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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)

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: 026 - (04/03/04)

President Thabo Mbeki has said that South Africa's elections will be held on 14 April. They will elect a new president in the third democratic election since the end of apartheid in 1994. The new president is expected to be sworn in on 27 April, 10 years after the first post-apartheid elections, which saw Nelson Mandela becoming president. Polls suggest that the ruling African National Congress (ANC) could secure another large majority in parliament, with Mr Mbeki retaining the presidency. South Africa's largest opposition party, the Democratic Alliance (DA), and the Inkatha Freedom Party (IFP) have formed a coalition to run against the ANC. The opposition coalition claims that democracy is threatened because of its domination by the ANC, and that the government has failed to tackle crime, unemployment and the spread of AIDS. , Finance Minister Trevor Manuel delivered the 2004 Budget February 18, providing some R4billion in tax relief, in a budget widely received as "growth-friendly", without necessarily acting as a direct spur to economic growth. To spur longer-term investment, Manuel announced that exchange-control regulations would be modified to cater for inward foreign investment and reinforce South Africa's role as the financial hub of the continent. President Mbeki attended an extraordinary summit of the African Union (AU) in Libya February 27-28. The summit concentrated on issues relating to agriculture and water in the African continent. The agricultural sector, which takes about 80 per cent of the continent's labour force, is paradoxically very under productive. Agriculture is the major contributor to the Gross Domestic Product (GDP), being the source of more than 40 per cent of foreign currency for most African countries. However, the agricultural sector has suffered a serious decline. The summit also sought to initiate the creation of an African agriculture development fund, as well as the establishment of a cooperation framework on the management and utilization of waters across the borders. Libyan leader Muammar Gadaffi managed to persuade the summit to change the date of Africa Day from March 2 to September 9, the day the declaration to establish the AU was signed. A decision on the seat of the Pan African Parliament, which is being fiercely contested by South Africa and Libya, is yet to be made. Matters were also discussed relating to the Protocol Establishing the Peace and Security Council, most notably the Policy Framework for the establishment of the African Standby Force (ASF) and the Military Staff Committee (MSC). Internationally the European Union (EU) is to implement a plan to take 1% of all development assistance on offer to African countries and create a $250m fund to sustain the peace and conflict resolution efforts of the African Union. The idea is that wherever peace is starting to take hold such as in Democratic Republic of Congo, Burundi, Eritrea and Ethiopia the funding could be used to sustain any peace process. 

South Africa - Africa's Brazil?
Almost a decade ago, Cape Town economist Jos Gerson published an economic forecast entitled 'South Africa, the Brazil of Africa'. A daunting prospect at the time, Gerson predicted the performance-enhancing, job-shedding shocks dolled out to local industry would transform 21st-century South Africa into a rainbow nation of strong corporations cheek-by-jowl with spiralling poverty. Infused with the confidence of the Mandela era, Gerson was cautiously optimistic. He saw the benefits of democracy surviving the effects of South Africa's self-imposed economic reforms. Today, being the Brazil of Africa looks like a reasonable summary of President Thabo Mbeki's ambitions for South Africa. Meanwhile on the far side of the Atlantic, much about Brazil in 2004 recalls the giddy optimism of the post-apartheid era. South African cabinet ministers make much of their mutual interests with Brazil. With China and India, South Africa has forged a robust alliance of developing countries to campaign for a fairer system of world trade. Brazil is the boldest of the pack. In the corridors of multilateral agencies and the boardrooms of big pharmaceutical companies, South America's biggest country is hailed as a vanguard for the developing world. Its stance in dealing with Aids, multinational companies and mass movements is a useful reference for Africa.

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AUTOMOBILES 

Nissan R1bn export deal 

Workers at Nissan plants in the country can now face the future with certainty after the car manufacturer announced a R1 billion cash injection to export locally built vehicles to Europe, Singapore, Australia and New Zealand. The deal announced in Pretoria February 23, would see some 4 600 left and right hand locally built Hardbody single cab pickups being exported to European markets, resulting in job security for thousands of Nissan workers. Australia and New Zealand will receive 1.800 units per annum starting from October 2005, with 2,800 units destined for Europe and Singapore, starting from December 2005. A total of R250 million will be invested as capital for plants and suppliers. However, Nissan SA MD Julio Panama would not estimate how much jobs the deal would create, saying "it (the deal) will benefit the South African economy by earning additional foreign exchange and additional business to our suppliers".

Daimlerchrysler no expansion 

Hopes for increased production at DaimlerChrysler's East London plant were dashed February 1, with director Jürgen Hubbert saying the German group was not considering such plans. DaimlerChrysler SA had hoped to almost double its production at the East London plant to about 100000 units a year from 2007. This would have attracted substantial foreign investment to South Africa and would have expanded the country's thriving automotive industry. Speaking at the release of the global groups results for the year to December in Germany yesterday, head of the group Jürgen Schrempp said the group was currently analysing the future role of the plant. He said the group was "extremely happy" with the South African plant, which produced "excellent" quality. The cars made in South Africa were well received in foreign markets, Schrempp. Hubbert said, however, that higher production at the East London plant was not being considered. "But there is no reason to question (the) future (of the plant)," he said. This suggested the East London plant would at least secure a contract to continue manufacturing after 2007 or 2008 when production of the current MercedesBenz C-Class is discontinued. The plant had been competing against other plants in the group, notably in Germany, not only to secure a contract to continue manufacturing, but to win a bigger slice of the production pie. 

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FINANCIAL NEWS

Foreign exchange reserves 

Foreign exchange reserves held by the Reserve Bank could more than double to $20bn in the next two years, putting South Africa's reserves on par with other emerging market economies and creating more stability for the rand. David Hale, a global economist and president of financial consultancy Hale Advisors, said meetings with officials at the Bank mid February signalled that foreign reserves could rise from current levels of $7.9bn to about $20bn. "South Africans have decided to take advantage of the strong rand to build foreign exchange reserves. They could in a year or two build this to $15 to $20bn." There was no consensus among Bank officials he met of what the appropriate levels of foreign reserves should be, with some wanting more intervention in the forex market, and others preferring the status quo of gradual reserve accumulation. South Africa's low reserve levels have often been cited as a factor in the rand's volatility, since it adds to the perception that the Bank could not defend the currency if it was under speculative attack. Economists have also urged the Bank to take advantage of the strong rand to step up its forex purchases. Recent figures show the Bank purchased slightly more than $1bn on the forex market to add to reserves in January. South Africa has one of the lowest reserve levels compared with other emerging market economies, lagging far behind countries like Malaysia and Mexico. 

Interest Rates

December's 0.5% reduction in the base interest rate disappointed many South Africans. It now looks mean against the very low inflation figures published soon afterwards. The strong rand has dragged down exports and revenues and cost jobs. Import prices are down, putting pressure on the current account. The drought heralds higher food prices and probably a demand for massive state relief. And, always a threat to orderly economic management, speculators are ready to rush off to other currencies like sheep the moment the rand's upward trend wobbles. Then the cycle of a weakening rand, higher import prices, higher inflation and, later, improved export performance will follow, as happened three years ago. The Reserve Bank is right to be cautious. But it cannot bring greater certainty and stability to the exchange rate, hold inflation down for long or indefinitely avoid a fresh round of interest-rate hikes. The Reserve Bank's limited mandate and concentration on the interest rate as the only weapon against inflation make South Africa a "victim". The central goals of any policy should be to hold down inflation, spur domestic savings and investment to underwrite longer-term stability, and create a domestic mass market for simple goods and services. There is an opportunity to do something more important than just manage inflation. Although interest rates track falling inflation, high "real" interest rates are unaffected. South Africans with mortgage bonds and debts give their little spare cash to the banks, while high interest rates serve to lure and hold foreign investors and cash to finance the trade gap. It is a pro-foreign, anti-citizen set-up. Global interest rates may rise this year, and South Africa should not be caught playing catch-up from a high base. The right approach is to cut the interest rate closer to the inflation rate, as Western countries have done. 

Manuel rewards tax payers, punishes smokers, drinkers

Delivering the 2004 Budget Speech in Cape Town February 18, Finance Minister Trevor Manuel again provided some relief for taxpayers but has punished smokers and drinkers of alcoholic beverages by increased duties. Mr Manuel said the National Treasury would reduce personal income taxes by R4 billion, providing adjustments to compensate taxpayers for the effects of inflation. However, this is low compared to the 2002/2003 reduction of R13 billion back into taxpayers' pocket. However, this low tax reduction, economists said, was attributed to low corporate profits hit by the strength of the Rand, which resulted in low corporate tax collection. Manuel also announced an additional R1.9 billion over the next three years to enhance safety and security in the country. This will allow the South African Police Services (SAPS) to recruit more personnel, modernise and expand its vehicle fleet and upgrade its support systems. While welcoming the R4-billion tax relief provided by Minister of Finance Trevor Manuel, analyst Iraj Abedian warned that three months of a strong rand and relatively high interest rates would erode the effects of this cash injection. In similar vein, Rejane Woodroffe, international investment economist at Metropolitan Asset Managers, argued that the government was on the right course but, particularly in regard to job creation, had not been bold enough. 

South Africa leads Africa's economic growth 

A recent World Economic Survey shows that improvement in Africa's economy can be attributed largely to the increase in business confidence in South Africa, the continent's economic engine room. The improvement in the climate indicator is due to significantly better assessments of the present economic performance and more optimistic expectations for the next six months, the survey says. After a period of weak confidence, the survey says, Africa is also likely to profit from the global economic rebound. Business confidence in South Africa reached new highs last year, supported by rate cuts, a pick-up in the local stock market and positive trade figures. Retail figures surged 9.5% in November. According to Statistics SA, this was the strongest growth seen in eight years. A decrease in vehicle prices due to the lowering of interest rates also saw a steady rise in vehicle sales. Global economic conditions have supported manufacturing production, which is expected to do well this year, according to a key economic indicator released earlier this month. Strong retail spending is expected to support private expenditure in the economy, which is set to grow at 2.8% this year, giving a boost to overall economic growth.

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FOREIGN ECONOMIC COOPERATION

South Africa - China

Growth in China's economy provided investment opportunities for South African companies, economic counsellor at the Chinese embassy Ling Guiru said February 24 at the JSE Securities Exchange SA's Chinese capital markets forum. China is the world's fourth-largest trading power after the US, Europe and Japan, with more than $800bn in foreign trade. Last year China's gross domestic product grew at a rate of 9.1%, and it was forecast to grow at double digits this year. Mining companies such as Kumba Resources have already taken advantage of the growth in demand in the Chinese market, with 38% of their total exports and 50% of their iron-ore exports going to China last year. PJ Botha, a director at the AfricanAsian Society, a non-profit organisation established to improve co-operation between Africa and Asia, urged more South African companies to invest in China. He said the Chinese economy had withstood political, financial and health crises over the past two decades, but it continued to grow, and its growth would drive many of South Africa's industries in the years ahead. 

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MINERALS & METALS

Anglogold-Ashanti deal 

Anglogold's merger with Ghana's Ashanti Goldfields should be completed by April, ending a takeover process lasting a year. European Union competition authorities have given the $1.5bn take-over the go-ahead. Bobby Godsell, AngloGold's CEO, said the company was aiming to grow its total production to more than 7-million ounces of gold in two to three years. At present US-based Newmont Mining, the world's biggest gold-mining company, produces about 7.2-million ounces a year. AngloGold said it anticipated that its gold production would increase from 5.6-million ounces to 6.6-million ounces this year. In order to win the backing of the government of Ghana and secure a steady rate of corporate tax and royalties as well as other concessions, AngloGold agreed to pay the government $5m and give it 2658-million shares in the new company. The government agreed to hold royalties at 3% for 15 years and corporate tax will be fixed at 30% for the same length of time.

Angloplat R4bn share offer 

Anglo Platinum, which is 74% owned by Anglo American, is looking to raise more than R4bn to support a scaled-back expansion project after the rand appreciation and rising costs hit the company's balance sheet. The company, which recorded a 64% drop in net earnings for financial 2003, said February 16 that it intended to raise R4bn, 6.2% of its market capitalisation of R64.6bn, through a preferential share issue. Angloplat, like a number of exporting companies, has suffered from the volatility of the rand and, as its rand revenue has fallen, costs at its operations have continued to rise, making it necessary to raise money through a rights offer, which dilutes value, rather than borrow further. Angloplat's net debt stands at R6.9bn, compared with a net cash position of R1.4bn at this time last year. A mining analyst said yesterday that there had been some "over-exuberance" in Angloplat's expansion plans. "It was fine if costs ran a bit out of control as the company was making buckets of money at that time," the analyst said. Angloplat also plans to give shareholders the option to take more shares rather than the cash dividend payment for the six months to the end of December. If shareholders take this offer, the company could raise another R581m. Anglo American has backed both of Angloplat's efforts to raise money and, together with Standard Corporate & Merchant Bank, it will underwrite the rights offer, which is likely to take place in April or May. In the year Angloplat recorded a net profit of R2.09bn, down from R5.74bn last year. It produced 2.3-million ounces of platinum in the year and gross revenue was R16.5bn, compared with R20.3bn in financial 2002.

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TELECOMMUNICATIONS

Sentech joins wireless broadband alliance 

A group of 18 operators from five continents have banded together to form the Global UMTS TDD Alliance, which aims to promote this as the leading standard for delivering wide-area wireless broadband and other high-speed packet-based services, allafrica.com reported. 
UMTS TDD stands for Universal Mobile Telephone Service Time-Division-Duplexing and is a mobile broadband technology, which is a packet data implementation of the international UMTS standard. 
Launched yesterday at the 3GSM World Congress in Cannes, the alliance has been founded by members of the UMTS TDD community, including both operators and vendors from around the world, and has been sanctioned by the GSM Alliance. 
SA is represented in the alliance by Sentech, which recently launched it satellite broadband offering. 
"The creation of this alliance will help to bridge the digital divide in SA and the African continent far more quickly than we had previously envisioned," says Winston Smith, Sentech's product manager for wireless broadband. 
The goals of the alliance have been set out as being to create a greater awareness of UMTS TDD technology; to offer a forum for information sharing; to support collaborative technology development, interoperability testing, and certification; to educate the market about the economics of UMTS TDD deployments; and to provide a resource for information on TDD solutions. 
Another of the primary drivers for the creation of the alliance is the demand from operators in all stages of deployment for both technical and marketing insights from those operators that have already launched commercial networks. 
Countries represented in the alliance include Germany, Malaysia, Japan, Australia, the US, Mongolia, Ireland, SA, Portugal, Kazakhstan and New Zealand. 
"Just as GSM was a revolution for voice services, so we believe that TDD is the revolution for broadband data service," says Christian Irmler, CTO of Germany's Airdata.

Media, telecoms, retail top equity list 

The best-performing sectors for the three years ended December 2003 were telecommunications, media and retail, with the top portfolio managers being Allan Gray, Fraters and Investec, the Alexander Forbes Equity Manager Watch survey released yesterday shows, Business Day reported. 
The survey ranked these them as "ideal" because they achieved above-average return at below-average risk. 
Alexander Forbes Asset Consultants released the results yesterday of both their Bond Manager Watch and Equity Manager Watch surveys for the three years ended December last year. 
Muitheri Wahome, head of research at Alexander Forbes, said because the objectives of equity products were so diverse, the products were not directly comparable. 
"This is not a peer survey and does not rank absolute performance," she said. The survey ranked the active returns of a portfolio, the extent to which each portfolio outperformed or underperformed its benchmark. It also ranked the risk adjusted returns of a portfolio, which showed at what risk investors got their returns. 
For the review period Metropolitan had the lowest return earned for the risk taken. Investec and Stanlib were the top two performers in the bond manager watch survey. 
Bernard Fick of Alexander Forbes cautioned investors that "past performance was no indication of future performance". The equity survey represented 29 equity portfolios worth R76bn, and the bond survey 20 funds worth R42bn. 

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