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Key Economic Data 
  2003 2002 2001 Ranking(2003)
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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Thabo Mbeki

Update No: 042 - (01/07/05)

A 'first' for Africa? Corruption at the top penalised
South Africa's most important corruption trial since liberation has ended in a 15-year prison sentence for Schabir Shaik, financial adviser to the country's deputy president, Jacob Zuma. Newspapers in South Africa and beyond are convinced that President Thabo Mbeki made the right decision in sacking his deputy Jacob Zuma June 14. Mr Mbeki acted after the trial of Schabir Shaik, appeared to implicate the deputy president in corruption. The president's announcement has been welcomed as a signal of Africa's determination to fight corruption. The move has reinforced South Africa's standing in the international community. It did so by underlining not only a commitment to clean government, but, critically, to the constitution and the country's institutions, including the judiciary. Mbeki's decision to get rid of Zuma is viewed as a move that will be investor friendly for a long time to come. The continent is generally perceived by the international community as being riddled with corrupt leadership. Some critical observers have observed that Mbeki's decision could strengthen his hand as he takes Africa's case to July's meeting of the Group of Eight (G-8) industrial nations in Scotland, where he is expected to argue for a better economic deal for the world's poorest continent. 
The African National Congress (ANC) struggled to contain the fallout from the guilty verdict in the Schabir Shaik trial. Mbeki has been under pressure to demonstrate his commitment to principles of good governance, one of the foundation stones of the New Partnership for Africa's Development (NEPAD) plan which he and other African leaders have sold to the G8 nations. Mbeki attempted to persuade Zuma to resign, his emissaries telling Zuma that the judge's verdict made his position as heir to the presidency untenable. Ultimately Mr Mbeki dismissed his deputy and the minister of minerals and energy Phumzile Mlambo-Ngcuka has been appointed as replacement. President Mbeki had worked closely with his deputy for over 30 years and it must have been a difficult call to make. Mr Zuma was imprisoned by the apartheid regime for 10 years on Robben Island and spent many more years in exile. After apartheid's downfall in 1994, Mr Zuma joined the provincial government of his native KwaZulu-Natal before rising to deputy president. 
Mr Zuma was heavily tipped to succeed Mr Mbeki, and remains a popular figure. Mr Zuma is unlikely to make a comeback in government before Mr Mbeki is due to step down in 2009. But analysts say he may be able to retain support within the ANC and position himself to return to national office in the future. He has made it clear that his sights are still fixed on the country's presidency. However, commentators are unanimous that his prospects have been deeply dented by his dismissal as deputy president and subsequent resignation from Parliament. Once odds-on favourite, he is now considered an outsider. But he is still in the race, and wants to capitalise on widespread sympathy and support in the tripartite alliance by projecting himself as a victim of political machination and apartheid justice. Some analysts argue that in his new capacity as full-time ANC deputy president, in regular contact with members, he will be well placed to advance his ambitions. However, the consensus is that without state resources and the platform of office, Zuma now has a mountain to climb. The National Prosecuting Authority (NPA) announced that Zuma is to be charged with Corruption. "We have decided to bring criminal charges against former Deputy President Jacob Zuma, among them two counts of corruption," spokesman Makhosini Nkosi said. Opposition political parties have welcomed the NPA's announcement. 

Zuma Decision 'Will Boost Economy'
The corporate sector overwhelmingly welcomed President Thabo Mbeki's decision to axe Jacob Zuma from his cabinet June 14, saying it would be a significant boost to confidence in the local economy. Business Unity SA said Mbeki had "no choice but to release Zuma from his office". South African Chamber of Business president Deidré Penfold described the move as positive, and said it sent out a strong message that there was no tolerance for corruption in SA. Econometrix chief economist Ajar Jammine said any other decision could have caused investors to pull out of the country. "This entrenches Mbeki's stature, and (if) he hadn't taken this stand there could have been a huge flight of capital," he said. Mittal Steel, Africa's largest steel maker, said in a statement it had faith in the democratic processes of the country, and respected the president's decision. "We also believe it was not an easy decision to make." Sappi said the president had to act with the best interests of SA in mind, and this required making difficult decisions. "It is important to know that he can do that," Sappi said. Trevor Munday, incoming deputy CEO of Sasol, said: "We respect the decision taken by the president, and thank Zuma both for the leadership he has provided over the years and for his countenance in these difficult circumstances." Banking Association MD Cas Coovadia said Mbeki was to be commended for acting on the matter and putting the good of SA and democracy at the forefront. "The bottom line is that there was uncertainty around the role the deputy president played, and that wasn't good for confidence in the country," Coovadia said.

Presidents on the move
President Mbeki met with US President George Bush in Washington. He appealed to Bush for a "results oriented" session when African leaders meet heads of government from G8 nations in Gleneagles, Scotland in July. Speaking to reporters at the end of an Oval Office meeting, Mbeki thanked Bush for the U.S. contribution to Africa, then added: "I'm going to ask for more. Whatever mechanism is used to finance Africa's development, It is important that the G8 Summit this year should come out with specific decisions." Among the priorities, he said, are debt forgiveness, increased flows of assistance and improved market access for African products. While the western world spends about $50bn a year on aid, it spends $300bn on trade subsidies. The AU will meet just days before the G-8 summit, and endorse the initiatives needed to help improve Africa' future. 
Six African leaders meeting in the Nigerian capital, Abuja, have called on rich countries to cancel all of Africa's debts at the G-8 summit. The G-8 group of leading industrial nations will focus on development in Africa when it meets on 6-8 July. Finance ministers agreed in June to full debt relief for 18 countries, including 15 poor African countries. The presidents of South Africa, Nigeria, Ghana, and Rwanda are among those who took part in the meeting June 19. G8 finance ministers also said they were prepared to renegotiate the debts of Nigeria, which alone are almost as large as those of all the other countries who have received debt relief.
World Bank President Paul Wolfowitz visited Nigeria, Burkina Faso, Rwanda, and South Africa June 12th-18th to hear from African leaders and local communities how the continent can make greater strides in reducing the poverty that afflicts hundreds of millions of its people. In taking office as the tenth President of the World Bank June 1st, Wolfowitz declared that the Bank and the international development community must make Africa their first priority if it is to become a "continent of hope." World leaders will be gathering several times before the end of 2005, such as at the G-8 Summit in July and the United Nations Summit in September. They will discuss the urgent need for progress in reducing poverty worldwide, and Wolfowitz said his discussions in Nigeria, Burkina Faso, Rwanda, and South Africa will directly inform his participation at these critical meetings.

G-8 meeting and Africa
The leaders of the world's richest nations, the Group of Eight (G-8) will meet in Gleneagles, Scotland early July, with Africa at the top of their agenda. The British Prime Minister will argue at Gleneagles for the comprehensive package outlined in the Commission for Africa's report. This means significant additional resources through agreements on debt and aid, plus progress on trade justice. But this will be linked to securing improvements in governance and capacity across Africa. The UK's proposal to Group of Seven finance ministers that they should lift the debt burdens from 18 heavily indebted poor countries -- 14 of them African, has been agreed. This write-off will be worth $40bn. Another nine African countries will qualify within 12-18 months for debt relief worth a further $10-$15bn. A second UK proposal is the launch of an international finance facility for immunisation. This will raise $4bn extra for vaccinations, saving an extra 5-million lives by 2015. The UK, France and Sweden have contributed to the scheme, which also has financial support from the Gates Foundation, the World Health Organisation, the United Nations (UN) Children's Fund and the World Bank. Other backers are expected soon.Thirdly, the UK proposes a large increase in development aid. Last month, the European Union (EU) made a historic commitment to double aid to Africa by 2010. In addition, EU donors committed themselves to achieve the UN target of allocating 0,7% of gross national income to aid by 2015 at the latest. Sub-Saharan Africa's share will be about half the extra $40bn, more than two-thirds of the extra development aid recommended by the Commission for Africa. The fourth set of UK proposals focuses on trade. To maintain progress at the WTO in delivering substantial increases in market access for goods from developing countries and in dismantling developed-country protectionism. The UK will argue strongly for all countries to remove export subsidies and all trade-distorting support to agriculture that works against African producers. This will be taken beyond the G-8 summit to the WTO ministerial meeting in Hong Kong in December. Sub-Saharan Africa's share of world trade has dropped from 6% in the 1980s to 2% today. While the western world spends about $50bn a year on aid, it spends $300bn on trade subsidies. If sub-Saharan Africa could regain just an extra 1% share of global trade, it would earn $70bn more in exports -- more than three times what the region currently receives in development aid.

G-8 - Mbeki Urges African Unity
President Thabo Mbeki has urged African business leaders to speak with one voice when addressing the upcoming G-8 Summit that is led by the most powerful economies in the world. Addressing the Fourth Congress of the World Chambers Federation in Durban June 21, President Mbeki said this would enable world leaders to act decisively in assisting the development processes taking place in Africa. He said African leaders could then be able to erase the ugly scar of poverty and underdevelopment "from the face of the earth". The summit will follow hot on the heels of a decision by the finance ministers of the G-8 to cancel all multi-lateral debt owed by 18 of the world's impoverished countries, most of which are in Africa. "We should also communicate a common message that, it is in the interest of international business to ensure market access for developing countries because this will accelerate the necessary growth of entrepreneurship and business in these developing countries. "Indeed, economic growth of developing countries will invariably increase and open new markets for goods and services from companies that are the back-bone to this important Federation. Undoubtedly, many of these developing countries are willing and ready to trade and do business in equitable and fair partnerships," said Mr Mbeki. 

Aid, Free Trade, Governance Key to Reaching Millennium Goals
Doubling of more effective aid, a fair world trade regime and good governance are key to increasing Africa's growth level to create jobs and reducing poverty, says Paul Boateng, UK's Ambassador to South Africa. Ambassador Boateng told journalists at the Africa Economic Forum (AEF) at the International Convention Centre that the three are key themes that will be on the agenda of the Group of Eight industrialised nations summit in Scotland in July. The key themes, he said, were interlinked and G-8 leaders will not make concessions on one without addressing the other key elements. "There's no doubt in my mind whatsoever of the importance of trade, and the fact that it will be the subject of discussions among leaders of the G-8. But the situation we find ourselves in is that trade, aid and good governance are seen as three legs of the same tool. An increase in aid by itself will not be enough and free trade by itself is not enough," he said. The three issues - amongst others- are seen by African leaders and some developing nations as key to unlocking growth potential for developing nations to reach the Millenium Development Goals of halving poverty by 2014. This year also presents a opportune time for the world to make strides towards reaching MDG, as AEF comes on the heels of the G-8 summit in July, the review of MDG summit in September. Developing nations also hope for possible concessions to the Doha development round World Trade Organisation ministerial negotiations in Hong Kong in December. The Doha developmental trade talks launched in 2001 in Qatar are key to developing nations to push for fair trade regime that will see industrialised nations open their markets to African exports and see the US and European Union cut agricultural subsidies to their farmers. "If developed countries immediately extended quota and duty free access to all low income countries, annual income in Sub-Saharan Africa could increase in the short term by $5-billion a year," said Ambassador Boateng. The removal of agricultural subsidies by US and EU to their farmers could increase Sub-Saharan Africa's cotton exports by 75 percent, he said. The issues of doubling of aid, debt cancellations are also contained in the Commission for Africa report recommendations that will be discussed at the G-8 Summit in Scotland. 

Wolfowitz Urges Business to Play Lead Role in Africa
World Bank president Paul Wolfowitz has come out strongly in support of SA playing a leading economic role in Africa, saying South African business and the bank should form a partnership to boost development in the region. Wolfowitz said local firms were already uniquely positioned for public-private infrastructure projects in the region. According to research analysts Liquid Africa, SA is now the largest source of foreign direct investment in Africa, far outstripping the US, the UK and France. South African companies are involved in sectors such as construction, mining, financial services, telecommunications and retail on the continent. Wolfowitz said if SA and the bank "partner together we can probably increase our respective effectiveness and we have a huge interest in seeing that this part of the world makes progress." Wolfowitz's call for a partnership between SA and the bank on the continent is likely to be warmly received by government, which is increasingly placing SA's economic interests at the heart of its foreign policy. President Thabo Mbeki is also keen to align SA's economic needs with those of the rest of the continent and has been at the forefront of efforts to boost trade links across Africa. Wolfowitz met Mbeki and business leaders June 18. His visit to SA was the last leg of a four-nation Africa trip. In a thumbs up for the controversial new World Bank president, Mbeki said the two had "a general chat -- really a courtesy call", and he was "very pleased that he (Wolfowitz) came so soon" after taking up office. Wolfowitz, a former US deputy defence secretary, took over the presidency of the bank on June 1, replacing James Wolfensohn, who led the bank for 10 years. Wolfowitz has said he wants to make poverty alleviation, especially in Africa, the main feature of his tenure at the bank. 

Delegates to WEF Summit Confident of Africa's Ability to Absorb Increased Aid
Africa was perfectly capable of absorbing and managing the increased aid flows envisaged by the Commission for Africa, delegates to the World Economic Forum's African summit agreed June 2. Top businessmen and political leaders discussed this crucial issue at one of the main plenary sessions of the three-day summit, which the organisers are using to build support for the commission's development proposals ahead of next month's Group of Eight meeting in Scotland. The ability of African countries to absorb and properly manage the doubling of aid proposed by the commission has been questioned, but panel members in the plenary were adamant that it was not an issue. Panel members included Finance Minister Trevor Manuel, Absa CEO Steve Booysen, SABMiller CE Graham Mackay and Tanzanian President Benjamin Mkapa. Introducing the discussion, Mackay said the proposed doubling of aid raised a number of questions in addition to that of whether African countries had the capacity to spend it. He said these questions included, "what distorting effects could be created in the economies of the countries (by additional aid)?" and, "does being dependent on aid rob these countries of the chance to attract foreign investment?" Manuel said that Africa's capacity to absorb aid was "double the flows, and unless we recognise that as a chance to maximise the leverage of aid flows, we will have missed the opportunity." Absa's Booysen said it was unfortunate that countries were "putting their country ratings at risk if they accept debt relief". He said companies use the ratings by agencies to assess investment opportunities. Mackay disagreed, saying that SABMiller, for example, generally stayed away from a particular country for reasons such as "an unwillingness to privatise" and "creating barriers to entry aimed at protecting local interests that are not necessarily in favour of the consumer". He said whether aid was accepted by a country was tangential. Manuel insisted that a new way needed to be devised to measure aid which focused on the "quality of aid." "Too much aid remains in the donor country under the guise of technical assistance and never touches the ground in the recipient country." The meeting also discussed what the US is calling its new approach to its aid programme for poverty reduction through the Millennium Challenge Corporation. Under the rules for disbursement of grants by the corporation, set up by the Bush administration, aid goes only to low income countries that meet strict criteria on governance, human rights and investment in education and health. The problem is that very little has been disbursed for various reasons, as yet, it's contribution is negligible.

Labour unrest
Tens of thousands of South African workers demonstrated against job losses and poverty in a countrywide one-day strike called by trade unions June 27. Describing the strike action as a success, COSATU spokesman Paul Notyhawa claimed that almost the entire mining sector had been affected, while 86 percent of the workforce in the textile and clothing manufacturing sector had stayed away. However, South African Chamber of Business spokesman Johan Zietsman said that the strike had affected only 10 percent of workers across the country. The main demonstrations were in Johannesburg, and in Cape Town, where strikers took a petition to parliament. The Official figures suggest a quarter of all South Africans are unemployed, but some analysts put the figure at up to 40%.
South Africa, along with its Southern African Customs Union (Sacu) partners, and the US have finally agreed to meet on July 1 in Geneva to rescue free-trade talks that stalled a year ago. Negotiators on both sides have been unable to agree to a meeting for the past six months. SA's chief negotiator, Xavier Carim, said June 21 it would be an exploratory meeting to find a way forward. SA's acting trade and industry director-general, Tshediso Matona, and deputy US trade representative Josette Shiner are expected to attend the meeting. Business in South Africa hopes that the free-trade agreement between Sacu and the US will permanently lock-in the temporary duty-free access that South African exporters enjoy in the US market under the African Growth and Opportunity Act. The free-trade pact was scheduled for completion in December, but broke down as substantial differences of opinion emerged over a range of issues.
Figures released May 31 from Statistics South Africa show that economic growth slowed in the first quarter of 2005. Gross Domestic Product (GDP) for the first quarter of this year stood at 3.5 percent, as compared with a 4 percent growth in the last quarter of 2004. According to Stats SA the real annualized economic growth rates during the four quarters of 2004 were 3,8 %, 4,4 %, 5,7 % and 4,0 % respectively. The seasonally adjusted real value added by the manufacturing industry decreased at an annualised rate of 1.9 percent during the first quarter of 2005, as compared with the fourth quarter of 2004. Stats SA said the decrease was mainly due to "decrease reflected by the petroleum, chemical products, rubber and plastic products, basic iron and steel, non-ferrous metal products, metal products and machinery products." Government has forecasted the South African economy would grow by 4.3 percent in 2005.

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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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Comair in operating profit rise

BA/Comair has learned well from sister airline 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/ 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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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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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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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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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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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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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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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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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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