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SOUTH AFRICA


  
  

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 159,886 104,235 113,300 29
         
GNI per capita
 US $ 2,780 2,600 2,820 93
Ranking is given out of 208 nations - (data from the World Bank)

Books on South Africa

REPUBLICAN REFERENCE

Area (sq.km)
1,219,912

Population
43,586,097

Capital
Pretoria

Currency
rand

President
Thabo Mbeki

 

Update No: 38 - (03/03/05)

Optimism for the economy, pessimism for the Security Council
In his "State of the Nation" address to Parliament February 11 President Thabo Mbeki highlighted various positive trends within the continent, saying they offered inspiration to Pretoria's efforts in achieving a peaceful and prosperous Africa. He said the country would continue with its continental programmes towards the renewal of Africa. Mbeki said South Africa would continue playing a significant role to ensure the success of the African Union and its programme, the New Partnership for Africa's Development (NEPAD). He also praised the country's optimistic domestic situation. Mbeki quoted a report saying South Africa was enjoying its longest upward business cycle since World War II. Fifteen African foreign ministers have agreed that the continent should press for two permanent and five temporary seats on the United Nations (UN) Security Council. However, South Africa is not a front runner to take a permanent seat on the UN security council, facing competition on account of Nigeria's size and natural resources and Egypt's political relevance in relation to the Arab world. Furthermore there are proposals to relocate The New Partnership for Africa's Development (Nepad) secretariat from South Africa to the Ethiopian capital Addis Ababa.
Government put tax cuts and increased social spending at the centre of its latest budget. Aiming to both stir economic growth and aid the country's poor, finance minister Trevor Manuel said the focus of the 2005 budget was "more for all" February 23. Government is projecting to raise R11 billion more than budgeted this year, thanks to the strength of the country's economy coupled with "excellent work" by the tax and customs team. On speculation over the true unemployment figure Manuel commented that If 40% of South Africans were really unemployed, "there'd be a revolution". The figure was inaccurate and it was unhelpful to keep bandying it about to drum up support for an income grant that would "bankrupt" South Africa and fail to secure sustainable economic growth. South Africa's trade surplus of R16bn in 2003 swung into a deficit of R12,5bn last year. The rand's strength, coupled with buoyant consumer spending, boosted import demand, especially for products such as electronic goods, clothing and footwear. Economists said the trade deficit was likely to persist throughout this year, increasing the likelihood of another current account deficit.
The outlook for foreign direct investment for SA this year has improved, says research organisation the BusinessMap Foundation. BusinessMap director Reg Rumney said about $8bn in foreign investment had been announced for this year in January alone. BusinessMap tracked investment at about $5,8bn for last year in its preliminary calculations - up from about $2,7bn in 2003 - and the think-tank does not expect the rate of investment from abroad to slow down. Rumney said the amount of foreign investment announced tended to rise as the year drew to a close. Interest rates were once again kept on hold but there are hopes they could move again in April.
Vehicle sales set fresh records after the number of vehicles sold in one year hit a record high last year. Domestic passenger car sales were the highest they have been in any January, surging 22,2% on the level for the previous January. Car part manufacturers were less successful feeling the strong rand squeezing them out of some export markets. February 1 2005 saw Telkom's monopoly finally came to an end. Private companies can now offer many of the services that Telkom has had the sole right to supply. Indian group Tata plans to invest heavily to run the Second National Operator.

United Nations Security Council - South African Prospects
The start of the race between Egypt, South Africa and Nigeria for two permanent United Nations (UN) Security Council seats that may become available in the next few years was hardly dignified, and signs are that the public insults could worsen in the months ahead. All indications are that the race will be long and hard, and that South Africa, while deserving, is the outsider because of the realities of power. The choice of who will represent the continent will not be Africa's alone. With 53 members of the UN, Africa can give an indication of who it wants in the seat, but new members of the security council must be approved by two-thirds of the 191-member general assembly. Then the council's five permanent members - the US, UK, France, China, and Russia - must ratify the decision. When the decision will be made in the UN, and the model by which the choice will be made, are far from clear. UN Secretary-General Kofi Annan has suggested that two models came out of the report of the high-level panel he appointed on threats, challenges and change. But the panel could not agree on a model and said "no change in the composition of the security council should itself be regarded as permanent or unchallengeable in the future" and that the matter of reform should be reviewed in 2020. Model A provides for six new permanent members with no veto power, and for 13 two-year, non-renewable seats. Model B provides for no new permanent seats, but for eight four-year renewable seats, and 11 two-year non-renewable seats. Neither model suggests that any countries other than the existing five with permanent seats should have veto rights. The battle in Africa, however, is being fought on the assumption that there will be two permanent seats for the continent. SA's position is not strong in this fight. It has diplomatic stature as a regional power, because of its peacekeeping operations in Africa and attempts at ending conflicts, and was the first country to disarm its nuclear arsenal. But these are insufficient to count as decisive factors for obtaining a permanent security council seat. In global terms, SA lacks the population size and strategic importance of the two other African contenders. Its population of about 45-million is well below Egypt's 70-million and Nigeria's 130-million. Both competitors have larger military forces and considerable weight in the world. Nigeria is an oil producer and a giant in its region, which is of considerable importance to the US; Egypt is a large and moderate Arab power close to the US. SA and Nigeria have free and fair elections, while Egypt is a highly autocratic state that has been under the rule of one man for nearly 30 years. It is under mounting pressure from the US to democratise, and one of the prizes could be US approval for a permanent seat. There is an imperative by the permanent five on the security council to reach out to the Arab and Muslim world, particularly after the Iraq war. The fact that more than 90% of Egyptians and more than half of Nigerians are Muslim will count heavily in their favour. Pretoria's loud rhetoric against the Iraq war compared with the quieter approach taken by Egypt and Nigeria could be held against SA by the US and the UK. However, Egypt has taken minimal interest in sub-Saharan Africa and would probably not be representative of wider African interests. President Hosni Mubarak has not attended an African Union meeting since 1995, when an attempt was made to assassinate him, and has not attended many meetings of the New Partnership for Africa's Development steering committee. If the race for membership of the council hangs over African politics for years, it would be disruptive and push other issues off the agenda. SA's quiet diplomacy toward Zimbabwe may enjoy a longer lifespan because SA may view it as counterproductive to be seen to be pushy by its neighbours. But its case for membership of the security council would probably be all the more convincing if it played a successful role in building peace and stability in the region. SA favours model A and wants veto rights, but that may mean it has little chance of anything but two-year non-renewable stints on the council. That may be an opening gambit, but SA's interests may be better served by favouring a model that could allow for longer, non-permanent terms for more countries.

Nepad May Relocate to Addis
The New Partnership for Africa's Development (Nepad) secretariat could be relocated from South Africa to Ethiopia by the end of the year as part of a strategy to accelerate its integration into African Union structures. A move widely criticised by political commentators who fear that the continent's recovery plan will be subsumed into AU bureaucracy. Analysts fear that the AU, already battling with its own heavy structures, will not pay the requisite attention to Nepad and that incorporation could scare off already wary investors and donors. Ross Herbert of the South African Institute of International Affairs said the AU does not have adequate machinery to handle Nepad and would make it less effective. He said those proposing its move could be motivated by "national jealousy" and were taking a "pointless swipe" at South Africa. "South Africa takes a lot more interest in Nepad than other countries and it is only fair that they host its offices. The AU needs to get its own house in order and show its effectiveness first before taking more responsibility. "Already Nepad is under pressure to deliver and moving it would cause disarray, which would result in some period of inactivity. The debate should not be about moving it from one place to the other but about how to make it more effective." A senior South African government official said that Nepad was the socio-economic programme of the AU and should not be seen to compete with it.

Budget - R11bn Tax Payback
The South African government has put tax cuts and increased social spending at the centre of its latest budget. Aiming to both stir economic growth and aid the country's poor, finance minister Trevor Manuel said the focus of the 2005 budget was "more for all" February 23. In a budget that reflected the mood of optimism sweeping the South African economy, it showed the government's intention to spread the benefits of SA's growth a decade after apartheid ended. Taking centre stage were tax cuts amounting to R11bn designed to steer economic growth on a higher path. Manuel predicted a 4,3% economic growth rate this year and 4,2% over the next three years, which was "a significant step-change in the pace of economic growth", Manuel told Parliament. Economists welcomed the broad outline of Manuel's measures, but some warned that even a growth rate of about 4,5% was not sufficient to significantly reduce SA's roughly 30% unemployment rate. Revenue overruns of R11bn gave Manuel room to manoeuvre, as he stayed true to a tradition of fiscal constraint while simultaneously boosting spending. Manuel gave the surprise surplus straight back, with companies benefiting by a one percentage-point cut in the corporate tax rate to 29%, which will cost the fiscus R2bn, and small businesses getting R1,4bn in tax relief. After a series of budgets focusing on administrative and structural changes, Manuel focused on immediate tax issues this time, also announcing an across-the-board cut in personal income tax of R6,8bn for mainly low- and middle -income earners. Manuel announced measures to ease the administrative and tax burden strangling small business, including scrapping the training levy for small businesses. At the same time, substantial sums were earmarked for social expenditure, with R55,4bn for social benefits for the elderly, poor, disabled and children. Manuel said that in total social security programmes now represented 14% of SA's non-interest expenditure. "The 2005 budget is strongly re-distributive, channelling significantly more resources to the poor through rising social grants, higher spending on municipal and social services and community infrastructure such as water and sanitation, schools, clinics, multipurpose centres, police stations and roads," the budget review said. CPIX (consumer inflation excluding mortgages) is expected to average 4% this year, rising to 5,1% next year and 5,4% in 2007, while the deficit increases from the 2,3% to 3,1% of gross domestic product (GDP). Real growth in public spending rises 9% in 2005-06 and will average 5,5% over the next three years. An additional R74,4bn has been allocated over the medium-term expenditure estimates. Budget revenue after the tax proposals grows a hefty 9,4% to R370bn, translating into a higher budget deficit of 3,1% of GDP in 2005-06 from this year's lower-than-expected 2,3%. Manuel expects the deficit to fall to 3% in 2006-07 and 2,7% in 2007-08. The net borrowing requirement has been estimated at R53bn, or 3,1% of GDP, up from the previous R37bn (2,8% of GDP). Although this might seem like a chunky increase for the bond markets to digest, the overall deficit estimate is actually less that predicted last year. Highlights on the expenditure side include R6bn for land restitution, R7bn over three years to improve teachers' salaries, and R2bn to provide housing. In addition, Manuel announced that R3bn received in levies from the forex amnesty and the taxation of declared amounts would be used for investment in community infrastructure. Tobacco and alcohol products were once again hit with tax increases, ranging from 7% to almost 16% in real terms.

Interest Rates on Hold
The Reserve Bank disappointed financial markets February 10 by keeping its repo rate steady at 7,5%, despite painting a benign inflation outlook. Bank governor Tito Mboweni said CPIX (consumer inflation excluding mortgages) would peak at just above the midpoint of the 3%-6% inflation target this year, and ease after that. This was only slightly higher than the latest inflation figures, which put CPIX at 4,3%, the 16th consecutive month that inflation was within the target range. The decision to hold rates steady appeared to be a compromise between committee members, with Mboweni acknowledging that the committee had "deliberated extensively on the appropriate policy stance". Markets had priced in a two-thirds chance that rates would drop 0,5 percentage point, given the benign inflation outlook. However, the committee did not appear to rule out an interest rate cut in future, saying that it would "stand ready to adjust the stance in either direction if necessary depending on the outlook for inflation". Econometrix chief economist Azar Jammine said yesterday that the committee appeared to be holding open the door to a possible easing in rates at the April meeting. "They obviously wanted to cut, but in the wake of the rand's fall recently, the decision doesn't come as a surprise. "The environment might be more conducive for a rate cut in April. CPIX could fall close to 3% over the next three months, and the Bank may come under more pressure to cut," Jammine said. The rand has plunged 6,5% against the dollar since the committee's previous meeting in December. A weaker rand could boost inflation by raising the costs of imported goods and increasing the likelihood of a hike in petrol costs. However, the outlook for the rand remained uncertain, with the committee stating that it was unclear how far adjustments to "global imbalances" would proceed. The dollar's slump helped to boost the rand 19% against the US currency last year, eroding export competitiveness. The committee said it would continue to assess the effect this had on the rand, inflation and the "need for SA to have a competitive and stable exchange rate".

Mbeki Snubbed in Cte d'Ivoire Talks
President Mbeki's peace bid in Cte d'Ivoire has been dealt an apparent setback by President Laurent Gbagbo bringing in Morocco's King Mohammed to revive the peace talks. Gbagbo's decision might have been motivated by the deadlock in which peace talks have found themselves after Mbeki's four-month mediation. The west African state has been facing a rebellion since September 2002, following an aborted coup. The move came as a surprise to many observers, especially as Gbagbo had not expressed any discontent with the way Mbeki had conducted peace talks so far. Mbeki was mandated by the African Union (AU) to act as a mediator in Cte d'Ivoire last November. Since then, he has held extensive meetings with different stakeholders in the crisis. His efforts, however, hit a snag last month at the AU peace and security council meeting in Libreville, Gabon. A report from Mbeki on the progress of the peace talks recommended the country hold a referendum on the constitution's provision that only native Ivorians are eligible to run for president. Gbagbo's main rival Alasane Ouattara is an Ivorian, but has Burkina Faso origins. The AU statement caused an outcry among rebel and opposition leaders who saw it as a concession to Gbagbo. However, Pretoria remains determined to continue to be a peacemaker in Ivory Coast, other hotspots and beyond. This will include helping out with post-conflict reconstruction in Somalia, Sudan, Burundi and the Democratic Republic of Congo, where government under the African Union (AU), is playing an influential role.

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AUTOMOBILES

DaimlerChrysler to spend R2bn C-Class facility


DaimlerChrysler, South Africa's biggest luxury car maker, and its suppliers, will invest R2bn - double the initial estimation - in expanding and retooling production facilities in preparation for the start of production of the next Mercedes-Benz C-Class in 2007. The company's new chairman, Hansgeorg Niefer, has also announced that the car maker will start producing left-hand drive units in addition to right-hand ones. Niefer, who replaced Christoph Kpke as head of the company in February, says left-hand drive units will enable the company to export to many more markets, including the US, which offers preferential rates to South African suppliers of automotive products in terms of the African Growth and Opportunity Act. The company exports 44% of its production to the UK at the moment, while 25% is sold locally. Production of the new C-Class will go hand in hand with an expansion that will see production at the company's East London plant almost double to 80000 units a year from 2007, creating an additional 2000 direct and indirect permanent jobs. The expansion could see between five and 10 foreign suppliers establishing operations in SA, says Niefer. Niefer February 24 reported a 9,8% increase in revenue to R24,7bn last year on the back of SA's booming vehicle market, driven by low interest rates and stable car prices over the past two years. Output reached an all-time record of 52274 vehicles.
Strong growth was recorded across the group's product range, which includes passenger cars and commercial vehicles. Brands include Jeep, Mercedes-Benz, Mitsubishi, Freightliner and others. The company, which is not listed in SA, also recorded a considerable rise in profits as it increased productivity and cut costs per unit, finance manager Stefan Fischer said. The South African operation could have broken through the R25bn revenue mark, had it not underestimated market growth by a factor of four. Vehicle sales grew in excess of 22% last year, while DaimlerChrysler, like many others, projected growth of about 5%. Sales and marketing manager Fritz van Olst said the incorrect forecast hampered the company's performance on market share, which declined slightly. Van Olst said he expected the domestic vehicle market to grow 6%-8% this year. Niefer said the outlook for DaimlerChrysler in SA was positive. Niefer also said that the benefits of the Motor Industry Development Programme must not be eroded. The programme enters its mid-term review this year. The Australian government has threatened to challenge the programme at the World Trade Organisation.

Ford gears up for mass export drive

In another move towards its goal of stepping up vehicle exports, Ford Motor Company of Southern Africa's new CEO and group MD, Robert Graziano, said February 7 the company could consider producing left-hand drive cars in SA. This follows the company's earlier announcement that it would embark on its first major export programme later this year. Graziano, who arrived in SA two weeks ago from Brazil, said in an interview that he had appointed a team to investigate potential new export markets. These would include left-hand drive markets "in the longer term". He said Ford would consider producing left-hand drive vehicles if there was a market that offered critical mass, which he estimated at between 15000 and 20000 units of one type of vehicle a year.
Ford, as is the case with most other car makers in SA, produces only right-hand drive vehicles. The production of left-hand drive vehicles would open up significant opportunities for the company, as the bulk of foreign markets are left-hand drive countries. Ford is among SA's smallest car makers and exporters at the moment, producing about 40000 vehicles a year, compared with Volkswagen's 88000 and Toyota's 112000. It exports fewer than 2000 units a year, and these are destined only for Africa. The company is, however, one of the seven large multinational car makers that form the basis of SA's thriving automotive industry, which generates more than 6% of gross domestic product. Ford Motor Company of Southern Africa will enter the export market beyond Africa this year when it starts exporting to Australia and New Zealand. Graziano said that Ford and its suppliers' combined R1bn investment programme to facilitate its first export drive was well under way. The investment programme would enable the company to double its production capacity at the company's plant in Pretoria to about 80000 units a year within the next two to three years. Ford's export programme would form part of a 15,5% increase in vehicle exports from SA to about 126800 units this year.

Car-parts exports: France wooed

New export markets for motor vehicle components are opening up as French car makers follow Germany's lead in sourcing high-quality components at competitive prices from SA, Clive Williams, executive director of the National Association of Automotive Component and Allied Manufacturers (Naacam), said February 14. "There are major opportunities to develop stronger trade with France as we compete with manufacturers in South America, Eastern Europe and the Far East," he said. SA's total automotive components exports accounted for about R21,3bn in 2003, while vehicle exports generated about R19,4bn in that year. The combined automotive sector contributes about 6% of SA's gross domestic product. SA's automotive component makers experienced possibly their worst year last year, despite booming demand for vehicles in the country. A number of component manufacturers, most recently brake maker Hudaco Friction, closed last year as the strong rand reduced profit on already thin margins. Williams will lead a delegation of component manufacturers to Paris in October to expand trade with French companies. He said SA's links with Germany and Japan were stronger than those with France which, unlike Germany and Japan, did not have car manufacturing operations in SA. Williams said about 29% of component imports came from Germany, 15% from Japan and only 4% from France in 2003. In turn, SA exported about 35% of all its component exports to Germany, 3% to Japan and close to 9% to France. French vehicles, which are all imported at the moment, are carving a niche in SA helped by the strong rand. "In the past two years, sales of Renault cars have really taken off, breaking the 1 000-a-month barrier," he said. Peugeot was making attempts to follow that benchmark and was growing rapidly. Citroen had just started, he said. Williams said it was unlikely that French car makers would establish car production facilities in SA at current volumes. "However, as the market grows, this would be a logical step."

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BANKING

Standard Chartered targets SA, Nigeria

South Africa and Nigeria remain Standard Chartered's key growth areas in Africa, as the emerging-market bank seeks to further expand its presence on the continent. Results from the group late February show that Africa contributed about 10% of revenue and operating profit last year. This is likely to shrink in the current year, following the $3,3bn acquisition of South Korea's Korea First Bank, which will increase revenue and profit from the Asia Pacific region. However, John Kivits, CEO of Standard Chartered SA, says the group wants to grow Africa's contribution, particularly in consumer banking, which currently makes up only 8% of business on the continent. When Standard Chartered re-entered the South African market it focused on wholesale banking, but the purchase of online bank 20twenty has altered its course to include consumer banking. Standard Chartered bought 20twenty in 2003 after it was placed under curatorship along with the online bank's original parent, Saambou. "Ultimately I would expect consumer banking to be bigger than wholesale banking in SA," Kivits says. Although 20twenty has fewer customers now than it did when Saambou went into liquidation, Standard Chartered is using the online bank as the base for its consumer banking offering in SA. Despite the tight grip the four largest banks have on the South African market, Kivits says it is possible to grow its consumer banking operation without making an acquisition. Standard Chartered has successfully been growing its retail operations in Nigeria, even though that market is dominated by two large banks, First Bank of Nigeria and Union Bank of Nigeria. The bank has opened five branches in Nigeria so far, with a further two planned for this year. Although Standard Chartered is locally incorporated in most of the African markets it operates in, with secondary listings in many of them, Kivits says the group will not change its branch status in SA at present. By remaining a branch of the UK bank, Standard Chartered SA will be able to leverage off its parent's balance sheet for large transactions. It will also have greater access to international capital markets. While Standard Chartered's focus has broadened to incorporate consumer banking, Kivits says a lot of opportunity exists in wholesale banking. "A lot of South African companies are going where we are the strongest, the growth markets of Asia. I think we are very well positioned to take advantage of that growth." As the biggest foreign bank operating in India, as well as having markets such as China and South Korea, Kivits says the bank is in the unique position of being at both ends of any transaction in the biggest growth markets in the world.

Rothschild picks Spicer to pave way to SA's big league

Merchant banking group Rothschild has hired Anglo American director Michael Spicer as senior adviser, in a bid to propel itself into the top tier of foreign banks in SA by wooing state and corporate business. Already the largest corporate finance house in Europe last year, Rothschild was the first to sell an equity stake to black investors by selling 49% of its South African business to Kagiso in 1996 - pre- empting Deutsche Bank's recent empowerment deal. Rothschild SA CEO Steven Gorven said February 7 that the company planned to bolster its South African business, using its empowerment credentials and its contacts to propel itself into the top three foreign banks in SA, rivalling JPMorgan and Deutsche Bank. Although Rothschild had bided its time in launching its business, it worked on deals worth R40bn last year. Considering that Ernst & Young said that Rothschild facilitated deals worth R8,8bn in 2003, this appears a substantial increase although the auditing firm may come up with a slightly different figure for Rothschild. Gorven said its deal-flow last year was boosted by Rothschild's role in advising Gold Fields on its aborted deal with Canadian company IAMGOLD, the FirstRand empowerment deal, the 18-month long Afrox Healthcare merger, and Kagiso Trust Investment's purchase of 10% of Metropolitan. The Ernst & Young report for 2003 said that Rothschild was sixth among the foreign banks when it came to brokering deals in a list headed by JPMorgan, Deutsche Bank and UBS Warburg.

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EXPORTS

SA looks beyond EU for agricultural exports

South Africa has deliberately been reducing its "over reliance" on the European Union (EU) as a destination for local agricultural exports, department of agriculture director-general Bongi Njobe said February 22. Figures placed before Parliament's agriculture and land affairs committee showed that while the EU was still SA's major agricultural trading partner, in 1988 61% of SA's agricultural exports went to the EU, but by 2001 this had been reduced to 38%. This was due to increased exports to the Far East, the Southern Africa Development Community (SADC) and Africa generally. Njobe said that to reduce the over reliance on the EU, SA had turned to the East with offices being opened in China and India and also use being made of the India, Brazil, SA forum IBSA. "The idea was the same period. MPs on the committee expressed strong concern at the levels of subsidy that were giving European and American farmers a competitive advantage over local products. Senior manager for international trade at the agriculture department Gerda van Dijk said a substantial reduction in the subsidies paid to farmers in the developed world was a target for SA. She said the only way this could be achieved was through negotiations with individual countries and through multilateral bargaining in forums such as the World Trade Organisation (WTO). Van Dijk said a review of the trade development and co-operation agreement with the EU was underway and the issue of increased market access for SA and a reduction of domestic support in the EU were on the agenda. Van Dijk said that free trade talks with the US were "in limbo" at the moment but both the US and SA were committed to completing the agreement. SA was waiting for a US response to SA's proposals and for a date for the next meeting. She said that in the next two years, SA would be negotiating with SADC for a review of the free trade agreement, with the SA Customs Union, with the USA, the EU, India, China and other African countries.to diversify more and move away from the EU to minimise the risk of exporting so much to one single trading partner," she said. In 1988 only about 10% of agricultural trade went into Africa but in 2001 this had increased to 25%, the committee was told. Agricultural exports to the USA had also increased from 1% to about 8% over 

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FOOD & DRINK

Sabmiller completes purchase of Italian brewer

Brewer SABMiller plc will buy the 39,8% of Birra Peroni it does not own for $212,6m, a move that an analyst suggests could indicate lower-than-expected profitability at the Italian brewing group. SABMiller bought a 60% stake in the group for $246m in May 2003. The Italian company, whose two main beer labels are Birra Peroni (the best selling beer in Italy) and Nastro Azzurro, is Italy's second-largest brewer, with a 25% market share and two breweries. At the time of the acquisition, SABMiller entered into put and call arrangements with the vendors that envisaged its interest rising to 99,8% over a three- to six-year period, with the price being determined by Peroni's equity value, plus interest and earn-out arrangements dependent on its domestic and international performance. Earn-out arrangements mean the seller accepts less money up front and earns the rest of the purchase price over time as the business achieves specified profit levels. SABMiller February 23, said it and Peroni's other shareholders had agreed to accelerate the share transfer at a price prescribed by the original agreement, and to terminate the earn-out arrangements. SABMiller has funded the purchase from its existing resources.
An analyst said the deal would have little effect on SABMiller's earnings or its freedom to make decisions at Birra Peroni, as it already exercised management control. He said he suspected the agreement had been accelerated because the beer market in Italy had "gone backwards". As the earn-out arrangements were unlikely to kick in during the agreed period, the former controlling shareholders had decided to take the cash sooner. SABMiller said when reporting interim results in November last year that it had closed Peroni's brewery in Naples at a cost of $23m, and that further costs relating to the closure and a wider operational review would bring the total charge for the year to between $40m and $50m. The overall Italian beer market declined in the six months to September last year by 7% compared with 2003 when there was a hot summer and consumer spending was more buoyant. However, Peroni's volumes declined by 12% after it lost its licence to brew Budweiser. SABMiller introduced Miller Genuine Draft into Italy in November 2003 after the termination of the Budweiser contract. Last month SABMiller said it would relaunch the Nastro Azzurro brand globally as Peroni Nastro Azzurro. In Italy, however, the beer will retain its original name. The Economic Times of India speculated last week that SABMiller planned to buy out its 50-50 joint venture partner in India, Shaw Wallace and Company. In 2003 the two formed a company housing the interest of SABMiller India, Mysore Breweries and those of Shaw Wallace. The report has not been confirmed.

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FOREIGN INVESTMENT

Businessmap paints rosy picture of foreign investment

The outlook for foreign direct investment for SA this year has improved, says research organisation the BusinessMap Foundation. BusinessMap director Reg Rumney said about $8bn in foreign investment had been announced for this year in January alone. BusinessMap's tracked investment at about $5,8bn for last year in its preliminary calculations - up from about $2,7bn in 2003 - and the think-tank does not expect the rate of investment from abroad to slow down. Rumney said the amount of foreign investment announced tended to rise as the year drew to a close. BusinessMap researcher Michel Hanouch said SA's stable political and economic outlook had played some part in encouraging foreign companies to invest here. Hanouch said a large portion of the investment coming through this year was from brewer SABMiller's commitment to invest R5bn in SA. As SABMiller has its primary listing in the UK, it is seen as a foreign company. Apart from the brewer, international vehicle manufacturers have announced plans to increase their investments in SA. Volkswagen and Toyota have both said they plan to invest more than R1bn this year. Further investment is expected to come from independent power producers invited to supplement Eskom's electricity-generation plan. BusinessMap uses the United Nations Conference on Trade and Development definition of foreign direct investment - investment in which a resident in one economy obtains a lasting interest in an enterprise resident in another. While it includes Reserve Bank figures in its calculations, it also includes companies' announcements of investment. Rumney said investment that was announced but had not come through was removed from its calculation. These include Pechiney's investment in Coega and the $2bn disinvestment of Thintana consortium, which houses the holding of SBC Communications of the US and Telekom Malaysia from Telkom. While the outlook is good, there are some factors that can limit investment in SA. BusinessMap said confidence could be knocked if rand volatility returned along with a fall in commodity prices and a slowdown in world economic growth. Traditionally the mining sector has attracted high levels of foreign direct investment but the flow of investment in the sector in the third quarter of last year was poor.

Nasdaq pitches itself as home from home for SA companies

NASDAQ, the largest US electronic stock market, said February 7 that it was actively persuading South African companies to list on the exchange. Nasdaq said that SA's steady economic progress and growth potential were attractive to international investors. Head of Nasdaq International, Charlotte Crosswell, said the bourse was currently in talks with several local companies, from a variety of economic sectors, and had received a "positive response" to the possibility of them listing on Nasdaq. "With the South African economy steadily strengthening and exchange regulations easing, we expect more companies to expand internationally, and we would like to be their growth engine of choice," Crosswell said. Nasdaq's global focus this year was on emerging markets such as China, India and Russia, since companies in these regions were more active than non-US countries in established economies such as western Europe, Crosswell said. "South African firms can benefit from listing on Nasdaq, as they will have access to more investors, and more visibility and credibility." The US was the world's dominant equity marketplace, Crosswell said, and had the world's largest pool of investment capital. Higher disclosure standards in US markets also led to increased investor confidence, she said. The maximum initial fee for a Nasdaq listing is $150000. The listing process takes about six months, and there are three main options for initial listing. The combined market cap of listed US companies is more than $16-trillion. Annual share trading amounts to about $20,8-trillion. Capital raised through initial public offerings (IPOs) in the US is about $31bn annually, compared with $6,5bn in London. Nasdaq accounts for more than 83% of the IPO market. Crosswell said South African companies already listed on Nasdaq had a good track record, which could persuade other potential companies to consider listing. Local companies listed on the Nasdaq are Highveld Steel & Vanadium, Naspers, Randgold Resources, Randgold & Exploration and DRDGOLD. These companies account for 1,5% of the combined market cap of the 340 international companies listed on the exchange. International companies make up 10% of Nasdaq, and have a total 
market cap of $574bn.

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FOREIGN RELATIONS

SA, Angola sign pacts

South Africa and Angola have signed four agreements aimed at strengthening economic and bilateral relations between the two countries. The agreements signed by ministers of both countries in Cape Town February 17, formed part of a visit by Angola's Prime Minister Fernando De Piedade Dias Dos Santos to this country. The Prime Minister and his delegation arrived in the country February 15 in reciprocation of Deputy President Jacob Zuma's visit to Angola in August last year. Social Development Minister Zola Skweyiya and Social Assistance and Reintegration Minister Joao Baptista Kussuma signed an agreement of co-operation in the field of social protection and re-integration. South Africa's Trade and Industry Minister Mandisi Mpahlwa and Angolan Transport Minister Andre Luis Brandao signed an agreement for the Reciprocal Promotion and Protection of Investments. Defence Minister Mosiuoa Lekota and his Angolan counterpart Kundy Pahyama signed a Protocol on defence cooperation while Minerals and Energy Minister Phumzile Mlambo-Ngcuka and Angolan Energy and Water Minister Jose M Botelho de Vasconcelos signed an agreement on co-operation in the field of electricity. Before signing the agreement, Deputy President Zuma and Prime Minister De Piedade Dias Dos Santos had bilateral discussions and discussed a wide range of issues. These included the expansion and consolidation of strategic bilateral political and economic relations between the countries; reconstruction programmes in Angola; trade and investment issues; regional and continental peacekeeping efforts; regional elections; and conflict prevention, management and resolution in Africa. According to a statement, Angola has a considerable natural resource base in the form extensive reserves of oil, gas, diamonds and other minerals. "It has the potential for significant exports of coffee and other agricultural products. It also possesses fertile highlands with a favourable climate and plenty of water," said the statement. Various companies in South Africa, including Eskom, Gauteng Economic Development Agency, Protea Hotels, and ABSA visited Angola recently to explore the possibilities of investing in that country. In addition, some NGO's and churches are involved in Angola to contribute towards rebuilding that country after decades of protracted civil war. "These organisations as well as the government are providing humanitarian assistance," the statement said.

Mugabe snubs and threats

Zimbabwe is resisting attempts by the Southern African Development Community to gauge conditions in the country ahead of the general election scheduled for March 31. Official sources said Harare was unwilling to sanction a visit by a team of lawyers from the SADC organ on politics, defence and security whose duty it is to inspect the electoral legislation and conditions on the ground. Despite several appeals, the government has failed to give the team the necessary written invitation. Sources said the Zimbabwe government had not responded to approaches. The latest foot-dragging follows Mugabe's cancellation of a visit by SADC leaders, comprising President Thabo Mbeki, outgoing Namibian Presi dent Sam Nujoma and Lesotho Prime Minister Phakalitha Mosisili, scheduled for January 17, on the grounds that he was preparing for the poll. 
Government's failure to stand up for the property rights of South African nationals in Zimbabwe was indefensible, the Democratic Alliance (DA) charged February 10. "This saga has been running for years and the government's inaction is clear evidence that it is not serious about holding the Zimbabwean government to its legal obligations," said DA foreign affairs spokesman Douglas Gibson. The Zimbabwean government was currently fast-tracking the expropriation of 15 South African-owned farms while simultaneously doing everything in its power to avoid signing an important bilateral investment-protection agreement that would serve to secure the property rights of South African-owned property in Zimbabwe, he said. Some local mining investors in Zimbabwe have been reluctant to commit to new expansions without the degree of certainty the new agreement would provide. South African trade and industry official George Monyemangene said the bilateral agreement between SA and Zimbabwe was "agreed and initialled, and only logistical matters are delaying it." The signing of the agreement was postponed because the relevant Zimbabwean minister was not available to sign it. It is now not known when it will be signed.

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HIV/AIDS

South Africa: Aids "indirectly" blamed for rise in deaths

HIV/AIDS emerged as one of the main killers in South Africa's 15 to 49 age bracket. South African government statistics show that the number of reported deaths rose by a dramatic 57 percent between 1997 and 2002, mostly as a consequence of tuberculosis, influenza and pneumonia - often the immediate causes of the deaths of Aids patients. The government statistics service, Statistics South Africa (Stats SA), said February 18 that reported deaths in South Africa between 1997 and 2003 indicated a jump, from 318,287 in 1997 to 499,268 in 2003. Stats SA's acting deputy director-general for population statistics, Dr Liz Gavin told the UN news service, PlusNews, that data garnered from around three million death certificates provided "indirect evidence" that the HIV epidemic was raising the mortality levels of prime-aged adults. However, officials say the exact causes of death remained difficult to ascertain as, in many cases, AIDS-related diseases such as tuberculosis, influenza or pneumonia were recorded on the certificate. Although part of the increase is a result of population growth and better notification, the Statistician-General, Pali Lehohla, said in a statement accompanying the report that the numbers provide "indirect evidence that the HIV epidemic in South Africa is raising the mortality levels of prime-aged adults." The report was released as Health Minister Manto Tshabalala-Msimang assertively defended the government's "Comprehensive Plan for Management, Care and Treatment of HIV and Aids" at a media briefing at Parliament.

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INDUSTRY

Sasol expects 45% increase in earnings a share

Petrochemicals group Sasol expects a hefty rise in earnings on the back of a better performance in its chemicals businesses for the half year to December last year. Sasol said February 22, in a trading statement it expected earnings a share to rise 45% and headline earnings a share to increase 60% for the period. This could see earnings a share rising from R4,08 to R5,97 and headline earnings a share jumping from R3,97 to R6,35. Sasol said improved margins and a heightened focus on its core chemicals businesses were behind the expected rise in earnings. Andisa Securities analyst David Brennan said the rise in earnings was in line with his expectations for the half-year. Sasol said earnings a share in the second half of the financial year should be "more or less equal" to those of the first half should prevailing exchange rates, oil prices and chemical margins remain the same. An I-Net Bridge forecast of nine analysts said it expected the company to grow earnings a share from R9,25 to R13,32 for the full year. Brennan said he was not too worried about a currency hedge costing the group R1bn in lost earnings as he had factored this into his forecast. While Sasol's chemicals businesses are doing well, "adverse currency effects" put its synthetic fuels business under pressure despite it enjoying the benefits of a higher oil price, he said. The strong rand was given as a reason for Sasol producing lower-than-expected earnings in the half-year to December 2003. Turnover dropped 9,5% to R29,86bn. The group plans to release its results on March 7.

Eskom's power stations to create 26 000 jobs

South Africa's electricity supplier Eskom is expected to create 26 000 new jobs in Mpumalanga once three power stations are re-opened. The three power stations at Camden near Ermelo, Grootvlei near Balfour and Komati near Middelburg were shut down in the late 1980s and 1990s because Eskom was generating more electricity than needed. But the company has announced that it would spend about R12 billion to re-open the power stations as part of its investment drive in Mpumalanga and to meet a growing national need for electricity. "These stations were closed down in such a way that they could still be re-opened," said Eskom spokesperson Fani Zulu February 16. "There are also plans to build new power stations in the country," he added. The Camden Power Station is expected to start operating by June, while the other two power stations will reopen in 2008. The number of jobs would, however, drop after renovations and some construction work is completed, according to the company commissioned to do the feasibility study, Econometrix. The power stations are expected to contribute R4.2 billion to Mpumalanga's Gross Domestic Product (GDP). Eskom has also budgeted R1.5-billion to build a railway line for heavy coal trucks that supply its power stations in Mpumalanga. The line will ease pressure on a 100km stretch of the N11 between Ermelo and Eskom's Majuba Power Station near Amersfoort, which costs R12 million a year to repair. The project will be completed in 2008.

Kumba concerns over high iron ore prices

Steel mill bosses should be worried about suggestions from Kumba management that iron-ore prices could almost double this year. Strong demand, led by China, is pushing up prices, and while steel producers will be able to recover the raw material cost increases from customers, it is unnerving to have to deal with high input-cost inflation. However, the managers of SA's Ispat Iscor must be laughing all the way to the bank. When the old Iscor group was unbundled a few years ago, to create the Iscor steel business and mining house Kumba, an agreement was put in place whereby Ispat Iscor would get iron ore at cost from the Sishen mine. Iron-ore prices are hurtling ahead a lot faster than the costs of mining the iron ore. The supply deal is providing a very comfortable buffer for the South African steel producer from the cost inflation afflicting most, if not all, of its global competitors. There is even a provision for Ispat Iscor to invest in future Kumba expansion projects if it needs to raise its allocation of affordable iron ore. No doubt some of Ispat Iscor's customers will be pouncing on this benefit to the South African steel maker when they pursue their case against the company's import-parity pricing before the competition authorities. Meanwhile, Kumba executives can just watch the world price of their iron ore soaring, and wonder how much more profit they would be making if not for their sales agreement with their largest local customer.

De Beers, government talk about move to SA

Gareth Penny, the head of De Beers' sales and marketing arm, the Diamond Trad ing Company, Gareth Penny said February 8 that the company would discuss with the SA government whether more of its activities could be conducted in southern Africa. This followed a call on Monday by SA'S Minerals and Energy Minister Phumzile Mlambo-Ngcuka for the Diamond Trading Company DTC to move from its London base to southern Africa. Her call was made following a conference in Cape Town of more than a dozen African mining ministers. Penny confirmed at the Mining Indaba conference in Cape Town that the marketing operation - the Diamond Trading Company - had been "looking for some time" at how it might do more business in Africa. "We are looking to expand the full range of diamond sorting in SA," he said. But he said there were clearly there are inter national marketing campaigns where it makes the most that made more sense to market run from out of London. "Quite properly, it's a case of having local activities where it is most applicable," Penny said. SA already derived "considerable benefit" from the company's DTC's activities. Diamond firm De Beers should move the headquarters of its London-based sales division to Africa, South Africa's mining minister said Feb 7. Phumzile Mlambo-Ngcuka said the shift would help develop the region's economy and infrastructure. "Fifty percent of the diamonds that are produced and consumed by the world are coming from southern Africa," Ms Mlambo-Ngcuka explained. "We think we are just as competent in southern Africa to provide the services that are provided in London," she said. "It's not just about getting DTC, it's about increased infrastructure". The minister said that South Africa would co-operate with Angola and Namibia in order to expand the region's diamond polishing industry. Botswana is the region's biggest producer, followed by South Africa, Namibia, Angola and Lesotho. Ms Mlambo-Ngcuka said that South Africa's new legislation, which would require a certain percentage of diamonds to be processed locally, should be finalised by the end of 2005.

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TELECOMMUNICATIONS

Indian group to invest 'billions' in second national operator

Communications minister Ivy Matsepe-Casaburri expects Tata to invest "billions" of rand in the second national operator (SNO). She announced the SNO finally has a full complement of shareholders, with Indian-based Tata Group being awarded the remaining 26% shareholding. The Tata Group, represented in SA by Tata Africa Holdings, has investments including Tata Infotech, which operates in India, SA and several other countries, while the organisation also owns Tata Technologies and has shares in dual-listed telecommunications giant VSNL. In reply to a question February 18 during her parliamentary press briefing on the Department of Communications' activities, the minister said while she does not yet know exactly how much the Indian industrial group will invest in the SNO, the investment will include technology and other expertise.

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UNIONS

Labour proposal infuriates Cosatu

Government is heading for a major conflict with labour if it persists on giving in to business lobby groups, the Congress of South African Trade Unions (Cosatu) warned February 17, following a proposal by President Thabo Mbeki to exempt small businesses from aspects of the Labour Relations Act. "We are absolutely incensed by these renewed attacks on workers' rights and wish to warn that we are heading for a major conflict if the government persists on kowtowing to employer blackmail," Cosatu secretary-general Zwelinzima Vavi said. The federation fears Mbeki's undertaking to reduce costs and to ease conditions for entrepreneurs to start small businesses and create jobs is a move that would open an even wider chasm between the poor and the rich. Vavi said the body's central executive committee has resolved to mobilise members "to resist this new threat". "We have become increasingly alarmed at the growth of the casual and temporary sectors of workers and the terrible conditions in which most of them exist," he said. Workers were increasingly losing their previously secure and better-paid jobs, as the positions were out-sourced and subcontracted to small firms that government wanted to exempt from aspects of labour laws and collective bargaining agreements, the secretary-general said. Vavi said further concessions would come on the back of recent changes to exempt small businesses from being bound by the decisions of central bargaining councils. "It appears that even before the ink dried on paper signing off the last amendments, the employers began to lobby government for more concessions," he said. Cosatu said attempts to exempt small businesses from existing labour laws and collective bargaining agreements would be government's fourth attempt to weaken unions. "This is a naked attempt to reverse huge gains workers have made in the past years to transform the apartheid labour market," Vavi said.

Cosatu date for Zimbabwe blockade

The daily News in Harare, Zimbabwe reported that the Congress of South African Trade Unions (Cosatu) has set March 9 as the date on which it will start its mass action against the Zimbabwe government. Zwelinzima Vavi, Cosatu's secretary general, announced this in an interview with Sapa, a South African news agency, February 24. Cosatu's planned blockade of the border post at Beitbridge and picketing of other Zimbabwean interests are in protest against the refusal by Harare authorities to allow a delegation from the labour union to enter Zimbabwe last month. Cosatu sent a 20-member delegation to Harare on a fact finding mission after allegations that the Zimbabwean government was violating human and workers' rights, harassing supporters of opposition political parties and suppressing freedom of the press. The delegation was unceremoniously kicked out of the country moments after touching down at Harare International Airport. Angered by the ill-treatment by the Zimbabwean government, Cosatu promised to launch a blockade against President Mugabe's regime. Vavi told a Zimbabwe solidarity conference that the aim of the picket would be to tell the Southern African Development Community (SADC) it had to act to enforce its own guidelines. This included ensuring that its observer mission to the Zimbabwe election March 31 was invited to the county three months in advance. "It is now only five weeks away," he said. The picket will start at the Zimbabwe High Commission in Pretoria and will continue until the election, Vavi said. "We invite all who are fighting to highlight the Zimbabwe plight to participate." The Democratic Alliance (DA), an opposition political party in South Africa, also sent its own delegation on a fact finding mission to Harare, only to be sent back at the airport.

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