister Alec Erwin said in Pretoria May 24. Speaking at a media briefing, he emphasised government's commitment to the restructuring of public assets. Erwin indicated that President Thabo Mbeki had set out in some detail what the priorities would be in the immediate period and that the policy instruments to achieve these remained largely within the present framework of policy. "There is a need to further increase the efficiency and effectiveness of the key SOEs (state-owned enterprises) such as Eskom, Transnet and Denel," he said. "As with previous policy we will involve the private sector as and where appropriate to ensure we have access to globally competitive technologies and practices and to share the financing burden. "We will continue to focus on improving governance and overall policy coherence within the SOEs. The policy approach to administered pricing and pricing policy is another priority as indicated by the president," Erwin said. Regarding transport, Erwin said the focus would be on improving the national logistical system by improving the link between rail, road, airports and sea ports. He would also strengthen the corporate structure of the Transnet group, was still open to partners for SA Airways and was considering an initial public offering for the Airports Company of SA. Spoornet's proposal of being more customer-inclined in its business operations would open the way to new partnerships with the private sector, Erwin said. The restructuring of the Durban Container Terminal was a further priority and was expected to be finalised as soon as possible. Erwin also wanted to finalise the Ports Bill and introduce private sector partnerships. In the energy sector, opening up to 30 percent of generation for independent power producers remained an objective and tenders were to be issued by end of the year for new energy generation projects. At Denel, steps would be taken to strengthen the corporate structure of the group and increase private sector participation. Although discussions with Britain's BAE Systems had been terminated, government was still considering various options.

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AUTOMOBILES 

Growth in car sales continues

Indications are that the upsurge in vehicle sales over the past few months is not a "flash in the pan," but that the stronger sales can be sustained over the next few years. Speaking at the Made in South Africa automotive conference in Port Elizabeth May 5, automotive industry expert, Tony Twine, of Econometrix said South Africa could again have sales of 300,000 passenger cars a year. This was last achieved in the heady days of the early 1980s. This augured well for the automotive industry, which already contributed 6.3% of South Africa's gross domestic product. Vehicle sales over the past nine months or so have been exceeding the most optimistic forecasts. 
Figures released recently showed a 16% improvement in sales in the year to date compared with the same period last year. Twine expected sales to taper off in the second half of this year, but resuming growth in the second half of next year. He said sales in 2006 could resemble those of this year, with incremental growth from then onwards. Twine forecast passenger car sales to rise to 295,000 by 2009. He said there was a big difference between the economic factors that underpinned soaring car sales now and in the early 1980s when the gold price rocketed to $800 an ounce. Economically, South Africa is in a much stronger position now than 20 years ago, said Twine. He warned, however, that if bullish sales forecasts materialised, it would put strain on output. This could result in vehicle exports declining as output might have to be diverted into the domestic market.

Export fast lane

South Africa could become a net exporter of cars in the next three to four years. But it will face strong opposition from China and other low-cost producers as their economies grow and they attract an increasing number of investors in the manufacturing and component sectors. Manny de Canha, chief executive of major importer Associated Motor Holdings, said that South Africa could reach a 50% split in import and export volumes by 2007. Research by shipping company Wallenius Wilhelmsen Lines shows that, by 2008, domestic sales will increase to just under 300,000 while exports will rise to over 300,000, mostly to Australia, New Zealand and Asia. To achieve this, efficiencies at South African ports need to be improved and more undercover facilities provided, says the firm. Neal Bruton, executive director of Response Group Trendline, which compiles figures for the National Association of Automobile Manufacturers of South Africa (Naamsa), said exports are set to more than double from the 126,660 cars sold overseas last year. Exporters BMW, DaimlerChrysler and Volkswagen make up the bulk of current offshore sales. Toyota, which will participate fully in the export market this year, said it would double its current production. Ford and Nissan will also begin exports this year, but on a smaller scale. "It is possible that we could get into a situation where exports could reach the levels of local production, but the movement of the rand exchange rate will be pivotal in achieving this," Bruton said. 
Stephen d'Arcy, head of the PriceWaterhouseCoopers automotive division, adds that the industry must focus on high-value, high-tech and specialised products to protect itself from cheap imported components. The seven local manufacturers and importers now produce over 900 different models and derivatives. Clive Williams, executive director of the National Association of Automobile Component and Allied Manufacturers, says the industry should expect a decline in the 40 models being produced. "We have already seen BMW cut down to one model. In the future we may have only 8 or 10 model variants. This will mean a much smaller slice of business for suppliers in South Africa," he said. He urged component manufacturers to seek additional business outside the country. In 1995, when the Motor Industry Development Programme was introduced, only 11 500 vehicles - worth R750m - were exported. Component exports have risen similarly from R4bn to R23bn between 1995 and 2003. Ian Nicholls, director of vehicle line platform management and exports at General Motors SA, claims that, in 1995, less than 7% of passenger cars sold locally were imported. This has risen to almost 33%, excluding importers which do not report monthly sales through Naamsa. Government's programme to encourage exports of vehicles and related components will not be around forever, and manufacturers would do well to prepare for that, warned an automotive expert. Addressing media ahead of the automobile conference held in Port Elizabeth in the first week of May, Stephen D'Arcy, 
PricewaterhouseCoopers' leader of global automotive services, urged local vehicle makers to prepare for the post-Motor Industry Development Programme period. The programme was initially scheduled to last until 2007, but government extended its lifespan to 2012. While reluctant to speculate about what would happen after 2012, D'Arcy doubted if the programme would be extended again. He said that local manufacturers might eventually have to prove their competitiveness without government's backing. D'Arcy said challenges facing exporters included the viability of imports because of reduced import tariffs and the strong competition from China, Latin America and Eastern Europe. However, locally manufactured vehicles could obtain duty-free access to the European Union (EU) market, following the imminent review of South Africa's four-year-old free trade agreement with the bloc. This could boost domestic vehicle manufacturers' competitiveness in that market, and bolster export earnings. Total vehicle exports from South Africa reached R17.2bn in 2002. South Africa would have to reciprocate for improved access, possibly by amending the Motor Industry Development Programme, to allow EU automotive products easier access into South Africa. Domestic car manufacturers pay 6.5% to import cars into Europe, whereas their EU counterparts pay 31% into South Africa. 

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ENERGY

Eyesizwe Coal wants 26% Share of Sasol Mining

Eyesizwe Coal is eyeing a 26% stake in Sasol's mining operations, which could give the empowerment coal exporter critical mass to list on the JSE Securities Exchange SA. Sasol said it had picked Eyesizwe as its preferred empowerment partner in the mining sector, giving a major boost to the smaller company's growth prospects. An eventual deal would be worth billions of rand, as Sasol's mining activities registered a profit of R521m in the six months to December. Eyesizwe CE, Sipho Nkosi, said there was no immediate need to list Eyesizwe, but this could change once an empowerment deal with Sasol had been concluded. He said his company would be looking at an equity stake in Sasol mining, and this could rise to as high as 26%. "In the long term, Sasol mining has to comply with the terms of the mining charter," he noted. He said a new relationship with Sasol would help boost Eyesizwe's coal exports, and that a new market could open up in selling to Sasol's coal to liquid fuel plants. In addition, the true test of empowerment would be in new projects the two partners could launch, he said. 
Sasol CE, Pieter Cox, said the new partnership was expected to "lead to a mutually beneficial long-term relationship", as potential synergies in the coal export and power and steam generation coal supply markets would be explored. "We at Sasol are satisfied that Eyesizwe coal fulfils all strategic requirements to advance our BEE (black economic empowerment) initiatives in the mining sector." Cox confirmed, in a new Sasol empowerment brochure distributed recently, that the company intended to introduce "a 15% BEE ownership into our South African coal mining operations by 2009, which would be increased to 26% on a willing-buyer, willing-seller basis by 2014. We are confident that the required economic empowerment objectives will be met," he said. Eyesizwe was created in 2000 by Anglo American and BHP Billiton, and is currently the fourth-largest coal mining company in South Africa, with an annual production of 25-million tons a year. A deal with Sasol could propel it into the big league, setting the framework for it to become an important listed empowerment company on the JSE.

BHP, Anglo deal forms new coal giant

A new coal partnership between global mining houses Anglo American and BHP-Billiton could lead to the development of South Africa's largest coal mine. The two companies announced their intention to pool neighbouring resources, in a new joint venture, which would create an important new opening for an empowerment player. The venture is also designed to secure a long-term supply agreement with power giant Eskom. The two companies have adjacent interests in what will be known as the Western Complex, near Ogies, 100km east of Johannesburg. The venture would incorporate the development of BHP Billiton's proposed $280m Klipspruit Project. The aim would be for the Western Complex to become a joint venture company, managed by Ingwe and Anglo Coal. "Depending on all the resources, it might become the biggest coal mine in South Africa," said BHP Billiton vice-president, Michael Campbell. 

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FINANCIAL NEWS

Foreign earnings tax scrapped 

South Africa has scrapped a 30% tax on overseas corporate earnings in an effort to encourage businesses to bring more of their money home. The move could pave the way for hundreds of millions of rand to return to South Africa, local media reported. 
It was welcomed by economists who have been pushing Pretoria to lift restrictions on the flow of capital. Many South African firms invested abroad during the 1990s as an insurance against potential instability at home. The abolition of the tax coincides with an improvement in South Africa's growth prospects, and greater confidence in the government's handling of the economy. "Had people realised 10 years ago where South Africa would be today their anxieties would have been much diminished," said Brian Kantor of Investec Securities. Some economists and investors have also questioned the ANC government's policy of black economic empowerment, claiming that it has slowed growth. But the country has defied gloomy predictions of economic collapse, growing by a steady 3% a year over the past decade. "The most important point is that the South African economy is growing moderately well and South African economic policy settings are very predictable," said Mr Kantor. "The anxieties that the new South Africa would be highly populist and would tax profits and high incomes severely have not been justified at all."

South Africa to issue international bond

The national treasury is set to launch an international bond, after it named JP Morgan and Barclays as the lead managers of the bond issue May 6. The treasury said in the Budget Review that it would raise the equivalent of $1bn from international markets to help finance a projected R46bn deficit this year. However, given the strong appetite for South African debt, the bond issue might exceed $1bn, analysts have said. 
The bond is expected to have a maturity date of between 7 and 12 years. Goolam Ballim, an economist at Standard Bank's corporate and investment banking division, says the treasury is likely to issue a dollar denominated bond, as it would be cheaper and is in strong demand. "My bias is that it would be a dollar-denominated bond. This may prove more cost effective, from a currency and interest rate point of view," he said. Ballim said a dollar-denominated bond would also be most optimal, "in terms of South Africa's export receipts profile". However, he said government would have to act quickly to issue the bond, given the risks of a rise in US interest rates, rising geopolitical tension and a surging oil price. "These risks could subtract from the lure of a South African debt issue," he said. The national treasury's euro-denominated bond, launched in May last year, was oversubscribed and raised $1.25bn, which was used to close the net open forward position, allowing the Reserve Bank to start building foreign exchange reserves from hard currency flows. Brait economist, Colen Garrow, said low US interest rates and the dollar's weakness had increased the appeal of emerging market debt, with the profile of South Africa's debt being raised over the past two years.

Treasury yet to release' IMF study on South Africa

The national treasury has yet to release last year's International Monetary Fund (IMF) annual country report on South Africa which it has been sitting on since last October. An IMF team arrived in South Africa May 19th to begin work on this year's report. Treasury spokesman, Thoraya Pandy, said on May 17th that last year's report was at present with Finance Minister Trevor Manuel, who would be presenting it to the cabinet "soon" for ratification. As is convention, the completed IMF report is presented to government, which decides whether to release it to the public. The IMF report is keenly watched by the market as it provides an assessment of government's fiscal and monetary policies. A six-member IMF team from Washington arrives in the country in the near future on a two-week investigation, and will be holding talks with government and business officials. Pandy said there was nothing "substantially wrong" with last year's report, but blamed an unusual degree of activity at the treasury for the delay. Disruption arising from last month's elections and the change of director-general earlier this year is believed to have contributed to the delay.

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FOOD & DRINK

SABMiller profit up as Miller bubbles back

Global beer giant, SABMiller plc, has defied sceptics on its ability to turn around the ailing Miller Brewing, bought two years ago for $5bn. Releasing group results for the year to March, it said Miller's US sales started to grow in the March quarter, and its profitability had improved. SABMiller shares gained 5.5% to 655p in London and 6% to R78.30 in Johannesburg after the results were released. The turnaround arrests a five year decline at Miller Brewing, the second-biggest brewer in the US. Miller's key brands include low carbohydrate beer Miller Lite, Miller Genuine Draft and Miller Hi-Life. SABMiller CEO, Graham Mackay, said the past year was one of outstanding growth across the group, driven by strong operating performances from established businesses and aided to some extent by currency gains, especially the strength of the rand against the dollar. While group revenue grew 41% to $12.6bn in the year to March compared with the year before, net profits more than doubled to $645m, well ahead of analysts' forecasts of $556m. Headline earnings grew to US76.7c (US52.6c) a share and the dividend was raised by 20% to US30c a share. The group lifted sales 15% to 173.9-million hectolitres, with lager volumes rising 19% to 137.8million hectolitres. Merrill Lynch analyst, Mark Blythman, said these were good results and trends were continuing in the right direction. The biggest contributor to SABMiller's profits remains Beer South Africa. Its organic growth in constant currency terms was 15% and it grew volumes 3.4% to 25.3million hectolitres, mainly at the expense of natural wine. SAB MD, Tony van Kralingen, said SAB's share of the total liquor market in South Africa had grown to 59.3% from 57.1% at the end of 2003. 

SABMiller broadens offering in China

Global brewer, SABMiller, added another Chinese beer brand to its growing portfolio with the purchase, through its joint venture company in China, of a 90% interest in two breweries in Anhui province, in the central region. China Resources Breweries, in which SABMiller holds 49% and China Resource Enterprises 51%, paid 280-million yuan for the stake in the breweries in Shucheng and Liuan, which make the Longjin brand. The seller is the Anhui Longjin Group, which retains the remaining 10% interest. Shucheng and Liuan together have a capacity of about 280,000 kl a year and sold about 140000kl last year. Before this deal, China Resources Breweries was one of the largest brewers in Anhui and this will make it the largest. It now owns about 32 breweries in China's north-eastern, south-western, central and eastern regions of the Chinese mainland and has annual production capacity of about 4,9-million kilolitres. Through its joint venture with China Resource Enterprises, SABMiller is the second-largest foreign brewer in China. SABMiller Africa and Asia division MD, André Parker, said recently it was not the group's goal to be the largest foreign brewer in China, but to be the most profitable. Its acquisitions in China have targeted "second-tier" regions, where the population is not the most prosperous in the country but growth prospects are good. In making acquisitions in China, SABMiller preferred to hold majority stakes in breweries as this made it easier to take the necessary decisions, Parker said. However, that leaves questions unanswered over the current tussle for Harbin Brewery, which has a strong position in China's northeastern region. SABMiller is making a hostile bid for all the shares in Harbin Brewery of China that it does not already own.

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MANUFACTURING 

Sales up 17%

Manufacturing sales for 2003 were 17 per cent higher than previously reported, Statistics South Africa (Stats SA) announced on May 18th. In a statement following the release of the manufacturing: production and sales statistics, Stats SA said the findings were the latest outcome of a strategic systematic approach to the overhaul of its economic statistics since 1996. The publication of manufacturing and other monthly series were suspended in March because Stats SA needed more time to make sure of the reliability of the new series, said Statistician-General Pali Lehohla. "This has now been done," he said, "Now Stats SA releases manufacturing production and sales figures are based on the new business register." 
The new manufacturing figures are based on a new sample that has run parallel with the existing sample since the start of 2003, Stats SA said. "They show movements consistent with those from the old manufacturing series," Mr Lehohla added. Mr Lehohla said the higher manufacturing sales levels too were "a direct consequence of a major drive to improve our economic series". "They are based on a new, much more comprehensive register of businesses." Meanwhile, Stats SA said the higher manufacturing sales levels were consistent with higher levels in its other series. "In 2003, employment levels from the Survey of Employment and Earnings also showed large increases in levels across all industries, when the survey moved to the new register of businesses," it explained.

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MINERALS & METALS

Ongoing effect of high platinum, palladium prices

The average cost of platinum group metals soared 51% worldwide last year and 62% in South Africa, according to the inaugural platinum and palladium survey by London-based metals consultants GFMS. The survey, launched on May 6th, also suggested that because of the sharp increases in platinum prices, the price differential between platinum and palladium was likely to narrow, with increasing efforts by users to substitute palladium for the more expensive metal. The report blamed the strengthened rand and a range of operational problems for last year's large increase in the prices of platinum group metals. "South Africa accounted for 78% of the world's platinum mine production and 39% of palladium mine production, while Russian producers accounted for almost 14% of platinum and 42% of palladium mine production," GFMS reported. "South African production costs rose by 17% in rand terms in 2003, but the rand's strength against the dollar rose cash costs by 62%. "The average rand rate against the dollar was 28% higher in 2003 than in 2002, while the rand gained 29% against the dollar on an intra-year basis.
This meant the South African basket platinum group price (calculated on a weighted basis according to production of each metal), while 11% higher in dollar terms, was down by 20% locally and contributed to a squeeze on margins." The report warned that while this was "a historical development" it would have a lingering effect on the market as illustrated by the fact that Anglo Platinum has reduced the scope of its expansion plans, citing the rally in the rand as a key reason for this. The report suggests that markets are responding to the price differentials between platinum and palladium and the "massive" premium that platinum commands over palladium. "Because of their similar physical and chemical characteristics, the two metals are partly interchangeable in some of their end-uses, notably in automotive emission control catalysts. "The price swing between the two has exceeded $1100oz since the peak of palladium's price spike in 2001 and consumers are rapidly becoming more flexible in their ability to switch between, or mix, the two." Demand for platinum and for palladium is expected to be buoyed by the rapid spread in the use of catalytic converters "with Asia, Latin America and India adopting European, North American or Japanese standards".

Global steel prices lifts Highveld

Anglo American subsidiary, Highveld Steel & Vanadium, announced on May 7th that it expected earnings for the half-year to June to rise more than 30% on the figures for the corresponding period last year. An analyst, who did not want to be named, said this rise in earnings was on the back of a surge in international steel prices and an increase in demand from Highveld's steel merchant customers. The international prices of some steel products had risen about 60% since November, the analyst said. This saw Highveld push up prices 6% last month and 15% this month. Highveld also got a boost from sales volumes rising 13% for the first quarter of the year, as a result of steel merchants restocking during the period, the analyst said. If Highveld's earnings live up to expectation, it will be a sharp turnaround from the results in the corresponding period, where headline earnings a share fell 80% to 19.1c, from 97.8c. Operating profit dropped to R16.7m, from R147.6m in the same period in the preceding year. While the manufacturing sector appeared to be emerging from its recession, according to the latest Investec purchasing managers' index, the analyst said international steel prices and demand from steel merchants were driving Highveld's growth. Anglo holds about 80% of Highveld.

Railways and ports limit exports

Capacity constraints on railways and ports are the only factors that could hold up a surge in South African exports of iron ore and magnesium, resources group Assore warned. "The whole Spoornet and Portnet thing is vital," said Assore financial director, Chris Cory. He was echoing concerns by Kumba Resources CE, Con Fauconnier, whose company is South Africa's largest iron-ore exporter. "With the surging demand out of China, the only limits on our exports of iron ore are at the port of Saldanha and on the railway line," Cory said. He welcomed improvements being made at the port, but cautioned that more investment would be needed in rolling stock to accommodate longerterm export aspirations for iron ore from Northern Cape. Assore is a joint venture partner with African Rainbow Minerals in Assmang, which mines iron ore, manganese and chrome, and which has important interests near those of Kumba in Northern Cape. "If you are in the iron ore business, you are essentially in the transport business," he said. Cory welcomed the appointment in April of former trade and industry minister, Alec Erwin, as public enterprises minister, and expressed the hope that Erwin would help to speed up investment decisions on upgrading rail capacity for South Africa's exporters of iron ore.

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TELECOMMUNICATIONS

Ericsson SA growth

Ericsson's South African subsidiary has achieved a year on year increase of 148% in sales, making it the star performer among Ericsson's 25 global marketing units. In a traditionally quiet quarter, Ericsson had consolidated and extended its African presence despite stiff competition, said Jan Embro, the MD of Ericsson SA. The subsidiary has won new clients in Ghana, Uganda, Tanzania and Guinea Bissau, and although they are still new territories, market share and customer base are increasing steadily. "We have worked hard to establish a presence throughout sub-Saharan Africa and our efforts are now bearing fruit," said Embro. Ericsson claims a 40% market share for wireless telecommunications equipment in the sub-Saharan region, with an estimated 13.2-million subscribers using cellular networks built on its equipment. Embro expects good results for the rest of the year, but believes the explosive growth of the first quarter will calm to a more stable upward trend. "The two markets that will show the best growth in quarters two and three will be Nigeria and South Africa," Embro said. Ericsson as a whole began this year by posting first-quarter results showing a return to profitability, with a net income of 3bn krone massively reversing its loss of 4.3bn krone a year ago. Operating margin hit 16.1% and earning a share of 0.19 krone reversed a loss of 0.27 krone. Ericsson and the MTN group strengthened their 10-year relationship with the signing of two five-year cellular network equipment and services agreements worth more than $1.5bn. Ericsson communications vice president, Lungi Tyali, said the agreements would take Ericsson's relationship with the telecommunications operator to a new level. She said Ericsson considered the deals a vote of confidence for the company as the operator rolled out its networks to new markets. The agreement for equipment supply and delivery covered predefined solutions for mobile core and radio access networks, ensuring an efficient supply chain across all MTN markets, Ericsson said. 
MTN CEO, Phutuma Nhleko, said that owing to its advanced technology, market presence and also its "comprehensive" service portfolio Ericsson played a key part in MTN's business development. "With these agreements we can focus on the provisioning of telecommunications services to our subscribers," Nhleko said. The agreement for the provision of services includes business and technology consulting, network and systems design, deployment and integration, and support and training. Under the agreement MTN in South Africa could choose different service levels depending on the operator's local capability, giving the company a very high degree of flexibility in their operations, said the company. Jan Embro, vice-president and GM of Ericsson Market Unit subSaharan Africa, explained that the agreement was "a result of Ericsson's continuous drive to optimise MTN's investment in network equipment, our partnering approach and our ongoing efforts to assist in achieving our customers strategic business objectives". Ericsson is MTN's supplier in South Africa, Swaziland, Rwanda, Uganda, Cameroon and Nigeria. The group has more than 9 million subscribers in sub-Saharan Africa. MTN's share price fell 0.91%, or 25c recently. The company's share price closed at R27.30 after 4.2million shares were traded.

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TRANSPORT 

Spoornet R14bn Revamp

State-owned rail company Spoornet owned up to its many weaknesses recently, but laid out a R14bn five-year blueprint aimed at hauling the company out of its current trough. It said, however, that it had not yet found finance for the R14bn needed for this overhaul, raising questions about its ability to implement a plan that new CE, Dolly Mokgatle, conceded was ambitious. Not only has the rail company come under pressure to sort out its finances from Maria Ramos, the new head of its holding company Transnet, but it had also taken flack from large corporate customers for its inefficiency and hefty cost increases. Mokgatle conceded that one of the key reasons for this new plan was to halt the loss of market share as disgruntled clients switched to road transport. But she owned up to Spoornet's problems, saying the company's current plight "reflects the years of neglect primarily in the area of investment". Mokgatle said it was aware of its shortcomings as clients perceived "us as unpunctual, inflexible and costly". She also talked of a "poor work ethic" and a morale problem. "We are fully aware of the severity of our current situation and we are fully committed to the notion that things must change." To do this, Mokgatle outlined a five-year plan to "re-engineer" the entire business, a blueprint that she said represented the "rebirth" of Spoornet. This plan includes overhauling its existing locomotives and infrastructure, tailoring its pricing to individual customers, "according to the volume and revenue they bring into our business", improving its workforce and revamping the company's organisational structure. Spoornet said an upgraded locomotive would improve reliability 40%, while reducing maintenance costs 55%. Mokgatle said her company was working with corporate financiers for ways to find capital, but said that the national treasury had not given any indication it would be willing to help.

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WORLD CUP

South Africa to host soccer World Cup

Speaking at the Union Buildings in Pretoria on May 15th, President Mbeki called on South Africans to sustain the unity sustained demonstrated throughout the bidding campaign. The President called on Morocco, Egypt, Libya and Tunisia - all losing bidding countries - to join South Africa in the world cup to ensure that it was a real African world cup. He thanked the South African Football Association (Safa), the business community and the country as a whole for contributing towards the success of the bid. South Africa will score a direct windfall from the World Cup of over R21bn - but that is likely to be dwarfed by tourism and investment spin-offs. Excited business leaders in South Africa said hosting the tournament would mean jobs and the ultimate symbol of identity for citizens. Developers said the bid victory would ensure that some of the country's most ambitious projects - including the R7bn Gautrain, Coega's giant "signature bridge", the Statue of Freedom in Port Elizabeth and Durban's new international airport at La Mercy - would be fast-tracked into reality by 2010. 
A report by accountants, Grant Thornton Kessel Feinstein, revealed that the event would generate direct income of R21.4billion, including R12.7bn spent by spectators. Maria Ramos, Transnet CEO and former Finance Department head, declared: "This will galvanise South Africans; it will put us firmly on the tourism map. And with that will come jobs, jobs, jobs - and that's exactly what South Africa needs. I was deeply disappointed last time [when South Africa lost the 2006 bid] but now we are more than ready and able to do this." Dr Ali Bacher, executive director of the 2003 Cricket World Cup, said he believed the figure of R21.4-billion was "very conservative". "We had 18,500 visitors and around R1bn was brought into the country," said Bacher. "Something like 400,000 visitors are expected for the Soccer World Cup, so you can just imagine how much greater the benefits should be. 
Aside from that, the [long- term] benefits for tourism are enormous: 1.5 billion people watched the Cricket World Cup on television, it will be closer to three billion for this event." Jack van der Merwe, project leader for the Gautrain Rapid Rail Link - which will see high-speed trains linking Johannesburg with Pretoria, Sandton and the international airport - said winning the Cup would both help to cut time delays and place "extra pressure on delivery". "I foresee that some processes that may have taken nine months will now take six - but we will definitely open in 2009," he said. Jacques du Toit, group economist for Absa, said benefits would already start to be seen, thanks to a likely "immediate support for the rand, with markets anticipating a flood of investment into South Africa". "In just about every way, winning the bid poses huge long-term benefits to a country sorely in need of more investment." 
Before 2010, R2.3bn will be needed to revamp and build new stadiums as well as upgrade infrastructure. Business is expected to do most of this spending in expectation of substantial returns, with any outstanding infrastructure needs being covered by government. While the event is expected to create 159,000 jobs, there were concerns that these would only be short-term jobs and fail to realistically dent South Africa's unemployment rate. However, statistics indicate that for every eight tourists to South Africa, one permanent job is created, meaning that many of the jobs will be around after the World Cup.

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WORLD TRADE ORGANISATION

World Trade negotiations continue

South African trade negotiators are increasingly optimistic that an agreement that will break the deadlock in world trade negotiations can be reached by July. "The likelihood of getting such a deal by July is now brighter than a few weeks ago," South Africa's chief negotiator, Xavier Carim, said on May 18th. Members of the World Trade Organisation (WTO) are aiming to produce a new framework for trade negotiations, mainly on agricultural issues, by that time. This is intended to reinvigorate stalled world trade talks, which it is hoped will raise developing countries' share of global trade. New optimism among WTO countries emanated mainly from an offer by the European Union earlier in May to drop export subsidies on farm products. South Africa initially responded cautiously to the offer. But, on closer examination, Carim said the offer represented "quite an important move forward". Meanwhile, the Group of 20 (G20), of which South Africa is a core member, is moving closer to an alliance with the Cairns group of 15 agriculture exporting nations. The G-20 was formed last year by developing countries with a common interest in agricultural issues, such as the scrapping of subsidies for farm products in rich countries. India, China and Brazil are among the bloc's members. A number of countries, including South Africa and Brazil, were members of both the G-20 and the Cairns group. Draper suggested that the G-20 could benefit significantly from the technical expertise of Cairns group member Australia. The G-20 countries would meet in Brazil in June, in one of several informal meetings between various negotiating groups attempting to move world trade talks forward. The deadline for the conclusion of the talks, which got under way in 2001, is December 2004. Many issues were still un- resolved, leading some commentators to say it was unlikely that the deadline would be met. A decision on the deadline was widely expected to be made at the WTO's general council, scheduled for July this year.

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