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

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Thabo Mbeki


Update No: 36 - (01/01/05)

2005 Economy looking good
Ten years ago many thought the exchange rate in 2005 would be R18 or R20 to the dollar, inflation would be well into double digits and growth would be negative. In other words, they expected the worst. Instead 10 years of democracy was celebrated with low inflation and interest rates, and stable fiscal and monetary policies The dominant themes for 2005 are likely to be the strong currency, low inflation and low interest rates, which all augur well for growth in South Africa. This is against an international backdrop of growth in China, which is fuelling commodity prices while US interest rates are rising and the dollar is crumbling. If all else remains constant, these factors could lead to a slowdown of global growth, but could bode well for South Africa. A most welcome effect of the upturn is that there were 196,000 new jobs in the country in the 12 months to June. This is the first time for several years that the labour force has shown any real growth. 
The Reserve Bank took a conservative stance on December 9, keeping interest rates at 7,5%. The committee suggested that while further rand strength and lower oil prices would improve the inflation outlook next year, the sustainability of these movements was uncertain. Bank governor Tito Mboweni said the recent surge in the rand, was driven by a slump in the dollar, which needed to be monitored. The rand has strengthened almost 12% against the dollar since the last monetary policy committee meeting in October. However, the Bank believed that oil prices could remain volatile. Economists said that despite the Bank's cautious stance, there could still be room for an interest rate cut early next year. The rand has been admitted to an exclusive club of 15 international currencies where foreign exchange transactions are settled immediately, lowering the risks of transacting across time zones. The global settlement system is expected to boost investor confidence in the rand, which is one of the most actively traded emerging market currencies in the world. Forex transactions are settled in real time through the New York-based Continuous Linked Settlement Bank, eliminating the risk of payment delays and doing away with the old system of transacting through a network of secondary banks.
The country's better economic performance has strongly lifted share prices. In the past 12 months the value of shares on the Johannesburg Stock Exchange (JSE) has risen a phenomenal 51%, from just under R1 700 billion to R2 600bn. This sharp rise follows a gain of 28% in 2003, a loss of 10.5% in 2002 and a gain of 14.4% in 2001. 

HIV/AIDS frustration
One year after the South African government launched its much-anticipated HIV/AIDS treatment programme, there is frustration at the slowness with which the plan is being realised. In November 2003 the government committed to providing free antiretroviral (ARV) treatment to 53,000 patients by March 2004. The figure is a fraction of South Africa's HIV positive population, estimated at over five million, but was nevertheless an ambitious beginning to what was to be the world's largest ARV rollout to date. That target date has since been moved forward a year, and by the end of November 2004 the number of patients receiving the life-prolonging drugs was estimated by the Joint Civil Society Monitoring Forum to be only 18,500.

GDP - Growth hits eight-year high
Economic growth surged last quarter, rising at an annualised rate of 5,6% its fastest pace in more than eight years boosting foreign investors' perceptions of the economy. Economic growth in the first nine months of the year was 3,4% higher than the corresponding period last year, giving a good indication that growth for the full year will beat market expectations, coming in far higher than 3%. Statistics SA (Stats SA), which released the figures at the start of December, published revised gross domestic product (GDP) figures for the past five years, which paint a picture of a booming economy, and one that has been more resilient in the face of a strong rand and difficult global conditions. The revisions to the data show that the size and growth rate of the economy was higher than previously stated. The level of GDP was revised up to R1,251-trillion for last year, up from R1,209-trillion, while last year's growth rate was increased to 2,8% from 1,9%. Although the revisions to last year's growth figures were fairly significant, over a longer period the revisions were less dramatic, with the average growth rate for 19972003 only 0,3 percentage points higher than previously stated. Finance Minister Trevor Manuel hailed the improved growth figures yesterday as a more accurate reflection of the economy, and congratulated Stats SA on their "mammoth work" done to enhance the data. Manuel would not be drawn on whether the forecasts for the budget deficit as a ratio to GDP, published in October's medium-term budget policy statement, would be revised downwards as a result of the higher GDP numbers. "This will be addressed in the main budget on February 23," he said. In October's medium-term budget, the deficit as a percentage of GDP was estimated to be 3,2% this financial year, rising to 3,5% in 2005-06, before settling at 3,2% in 2006-07 and 2,7% in 2007-08. 

Trade deficit worsens as strong rand hits exports
South Africa's trade deficit increased dramatically in October, worsening to R5,8bn from R301m in September, as exports plunged on the back of a strong rand. Imports grew at a sturdy pace of 5% in October, rising by R1,4bn, while exports fell 14,65%, or by R4bn, compared to the previous month, according to figures released yesterday by the South African Revenue Service's customs and excise department. Cumulative trade figures for the first 10 months of the year give a startling picture of the debilitating effect the rand has had on SA's trade balance, with last year's surplus of R15,5bn recorded from January to October turning into a deficit of R13,6bn for the same period this year. Standard Bank economist Rashika Lalla said November 30 that exports were being weighed down by the strong rand and a slowdown in the global economy. "(Rand strength) has effectively dulled the price competitiveness of the export market," she said. "And the strength is set to continue as officials in the US have indicated that they will not intervene to strengthen their currency and are more comfortable with a weaker dollar. Markets are now pricing in a weaker dollar well into 2005." The rand has gained 15% against the dollar this year, making it the second-best performer against the greenback. Trade figures show a R2,5bn drop in exports of precious and semiprecious stones and metals, while vehicle exports fell R1,18bn.

Manufacturing - output dips on strong rand
Manufacturing production showed worrying signs of a slowdown, with volumes dropping 0,7% in October, as the strong rand slowed export activity and hurt production in import competing sectors. However, production is likely to be supported by steady growth in consumer spending, with the latest consumer confidence figures released by First National Bank (FNB) and the University of Stellenbosch's Bureau for Economic Research showing sentiment remained firm this quarter. Figures released by Statistics SA yesterday showed production had expanded at a rapid pace on an annual basis, rising 5,3% in October compared with a year ago. Vector Securities' chief economist Johan Rossouw pointed out that the sector's performance was particularly weak in import-competing sectors, where production and sales dropped. "Closer analyses quite clearly point towards the detrimental impact of rand-induced imports as a probable major contributing factor towards the pronounced slowdown in domestic manufacturing production volume and sales value," said Rossouw. Although radio and television manufacturers have been suffering from a flood of cheaper imports for some months already, the clothing and textile industry and basic iron and steel industry also showed a drop in production because of competition from cheaper imports, said Rossouw. However, overall production was likely to be sustained by steady consumer demand, which helped lift production in the furniture and motor vehicles categories. FNB's chief economist, Cees Bruggemans said December 7 that strong levels of confidence expressed by higher income consumers improved the outlook for spending on durable goods, such as cars and furniture, and semi-durable goods, such as clothing and footwear. "Furthermore, the prospects for consumer spending in general and spending on non-durables, such as food and beverages, and services remained bright given the upward shift in the confidence levels of the low income groups," he said. Consumer confidence could rise even further next year, prolonging the upswing, which was being driven by consumer spending. Standard Bank's latest trade activity index also reflected bullish consumer spending, with the index rising to 56 points last month, from 50 in October. This augured well for a "bumper" Christmas sales season for retailers, said Standard Bank. Conditions for businesses in general also remained good, with the business confidence index compiled by the SA Chamber of Businesses steadying last month at 125,1 points, slightly down from October's index reading of 126,5. The chamber said the favourable conditions boosting the business mood had peaked, but sentiment would probably remain positive in the foreseeable future.

IMF gives economy thumbs up
The International Monetary Fund (IMF) gave a broad endorsement of government's fiscal and monetary policies December 1, but hit out at slow progress on labour-market reform and uncertainty about black economic empowerment. The IMF's annual country report gave the thumbs up to government's increased spending plans, the Reserve Bank's efforts in building up foreign-exchange reserves and the decision to provide antiretroviral drugs for HIV-infected people. The IMF said that the economy was poised for higher growth going forward, but that growth remained insufficient to "make a significant dent in unemployment and poverty reduction". Finance Minister Trevor Manuel, who announced the release of the report at yesterday's cabinet briefing, would not express an opinion on the IMF's views. "There aren't any surprises in the report. But what is very important is that we can engage with that report, we can engage with South Africans about the report, we can engage with various sectors in SA about the report." Reiterating concerns raised in last year's report, the IMF said there was still too much uncertainty about black economic empowerment, in particular how government would fund it and an "absence of safeguards against an undue concentration of assets". Contrasting sharply with the views of exporters and labour unions, the IMF also said the rand was not overvalued, but was trading "broadly in line with long-run equilibrium values indicated by macroeconomic fundamentals". The report, which assesses the rand's strength until the first quarter this year, said the local unit was being driven higher by the boom in commodity prices, particularly gold and platinum. The IMF also said the Bank deserved "considerable credit" for bringing inflation under control, and advised the Bank to target the midpoint of the 3%-6% inflation target, which would ensure wage-setting behaviour was more "forward looking". The Bank's targeted inflation measure, CPIX (consumer inflation excluding mortgage costs) has been contained within the target band for 14 months running, with recent figures showing subdued growth in CPIX of 4,2%. The IMF endorsed government's policy of a gradual relaxation of exchange controls and said the easing of fiscal policy was "appropriate" to address social issues. However, the IMF warned against having budget deficits significantly higher than 3%, which it said could reduce international competitiveness, result in higher debt and reverse the "stabilisation gains" achieved so far. Government plans to boost spending over the next three years, after years of reigning in expenditure, with the budget deficit estimated to be 3,2% this financial year, rising to 3,5% next year.

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Airbus project announced

Government received the go ahead December 15 to sign the R11bn military transport aircraft deal with Airbus following the dismissal by the Cape High Court of an urgent interdict by Economists Allied for Arms Reduction (Ecaar). Ecaar had attempted to block the purchase in court, arguing that it was unconstitutional. But in an opposing affidavit, defence department director general January Masilela said all macroeconomic issues were matters which fell within cabinet's and government's prerogative. "It is government's duty to make choices. Sometimes the choices made are not always accepted by all sections of the population," said Masilela. Judge Deon Van Zyl dismissed the application, saying that Ecaar had sought relief on incorrect grounds to stop SA from signing contracts leading to the procurement of aircraft while government was only signing a "declaration of intent" to participate as a partner with European Aeronautical Defence Systems and Airbus Military in the design and development of the Airbus A400M, along with a number of other countries. This could see its purchase of eight to 14 of them already paid for by the time delivery took place in 2010, says a senior government source. It is estimated that the cost of purchase will be between R6bn and R11bn, and that SA could earn about R6bn from the project based on the current order book of 180 aircraft. If more aircraft are sold then SA will earn more for its work in the development of the product. In terms of the programme South African companies will be awarded programme contracts worth about R6bn. The company confirmed that there were 180 confirmed orders for the aircraft from Belgium, Britain, France, Germany, Luxembourg, Spain and Turkey. A government statement issued at the signing said that the programme would boost the revitalisation of the domestic aerospace sector

Comair to buy craft

Listed aviation group Comair's acquisition of four Boeing aircraft for R220m is unlikely to put strain on the group. Comair's previous purchase of three Boeing aircraft last year was largely to blame for the R2,8m operating loss the group reported in the six months to December. Global aircraft depreciation accelerated after the September 11 2001 terrorist attacks on the US. The depreciation of Comair's aircraft was made worse by the rand's gains, and a revaluation of the group's fleet led to an impairment charge of R115m this year. The strong rand and the recovery of aircraft prices created a favourable environment for the purchases. Comair MD Piet van Hoven said that international aircraft prices rose about 5% this year over last year. He said financing the latest acquisition would not be onerous for the group, whose brands are British Airways (BA) and Van Hoven said the group had yet to decide how it would fund the deal. Comair's cash resources at the end of its financial year in June exceeded the purchase amount, however. Comair said it had taken advantage of the strong rand to upgrade its fleet. The deal was signed at a level of less than R6 to the dollar. The aircraft will be used to serve BA's domestic and regional routes. Comair expected to take delivery of the first aircraft in May next year, with the remaining three being brought into service during the course of next year. The latest acquisition takes Comair's fleet to 23 aircraft. The Boeing 737-300s will provide operational savings including better fuel economy and maintenance costs.

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UK's Barclays makes formal application on Absa deal

Britain's Barclays has filed a formal application with South African regulators on its bid for a majority stake in Absa, edging nearer to closing the deal with SA's number one retail lender. Registrar of banks Errol Kruger confirmed he had received the application on December 1. "They made the formal application it will go through the normal assessment procedure," Kruger said. He declined to say how long the process might take. "We cannot give an indication on timing. You must understand it is one of the biggest transactions the industry has experienced," he said. Barclays must also lodge a formal application with the finance minister before it can buy a controlling stake in Absa, which has a market value of about R 46bn. Absa head of strategic communications Nick Cairns said Absa had lodged the application, with Barclays' approval and knowledge. However, he was unable to confirm when a final offer would be tabled. "The offer is not finalised yet," Cairns said. "We would want to put a transaction on the table that would be acceptable to the majority of shareholders." Some investors have grown impatient waiting for the terms of the deal, but Cairns said there had been "no delay on anyone's part". "These matters take time," he said. Financial sources said it was unlikely that Barclays will launch a formal offer this year given the forthcoming holiday break and expect it to do so only in the second week of January. Absa's share price has risen sharply from R60,50 when Barclays first announced its intention to bid for a stake in Absa to R72 December 2. One analyst said the 19% gain in the bank's share price could be holding up the bid as the initial price agreed between the two banks - speculated to have been R68 - may have to be adjusted.

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Exports to US soar 30 per cent

South African exports to the US this year are 30% up on last year's total, despite the strong rand, according to figures released by the American Importers Association. Based in Florida, the association links up US companies from various sectors with their counterparts across the globe. The association recently announced that South African exports to the US during the first nine months of this year had posted a 30% increase from last year's 3,2bn to 4,3bn. SA, one of the beneficiaries of the Africa Growth and Opportunity Act (Agoa), a law that grants African countries preferential access to US markets, is the US's 36th largest import trading partner. The country's main exports to the US include minerals, chemicals, metals and vehicles. The value of trade in minerals and metals had increased from last year's 2bn to 2,9bn by September this year. During the same period, trade in energy-related products had increased from $37m to $48m. Exports in chemicals and related products increased from $253m to 273m, the US body said. The strength of the rand has, however, negatively affected textile and clothing exports. The clothing industry had been expected to benefit significantly from Agoa. Exports in textile and apparel fell from last year's $211m to $136m, but footwear exports went up from 607m to $808m. The association has predicted that South African exports to the US would total about 6bn by the end of the year.

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Dollar weakness

The dollar's demise continues unabated, but there is no indication the Reserve Bank is using the space to increase its foreign exchange holdings. Could the headlines about the end of the Dollar Age be influencing the Bank? The numbers, if you are holding dollars or worried about your own export performance, are looking worse by the day. The greenback has reached a 12-year low against sterling. This has added fresh impetus to the debate about how the Reserve Bank should respond. Amazingly, by all accounts, it has not been buying dollars with any sense of urgency in response to the rand's latest surge to below R6/$. A few months ago it was common knowledge that the Bank intervened when the currency hit certain levels. Earlier this year, this level was believed to be in the region of R6.20/$. The Bank's surprise cut in interest rates in August only reinforced the perception, though it insisted that it moved in response to an improved inflation outlook and not out of any desire to weaken the currency. The Bank has also insisted that its sporadic purchase of dollars in the open market to increase its levels of foreign exchange reserves was not meant to weaken the rand. But the perception remained that levels too close to R6 were undesirable and would prompt intervention. The Bank's apparent inactivity now indicates that this is no longer the case. It might have resigned itself to the idea that the dollar's weakness is due to global forces and it is, therefore, not going to take undue risk by fighting the tide. Data on dollar purchases for November is not yet available, but movements in the rand, not just against the dollar, indicate that it has not been a major player. It bought $590-million in October which, although double the level of the previous month, was not nearly as much as the $1-billion a month some observers say it should be aiming for. So why the apparent lack of action? Accumulating and holding reserves is expensive, that much is clear. The counter-argument is that the taxpayer will be more than compensated if the Bank buys more dollars because a weaker rand leads to a more competitive - tax-paying - export sector. Some, like Sanlam group economist Jac Laubscher, argue that a more aggressive accumulation of dollars will act as a form of insurance for when sentiment turns and the rand weakens, enabling the Bank to intervene and minimise disruptions. But is it possible that the Bank has been caught up in all the talk about the dollar's demise and moves by central banks to diversify their holdings? Some might question the wisdom of buying a depreciating asset that other central bankers are apparently rushing to dump. If the reports about China and Russia reducing their dollar holdings in order to minimise losses from its depreciation turn out to be true, then the $1.40/euro level that economists are eyeing could be reached sooner rather than later. Then, the argument goes, the Bank should also be looking at alternatives such as the euro, which makes absolute sense as it is also the currency in which most of South Africa's trade is denominated. In these times of uncertainty, it might even consider the accumulation of physical gold. But as Citadel chief investment officer Dave Mohr points out, this would go against basic investment advice, which normally recommends buying cheap, rather than going with the momentum and acquiring possibly overpriced assets that have already had a massive run. And do we really want the central bank to become a speculator in the currency markets? It might be hard to find an upside for the dollar at the moment, but the news of its death might also be exaggerated. It is, after all, still the reserve currency of the world.

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Mbeki pushes Ivory Coast peace 

Former rebels in Ivory Coast are set to discuss new peace proposals with South African President Thabo Mbeki. President Mbeki, who is mediating in the two-year conflict for the African Union, has secured a new timetable to carry out disarmament and reforms. A parliamentary committee is reported to have recommended the adoption of a key part of these reforms - a controversial nationality bill. UN peacekeepers have asked for an extra 1,000 troops to help maintain order. Ivory Coast has been in crisis since rebel soldiers grabbed the north of the country in September 2002. In November the Ivorian armed forces launched an attack on the rebel-held north of the country, breaking an 18-month-old ceasefire. There was also days of turbulence in the government-held south. UN peacekeepers were involved in operations to evacuate thousands of westerners. The rebels, now known as the New Forces, say they will propose "free and transparent elections and not one to keep in power... a loser regime... while keeping in mind that [President Laurent] Gbagbo has breached the ceasefire," said their spokesman Sidike Konate. The AFP news agency reports that the new nationality bill, a key rebel demand, has been adopted by a parliamentary committee and is expected to be adopted late December. This makes it easier for those of foreign origin to become Ivory Coast citizens and AFP says it will apply to some 700,000 people. The rebels control the north, where many people have foreign roots and say Mr Gbagbo's government has discriminated against them. A UN official in the country said he expected the security council to grant the request for extra troops to reinforce the 10,000 peacekeepers already in Ivory Coast. These include some 4,000 French troops, who have recently clashed with Gbagbo loyalists in the main city, Abidjan. The UN Security Council is also considering whether to impose individual sanctions on those seen to be blocking the peace process. An arms embargo was put in place in November, affecting both the government and the rebels.

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Africa seeks to keep multinational investment

The world is experiencing a commodities boom fuelled by rampant industrial growth in China. Africa can expect foreign direct investment to rise significantly. A report by the United Nations Conference on Trade and Development (Unctad) says there was a 28% increase in foreign investment in the continent. It expects significant new investment, particularly as foreign companies invest in exploiting Africa's natural resources. There has been a steep rise in investment in the continent's petrochemical industry. Investment services are also on the increase. The report says this can be seen in the telecoms sectorm, where the number of cellphone subscribers in Africa rose from 1,2-million in 1996 to 51-million in 2003. Major hotel chains are pursuing opportunities for resorts in Africa. "The focus for growing hotels and resorts will be exclusively Africa, the Indian Ocean islands and Middle East, and will centre on areas of natural beauty or city-based hotels with casinos." The Unctad report says changes in economic policies in many African countries play a role in attracting foreign investment. Countries such as Ghana, Zambia and Benin are undertaking "investment policy reviews" to improve their investment climates. Angola enacted laws on private investment, allowing projects to be undertaken with participation of domestic and foreign investors. The Democratic Republic of Congo adopted an investment law reinforcing its mining code and abolishing previous requirements that saw investment projects approved in "an ad hoc manner". The common denominator in all these developments is the involvement of a foreign (to Africa) multinational expanding operations into Africa via incorporated and/or unincorporated investment structures. This implies the involvement of at least two tax jurisdictions and the potential for disagreement on the extent of the profits in each country. This scenario is the classic transfer-pricing dilemma. Transfer pricing has been slow in coming to Africa. In SA, transfer-pricing legislation has been up and running since 1995, and active enforcement soon followed with a dedicated task team at the South African Revenue Service, where highly qualified and experienced transfer-pricing specialists have been employed. SA also embraces the Organisation for Economic Co-operation and Development guidelines to a large extent, and South African tax practice has invested in the development of several transfer-pricing specialists. To date we are not aware of any significant income-tax adjustments relating to transfer pricing in any African country. We are aware of sporadic attacks on multinationals in various African countries notably Zambia and Botswana but in general these were isolated incidents. Past experience has shown that the African revenue authorities lag behind SA, and a "wait-and-see" approach has been adopted with various other tax laws such as VAT and employee tax. More and more we are becoming aware of a transfer-pricing investigation launched by African revenue authorities on multinationals operating in Africa. SA has long been treated as the gateway into Africa. Many global multinationals have opted to use SA as the stepping-stone into other African destinations. Many South African multinationals have preferred expansion into Africa above other international expansion. It has been widely reported that it is difficult to trade in Africa due to various barriers like language, lack of infrastructure, lack of an educated workforce and rampant bureaucracy. Yet a presence in Africa has allowed multinationals to tap into this largely virgin market. Significant profits were to be made by the select few that got it right. These profits were then relocated as quickly as possible. Another tactic was to show as little profit as possible in the local African entity, by inflating prices of goods bought from offshore group companies or by inflating the prices paid for services rendered by group companies. The time has now come for that scenario to change. African tax jurisdictions have latched onto the indiscriminate relocation of profits, which if taxed would assist greatly in advancing the economy of the African countries. Various methods are now being implemented to stop this outflow of funds, and transfer pricing in various shapes and forms has been earmarked as a way to make a "quick buck". The result is the unprecedented implementation of legislation with a smell of transfer pricing. Leading this wave of investigations are the eastern African countries of Kenya, Uganda and Tanzania and the countries bordering SA, including Namibia and Botswana. It is highly unlikely the rest of the countries will refrain from keeping up with their neighbours, and we expect a wave of transfer-pricing adjustments across the continent to follow suit. Global multinationals operating in Africa and wanting to show that connected-party transactions take place at arm's length face severe problems, including lack of country-specific comparable data, lack of transparency in implementation procedures and lack of guidelines. No guidelines on the preferred methodology are published, and the taxpayer is generally left in the dark as to the methodology that may be followed to illustrate the arm's-length principle. The arm's-length principle is generally not defined, and adjustments are justified on the basis that transactions should be conducted in a way that provided a similar profit had the transaction been conducted between persons who do not have a special relationship. No reference is made to advanced pricing arrangements, mutual-agreement procedures or any of the other known (to the transfer-pricing world) and accepted methodologies. A reciprocal adjustment would probably not be on the cards. All this may result in a huge additional global tax bill for a multinational.

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SA-Iran bilateral trade increasing

Foreign Affairs Minister Nkosazana Dlamini-Zuma says bilateral trade between South Africa and Iran has increased by nine percent between January and September this year. She was addressing the 8th meeting of the joint bilateral commission involving the two countries in Tehran December 14. Minister Dlamini-Zuma outlined that South African exports to Iran had also increased by over 30 percent during this period. She said a number of South African companies trading with Iran had almost doubled in this period as the private sector showed commitment to the trade relationship through investment. "I am informed that South African investments in Iran currently exceed US 1.5 billion dollars whilst negotiations for an additional US 4 billion dollars are nearing finalisation. "We also welcome the confidence of the Iranian private sector investing in South Africa. Investments totaling US 150 million dollars has already flowed into my country, and we want to encourage them to continue choosing South Africa as the destination of choice for their investments," she said. The minister is being accompanied by some of South Africa's top business people and she explained her visit to the country brought along the South African private and public sector investments to the Iranian market. "Over the last ten years of our relationship, we have put in place a legal framework for our relations that consist of 63 agreements. "These agreements cover a vast area of common interests that include economic issues, cultural co-operation, the exchange of sports teams, health co-operation, housing co-operation as well as the sharing of experiences in women's affairs and security issues," she said.

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African deadlock on US trade agreement

The U.S. trade envoy met with ministers from five southern African countries in hopes of advancing negotiations on the United States' first free-trade agreement in sub-Saharan Africa. The talks, which began in South Africa in June last year, have stalled over a number of issues, including labour, the environment and intellectual property rights. Members of the Southern African Customs Union - Botswana, Lesotho, Namibia, South Africa and Swaziland - argue that many of these issues should be dealt with through other forums and want a more limited deal than that proposed by the United States. South African Trade and Industry Minister Mandisi Mpahlwa, who led the SACU delegation, described the three-and-a-half-hour meeting December 10 in the Namibian port of Walvis Bay as difficult. "There is further work that needs to be done to take this process forward," he said without elaborating. Although he could not spell out the US-SACU Free Trade Agreement differences, SACU insider sources have said that "the US was not at the same level of trade negotiation ambitions". To conclude an agreement on US terms would have profound negative implications for SACU's broad development policy. "A key question is whether our political systems could accommodate such an agreement," said the source. "You cannot discuss environment, labour and trade on the same dimension," U.S. trade representative Robert Zoellick said on inquiry that the US congress has "urged us to include aspects of labour, intellectual property rights and environment in the trade negotiations". "We are urging them to simply enforce their own labour laws," he added. Zoellick was however more upbeat about the meeting. "We had an opportunity to regain momentum," he said. "We realize that SACU has the best potential and is a good partner in furthering this agreement." SACU countries make up the United States' largest export market in sub-Saharan Africa. U.S. officials say a free trade agreement with SACU would be an opportunity to create a framework for trade and investment that furthers regional growth and development. "We build on the relationship that we have built under the framework of the Africa Growth Opportunity Act (AGOA). "SACU is in a process of developing and strengthening its own institutions and this helps in strengthening regional integration." Passed in 2000, AGOA forged a new trade partnership between the United States and sub- Saharan Africa - granting duty-free access to the U.S. market for substantially all products of eligible countries and bringing new jobs and new investment to the region. AGOA has created new commercial opportunities for Africans. AGOA imports totalled $14.1 billion in 2003, and non-fuel exports to the United States from eligible countries were up by more than 30 percent over 2002. A more prosperous Africa is also benefiting American companies, farmers, and workers. Between 1999 and 2003, U.S. exports to the region have grown by 24 percent to $6.9 billion. President Bush has made AGOA a cornerstone of the administration's policy toward sub-Saharan Africa and a key part of his effort to open markets and promote economic growth and development in this struggling area of the world. Over the last four years, President Bush has twice signed legislation passed by Congress to expand and enhance AGOA's benefits.

No overhaul foreseen for SA-EU deal

Radical changes to SA's free trade agreement with the European Union (EU) were not likely to result from the first major review of the deal, warned new EU trade commissioner Peter Mandelson early December. The review of the agreement, which facilitates the liberalisation of trade between the two regions, got under way in November. The process is eagerly followed by domestic sectors that have benefited from the agreement, such as the automotive industry. An unnamed EU commission official said December 6 that the review could take as long as a year. This was in part because significant events had taken place since the deal was inked five years ago, such as the EU's enlargement to 25 member countries. Mandelson, who replaced Pascal Lamy as the EU's head of trade in November, said that the initial deal took "quite a lot of negotiating to achieve". "I don't think they are looking for radical change, but they are in discussions now," he said, addressing journalists from southern Africa on trade issues. The unnamed official said in Brussels that a number of issues had been shelved when the deal was signed, and a number of issues had arisen since then. These issues, which included trade in cars and car parts, canned fruit, cheese and agricultural products, among other things, would now be addressed. The official said the way in which the review would take place over the next year was mapped out in a November meeting in Europe, in which SA's foreign and trade and industry ministers participated. The deal is SA's most significant free trade agreement to date. The outcome of the review is expected to show whether the free trade agreement has enhanced trade between the regions or not. This is a moot point at the moment. The review was likely to have an effect on the way future free trade agreements were structured. Mandelson also suggested that it was now more possible to conclude the struggling Doha development round of world trade talks. This was also because issues on the agenda had been narrowed down from the initial "negotiations overload". Mandelson also attributed slow progress in the past to developing countries' lack of trust in the process. He said there was suspicion among developing countries that the process would benefit only rich countries. And in the past, participants had not felt that there were sufficient gains to be made from the process, he said. Mandelson also called for enhanced economic integration in Africa. Regional integration, he said, was necessary for the New Partnership for Africa's Development to become a reality. He said the economic partnership agreements that the EU was negotiating with African, Caribbean and Pacific countries would serve as a stepping stone to integration on the continent. The agreements were aimed at liberalising trade between EU and African, Caribbean and Pacific countries.

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Sahara expands into Africa

Sahara Computers is to grow its business into the rest of Africa next year. This was announced at the first annual Sahara Convention held on the East Rand December 3. Selvin Kristnen, GM of Sahara Holdings, said the expansion would be split into three phases. "Phase one is currently under way and will finish in March. This phase includes countries such as Angola, Botswana, Nigeria and Mozambique." The next phase will see Sahara move into North Africa, with offices planned in countries like Senegal and Egypt. "Our phase three countries include Chad and the Democratic Republic of the Congo. However, due to instabilities in these countries, Sahara will not have a physical presence there. Instead, we will make sure that our products are represented through other means."

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De Beers suffers from rand's strength

South Africa's largest diamond producer, De Beers, is losing money at seven of its eight local mines, under pressure from the strong rand, Jonathan Oppenheimer, the head of the global diamond giant's South African operations, said December 1. The company may be forced to close some mines next year unless it can boost productivity and cut costs. Oppenheimer said that with the rand's current strength "we have to fix the mines, and to ask whether the mines can operate at an economically sustainable rate at the (rand-dollar) rates we are experiencing now". He said De Beers was seeking to implement a "thrive at five" strategy. This was to ensure that its mines could be viable at R5 to the dollar. "Do we think all can thrive at five? I don't think so," he warned. He said that at current cost levels, they could probably survive at a rand level "in the mid-sixes to the dollar". However, Oppenheimer said "plans are in place" to make all the South African mines profitable, and he said this would be important when De Beers brought empowerment partners on board. "People don't want to buy into a loss-making business," he said, saying important decisions would be taken in the middle of next year. He was elusive when asked whether some mines could close, but did not rule out this possibility. "We as an executive will take the right decision at the right time," he said. "If mines can come with a move to sustainability, the inclination is to give them a chance." On a more positive note, Oppenheimer said that processing at the Kimberley mine had been the highest since 1920. He estimated that output this year would double from 1-million carats to 2-million carats. If a similar improvement could be achieved at other mines, that would "materially change the picture," he said. The Indian government has taken an effective 13% stake in De Beers' diamond exploration and mining operations in India, De Beers chairman Nicky Oppenheimer said December 6. The move deepens the relationship between the two parties and builds on an existing partnership in diamond cutting and polishing. Oppenheimer and the Hindustan Diamond Company signed a memorandum creating a 50-50 joint venture between De Beers and the Indian government. "The agreement also illustrates the interest shown by the government of India in diamond exploration and mining," he said. However, Oppenheimer said that exploration was a long-term business and had risks. There were prospects of important diamond discoveries in India. Hindustan Diamond Company chairman V Madhavan Nair said there were 1-million jobs in the diamond cutting and polishing industry in India, compared with 30,000 in the same industry in the rest of the world.

Harmony - takeover developments

The decision by Gold Fields shareholders to vote down the merger of the company's international assets with Canadian-listed IAMGOLD throws the attempted takeover by Harmony into sharp relief. It is pretty clear that the 11,8% of Gold Fields' equity delivered to Harmony in terms of the early settlement offer came from arbitrageurs. No major institutional holder went along with Harmony's takeover bid. So what will happen now? Harmony's second settlement offer closes on February 5. Depending on the speed with which the Competition Commission reviews the bid, that may have to be delayed. What is rather more important, though, is what has happened to the share prices and market caps of the two companies. Both have had billions knocked off their capitalisations since the bid began - in fact, about R19bn has disappeared. Over this period the gold index has fallen 18%. The Harmony counter has declined 27%. It is all very well for Harmony executive director Ferdie Dippenaar to say the share price will come back after it is all over but will it? Meanwhile, Harmony CE Bernard Swanepoel said at the outset that he could save Gold Fields R1bn a year. In the face of these numbers that is a real laugh. Gold sector shares are now in a decline across the board. Harmony's and Gold Fields' are dropping faster. That must now make Gold Fields a tempting target for any other house prepared to put a mix of shares and cash on the table. It is certainly worth looking at the actions of Gold Fields chairman Chris Thompson and Harmony's Swanepoel. Some years ago Thompson put together a deal between Franco Nevada and Gold Fields that would, in essence, have externalised Gold Fields. It failed to pass the treasury hurdle. Then Thompson tried a deal with Ghana's Ashanti, but that didn't get off the ground either. Thompson is now based in Denver, Colorado. He is also chairman of the World Gold Council. He has publicly said he will vacate the chair of Gold Fields when the fight with Harmony is over presuming, of course, that Gold Fields wins. Gold Fields can now conduct an internal restructure if it wants to. It can split off its international assets, put these into a new company (Gold Fields International), and list the company with precisely the same shareholder base (in other words, a form of unbundling) on day one. The effect of that would be to make it nearly impossible for any predator to get hold of both the local and international assets as well as the cash pile. Many options may come into play. Just because the year-end is fast approaching is no reason for the parties involved to close both eyes. They are being watched from the deep undergrowth.

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Drug company lands US contract

Drug manufacturer Aspen Pharmacare has got the nod from the US government to produce and supply generic HIV/Aids drugs, news that could see the SA firm receive millions of dollars in funding. It was announced December 10 that Aspen's new R157-million plant in Port Elizabeth had received approval from the US's Federal Drug Administration (FDA). Aspen is the first African manufacturer, and the first from a developing nation, to receive FDA approval to supply generic antiretroviral drugs. FDA approval is a prerequisite to gain access to the US President's Emergency Plan for Aids Relief (Pepfar). The plan has pledged $15-billion to assist developing countries address the HIV/Aids crisis over the next five years. The money will be spent on drugs, training of physicians and nurses, testing, counselling, prevention and orphan care. Gray Handley, the health attaché for the US embassy in SA, says Pepfar will purchase the approved drugs from Aspen for use all over the world. Aspen expects to extend its supply of generic antiretroviral drugs offshore through among others the Clinton Foundation, which has selected Aspen as one of only three manufacturers worldwide. Lynn Margherio, executive vice-president of the Clinton Foundation, says "the FDA approval Aspen received is a clear demonstration that Aspen products are of the highest quality". She says that on the basis of the FDA approval, funds will be made available from the World Bank and other global funds to purchase drugs from Aspen. The SA government is expected to announce the outcome of the tender for antiretrovirals in January. Aspen, whose biggest client is the state, is among the front-runners. 

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AU Magazine

African leaders, journalists, and other experts have heaped praise on the new African Union magazine, saying it is a noble continental voice that will represent Africa's interests while changing western media's negative perceptions about the continent. Speaking at the launch of the magazine in Pretoria December 9, former Zambian President Kenneth Kaunda said he was "pleased" to see an African publication that would report on the continent's developments "without bias." The ageing statesman said the magazine could provide Africans with a platform to speak with one voice about themselves, their history, hope and aspirations in a world that still perceived the continent as a dark, conflict-ridden region, hit by HIV and AIDS providing little hope to the globe. The quarterly journal, which forms the core of AU media publications, is currently printed and distributed from Nigeria and South Africa, primarily to inform, educate and unite Africa behind a common cause. At R29.50 per copy locally and R10 extra in other African countries, the journal features news reports on AU organs and related topical issues, Nepad, Africans in the Diaspora and exclusive feature articles about different leaders and experts. The magazine has hit the street twice with the latest featuring among others, an exclusive interview with Mr Kaunda. In the article, he calls for the International Monetary Fund (IMF) to cancel Africa's debt, which undermines development, and the fight against other social ills on the continent. "It is about time these lending institutions listen to the African Union leadership and wave debt," he implored. He asserted that as much as the now-defunct Organisation of African Unity (OAU) was to be blamed for "not doing enough" it was however sad "to sit and watch our wealth and natural resources being depleted by imperialists." "There is no justification for Africa to be wallowing in poverty when it is one of the richest continents in mineral and natural resources," he said. He however praised the current continental leadership, including President Thabo Mbeki, for their efforts in integrating the continent's 800 million people and eradicating poverty and conflicts. "I am proud of them. They must form a formidable strength in protecting the continent's rich resources from abuse and organise all African countries without exploiting each other," said the frail leader, known for his trademark white handkerchief, which he affirmed represented peace. On HIV and AIDS, the 80-year-old liberation stalwart called on Africans not to relent in the fight against the scourge, which threatens many African economies and people. "We have to fight AIDS and beat it," he stressed. There are plans to publish the magazine monthly.

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