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SOUTH AFRICA


  
  

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 159,886 104,235 113,300 29
         
GNI per capita
 US $ 2,780 2,600 2,820 93
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


Update No: 043 - (01/08/05)

Baling out Zimbabwe
South Africa is hoping to use its financial leverage over Zimbabwe to force President Robert Mugabe to effect political and economic change in his country. The proposal is a bale-out of the cash-strapped Zimbabwean economy, and comes after Mugabe asked South Africa for a loan to help his country stave off expulsion from the International Monetary Fund for failing to service its debt. Pressure has mounted on President Thabo Mbeki to refuse Zimbabwe's request unless Harare agrees to sweeping reforms. Critics of the Mbeki government are slamming plans after Mr Mbeki said June 24 that it would be necessary to prevent an economic collapse in Zimbabwe that would leave South Africa with a much larger problem. Mr. Mbeki confirmed that his cabinet is contemplating a loan to ZImbabwe to allow Harare to catch up on its arrears to the International Monetary Fund, and to purchase fuel and food, increasingly scarce commodities in the country. Unofficial reports have set the amount of the loan sought by Harare at $1 billion.

Economic Chaos in Zimbabwe Not in South Africa's Interests
Mugabe's government has appealed to South Africa for a $1bn bale-out as The International Monetary Fund (IMF) called in the country's $900m debt, prompting fears that Zimbabwe is on the verge of being expelled as a member of the international lending institution. President Thabo Mbeki says South Africa is willing to throw its troubled neighbour Zimbabwe a lifeline, but urged the international community to play a more active role in resolving Zimbabwe's problems. Mbeki said any help would be conditional on Zimbabwe committing to a stable monetary system, Zimbabwe's dual currency market would have to be reviewed. Mbeki also reiterated that a solution would only follow after dialogue between Mugabe and the opposition Movement for Democratic Change. Mbeki's stance appeared to be a direct challenge to calls for South Africa to take a tougher line against Mugabe. It is also indicative of a growing confidence in government that Zimbabwe's economic meltdown has created an opportunity for SA to use its leverage to secure a settlement there. Finance Minister Trevor Manuel confirmed that South Africa is discussing a possible loan with Zimbabwe July 28, but he dismissed media reports that the credit could amount to $1 billion. Zimbabwe is reeling from its worst economic crisis since independence from Britain 25 years ago, triggered by government seizures of white-owned farms for resettlement of landless blacks and allegations of vote rigging. The issue of a possible rescue package for Harare has sparked heated debate, with most South Africans either opposed or demanding tough conditions for any loan agreement. But Manuel said it was in South Africa interests to ensure stability in its neighbour. South Africa is Zimbabwe's main trade partner. "As part of the responsibility we have, we need to ensure that all African countries remain in the family of nations. The worst thing we can have is a failed or rogue state on our border. Clearly we have a responsibility." He said any deal with Zimbabwe would have to be presented before South Africa's parliament. "We are not at a point where we are signing off billions of dollars. What you have to understand is that we have a huge responsibility and we will not be reckless in the way we exercise that responsibility," said Manuel. "Peace and stability in our neighbourhood is a struggle worth taking." Mugabe, who denies ruining a once prosperous Zimbabwe, won financial and diplomatic support from China July 26, signing a deal on economic and technical co-operation, though neither side said what it contained. The situation is far from simple as many are voicing concern that South Africa, as a leading nation on the continent, needs to ensure that it is unequivocal in its position on Zimbabwe and that it makes it clear that undemocratic practices will not be tolerated. Such a stance would clearly preclude SA affording a "loan" to Zimbabwe, as there is every chance that the money will be used to prop up an illegitimate government and that it will be interpreted as yet another expression of solidarity with a pariah state. World focus on Africa will wane if South Africa continues to act in such a manner. Africa's future prosperity will not be determined by how much aid is afforded to largely inefficient governments, but rather by how many economic opportunities are created for individuals to improve their circumstances. African states, and South Africa in particular, have a special responsibility to help to ensure that Africa does not fall off the world agenda. 

G8
At the July G8 summit, US President George Bush vowed to eventually lift farm subsidies. However, African nations will have to await a global trade deal before the US will cut farm export subsidies. Failure to secure a global deal at the World Trade Organisation meeting in December could see subsidies extended for years, trade chiefs have warned while addressing member countries of the African Growth and Opportunity Act (Agoa) at a forum in Senegal. Agoa, signed in 2000 by Bill Clinton, gives exports of Africa's member countries duty-free status in the US market. President Bush has extended their duty-free status through to 2015. Since the act was signed, the value of African exports to the US has risen to $26bn, while African countries import $8bn worth of US goods. Petroleum products make up the bulk of African exports to the US, but exports of textiles, minerals and agricultural goods have increased. However, agricultural subsidies favouring US farmers have dealt severe blows to African efforts to compete in the food market.

G8 Leaders Agree $50bn Aid Boost
The G8 summit ended with an agreement to boost aid for developing countries by $50bn (£28.8bn). The debt of the 18 poorest nations in Africa is also being cancelled. On trade, there was a commitment to work towards cutting subsidies and tariffs. On climate change, Prime Minister Tony Blair said an agreement had always been unlikely, but that the US now accepted global warming was an issue. But reaction was mixed, with some calling it "vastly disappointing". "The people have roared but the G8 has whispered," said Kumi Naidoo, chair of the Global Call to Action against Poverty. But Live 8 organiser Bob Geldof spoke of a "great day". "Never before have so many people forced a change of policy onto a global agenda. If anyone had said eight weeks ago will we get a doubling of aid, will we get a deal on debt, people would have said 'no'," Mr Geldof said. He added that he gave the G8 summit "10 out of 10 on aid, eight out of 10 on debt". Summing up the G8 meeting, Mr Blair acknowledged: "It isn't all everyone wanted, but it is progress." UN Secretary General Kofi Annan said the G8 deal represented a "good day", but that it was only "a beginning". Earlier the UK Prime Minister had said that in the wake of Thursday's attacks, the communique was the "definitive expression of our collective will to act in the face of death". "It has a pride and a hope and a humanity that can lift the shadow of terrorism," he added. Non-Governmental Organisations (NGOs) remained critical of the G8 deal. Some described the talks on climate change as a "significant lost opportunity". G8 leaders have indicated the statement represents progress but Stephen Tindale, a spokesperson for Greenpeace, said: "The G8 has committed to nothing new but at least we haven't moved backwards on the environment."

British High Commissioner Paul Boateng said aid alone was not enough for Africa but fair trade and debt relief underpinned by good governance will help rebuild the continent. Speaking at the Africa Dialogue Lecture Series at the University of Pretoria July 19, Mr Boateng said Africa was on the right track as most countries in the sub-Sahara now had democratic elections. Mr Boateng was speaking on the Commission for Africa and the recently held G-8 summit at Gleneagles at the lecture. Referring to the G-8 summit outcomes that they would provide Africa $25 billion per year and $50 billion globally, the High Commissioner said these were the hard commitments. He said the Commission for Africa report assisted the leaders at the Gleneagles to take the decision adding that the majority of the Commission was drawn from Africa. He said the report was rooted in the totality of the African experience.

Airline problems
South African Airways (SAA) has suffered the most crippling strike in its history. The six-day action by ground and cabin staff saw SAA cancel domestic and international flights from July 22. The troubles at SAA did prove beneficial to other airlines operating in South Africa, which have long flown under its shadow. SAA enlisted the help of some of its competitors to carry stranded passengers. Unions were seeking an 8% wage increase, rather than the 5% they had been offered The SAA Pilots Association said a number of its 800-strong members have already indicated their intention to leave for other airlines, both locally and internationally. Association chairman Piet Taljaard said "The morale is the lowest I have ever seen and I have been with the airline for nearly 30 years." The strike snarled travel across the continent, where the South African airline is the dominant regional carrier. 

Terrorism
A man arrested in Zambia late July on suspicion of involvement in the attempted July 21 terror attacks in London had earlier been sought by the U.S. in South Africa. The British press has dismissed reports linking him directly to the bomb attacks. The case however, highlights South Africa's position as a potential haven for terrorists and international criminals. Richard Cornwell, a security analyst, said that it is not surprising that someone who wants to avoid the notice of international intelligence and police would choose South Africa. "Basically South Africa's ports and harbours, including the airports, are badly under policed, and the security is fairly easily penetrated and this is not lost on the people who would be inclined to come in to this country, either people who would be involved in organized crime or in terrorism for that matter," he said. Mr. Cornwell, a senior research fellow at the independent Institute for Security Studies, said the widely held view that terrorist cells would choose to base themselves in failed states such as Somalia is fallacious. He said instead it is much easier for such groups to set up unnoticed in open societies, which have large numbers of immigrants such as South Africa. He also said such groups prefer countries which have a good infrastructure, particularly in finance and communications.

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AUTOMOBILES

Car sales reach peak


More vehicles were sold in SA in May than in any other month in the past 10 years, but the figures show further signs of a slowdown in the rate of sales growth. New vehicle sales were up 33,5%, at 45867, on the previous May's total, according to data released June 2 by the National Association of Automobile Manufacturers of SA (Naamsa). This increase was lower than the 41% increase in sales this April on the previous April's. This April's sales were 7% down on March's, prompting McCarthy Motor Holdings to say last month that this could be the first sign of the market starting to flatten out. Absa transport industry analyst John Loos said June 2 the industry was at the beginning of a gradual slowing in new car sales growth. He said real disposable income would decline as the economy slowed and inflation showed no major downward movement; also interest rate cuts were less frequent; and the cost of household debt servicing was rising. Loos said he expected vehicle price increases in the remainder of the year to come from a weaker rand. However, price hikes would be "mild". Substantial interest-rate cuts in 2003, together with virtually stable vehicle prices over the past two years, were the primary drivers of the boom in vehicle sales over the preceding 12 months. Ford Motor said this week's Competition Commission finding that there was anticompetitive behaviour in the automotive industry was not expected to have a significant effect on sales. It is still generally expected that this will be a record year for the industry, following unprecedented sales last year, when more vehicles were sold - by Naamsa members and nonmembers - than at any time before in SA. Absa said sales this year would be "a healthy 16,7%" ahead of last year. It is now certain that the market will break the 500000 mark this year. Growth is occurring across the spectrum of vehicles, including passenger cars and commercial vehicles. Most estimates point to sales of 550000 units. WesBank, whose forecast is among the most optimistic, expects sales of 573000 units this year. Meanwhile, it appears that the used-car market is improving. Used car values depreciated steeply over the past year or so as more consumers opted to buy new cars. McCarthy chairman Brand Pretorius June 2 said used vehicle inventory levels and depreciation trends were returning to normal, which meant dealers now could trade with more confidence. Naamsa reported vehicles exported rose 1,2% to 30732 in the first four months of this year, compared with the corresponding period last year. Exports are expected to rise substantially this year as Ford's first export programme and Toyota's new Hilux export programme come on stream. Toyota president and CEO Johan van Zyl said SA was "riding a wave of economic confidence" based on the lowest interest rates in decades, combined with stable and favourable economic fundamentals. The economy appeared to be moving towards a point of critical mass that could take it to a new level. Van Zyl said that with total vehicle sales reaching 213441 in the first five months of the year, the motor industry was on track to exceed sales of 250000 units for the period from January to June for the first time in its history. WesBank said it had a record month, generating R3,8bn in new business last month. The bank - which financed about one in every four cars in SA - said it had seen a steady increase in the number of private vehicle sales from 15,8% in January to 23,4% last month.

Car makers in price-collusion allegations

Competition authorities, having accused most of SA's car makers of anticompetitive behaviour, should be careful not to destabilise an industry that was a major contributor - almost 7% of gross domestic product - to the economy. The warning was issued by industry body the National Association of Automobile Manufacturers of SA (Naamsa) in its monthly car sales commentary June 2. The Competition Commission, which said that it had found evidence of anticompetitive behaviour by most of SA's car makers, said that the biggest culprit when it came to high car prices might be the Motor Industry Development Programme (MIDP). The programme, which is under review, affords car makers substantial benefits by offsetting the costs of imports, and is credited with saving the industry from collapse when it was introduced 10 years ago. The commission is not the first to criticise the programme - Australia threatened to challenge its compliance with global trade rules before the World Trade Organisation last year. The commission's "implied criticism" of the MIDP should be taken up with the trade and industry department and the national treasury, said Naamsa head Nico Vermeulen. There was a significant and growing disconnection between industrial policy and competition policy in SA, he said. This required "urgent attention at the highest level of government", Vermeulen said. Car makers have been vexed by the commission's findings of anticompetitive behaviour earlier this week, and by the way in which the outcome of the investigation was communicated. Car makers, including Volkswagen, DaimlerChrysler and General Motors, said they could still not comment on the commission's findings as they had not yet seen them. BMW, among others, described the commission's communication of the outcome of the investigation through a press release as disappointing. Several car makers said the announcement was rushed so as to afford commissioner Menzi Simelane another big notch in his belt before his departure. Simelane left the commission on the day of the announcement. The commission released findings in relation to issues such as collusion, but had yet to complete an investigation into allegations of excessive pricing. Simelane said on the day the announcement was made that the commission had a lot on its plate and that he wanted to help finish what he could.

Fiat car part export contract

Fiat Auto SA is expected to announce a third major component export contract in July, following two substantial export orders during June. Fiat said that it had landed a contract potentially worth R250m to supply catalytic converter components to customers in Germany. This follows a R200m contract to export exhaust heat shields to Italy. An industry commentator said yesterday that Fiat was about to land another contract, which would be bigger than the previous two combined. Fiat would not confirm this June 21. The company said the contracts announced to date made it one of the largest component exporters in the country, and marked a deeper integration of the South African arm into Fiat's global supply chain. It also boosted the company's export revenue and enabled it to earn more export credits through government's Motor Industry Development Programme (MIDP). The industry commentator said Fiat may be ramping up its component export business in preparation for a possible switch from local car production in SA to importing cars into the country. Fiat, like other local car makers, can use MIDP credits generated through its component exports to reduce the cost of importing cars.
Fiat was considering its options after Nissan SA's recent decision not to renew an agreement whereby it shares its car-production facilities north of Pretoria with Fiat. The agreement ends in 2008. Fiat, which sells a relatively low number of vehicles in the country, could try to strike a production-sharing agreement with another car maker, or decide to invest in a new car factory. Meanwhile, Fiat said that under the first phase of the new catalytic converter components contract, which would start immediately, 100000 units would be shipped to Germany every year for sub-assembly before being sent to various plants in Italy. The catalytic converter components would be made for Fiat Auto SA by Western Cape manufacturer Arvin Meritor. The converters would be used in the latest models from the Fiat and Alfa Romeo stables. The company said recently that the exhaust heat shields contract would boost its annual export turnover by more than 12%.
Renault To Launch New Model Next Year 
French car manufacturer Renault is set to add the newly launched third-generation Clio to the South African small car market early next year. Renault, which imports its vehicles into SA, launched the Clio III in France, saying the car would be on the French market in September. Renault vice-president for the "B" product range programme said the car would be available in the rest of Europe by year-end and in other parts of the world by April next year. The addition could see Renault increase its share in the small-car segment. Clio accounted for 4700 of the 78199 units sold in the segment last year. Renault has spent à953m on the new Clio and à630m of this was for production-related investment. The new Clio will be manufactured at plants in Flins and Dieppe in France and Bursa in Turkey. The costs were spread among the three plants. Renault vice-president Jacques Prost said the company saved money by re-using existing manufacturing resources such as equipment. He said the company also reduced costs because Clio III's development time was 28 months, compared with 49 months in the previous version. "This is the shortest development time ever achieved for a Renault. The reduction made significant contribution to cutting costs," he said. Prost said the Flins plant, which specialises in small cars, would be used as a pilot site. Annual production there would be aimed at about 325000 vehicles. Renault is also likely to consolidate its position in the South African market through the Logan, also known as the à5000 vehicle. The company has concluded a joint venture with Indian automotive manufacturer Mahindra that will see the production of right-hand drive Logans in India. According to Renault, the low-cost sedan would be sold through the Mahindra Renault brand and also distributed in SA through Renault dealerships. It was "too early" to put a price on the new Clio, company officials said.

Fiat production threatened as Nissan ends deal

Fiat Auto SA may be forced to stop producing cars in SA and switch to imports, after Nissan decided against renewing an agreement that has seen Fiat sharing Nissan's production facilities for the past seven years. The agreement would end in July 2008, Fiat said June 8. The car maker said it was now evaluating a number of long-term production alternatives, as it considered SA an important market. Fiat is a small producer in SA, but any erosion of the domestic production base will be a setback for the country's ambitions to double production to about 1-million units a year in order to become a serious global player. Fiat was likely to approach other car makers to negotiate a similar deal to that with Nissan, said a commentator who would not be named. Fiat could also consider building its own plant, but the commentator said Fiat's volumes were probably too low to justify investment in a greenfields facility. Fiat sold about 8000 vehicles last year, down from about 11600 in 2002. Its market share has declined from 3,3% to 1,8% over this period. If Fiat opted for the importation route, it would still be able to offset the cost of vehicle imports through the Motor Industry Development Programme, as it exports vehicle components from SA. Fiat said that since the inception of the agreement with Nissan in 1998, more than 55000 vehicles -- Uno, Palio and Siena -- had been produced. It said that, of the current product range, only three Fiat models were manufactured locally. These were the Palio, Siena and the soon-to-be-launched, three-quarter-ton Strada bakkie.

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AVIATION

Comair in operating profit rise

BA/Comair has learned well from sister airline kulula.com on cutting overheads, and recent load factors have put the companies' parent, Comair Ltd, firmly on the road to profitability. Stuart Cochrane, executive manager of BA/Comair said mid-June that the combined BA/Comair-kulula.com operating profit for the year ended June 2005 would be "substantially higher" than the R11-million posted last year. Comair Ltd is due to report its results in September and some insiders say the figure could be as high as R80-million. "We have taken a leaf from our sister airline kulula's book on cutting costs without impairing our full service, and it's paying handsomely," said Cochrane. "Through our volume strategy we have been able to keep fares on BA/Comair competitive, which has boosted load factors considerably," he said. For the past six months kulula has been operating in excess of 90% occupancy and BA/Comair at an average 75%. Cochrane says BA/Comair will continue to reduce overheads without compromising its service, by: Introducing newer, more fuel-efficient aircraft with lower maintenance costs; Reviewing distribution costs by driving online sales and reviewing commissions to travel agents; Removing inefficiencies from the business through steps that will reduce no-show passenger losses; and Renegotiating contracts with catering companies and other suppliers with a view to lowering costs. Asked why BA/Comair did not give up the costly British Airways (BA) franchise and throw in its lot with the obviously more profitable kulula, Cochrane said the current set-up offered the best of both worlds. "Through BA/Comair we have the high end of the market and through kulula the low end," he said. Cochrane said that its corporate accounts -- such as Anglo American, Nampak and Barloworld -- comprised 60% of passengers. BA and other foreign carriers fed in another 15%, with the balance of "discretionary" business from small and medium enterprises, as well as ordinary passengers who did not mind paying higher fares for a superior service. "On top of this we have benefited from passenger growth generated by kulula and other low-cost carriers," Cochrane said. Were it to join kulula, BA/Comair would also lose its corporate accounts and foreign connecting passengers to opposition. "We would not have enough passengers to fill our combined fleet of 20 aircraft," of which BA/Comair has 12 and kulula eight, Cochrane explained. He said the only negative factor was the oil price, which was being managed by the introduction of levies.

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EXPORT - FREE TRADE

Deals to extend free trade for South Africa

Trade negotiations, aimed at giving exporters improved access to foreign markets, are advancing slowly. This may frustrate some of the country's potential free trade partners, but government's focus -- supported by the private sector -- is on securing the best deals, rather than meeting deadlines. But given SA's limited capacity, ambitious agenda and the race to secure free trade agreements around the world, it cannot afford to move too slowly. Free trade talks with India are expected to commence in August and a challenging round with China is likely to follow. SA and its customs partners also hope to identify a free trade partner in Africa before year end, and there are numerous requests for partnerships from other countries, such as Singapore. Arguably the most pressing issue that has to be dealt with is free trade talks with the US, which ground to a halt a year ago. The Southern African Customs Union (Sacu) and the US have been struggling to agree on a date to resuscitate the talks. In a recent report on trade between the US and sub-Saharan Africa, the US blames negotiating capacity constraints in Sacu -- comprising SA, Botswana, Lesotho, Namibia and Swaziland -- and divergent views on key issues for the delay in the talks, which both sides had hoped to conclude in December last year. SA's chief negotiator, Xavier Carim concedes limited capacity is an issue, but says this is not the fundamental stumbling block. The main obstacle, he says, is different approaches to key issues. The negotiations with the US are the most important talks on SA's bilateral trade agenda, as the US is SA's largest single trading partner. The free trade deal is expected to lock in and expand on the benefits South African exporters enjoy under the US's temporary African Growth and Opportunity Act, which allows duty-free access to the US for a wide range of products. The completion of a free trade deal with the European Free Trade Association (Efta) -- Switzerland, Norway, Liechtenstein and Iceland -- is imminent, according to Carim. The scheduled deadline for these talks was also December last year. Minor issues remain outstanding and the negotiations could be completed on June 21, says Carim. Once the deal is ratified, South African exporters will enjoy duty-free and quota-free access for industrial goods in Efta countries. Sacu inked a preferential trade deal with Mercosur -- Brazil, Argentina, Paraguay and Uruguay -- in December last year, but the ratification process has not yet started as several technical details are yet to be finalised. Carim expects these details to be finalised soon, and ratification to start in August. A preferential trade deal allows for lower tariffs on a limited range of products and is typically used as a foundation for a free trade deal. China is eager to conclude a free trade agreement with SA, but business has put the brakes on this. Companies have concerns about the effect of a free trade agreement with China, where exporters enjoy the benefits of subsidies and a currency pegged to the dollar. Recently an extensive study was launched, led by the National Economic Development and Labour Council, to assess the effects of a deal with China. A report is expected at the end of the year. The Doha Development Round of world trade talks remains the highest priority on SA's trade agenda, as it can potentially yield large-scale benefits by opening up rich markets to developing country products. The Doha round, being negotiated by the 148 members of the World Trade Organisation (WTO), is expected to overrun its December 2004 deadline by almost two years, as negotiators battle their way through sensitive and complex issues such as agricultural subsidies. WTO members aim to produce a draft agreement for the sixth WTO ministers meeting in Hong Kong in December by next month. Many countries are hoping the appointment of Pascal Lamy as the new director-general of the WTO will help lubricate progress. Carim, who will not say whether SA voted for Lamy, expects him to make "a positive contribution" to the talks. "The general sense is that he will be a good director-general. He has vast experience in the multilateral trading system," he says.

Call centres can employ 100,000

Up to 100,000 new jobs could be created in the outsourcing market if government, industry and labour make a concerted effort to polish SA's international image, says a McKinsey survey issued June 7. So many foreign companies are outsourcing business processes or placing call centres offshore that SA has a golden opportunity to grab a slice of the market. But government must provide tax incentives, unions must allow workers to run round-the-clock centres, and the private sector must fund heavy investment in training, say analysts at McKinsey. If that happens, the sector could attract US$90m to US$175m in foreign investment and boost economic growth, the report says. Research highlighting the huge potential for SA to win foreign outsourcing deals is nothing new. The difference this time is that the report will be used by the Business Trust, a body dedicated to job creation, to draft a blueprint to turn opportunities into firm action. "SA has an extraordinary opportunity for 100 000 more people to be employed over the next five years," said Business Trust CE Brian Whittaker. A blueprint being prepared for the trade and industry department would propose tax incentives and programmes for training matriculants, and pressure had to be applied for telecoms costs to fall. SA's competitive advantage lay in handling processes for the financial services market, Whittaker said.

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FOOD & DRINK

SABMiller to invest US$125m in India

Global brewer SABMiller will invest about US$125m in capital projects and marketing in India over the next five years to expand its existing operations and develop its brands, it said June 14. SABMiller has operated in India for almost five years, beginning with the purchase of the Narang Brewery in Utter Pradesh. Two years ago it entered into a joint venture with the Shaw Wallace Group. Recently it said it would buy out Shaw Wallace. The group is now India's second-largest brewer, with 10 breweries making brands like Haywards 5000, Royal Challenge Premium Lager and Knock Out. BJM Securities analyst Grant Swanepoel said SABMiller's increased investment in India is not immediately share price enhancing, but it is a long-term strategy. Although liquor consumption in India at present is more weighted towards spirits than beer, beer consumption is growing at 7%-10% a year, and this is expected to continue for the next few years. Apart from SABMiller, the only other international brewer with a significant presence in India is Scottish & Newcastle, which has tied up with United Breweries. But in 10 years' time India could prove as desirable a market for the international brewers as China had now become, Swanepoel said. SABMiller Africa and Asia MD André Parker said while the Indian market had been growing at about 6%-7% annually, SABMiller's brewing operations have grown 12% in the past year. The additional investment would go towards upgrading and expanding breweries, developing brands and improving the standard of barley growing through co-operative ventures. 

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FINANCIAL NEWS

Reserves soar seven per cent as bank buys dollars

SA's foreign exchange reserves rocketed 7% in May as the Reserve Bank stepped up its activity in the market and started managing the financial inflows from the proposed US$4,9bn Barclays-Absa deal. Gross foreign exchange and gold reserves surged by US$1,15bn to US$17,2bn, despite a US$72m drop in the value of gold reserves brought about by a 10% decline in the value of the rand against the dollar last month. This is because the Bank increased foreign exchange reserves by US$1,23bn, nearly 10 times as much as it bought the previous month and its biggest acquisition of dollars in six months. Efficient Group economist Nico Kelder said reserves "breached the R100bn level for the first time" last month, increasing the import-cover ratio to 16,8 weeks from 13,9 weeks in April. "This ratio is expected to increase further in coming months, especially after the Barclays transaction boosts reserves by approximately R33bn," he said. The Bank said June 7 that the reserves increase reflected "a combination of foreign exchange operations conducted by the Bank for own account, as well as on behalf of customers, including foreign exchange purchases arising from a foreign direct investment transaction". It did not identify the transaction, but economists said it was most likely to be the deal approved by Finance Minister Trevor Manuel last month, in which Barclays seeks to buy up to 60% of Absa. National treasury officials have said the Bank will manage the inflows from the deal to avoid an unwelcome strengthening of the rand that a sudden increase in demand for the currency would cause. It is thought the Bank would do this by buying dollars from Barclays and issuing it with the local currency it needs to pay for the stake. However, the sharp increase in reserves also comes against the backdrop of calls for the Bank to be more active in the foreign exchange market to weaken the rand, something it has repeatedly said it is not prepared to do. The strong rand has been blamed for job losses and sluggish growth in the manufacturing sector, with the African National Congress suggesting recently that one way of ensuring the desired "competitive" exchange rate was to buy dollars more aggressively in the market. 

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HIV/AIDS

National Aids Conference

The United States government made their presence felt at South Africa's second AIDS conference June 7 with a delegation led by US Ambassador to South Africa Jendayi Frazer presenting an overview of the local US response to the pandemic. South Africa is one of the beneficiaries of the US President's Emergency Plan for AIDS Relief (PEPFAR) - a US US$15 billion programme launched by President George W Bush in 2003 to tackle HIV/AIDS in 12 African countries and the Caribbean region over five years. Many AIDS activists have criticised PEPFAR, regarding it as a slight to the Global Fund to fight AIDS, Tuberculosis and Malaria, set up in 2002. The US has committed US$200-million a year to the Fund, which falls far short of its expected contribution. A third of PEPFAR's money goes to programmes promoting sexual abstinence, and prevention efforts aimed at promoting fidelity are also favoured. South Africa received almost US$90 million from PEPFAR in fiscal 2004, and is expected to obtain another US$149 million during the period from 1 October 2005 to 20 September 2006. About 12 percent of the US$149 million will be given to the South African government, while 48 percent will go to local NGOs, universities and private partners. American and international NGOs, universities and private partners will receive 40 percent of the projected funds. During a satellite session before the official opening of the conference, being held in the east-coast city of Durban, representatives of the US Embassy confirmed that all PEPFAR funds allocated to South Africa in the current financial year had been disbursed, and noted that the US government had modified its bureaucratic procedures "so that the money could reach the field as quickly as possible." Gray Handley, health attaché of the US Embassy in Pretoria, said the lack of human and institutional capacity was of "central concern", as a large number of healthcare professionals had left South Africa, and some had even left the profession. Under PEPFAR, the US government had supported the training of 40,000 local healthcare professionals. Inadequate access to antiretroviral (ARV) treatment was another major problem, and more than 25,000 people had so far received ARV treatment (ART). Handley noted that during implementation of the programme, PEPFAR representatives discovered "that in resource-poor countries, adherence rates are higher than anywhere else in the world." Tuberculosis care had also been provided to 27,500 individuals. Currently in its second year of implementation, PEPFAR has given support and care to 72,000 orphans and vulnerable children. By September 2005, the US campaign hopes to be providing prevention of mother-to-child transmission services to 50,000 South African women, care to 110,000 orphans, and to have reached 40,000 people with tuberculosis treatment. Its goals for 2006 are even more ambitious. About 70,000 South Africans are expected to receive PEPFAR-funded ART, while 50,000 people should be able to access combined HIV and tuberculosis treatment. One of PEPFAR's most pressing objectives was to expand paediatric treatment, which Handley described as being "critically important" to the success of any AIDS relief programme. Nevertheless, Frazer stressed that "real results cannot be seen in statistics - they are [shown] in how people's lives have changed through the services provided". Although PEPFAR was originally designed as a five-year programme, Frazer reassured conference delegates that "we are not going to turn our backs" on South Africa after this period, and President Bush would re-evaluate the programme in 2008.

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INDUSTRY

Sugar industry welcomes EU reform plans

The local sugar industry June 23 welcomed proposed reforms to the decades-old European Union (EU) sugar policy, saying they gave "direction and impetus" to further deregulation of the international sugar trade. South African Sugar Association executive director Trix Trikam said the proposals mirrored the calls the industry had been making for years. The policy has survived virtually every attempt of reform since its implementation in the 1960s and has been criticised for distorting trade and harming growers in the developing world. The planned changes go some way towards meeting South African calls to eliminate export subsidies and to reduce domestic support in a bid to level the international playing field in trade. "The proposed reform will provide direction and impetus for further deregulation of international sugar trade through the World Trade Organisation (WTO)," Tongaat-Hulett Sugar MD Bruce Dunlop said. The proposals aim to cut the price from à497 a ton to à319,50 over four years, after which it would remain level until 2016. This would remove the subsidies European farmers receive for sugar and pave the way for an increased world sugar price. The proposals must still be debated by EU members and the least developed countries, as well as African, Caribbean and Pacific beneficiary countries that receive preferential prices for their sugar exports to Europe. The outcome is expected by November with the EU committed to presenting a finalised reform package to the WTO in December. The reforms will not directly affect South African access to the EU market, but the industry will benefit from a rising world price. Some southern African operations, such as those owned by Illovo, supply sugar to the EU in terms of the least developed countries agreement for developing nations. Illovo MD Don MacLeod said the group would, pending the finalisation of reforms, continue supplying European markets at US$400 a ton from its operations in countries such as Tanzania and Mozambique. It also intends to continue with expansion plans to take advantage of the increased European access once the duties were eliminated. SA's local industry supports calls for the least developed countries to continue exporting to Europe with less of a price reduction than is being mooted. This would limit the effect the reforms would have on the less developed economies. Dunlop said the proposals had to be seen in the context of a broad consensus from WTO members for improving market access, eliminating export subsidies and reducing trade-distorting domestic support to the benefit of poorer countries.

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INTERNATIONAL ECONOMIC RELATIONS

South Africa signs trade cooperation with EC 

South Africa and the European Commission (EC) have signed an additional protocol on trade cooperation to continue the existing relations between the two. The additional protocol to the Trade, Development and Co-operation Agreement (TDCA) provides for customs unions and free trade areas; extending the agreement to ten more European Union (EU) member states to bring the total to 25. The signing by Trade and Industry Minister Mandisi Mpahlwa and his counterparts from the Netherlands and EC took place at a meeting President Thabo Mbeki held with EC President Jose Manuel Barroso June 25. Presidents Mbeki and Barroso engaged in discussions "on critical matters" such as the outcome of the forthcoming G-8 Summit in Gleneagles in Scotland next month, the situation in Zimbabwe and peace and security in Africa. Mr Mbeki said he indicated to Mr Barroso what the African community expected from the G-8 summit. "We are counting much on the support of the European Commission and the European Union," said Mr Mbeki. He added that Africa relied much on the EU's experience in addressing issues of poverty and development. He mentioned that bilateral relations were working very well between South Africa and the EU, adding that they were looking at ways of expanding them. Mr Mbeki said he briefed Mr Barroso on progress made on peace initiatives in war torn countries in Africa, adding, delegations from the Democratic Republic of Congo and Ivory Coast would be coming here for further discussions. Commenting on the recent "domestic tribal squabbles" regarding the EU's budget and French and Dutch rejection of the body's constitution, Mr Mbeki said he did not think the problems would impact on Africa. "President Barroso is committed to progress and development of Africa regardless of issues of trade, I have maintained a regular contact with heads of states who are part of the EU, so whatever might be happening within EU, I do not think it will have an impact on Africa," said Mr. Mbeki. President Barroso said the union was re-affirming its commitment to Africa adding that they would continue supporting Africa. "South Africa is a very essential partner of the EU, we will closely support South Africa in its efforts to fight poverty," said Mr Barroso. Mr Barroso said they discussed issues in a "frank and friendly" manner; however the issues of Zimbabwe were a huge concern to the EU. The concern followed the Zimbabwean government's "clean up" campaign "to rid urban areas of criminality" The campaign dubbed "Operation Murambatsvina" [Drive out Trash] has reportedly left 1.5 million people homeless, causing indignation around the world. "Questions of human rights should be the concern of all people. They are universal values and everybody should respect these values," said Mr Barroso. Responding on the Zimbabwe issue, Mr Mbeki said he had discussed this with the United Nations Secretary General Kofi Annan and both had agreed to send the head of the UN Habitat to that country. "The delegation should prepare a report and make recommendations, we must wait and respect that," said Mr Mbeki.

South Korea trade deal possible

South Korea is investigating the feasibility of a free-trade agreement with SA.
Researchers from the Korea Institute for International Economic Policy are planning a visit to SA this year to identify the benefits of an agreement. "Africa and the Middle East are areas where we currently lack knowledge," said Won-Ho Kim, director of the Centre for Regional Economic Studies at the institute, mid-June. "We don't know what kind of opportunities there are for trade and investment." The creation of a free-trade agreement could pave the way for SA to increase its current low level of trade with South Korea. Trade and industry department figures show that in 2003 SA accounted for 0,29% of Korea's total exports and 0,33% of its imports. Kim said SA's reputation for political and economic stability as well as its natural resources were attractive to Korea, which has no raw materials but a thriving manufacturing sector. Michael McDonald, head of economic and commercial services at the Steel and Engineering Industries Federation of SA, said while SA's raw materials were attractive to countries such as China and Korea, business was cautious about getting into trade deals with such highly competitive economies due to the effect it could have on SA's manufacturing sector. "I'm not so sure it is a good fit," McDonald said. "We don't just want to sell raw materials and allow our manufacturing sectors to go down the drain."

SA-Thailand trade booms 

SA's annual trade with Thailand breached the US$1bn mark for the first time last year after a 65% increase over 2003. SA was now Thailand's largest trading partner in Africa, and Thailand was SA's largest trading partner in southeast Asia, according to the Royal Thai embassy in Pretoria. Trade between the two countries was expected to rise a further 30% this year from US$1,063bn last year, Thai Commercial Affairs Minister Adisai Dhummakupt said. The Thai embassy attributed last year's rapid growth in trade to Thailand's promotional efforts through initiatives. Thailand's products were also competitive and of good quality, the embassy said. The stronger rand was also expected to have stimulated Thai exports to SA, which jumped 74% to US$658m last year. These comprised mainly vehicle products, rice, machinery, plastic products, clothes, textiles and household and beauty products. SA's exports to Thailand rose 53% to US$490m and consisted mainly of nickel and nickel products, tools, cutlery and organic chemicals, the embassy said. The embassy said that the Thai prime minister would visit SA in the second half of the year in a move that was expected to strengthen political and economic ties between the two countries.

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MINERALS & METALS

Demand for steel falls 

South Africa sold almost 6% less steel in the first quarter of the year compared with the same period last year, underlining concerns about the slow down in the local manufacturing sector. Local steel producers sold 5,8% less steel in the country during the first quarter and steel imports into SA declined 4%, according to the latest quarterly report by the South African Iron and Steel Institute. Local steel makers were also selling less steel abroad. Exports dropped 15% in the quarter under review. The institute attributed the decline in domestic sales partly to the poor performance by SA's manufacturing sector, which has been affected by import replacement. SA's largest steel maker, Mittal Steel SA, said in its own quarterly review earlier the decline in domestic sales was mainly due to de-stocking, but that real consumption grew "in line with the economy". Its parent company and the world's largest steel maker, Mittal Steel, has also attributed the global decline in steel prices to an inventory overhang, rather than a softening in demand. Average monthly consumption in SA peaked at about 400000 tons last year, according to the iron and steel institute. This came down to about 370000 tons in the first quarter of this year. These levels were last seen about 14 years ago. The institute said government's more expansive approach should boost steel consumption. The institute did not give a reason for the 15% fall in exports, but local steel makers have been increasing sales in the more lucrative domestic market at the expense of exports for some time. The largest export markets in the quarter under review were the European Union, Far East, Africa and North America.

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MINING

Norilsk to join Gold Fields board

Gold Fields June 2 signalled the formal end of a long feud with its largest shareholder Norilsk Nickel of Russia, by announcing that two Norilsk directors were to join the board of the South African gold company. This closed the saga of more than seven months during which Norilsk had sided with Harmony in a hostile takeover bid for Gold Fields. "Gold Fields is pleased to announce that Norilsk Nickel has accepted Gold Fields' invitation to nominate two non-executive directors to the board of Gold Fields," said the gold miner. "The names of the two new directors will be announced in due course." Gold Fields' CE Ian Cockerill said: "We are delighted to have Norilsk Nickel on board, and we look forward to working with them to grow the value of our company to the benefit of all Gold Fields shareholders. "We have a common vision of turning Gold Fields into the leading gold company in the world," said Cockerill. A mining analyst said: "There has been much talk of some future merger between Gold Fields' offshore assets and Norilsk's gold interests, and it now seems that the two are singing from the same hymn sheet." However, Gold Fields spokesman Willie Jacobsz played down the announcement. "This is a sign that the relationship between Gold Fields and Norilsk Nickel has been normalised and that the two companies share a common vision for the future of Gold Fields," he said. "This vision is premised on maximising value for all shareholders of both Norilsk Nickel and Gold Fields. "The fact that Norilsk Nickel has agreed to join the Gold Fields board does not, per se, indicate specific future transactions between Gold Fields and Norilsk Nickel." Analysts do not believe that Harmony CE Bernard Swanepoel is in any hurry to dispose of the 11,5% stake in Gold Fields his company acquired in its unsuccessful takeover bid.

South Africa left out of global mining boom 

While the world was in the grip of a mining boom last year, it passed SA by, a recent report by PricewaterhouseCoopers shows. In fact, South African companies had a tough 2004, with lower returns and a squeeze on profits - due to higher costs and the strong rand. The PricewaterhouseCoopers report was based on data from 40 mining companies that accounted for 80% of global total market capitalisation in mining. "We called the report Enter The Dragon - but an earlier draft was called Enter the Dragon; Exit the Springbok," said Hugh Cameron, the PricewaterhouseCoopers partner in charge of mining. He was at the local launch of the report, which was released in London early June. Cameron said last year was "spectacular" for the global mining industry, with a 19% rise in market capitalisation, revenue up 39%, and profits doubling for a second year in a row. By contrast, it was "a tough year for the industry in SA". The market capitalisation of South African mining firms fell 9%, revenue was up just 3% in rand terms and profits in rand terms tumbled 42%. Return on equity slumped to 9,7% from 17,5% the previous year. Cameron said the problems of local mining companies were due largely to significant cost pressures in rand terms, combined with the effect on earnings from the stronger local currency. Cameron said the most recent weakening of the rand had brought a dramatic improvement for local gold producers, with the rand gold price shooting up from R82000/kg to R92000/kg in the space of a fortnight. "If the rand settles at R7 to R7,50 to the dollar, and commodity prices remain where they are, we will see some very good results," said Cameron. He said the global mining industry had outperformed both the Dow Jones and the Standard & Poor's 500 stock market indexes for the last three years, due to base metals and energy stocks "and this trend is likely to continue this year". Cameron said commodity prices had been performing well in dollar terms, but were "pretty flat" in rand terms - meaning that SA producers had been unable to cash in on the commodities boom being led by China. He said those global companies that had achieved the best return for shareholders last year had all been in the base metals, uranium and coal sectors. The PricewaterhouseCoopers report noted that said mining companies had large cash reserves and Cameron said this represented "quite a big war chest" to fund acquisitions. He said junior mining companies were exploring more, "and when they find something, the majors buy them out".

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