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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: 045 - (03/10/05)

The African National Congress's (ANC's) alliance partners have given the thumbs up to a crisis-management process agreed to by the party's national executive committee (NEC). The agreement signalled that the ANC's leadership may finally be coming to grips with the political crisis unleashed by the sacking of former deputy president Jacob Zuma. Alliance leaders endorsed the line taken by the NEC that neither Zuma nor President Mbeki was more important than the unity of the ANC and its alliance, meaning both had to be reined in. The ANC's top leadership has been under pressure from its own ranks, as well as Cosatu and the South African Communist Party (SACP), over its perceived lack of direction in the Zuma crisis. SACP general secretary Blade Nzimande said his party welcomed the ANC's decisive steps to deal with the crisis. The ruling against the Scorpions in the Julekha Mahomed case effectively opened a new front in the battle involving former Zuma. Judge Ismail Hussain's finding that the search-and-seizure raids on Mahomed, one of Zuma's attorneys, were illegal has given the Zuma camp ammunition to launch further court actions against the Scorpions. The ruling has also given Zuma the opportunity to argue that his right to a fair trial has been compromised. During the hearing of Mahomed's case, Judge Hussain himself questioned whether Zuma would have a fair trial, following the raids. Current indications are that Zuma will wait and use his trial to launch his counter-offensive. One source said the trial would be used to turn the spotlight on the arms deal and those, like the president who exercised influence on the process, rather than Zuma, whose role was peripheral.

London listed South African insurer Old Mutual vowed September 23 to press ahead with its 3.3bn bid for Swedish rival Skandia, despite its offer being rejected by by a majority of its target's board. Old Mutual insisted its determination to take control of the insurer could not be described as 'hostile' as the management of Skandia had pledged not to stand in the way of a direct approach to the shareholders. Skandia even published independent advice from the investment bank ABN Amro describing the approach as "reasonable and fair." Julian Roberts, the Old Mutual finance director, said that 60% of Skandia's investors were already supportive of the deal. Bernt Magnusson, chairman of Skandia also supports the offer, saying it represented a "reasonable premium" over the share price. The bid ran into further trouble when one of the target's major shareholders went public in its opposition to the sale. The Fourth National Swedish Pension Fund backed the majority of Skandia directors. The Swedes also do not like the idea of being paid in Old Mutual shares. They argue that as much of Old Mutual's earnings are from South Africa they are therefore much more volatile than Skandia stock. 
The health department hit back September 26 at the Congress of South African Trade Unions (Cosatu) general secretary Zwelinzima Vavi for his criticism of government's response to the HIV/AIDS epidemic, accusing him of being a mouthpiece for the Treatment Action Campaign (TAC). The TAC has been one of government's fiercest critics on the HIV/AIDS front. More than 6-million people have the disease, according to government figures. Vavi described the lack of government leadership on HIV as "a betrayal of our people and our struggle". He criticised Health Minister Manto Tshabalala-Msimang for emphasising traditional medicines and nutrition instead of putting more effort into making the antiretroviral medicines available to people infected with HIV. Vavi's comments were "irresponsible", and demonstrated "a high level of ignorance" about the challenges posed by the epidemic, said health department spokesman Sibane Mngadi in an e-mailed statement. "This should be expected as Cosatu's positions on health are determined by TAC and the AIDS Law Project" (which provides legal services to TAC).
South Africa's attempts to solve the crisis in Cote d'Ivoire appear to be unravelling, which could leave President Mbeki with less of an appetite for engaging in conflict resolution in Africa. Mbeki was given a mandate by the African Union (AU) to mediate between Ivorian President Laurent Gbagbo, opposition political parties and rebel leaders controlling the northern half of the former French colony. After heavy criticism of Mbeki's alleged bias toward Gbagbo September 17, AU chair Nigerian President Olusegan Obasanjo said South Africa's mandate to mediate in Cote d'Ivoire would be reviewed by the organisation's Peace and Security Council. Government has claimes neither the African Union nor the United Nations Security Council has asked President Thabo Mbeki to step down as mediator in the peace process. President Mbeki's spokesperson Murphy Morobe said there was no truth to reports that appeared in some newspapers, apparently sourced from French news agencies that the two multilateral bodies had asked the South African president to step down as mediator. The Ivorians are due to hold elections on 31 October, but the country remains by and large divided between the south and north.
The leaders of India and South Africa called for a reform of the UN Security Council to address "the gross imbalance of power" in the world body. Indian Prime Minister Manmohan Singh told the UN World Summit in New York that the council's structure reflected the world of 1945. The summit coincided with the UN's 60th anniversary. World leaders have signed a deal on reforming the UN, though critics say it is much weaker than first envisaged. UN Secretary General Kofi Annan hailed a protocol obliging intervention in cases of genocide, and reaffirmation of goals to tackle poverty. 

Serious Concerns Over Detention Conditions
Human rights activists in South Africa are hoping that a chiding by the UN over the poor state of detention facilities will prompt the authorities to take immediate steps to remedy deteriorating conditions in prisons. At the end of a two-week study the UN's Working Group chairwoman, Leila Zerrougui, noted that pre-trial detention conditions fell far short of meeting the international standards South Africa has subscribed to, in particular the Covenant on Civil and Political Rights. In statement released on Monday, Zerrougui raised concerns that awaiting-trial prisoners often had to endure conditions "much more stringent than the ones for sentenced detainees". She pointed out that detainees had limited access to medical facilities, which exacerbated the condition of inmates suffering from serious illnesses, at times leading to death. Despite overcrowding in pre-trial detention facilities, the UN noted that bail was "seldom granted, even for minor offences", or exceeded what the suspect could afford. Of specific concern was the detention of accused persons at police stations for months on end and the "high" number of deaths in custody. South Africa has the highest rate of incarceration in Africa. In an attempt to lighten the burden of overcrowding, South African prison authorities released more than 7,000 prisoners in June under a special clemency programme for those jailed for nonviolent and less serious crimes. Although the clemency initiative has been welcomed by some rights groups, they have pointed out that releasing offenders without proper rehabilitation or reintegration programmes was unlikely to solve the problem. 

White Farm to be Seized 
South Africa says it will for the first time force a white farmer to sell his land under a redistribution plan. The decision was announced by the Commission on Restitution of Land Rights, set up to return to black people land lost under apartheid. An official said talks to agree on a price for the farm had failed and the farmer has vowed to challenge the move. South Africa's government says it wants to hand over about a third of white-owned farm land by 2014. The commission said September 22, an expropriation notice would be served on Hannes Visser, the owner of a cattle and crop farm in North West province. The government offered to buy the 500-hectare (1,250-acre) farm for $275,000 but Mr Visser said it was worth almost twice as much. Mr Visser told the South African news agency Sapa he intended to fight the decision in court. "Should the courts turn out to be my final recourse, I will go that route," he said. Two-thirds of the country... remains in the hands of less than 60,000 people who unfortunately in this case are white farmers. The government argues that Mr Visser's father bought the land from a black farmer through a forced transaction in 1968. Regional land claims commissioner Blessing Mphela said the seizure was a last resort. But he added that South Africa must speed up land reform or face chaos. Eighty per cent of agricultural land is owned by white South Africans, who make up only 10% of the population - the legacy of apartheid laws. Since coming to power in 1994, the current government has adopted a "willing buyer, willing seller" approach to land redistribution, paying market prices for land that white owners are prepared to sell, and then distributing it to landless blacks. But Deputy President Phumzile Mlambo-Ngcuka says the pace of reform should be speeded up as in neighbouring Zimbabwe, where most white-owned land has been seized by the state. "There needs to be a bit of oomph. That's why we may need the skills of Zimbabwe to help us," she said. 

Mbeki Concludes Trip to the UN Summit
President Thabo Mbeki concluded his visit to the Millennium Review Summit and the 60th Session of the United Nations General Assembly (UNGA) in New York. World leaders converged at the Summit to review the progress made in the implementation of Millennium Development Goals (MDGs) and to deliberated upon the comprehensive reform of the UN, including the Security Council. In his address to the summit President Mbeki criticised world leaders for not implementing the Millennium Development Goals, agreed upon at a United Nations summit in 2000. These include halving extreme poverty, halting the spread of HIV and AIDS and providing universal primary education by 2015. He said world leaders had not achieved the required scale of resource transfer to empower the poor to "extricate themselves from their misery". Speaking about UN reform, Mr Mbeki said the only saving grace with regard to the "miserable performance" on Millennium Development Goals so far was for world leaders to reaffirm their commitment to strengthening the United Nations with a view to enhancing its authority and efficiency. He said their approach to deploying the necessary resources for the realisation of the Millennium Development Goals had been half-hearted, timid and tepid. Meanwhile Foreign Affairs Minister Dlamini Zuma remained in New York to head the South African delegation, which includes foreign affairs Director-General Dr Ayanda Ntsaluba, to the Summit's remaining sessions and further bilateral discussions. During his visit to New York President Mbeki, supported by Minister Dlamini Zuma, held bilateral discussions with leaders of Seychelles, Canada, Portugal, Iran, Israel and Uganda, the Foreign Affairs Department said. He also received courtesy calls from the foreign ministers of Palestine and Burkina Faso. President Mbeki further met with former Canada Prime Minister Jean Chretien, the UN High Commissioner for Refugees Antonio Guterres and the UN Conference on Trade and Development (UNCTAD) Secretary-General Dr Supachai Panitchpakdi.

SA Climbs in Economic Freedom Report
September 8 saw the release of the Economic Freedom of the World report, published each year by the Fraser Institute in Vancouver. It is a composite score of 38 variables measuring the amount of economic freedom citizens have in various countries. The five main categories of economic freedom are: size of government; legal structures and security of property rights; sound money; freedom to trade with foreigners; and regulation of credit, labour and business. SA jumped nine places this year to 39th (127 countries are in the survey), placing us just above France, Cyprus and Greece. The top five spots are held by Hong Kong, Singapore, New Zealand, the US and Switzerland. The bottom five are Myanmar, Zimbabwe, the Democratic Republic of Congo, Venezuela and Guinea-Bissau. Once again, world economic freedom improved year on year, as globalisation and the spread of democracy empowered citizens to make more of their own economic choices. The difference in wealth levels between countries of differing levels of economic freedom is stark. Those countries with higher levels of economic freedom are significantly wealthier than those with lower freedom scores. The free countries have better health, better education, better internet connectivity, and score highest on the happiness index. Africa reversed its trend of increasing economic freedom this year with notable losses in Burundi, Rwanda, Guinea-Bissau and Botswana. Gains, however, were made in Namibia, Madagascar, and the Republic of Congo. Zimbabwe has the lowest score in sub-Saharan Africa. Taking an eight-year perspective, the top 20% of economically free countries in Africa achieved annual growth rates of 2,45%. The bottom 20% muster only 0,63% a year. As SA ponders the route to higher levels of growth, it is instructive to look at the policies where SA differs from those of the winners. Certainly, SA's historic growth performance has been poor. Using gross domestic product (GDP) per capita (as opposed to overall GDP, which neglects population changes), the income of the average South African has decreased 0,0023% over the past 33 years. The past eight years saw GDP per capita grow only 0,65%. Contrast this with Hong Kong, which achieved yearly growth of 4,5%. In a nutshell, the average Hong Kong citizen earns five times more than their parents did. One crucial factor in achieving high levels of growth is convincing investors their property (and money) will be safe. In this regard, SA has made improvements, increasing its "legal structures and security of property rights" score. The principal movement in this category is due to an improved rating by the international political risk guide. Specifically, the "judicial independence" parameter moved from 7,7 to 8 as our country's courts gained the confidence of overseas analysts. We still rate quite poorly on the "law and order" score (5), which did improve from last year's 3,3. SA's biggest problems, according to the report, will come as no surprise. We rank 93rd in the world for "hiring and firing" practices. Other problem areas include: recent inflation rate (90th); restrictions on owning foreign exchange accounts (89th), share of labour force involved in collective bargaining (86th), top marginal tax rates (72nd), and overall size of government (75th).

Pretoria Denies Israel's Iran Claims
Government moved to defuse diplomatic wrangling with Israel after sources close to Prime Minister Ariel Sharon accused SA of planning to aid Iran by storing parts of its suspected nuclear weapons programme. Foreign Affairs spokesman Ronnie Mamoepa said that SA had seen reports in an Israeli newspaper of the allegations, and would ask the Israelis to provide the necessary proof. The burden of proof lay with the accuser, he said. Israel has accused Iran of trying to "buy time to overcome their technical difficulties" in making weapons. SA's support for Iran to use its nuclear knowledge for peaceful purposes such as generating power has set SA on a collision course with the US and Israel, which fear that Iran will use the knowledge to manufacture nuclear weapons. SA, which serves on the 35-member country board of the International Atomic Energy Agency (IAEA), and is participating in the talks on Iran, has opposed pressure from the US and the European Union (EU) for Iran to be referred to the United Nations Security Council for possible sanctions. The board is split between countries that would back a US-EU effort to refer Iran to the security council and those that oppose it. Of the 35 board members, 14 are members of the Non-Aligned Movement (NAM). Developing countries on the board accuse the west of trying to deprive poor nations of independent nuclear programmes. Of these, only Singapore and Peru have said they will back a referral of Iran to the security council, diplomats have said. Openly against the US-EU effort are China, Russia, Brazil, India, Pakistan, Venezuela and SA. However, EU diplomats said the 14 NAM countries were considering abstaining en masse, which would ensure the EU-US plan's approval. Foreign Affairs spokeswoman Nomfanelo Kota there was no reason for SA to panic about what an Israeli official may have said about the country. She said President Mbeki met Sharon at the millennium review summit in New York and their discussions cleared any issues of concern to the two countries. Mbeki urged the UN to resume negotiations on Iran's nuclear programme with the full participation of the IAEA. While he implored nuclear- armed countries to get rid of weapons of mass destruction, saying they were as threat to global security, the president advocated diplomatic and peaceful means to reach a solution. "None of us can justly claim that our failure as the UN to take specific decisions on these matters served to enhance global security from the threat of weapons of mass destruction," he said. During the visit by Iran Supreme National Security Council secretary-general Hassan Rowhani and the head of Iran's nuclear negotiating team with Europe to SA this July, Mbeki stressed the legitimate rights of a member nation of Non-Proliferation Treaty to use peaceful nuclear technology. The meeting was also attended by the Iranian ambassador to Pretoria and the representatives of the European trio of France, Germany and Britain.
The Zimbabwe government appeared late this month to have avoided expulsion from the International Monetary Fund after making a payment of US$120 million to the institution on its debt owing. The IMF gave the reprieve, but warned that Harare needs to act quickly to prevent further social and economic decline. The 24-nation board met September 9 specially to decide whether to make Zimbabwe only the second country after Czechoslovakia 50 years ago to be expelled from the fund, which is the benchmark lending institution for developing countries. Talks over a possible South African loan to help cash-strapped Zimbabwe have fallen silent since the reprieve. It is unclear exactly where the Zimbabwean government got the money for that payment, although analysts say it may well have come from a variety of sources including hard currency set aside from platinum exports and friendly foreign governments, perhaps South Africa itself.



Malaysian Proton Cars Success in South Africa

Early indications are that Imperial Group could replicate the success of its Indian Tata vehicle range with the Proton line from Malaysia. Sales of the Proton exceeded the group's most optimistic forecasts in September after the vehicle was launched in SA last month. Tata has been the most successful marque imported by Imperial to date, with sales consistently surpassing expectations since the range was launched in SA less than a year ago. Proton distributor Pearl Automotive, which is majority owned by Imperial's Associated Motor Holdings (AMH), will invest more than R8m over the next year to establish Proton in SA. This will include rolling out about 25 dealerships. The aim was to secure a share of about 4% of the vehicle market segment that Proton is competing in by the end of next year, said Pearl Automotive MD Albert Venter. The Proton marque consists only of a hatchback passenger vehicle at the moment, retailing at between R138000 and R158000. The range would be extended with a half-ton bakkie in November and several new vehicles next year, said Venter. He cited Imperial's backing and a value-for-money offering as the main reasons behind better-than-expected Proton sales. Pearl Automotive is traditionally a luxury vehicle distributor, representing marques such as MG, Rover, Bentley and Lotus. The demise of British car maker MG Rover was not the reason Pearl had launched the Proton in SA, said Venter. He said Imperial had been negotiating for about three years with Proton, whose majority shareholder was the Malaysian government. Venter said the marque was added to Pearl's stable to tap into the lower end of the vehicle market, the fastest-growing segment. Proton is a small player in global terms. It was started as a government programme to build cars for the Malaysian market. Proton vehicles were exported to nearby Asian markets, but free trade agreements have meant that import tariffs in Malaysia have been reduced, forcing the company to look to markets further afield. Buoyed by the past year's domestic vehicle sales boom, AMH became the largest operating profit contributor to the Imperial group in the year ended in June. AMH reported 64% growth in operating profit and 54% in revenue to R9,7bn in the year to June. AMH imports Citroen, Renault, Hyundai and other marques.



Sasol's Offshoot Set to Empower 150,000

About 150000 previously disadvantaged people will become shareholders in the largest fuel retailer in SA, Uhambo Oil, if competition authorities approve the establishment of the company in October. Sasol announced September 22 that it had finalised the make-up of the broad-based Tshwarisano consortium, which would buy a 12,5% stake in Uhambo for R1,45bn. The deal would be one of SA's largest empowerment deals to date. Uhambo will be born out of the mooted merger of Sasol's liquid fuels division with Engen and will control 48% of the country's fuel production capacity and 34% of the fuel retail market. Uhambo will have annual revenue of about R33bn. Sasol and Engen parent Petronas will each own 37,5% of Uhambo, while Petronas empowerment partner Afric Energy Resources and Tshwarisano will each own 12,5%. The Competition Commission has approved the deal based on certain conditions. The Competition Tribunal will decide on the matter in October. Sasol, which has been criticised for lagging in empowerment efforts, said if the competition authorities did not approve the establishment of Uhambo, Tshwarisano would become a 25% shareholder in Sasol's liquid fuels division. Former justice minister Penuell Maduna, former Eskom chairman Reuel Khoza and entrepreneur Hixonia Nyasulu will, through various businesses in the Tshwarisano consortium, hold about 30% of the consortium's equity. The consortium comprises 10 groups. The largest of these are Ngazana Liquid Fuels, Batho Trust, Nozweni and Autoworkers Funds. Three analysts suggested the deal would help counter perceptions that Sasol had lagged on empowerment. The financial cost to Sasol was a secondary matter to them. Sasol said it would provide considerable facilitation for Tshwarisano's financing requirements, which amounted to R1,1bn. Sasol had provided guarantees for the debt and had agreed not to recover guarantee fees. This would lower Tshwarisano's cost of borrowing, said new Sasol CE Pat Davies. Sasol would also donate R45m to two trusts, aimed at empowering the "severely underprivileged", as well as Uhambo Oil staff and their families. Sasol said the consortium would comprise about 150000 direct and 2,8-million indirect beneficiaries. Women represented just more than half of the consortium. Davies said the transaction price had been discounted by R200m, which would stem from synergies to be gained from the merger.



President Calls for 'Sustained Vigilance' Against Corruption

President Mbeki has called for "sustained vigilance" against corruption in South Africa, saying he did not think that the problem would go away anytime soon given the emerging value systems engendered by market economies which contribute to corrupt practices. The president was responding to a question asked in Parliament September 8 on whether the Second National Anti-Corruption Summit held six months ago had enhanced the fight against corruption in the public and private sectors. Responding to a question on whether perceptions of corruption were perhaps greater than real incidences of corruption, President Mbeki said it was better to overestimate levels of corruption than to underestimate them, adding that the former would help to stem a tide of corruption corroding society. He said the National Treasury had allocated funds to the Public Service Commission to strengthen the secretariat of the National Anti-Corruption Forum, which would help greatly "to increase the effectiveness of our offensive against corruption". Corruption, he said, was "inimical to the achievement of the goals of reconstruction and development that we have set ourselves ... especially the critical task to eradicate poverty and underdevelopment". Referring to the socio-economic environment that can spawn corruption, the president referred to the writing of United States-based financier George Soros, who stated that "one of the great defects of the global capitalist system is that it has allowed the market mechanism and the profit motive to penetrate into fields of activity where they do not properly belong". Warning against "market fundamentalism", President Mbeki again quoted Mr Soros, who wrote that "people increasingly rely on money as the criterion of value ... what used to be a medium of exchange has usurped the place of fundamental values ... society has lost its anchor". The president referred to the Nel Commission set up some years ago to investigate South Africa's Masterbond fraud saga, where Judge Nel said he found it difficult to believe that some of the auditors involved with the Masterbond companies could have been so "blatantly dishonest", especially as they were in a profession widely perceived as being based on honesty and integrity. "To ensure that the new society we are building does not lose its anchor, and emerges as a people-centred society, we must enforce a policy of zero-tolerance on all corruption," President Mbeki told parliamentarians.



High Maize Prices Deter Overseas Buyers 

Japanese buyers have cancelled a 70,000 tonne yellow maize shipment from South Africa scheduled for October as rising local maize prices leave foreign buyers looking to the Americas, trade sources said September 22. South African maize futures have risen from around 600 rand a tonne in July to over 800 rand a tonne now on fears the 2005 crop might be less than the 12.18 million tonnes predicted and worries that low price levels might put growers off planting. "A month ago you'd have given your back teeth to get a slot on one of the grain elevators," one shipper said. "Now they're freely available. We'll be looking to fill contracts with shipments from the U.S. Gulf or Argentina instead." South Africa had seen a string of shipments move to Asia and the Middle East but traders said the only exports moving through South African ports now would likely be headed for other African destinations, many of which have been hit by drought. One trade source told Reuters Japanese buyers, who had made a series of large purchases, keen to avoid purchasing genetically modified corn after a series of contaminated U.S. cargoes had cancelled a 70,000 shipment booked for October. "They have cancelled the October slot," he said. "They are keeping the November and December slots open and I think if prices come down we can see some more business." Only a couple of months ago, with South African prices low on expectations of a bumper harvest, traders had complained their main problems were the capacity of the country's railway and ports to handle demand. Now, food aid shipments are almost all that is moving. The trade source said the United Nations World Food Programme had booked a 6,000 tonne shipment to Kenya and a 4,000 tonne shipment possibly ultimately destined for Zimbabwe to Mozambique's second port of Beira. But South African farmers, who unlike their European or U.S. counterparts are unsubsidised -- still complain they cannot break even at current price levels, and some traders see the market rising higher still until growers sow the 2006 crop towards the end of this year. "The farmers are playing their own game," said the shipper. "They've brought exports to a grinding halt."



UK's Ipsa Entera South African Market

A new British electricity company, Independent Power Southern Africa (Ipsa), is set to enter the South African electricity supply industry next year by building an 18MW gas-fired power station in KwaZulu-Natal. Ipsa's entrance into the South African market follows a decision taken by government last year to allow independent power producers to compete with power utility Eskom. It is expected that the introduction of private power producers will not only ensure that SA continues to enjoy low electricity prices but will also provide the country with security of power supply. With a surplus capacity of about 36000MW and the current peaking demand of 34000MW, SA could be plunged in widespread power outages if additional capacity is not found, fast. Eskom projects that its peaking capacity will run out in 2007 while its base load capacity could be depleted in 2010. Peaking capacity refers to available electricity during the hours of highest load, usually in the morning and in the evening. Base load is power available around the clock. Ipsa chairman Stephen Hargrave said September 19 that the company raised £8m (R93m) to buy a Lancashire power plant in the UK, which would be dismantled and its parts shipped to Newcastle in KwaZulu-Natal to be reconstructed to build a new power station. Speaking from the London Stock Exchange where Ipsa was listed yesterday, Hargrave said the 18MW gas-fired plant would not be connected to the national grid, but would rather supply power to specific industrial customers in Newcastle. One of the customers was synthetic rubber manufacturer Karbochem. "Key agreements are in place for steam sales and gas supply," said Hargrave. Ipsa CEO Peter Earl said the company was established to specifically develop, own and operate power plants in SA and the neighbouring countries, which are also facing power shortages. "We have no doubt that with the forecast shortfall in generating capacity in the near future there will be abundant opportunity to develop new power plants in the region," Earl said.



Cosatu Dismisses IMF's Criticisms

The Congress of South African Trade Unions (Cosatu) has slammed the International Monetary Fund's (IMF's) country report on SA, which found that the country's labour market was too rigid, and was hindering job creation. "The high levels of unemployment in SA cannot be blamed on the labour laws and minimum protection of standards that South African workers enjoy," Cosatu said September 22. "Once again the IMF has failed to provide evidence that our labour laws are inflexible and a hindrance to employment growth." The institution's 2005 report on economic and policy developments in SA was released September 19. "There are at least three views not mutually exclusive, on why unemployment is so high," it said. "First, a lack of available skills poses a key structural constraint to investment and labour demand. Second, labour legislation and employment protection policies have unintended side effects. Third, official statistics may underestimate employment." Cosatu said it was deeply sceptical of the IMF report, in particular the comments made in relation to the continued need for more labour market flexibility in SA. Cosatu said the IMF had no credible evidence for reaching its conclusions, and relied heavily on "anecdotal" information. The June South African Small Business Partnership report suggest that labour legislation was not the main reason for slow growth and employment creation among small business, said Cosatu. "Of all the business respondents surveyed (1794), 25% listed lack of confidence and demand in the economy as the main reason for constraints in employment creation." Twenty percent identified government regulations, with only 10% listing high labour costs as constraints, Cosatu said. The labour federation said that only a quarter of SA's labour force was covered by bargaining councils, dismissing the contention that centralised bargaining arrangements restricted small business growth. Government has identified the small and medium-sized business sector as critical for SA to reach its target of 6% growth. A cabinet subcommittee involving all the economic ministers heard presentations this week from the trade and industry department on a new strategy for developing small businesses.

Growth is Precarious

Is SA capable of an aggregate gross domestic product (GDP) growth rate above 6% in the near future? The vital statistics of the economy are now the new rallying cry, the new measure of confidence and perhaps even the new patriotism. The goal of 6% growth by 2010 is impossible without those terrible things called "structural reforms", say some, backed by the sombre voice of the seemingly omniscient International Monetary Fund (IMF). It is quite possible, indeed probable, say the new patriots, backed by those flighty rating agencies who tend to see growth in growth. The numbers game is the new sport, meshed into SA's new sensibility of unctuous positivity. Like everyone, I'm a bit confused. Driving to Pretoria from Johannesburg, and seeing the rows on rows of Tuscan cluster developments and the flourishing shopping complexes, I'm tempted to agree with Deputy President Phumzile Mlambo-Ngcuka that SA's growth is under-recorded in the official statistics. But we all know that the basis of this growth is painfully dependent on South Africans' precarious flirtation with a callous damsel called debt, an indulgence SA's banks seem weirdly happy to coddle. The recent growth spurt is easily explained as a consequence of the interest rate fall and not much else. If this is the case, SA's more likely path is not going to be higher at all, but a painful fallout as soon as the dollar strengthens and interest rates rise. But the place to look for clues about SA's economic future lies not in the official statistics on SA's growth rate, but in the structure of South African society. In the latest liberal journal Focus, SA's canniest society watcher Lawrence Schlemmer draws some rather controversial conclusions about recent changes in the racial makeup of wealth bands. It's true, he points out, that surveys show a dramatic change in the income shares of different races since 1994. Until 2002, black South Africans increased their share of the top bracket dramatically. One out of five very rich South Africans is now black. "Very significantly, however, the table shows that the rate of change slowed dramatically since 2002," he notes. The racial group that was the biggest winner in this period was, in fact, whites, which makes sense when you think about it, because the biggest winners from interest rates declines would be those most in debt. However, the point, says Schlemmer, is that the absorption of Africans into the public sector reached saturation after 2000. "The affirmative action bonanza has passed." What about the bottom of the ladder? As has often been noted, progress has been significant but not enormous. About 5% of Africans have moved from the "poor" to "not so poor" categories in just two years, which is excellent news. But Schlemmer says this falls rather short of the popular notion of a burgeoning black middle class, and he warns that increases in prosperity will be determined more by market forces than political engineering. This has a ring of truth to it. If this is so, the big question is whether SA has the kind of business environment in which market forces will allow the new generation to propel us into the future. Once again, the structure of SA's society provides the clue. One of the biggest problems with SA is that the ruling party is not dependent for its power on the people it taxes heavily, with the result that it taxes them heavily. Taxation is not egregious in SA, and the money is needed for basic service. But the tax structure acts as an entrepreneurial stimulant. In SA, entrepreneurship is largely the province of a desperate middle class fighting the tendency to slide down the social ladder rather than bright, budding millionaires trying to climb up it. I hate to say it, but I'm with the IMF. Without demeaning the fabulous effort thus far, 6% growth in the near term is highly unlikely.



Huge Disparity in Spending Between Private and Public Health Sectors

A team from national Treasury and Finance Minister Trevor Manuel have pointed out that South Africa is second from the top on a list of 20 countries in terms of total expenditure on health as a percentage of GDP. Nearly 60 percent of funding flows for health services in the country goes towards the private health care used by 15% of the population, while over 40 percent of health funding goes towards the majority. The disparity in these figures, revealed in the Provincial Budgets and Expenditure Review released by the National Treasury, is "all the more startling given that South Africa's total health expenditure as a proportion of its GDP is relatively high", according to the treasury. This, Finance Minister Trevor Manuel mentioned to journalists, was a fact that stood out in a comprehensive review of government expenditure between 2001/02 and 2007/08 undertaken by a team from the National Treasury. Funding for health services in South Africa has been estimated by the national treasury at approximately R114 billion in 2004/2005, 8.2% of the country's gross domestic product. This is high compared to a list of several other comparable countries - it is higher than Turkey (5%), for example, and Brazil (7.6%) - another country with a huge divide between rich and poor. It is also higher than South Korea (6%) or Malaysia (2.5%) and is beaten only by Argentina, at 9.5%, in a list of 20 similar countries. However, South Africa's public sector health expenditure, at 3.4% of GDP, is "only slightly above the average" spent by comparable countries and compares favourably with the 19 other countries on the list. For the 2004/05 financial year, government spent R47.5 billion on funding public health services. In the same financial year, the private health sector attracted capital of just over R66 billion. "This translates into a significant difference in per capita spending between those covered by the private sector and those covered by the public sector," which raises "a number of equity issues," the treasury report said. Part of the huge imbalance seen here can be attributed to the fact that South Africa's large private health sector has "apparent high input costs" such as expensive, high-tech equipment, while the country as a whole faces a "growing disease burden associated with the HIV and Aids epidemic". Already, national government has massively increased spending on HIV and AIDS treatment in the provinces, from R37 million in 2001/02 to about R770 million in the 2004/05 financial year, with projected expenditure by national government by 2007/08 estimated at R1.6 billion, aside from provincial spending. This is an average annual of over 88%. Nonetheless, the treasury report states, the "skewed distribution" of funding, high disease burdens and input costs present "huge health service challenges, even with comparatively high overall levels of health expenditure". While contributions to private medical schemes grow, the number of beneficiaries - at roughly 15% of the population - remains stable. This suggests, says the Treasury that the growth in expenditure is due to the increasing costs of services. The Treasury report states that the inclusion of 25 chronic conditions and anti-retrovirals into the prescribed minimum benefits [for medical aids] may continue to increase expenditure [in the private health sector]. "The challenge," says the report, "is to offer affordable and acceptable lower-cost schemes."

Aids Drugs Company Set for Africa Sales

South African generic drug maker Aspen Pharmacare is preparing to enter Africa's anti-AIDS drugs market. The company is regarded as one the top performers in Black Economic Empowerment (BEE) in SA and its expansion into the rest of Africa is backed by SA health Minister Manto Tshabalala-Msimang. This new sector of trade and investment into Africa will give a significant boost to SA black business which believes it has an uphill struggle in breaking into the 'white' business world, analysts say. Tshabalala-Msimang said that local production of anti-retroviral HIV treatment drugs, which is being promoted by the World Health Programme, should be viewed in the context of "local" meaning the African continent. African Union heads of state have also said that medicine production should be strategically located within the region. "This strategy anticipates a market size that would ensure sustainability as well as technical and financial viability," Tshabalala-Msimang said in a statement to the World Health Organisation meeting in Maputo. The huge market for antiretrovirals will mean a bonanza for the SA health company and its shareholders. Aspen CEO Stephen Saad said only 8 percent of the approximately four million people in sub-Saharan Africa who needed treatment for HIV/AIDS were receiving it. "Antiretroviral medicines are becoming a bigger and bigger part of our production", he told local newspapers, adding somewhat disingenuously, "We could never have foreseen this growth". In fact the HIV/AIDS market has long been viewed as a major potential money spinner and the SA cabinet some years back had already indicated its strong interest in the profitable local development of AIDS drugs in the abortive Virodene experiment. ANC members were alleged in 1998 to have been offered a six percent stake in the company involved. In April this year Aspen did a deal with the US firm Gilead Sciences for licensing and distribution of its antiretrovirals and will distribute these products throughout Africa. The company has approval from the US Federal Drug Administration for some of its anti-AIDS drugs, and was recently awarded the biggest share of the South African government's antiretroviral drug tenders. This is largely because it has a good BEE profile, guaranteeing it state patronage. Black control will be deepened soon and when a new BEE funding deal is finalized over five percent of Aspen's equity will be black-owned. Those with interests include the investment arm of the Chemical, Energy, Paper, Printing, Wood & Allied Workers' Union. Aspen has also approved the establishment of a vehicle for its black workers - around 70 percent of its staff. Tshabalala-Msimang endorsed the World Health Organisation's call for the local production of medicines at the 55th session of the WHO-AFRO Regional Committee in Maputo on Wednesday. At the moment Africa's share of world medicine production is declining and accounts for only 2.6 percent of global output. The manufacturing of medicines on the continent is limited to compounding and packaging, using imported raw materials. Mainly generic medicines are produced, and they satisfy only a small proportion of national requirements, Tshabalala-Msimang said and recommended that the continent should look at diversifying between primary and secondary level production. Primary level production included the manufacture of active pharmaceutical ingredients from basic chemical substances. Secondary level included the production of finished dosages from raw materials. There should also be a comprehensive and integrated strategy on intellectual property and trade agreements for the benefit of AU member states, facilitated by the WHO.



US Firm Strengthens its South African Presence

Tumbleweed Communications Corp, a leading provider of IT software and appliances in the US, has strengthened its relationship with a South African company by appointing it as its exclusive distributor in the southern Africa region. Under the terms of the agreement, i-Security will now offer Tumbleweed's full line of secure internet communications applications to governments and enterprises in southern Africa, and will also provide technical support to its customers. Based in Johannesburg, i-Security was established in 2004 to work solely with Tumbleweed in South Africa and in other African countries, delivering and maintaining only Tumbleweed's products, and providing customer support and related professional services. Tumbleweed provides security software and appliances for email protection, file transfers, and identity validation that allow organisations to safely conduct business over the internet. Tumbleweed was founded in 1993 and is headquartered in Califonia, and its enterprise and government customers include ABN Amro, Bank of America Securities, Catholic Healthcare West, JP Morgan Chase & Co, The Regence Group (Blue Cross/Blue Shield), St Luke's Episcopal Healthcare System, the US Food and Drug Administration, the US Department of Defence, and all four branches of the US Armed Forces. Explaining the decision to appoint i-Security, Tumbleweed's Soren Bech said: "Since our relationship began over a year ago, i-Security has worked tirelessly to evangelise the Tumbleweed brand and has made great strides in establishing Tumbleweed's presence in the South African marketplace." He said that partnering with i-Security as their exclusive southern Africa distributor reinforces Tumbleweed's "commitment to provide our industry-leading secure-messaging products globally". According to i-Security's CEO Jeremy Miller organisations of all sizes are facing an "ever-increasing number and diversity of security threats via the internet. "Tumbleweed plays a vital role in providing organisations with solutions for email hygiene, secure email, secure file transfer and identity validation. "Our keen understanding of the business need to conduct business safely and securely over the internet, together with the broad and deep experience and expertise of our technical consultants and specialists, places i-Security in an excellent position to achieve this goal."



SA, Indonesia to Strengthen Relations

Deputy President Phumzile Mlambo-Ngcuka will host her Indonesian counterpart Jusuf Kalla for bilateral, political, diplomatic and economic discussions at Tuynhuys in Cape Town September 27. The visit is aimed at consolidating relations between the two countries following the success of the New Asian-African Partnership Summit co-hosted by President Mbeki and Indonesian President Sosilo Bambang Yudhoyono in Jakarta in April, said the Department of Foreign Affairs in a statement today. It said the two governments shared the view that to jump-start the second economy and to alleviate poverty afflicting their citizens, there was a need to pursue and strengthen bilateral relations and concretise greater regional co-operation between ASEAN and SADC, to which the Republic of Indonesia and South Africa respectively belong. The two deputy presidents are expected to interrogate mechanisms to help effect closer co-operation in areas of bilateral trade, diplomatic relations, economic matters, cultural exchange programmes and the global political landscape. This in an effort to promote the ideals of South-South co-operation and advancing the cause of developing countries in engagements with the developed North said the department. South Africa and Indonesia enjoy healthy bilateral trade with South Africa's main exports to Indonesia include prepared foods, pulp and paper, while it imports vegetable products, fats and oils, plastics and rubber, timber, pulp and paper, footwear, stone and plaster from Indonesia. Trade between the two has increased from over R 535 million in 1994 to over R3 billion in 2004. Meanwhile, the two deputy presidents attend the National Orders Award Ceremony at the Union Buildings in Pretoria as well as the South Africa-Indonesia Business Forum at the Pretoria Country Club September 27. Vice-President Kalla will also officiate at the handing-over ceremony on the completion of renovations to Masjid Nuru Latief, a shrine in honour of Sheik Jusuf, an Indonesian political leader who died in exile at Maccassar, outside Cape Town in the seventeenth century.

Presidential Economic Commission Established With Tanzania

President Mbeki and his Tanzanian counterpart Benjamin Mkapa signed an agreement to establish the Presidential Economic Commission (PEC) September 21, to strengthen their bilateral relations. President Mkapa on a three-day visit as serves his last term as that country's president. Tanzania is expected to hold general elections in October, to elect a new leader. After signing the agreement, President Mbeki said there was a very big trade imbalance between the two countries which was however in favour of South Africa. Mr Mbeki said the commission should intensify the relations to benefit both countries. He said he was glad President Mkapa had signed the agreement before stepping down. "Tanzania is very close to our hearts. It is a very important fellow 'terrorist' that was our first base which led to South Africa's liberation," he said jokingly. The PEC is a joint commission on economic development chaired by both presidents. It has already identified corporation on agriculture, tourism, transport and mining. It will also be responsible for relaxing Visa arrangements in order to attract investment for both countries. President Mkapa said he was glad that he participated in the institutional framework of establishing the commission, saying Tanzania was already benefiting from massive South African companies investing in his country. "It never occurred to me that I would be able to visit the apartheid free South Africa and celebrate with you the freedom you enjoy. "We want to thank South Africa for your help in promoting peace and stability especially in Burundi, Rwanda and Cote d'Ivoire, I think you deserve our greatest encouragement. "Please stay on course of mediation in Cote d'Ivoire," he pleaded. Commenting about his achievements in the past ten years as President of Tanzania, Mr Mkapa said he had tried to serve his country accordingly, despite political and economic instability. He said he promoted the success of "pluralism" after 30 years of one-party state rule there. "I shall be ready to help in retirement and not to observe the elections," he said jokingly. He explained that he was concerned about the next electioneering weeks as there were ten presidential candidates in the elections scheduled for 30 October, saying there were possibilities for violence and other disturbances. Giving the latest on the Cote d'Ivoire, Mr Mbeki explained that South Africa had given a report to the Security Council of the United Nations that Cote d'Ivoire needed to implement the resolutions of the mediation process. These included the disarmament of the rebels, arming of the militia and preparing for the elections. Meanwhile, Trade and Industry Minister Mandisi Mpahlwa signed with his Tanzanian counterpart, the avoidance of double taxation, mutual assistance on customs and investment promotion and protection agreements.

SA, UAE Sign Economic Agreement

Trade and Industry Minister Mandisi Mpahlwa signed a bilateral agreement on economic, trade and technical co-operation with the United Arab Emirates (UAE) Seotember 25 The agreement was signed in Abu Dhabi during Mr Mphahlwa's visit to that country. He signed the bilateral agreement with his counterpart, Sheika Lubna Al Qasimi. UAE was Minister Mpahlwa's first stop on his weeklong four-country tour to the Middle East where he is leading a 30-member trade and investment delegation. The main purpose of the visit is to promote bilateral trade and economic ties with Middle East countries: the UAE, Kuwait, Yemen and Bahrain. According to the Department of Trade and Industry, South Africa and the UAE agreed to develop and strengthen economic, trade and technical co-operation between the two countries. The co-operation shall include, the following areas: trade, industry, agriculture, transport, telecommunication, petroleum and petro-chemical, education, scientific research, technology, tourism and investment. The two countries also agreed to establish a joint commission consisting to coordinate and promote economic and trade co-operation between them. Minister Mpahlwa also witnessed the signing of two memoranda of agreement between the countries' business delegations. These were between the Abu Dhabi Chamber of Commerce and Industry and the National African Federated Chamber of Commerce and Industry, and Medi Clinic Corporation of South Africa and UAE's United Eastern Medical Services. Minister Mpahlwa also addressed a luncheon, where he described the visit as "an important milestone, which would assist in unlocking potential for economic cooperation between UAE and South Africa, as well as between Africa and the Middle East region."

New Bid to Curb Chinese Imports

In a new bid to avert a damaging trade dispute with China over cheap textile imports, the trade and industry department is planning a bilateral trade agreement with Beijing to help SA limit the damage being inflicted on the domestic rag trade. SA's textile industry has been badly damaged by Chinese imports, which grew 80% in 2001-02, 196% in 2002-03 and 88% in 2003-04, leading to an estimated 36000 job losses over the past two years. The surge in imports has led to the closure of factories and reduced employment in the industry from 300000 in 1996 to less than 200000 today. The new moves are likely to spark opposition from trade unions and could scuttle delicate negotiations around a rescue plan for the industry. The rescue plan is the result of negotiations between senior government ministers and the tripartite alliance and involved strong protectionist measures against China, including the imposition of quotas, which are allowed under World Trade Organisation (WTO) rules, against Chinese imports. The WTO allows imposing safeguards for a maximum of three years when there has been a surge in imports. The department's new strategy suggests government now wants to go it alone in revitalising the rag trade. The new approach has been prompted by fears that imposing quotas or import duties against China might incite tit-for-tat sanctions on SA exports such as iron ore and chemicals. Department officials have been engaged in a flurry of visits to China in a bid to thrash out a deal. It is hoped the deal would resemble that reached recently between the European Union and China to un-block stockpiles of Chinese goods warehoused at European ports. The US and other countries are also trying to avert a clothing and textile trade war with China by negotiating an agreement outside the WTO framework. Tshediso Mantona, acting director-general for trade and industry, said that government wanted to protect thousands of jobs in the steel and chemicals sectors. These export industries would be harmed by Chinese retaliatory action, he said. "China is determined to protect its hard-won rights against trade harassment. It is likely to react if anyone acts in a way that seems hostile to them. "It is very clear that anyone who does this will attract the wrath of the People's Republic. "If we put up barriers which damage China they will hurt us. We could shoot ourselves in the foot in a big way. We are trying to draw the Chinese into a solution. They are fully aware of the crisis we are facing in the (textile) sector, and aware that we are thinking of invoking special safeguards." Government officials appear to be banking on goodwill that exists from historical ties with China, which supported the liberation struggle. However, it is understood that previous efforts by government to negotiate a bilateral deal with China over textiles have failed. Unions have argued that any intervention in the industry would be pointless in the absence of a comprehensive industrial strategy. Mantona agreed that a long-term survival strategy would entail the industry's "total transformation". But government moves to negotiate directly with China are likely to be read by labour as a repudiation of the approach agreed to by the ruling alliance's task team that called for the formulation of an industrial strategy. Government was committed to supporting the sector, Mantona said. But support strategies such as the duty credit certificate scheme, implemented as a temporary measure to stem job factory closures and job losses, had been corrupted and had created a loophole for imports. He said government, business, and labour had failed to honour agreements made at an industry summit in 2000.

Oman Bilateral Relations Flourish

Foreign Affairs Minister Nkosazana Dlamini Zuma and her Omani counterpart Yusuf bin Alawi bin Abdullah say political relations between the two countries are thriving. However, they said the relations were lagging behind in terms of economic co-operation. South Africa's bilateral trade with Oman remains very low. During the twelve months until the end of April this year, South African exports reached R135 million and its imports from Oman only R31 million. The two countries however have bilateral agreements on Double Taxation and the Prevention of Fiscal Evasion to Taxes on Income and Military Co-operation, signed in 2002. The two held discussions in Pretoria September 2; on their bilateral relations and issues relating to regional developments faced by the Gulf Co-operation Council (GCC), the Middle East and the Southern African Development Community (SADC). They also discussed the comprehensive reform of the United Nations Security Council. In addition, they talked about the tragic stampede in Iraq; and also sent condolences to the US following the aftermath of Hurricane Katrina that destroyed New Orleans especially. Both tragedies left thousands of people dead. "This reminds us that we must work together to ensure that we control some of human activities that might an impact on nature," said Dr Dlamini Zuma. Commenting on economic co-operation, she said they were talking to business to look at investment opportunities in both countries. "To have a sustainable co-operation we need to go beyond government," she said. Mr bin Abdullah concurred that they had strong relations that were "steadily developing". He however concurred that economic relations were lagging behind. "We are however working together to have peace and stability in our regions. We are encouraging the GCC and the SADC to negotiate a free trade agreement, these will benefit both areas," said Mr bin Abdullah. "We need to bring together our communities to identify how we can work together. We are interested in the mining sector as South Africa has experience in it. We are now planning together to exchange visits, we hope these will bring benefits," he said.



Old Mutual In Skandia takeover bid

Old Mutual launched a bid for Swedish insurer Skandia September 2. Two of Old Mutual's large institutional investors have indicated they will not support the group's R38bn offer for Swedish savings group Skandia if it turns hostile. However, Old Mutual CEO Jim Sutcliffe said the group would not resort to a hostile bid, and would be willing to walk away if it did not win Skandia's support. However, getting the approval of its own shareholders will be equally important if the offer is to proceed. Old Mutual's investments in Zimbabwe, which include a 19% stake in Zimbabwe Newspapers, have also come under the spotlight, with the Skandia board questioning Old Mutual on the investments. The Zimbabwe government is the largest shareholder in Zimbabwe Newspapers, which publishes The Chronicle and The Herald. Skandia shareholders are believed to be wary about getting into bed with a company seen to be propping up President Robert Mugabe's dictatorial regime. Old Mutual expects a positive outcome to its bid for Skandia, despite suffering a setback September 23 when the board of the Swedish group rejected its cash and share offer and advised shareholders not to accept it. However, Old Mutual CEO Jim Sutcliffe said the group had already approached shareholders holding 60% of Skandia's shares and had "received positive indications on the merits of our proposals from a vast majority of them". Sutcliffe would yet not commit to the exact level of acceptances the group had received. If Old Mutual is successful in its bid, the combined group will be Europe's eighth-largest insurer with a market capitalisation of £7,9bn. It will also fulfil the Old Mutual's ambition to become a global player. Analysts said the board's rejection would make it more difficult for Old Mutual to win the 90% it needed if it wanted to force out minority shareholders and delist the group. While it can pursue the offer at a lower acceptance level, Sutcliffe said that decision would be taken only after shareholders had voted on the deal. "It's certainly something we don't rule out," he said. Skandia's board, which remains divided over the bid, said Old Mutual's offer was too low, despite an independent assessment by Dutch Bank ABN Amro concluding it was fair from a financial point of view. Skandia commissioned the assessment. Old Mutual said it did not plan to offer more for the group. Three members of the board, including chairman Bernt Magnusson, concurred with ABN Amro's findings. Eight members of the board were against the bid, Skandia said in a statement. "This is a complex issue, and it's not surprising that members of the board have had differing views," Magnusson said at a press conference. "It is ultimately up to the owners of the company to decide on its future." Old Mutual will go ahead with its offer document, which will be published in the middle of October. Sutcliffe said the tender offer was expected to close in the second half of November. The Skandia board said it would not take any action to "frustrate the offer", would not look for alternative bidders and would co-operate with Old Mutual in preparing its prospectus and filing for regulatory approvals. Old Mutual must also win the support of its own shareholders. Sutcliffe said they had been largely supportive of the deal. Ed D'Almeida, financial sector head at Sanlam Investment Management, said Skandia's actions on September 23 meant it had handed the issue over to shareholders to decide. "Obviously it's a little bit negative for Old Mutual. A positive endorsement would have helped persuade the shareholders to move," D'Almeida said. The board's rejection would make it tougher for Old Mutual to win the support it needed. "I think it will be a tall order for Old Mutual, given the fact that there are a number of small shareholders that hold a large percentage of Skandia's shares."



Steel Sales Drop 7% As Local Manufacturing Falters

Steel sales in SA dropped almost 7% in the first half of the year as import replacement and the strong rand continued to depress local manufacturing. The South African Iron and Steel Institute said in its quarterly report September 21 that domestic carbon steel sales declined 6,9% in the first half of the year compared with the previous first half. Exports by local steel makers declined 1,5% in the period under review compared with the corresponding period last year. Domestic steel sales are an indicator of the country's economic health. Steel makers Mittal Steel and Highveld Steel and Vanadium will be hurt by the decline in sales volumes, even though these two still benefit from steel prices that are higher than two years ago. The institute said that the domestic economic outlook remained relatively buoyant, driven mainly by brisk growth in domestic consumer demand. But domestic production lagged somewhat, mainly because of import competition and substitution, it said. The organisation said domestic demand would not expand as rapidly as it had over the past year, but "it should still support positive growth in the manufacturing sector". But the prospects for exports were less upbeat, said the institute. Global steel prices started coming off last year's record highs earlier this year. The trend has prompted large global producers such as the Mittal Steel group and Arcelor to announce production cuts. The institute's data shows a 2,1% increase in steel imports in the first six months of the year compared with the previous first half. Imports as a percentage of total apparent domestic steel consumption rose to 6,8% during the first six months of the year, compared with 6,4% during the whole of last year. The trend appears to have intensified in the second quarter. The institute said imports in the second quarter of this year increased by 24,2% compared with the first quarter of this year.

Sasol Sells Stake in Uhambo for $229 

South African synthetic fuel group Sasol has sold a 12.5 percent stake of its proposed Uhambo Oil Ltd liquid fuels business to a black group for 1.45 billion rand, it said September 22. Sasol, the world's biggest producer of synthetic fuel from coal, said in a statement Tshwarisano Ltd was the broad-based black economic empowerment (BEE) partner in the deal. Uhambo Oil is expected to arise out of the planned merger of Sasol's liquid fuels business with Engen, a subsidiary of Malaysia's Petronas, resulting in the largest liquid fuels business in South Africa, Sasol has said. The Uhambo Oil transaction is awaiting Competition Tribunal approval, and hearings are due to start in early October. A sister regulatory authority, the Competition Commission, has already approved and given its green light to the merger. "If, for any reason, the Competition Tribunal does not rule in favour of the merger, then Tshwarisano will become a 25 percent shareholder in Sasol's liquid fuels business rather than a 12.5 percent shareholder in Uhambo Oil," Sasol said. "Sasol views transformation in South Africa as a strategic business and moral imperative," said Sasol's Chief Executive, Pat Davies. South Africa's BEE policy requires companies to sell a stake to black investors in an effort to lift participation in the mainstream economy after decades of exclusion under apartheid. Shares in Sasol -- buoyed as the oil price leapt above $68 a barrel as Hurricane Rita threatened U.S. oil and gas facilities gained 2.0 percent. The operating profit of Sasol's liquid fuels business rose by 33 percent to 1.9 billion rand in the 2005 financial year to end-June, driven mainly by higher refinery margins. Sasol supplies about 40 percent of South Africa's liquid fuel requirements, mainly from coal, and some from crude oil.

Iron-Ore Company Considers Congo Prospects

Iron-ore producer Kumba Resources has renewed its joint venture with Canadian miner Adastra Minerals, taking it a step closer to a possible redevelopment of the Kipushi zinc and copper project in Democratic Republic of Congo. A reassessment of the mine's commercial viability in current market conditions and an appraisal of the mine's physical condition are due to be completed by November this year. Kipushi has indicated resources of 16,9-million tons, with an average grade of 16,7% zinc and 2,2% copper. Zinc and copper were produced at the mine from 1925 to 1993, but production was stopped due to a lack of foreign exchange and operating supplies. The Kipushi mine is located in the south of the Congo, 30km southwest of Lubumbashi, adjacent to the Zambian border. Kumba has been operating in the Congo for about 12 years, said Kumba strategy and business development acting GM Doug Taylor September 9. The original contract for the joint venture with Toronto-listed Adastra Minerals was signed five years ago. Under the joint venture, Kumba can earn a 50% shareholding in the Kipushi project, the company said. Adastra is developing several mineral assets in Central Africa, the Congo and Angola. Adastra Minerals was trading at C$1,55 on the Toronto Exchange on Friday, after the company closed the previous day at C$1,60. Kumba has interests in base metals, heavy minerals and coal, and is also planning to start an iron-ore venture in Senegal as well as a heavy-minerals project in Madagascar.

Mittal SA Praised

Investment banking group Credit Suisse First Boston (CSFB) says the South African arm of the Mittal Steel group is among the best assets in the world number one steel maker's portfolio. The South African plants are among three "ultra-low-cost", high-quality assets, according to the investment banking group's initiation report on Mittal Steel. The Newcastle plant in SA rates as the lowest-cost producer in the group at about $255 a ton of slab. The Vanderbijl- park plant is the third-cheapest producer at about $267 a ton. The global average slab cash cost is about $314 a ton. "Within the Mittal Steel portfolio, we see some real jewels in the crown," says the report, naming South African and operations in Kazakhstan, Mexico, Algeria and Romania, among others. In addition to its low-cost structures, Mittal Steel SA rates among the top assets in the group also because it has a share of about 72% of the domestic market. The global Mittal group has dominant domestic market shares in four other countries. These include Romania, Czech Republic, Poland and Kazakhstan. CSFB says the South African operations also have significant room for expansion. The global Mittal group has about 13-million latest capacity of which 1,6-million tons resides in SA. Mittal Steel SA has more than 7-million tons a year of steel-making capacity, and is expanding to about 9-million tons by 2007. The South African operations are also considered good assets as they have a large amount of backward integration. Mittal Steel SA produces much of its raw materials and enjoys a favourable iron-ore supply arrangement with Kumba Resources. The South African operations, formerly Iscor, improved significantly after Mittal Steel gained majority control of the company last year. CSFB says Mittal Steel has achieved a 26% productivity gain across its core facilities since the respective dates of acquisition, with the most notable increases coming from some of the emerging market acquisitions Mexico, Kazakhstan, Romania and SA. SA is also among the higher-risk operations in the group, however. This is due to currency volatility and political risk in the country, the report says. The CSFB report is bullish about Mittal Steel and the global steel market. The brokerage initiated coverage with an "outperform" rating and a price target of $40 per American Depositary Receipt (ADR). The ADRs are currently trading at $29,25. It says Mittal Steel has some of the highest returns in the industry. CSFB expects US steel prices to rise from the last quarter of the year, with prices in Europe increasing in the first quarter of next year. Prices in Asia would rise from the second quarter of next year, onwards, it says. "With the upside risk of a full-blown steel market recovery into next year, we believe momentum within the sector should be strong through at least early next year," CSFB said.



Mbeki Hopes Petroleum Congress Will Bring Positive News

President Mbeki hopes that the 18th World Petroleum Congress taking place in Johannesburg will bring good news to people throughout the world. Speaking at the opening of the congress September 25, Mr Mbeki said the energy sector was central to global economic and social development. "It used to be said that money makes the world go round. Perhaps we should vary this and say that energy makes the world go round. "The fact does not need to be argued that the sector you represent is central to global economic and social development and therefore has enormous possibilities to contribute to an atmosphere of optimism affecting all countries, especially the developing countries," said Mr Mbeki. The President added that he was confident that the meeting being held for the first time in Africa would help the continent address its problems. He said the Congress took place shortly after the "unsuccessful" United Nations Millennium Review Summit that specifically focused on the alleviation and eradication of global poverty, world peace and security, and the reform of the United Nations. "To speak frankly, we must say that the UN Millennium Review Summit did not succeed in its mission as well as it should have. This represents a bitter disappointment especially for those of us whose peoples' better future depends on a successful resolution of the issues placed on the global agenda by the UN General Assembly." With the annual meetings of the International Monetary Fund and the World Bank having just taken place in Washington DC, the President raised concern that obstacles might arise to block the decision taken by the G8 to write off the debt of 18 least developed country. This he said, could add to the feeling of pessimism especially about the future of Africa However, Mr Mbeki welcomed the "progress" that seemed to have been achieved in this regard. He was referring to a media conference on Saturday, in which the British Chancellor of the Exchequer and Chairperson of the International Monetary and Financial Committee Gordon Brown announced moves to complete the IMF's approval of the debt's relief by the end of this year. "'That means that the historic process of completing the debt write-off that started many years ago has ended today with this agreement that all the elements have been resolved and the Managing Director will call the Executive Board together to complete the approval of the arrangements to deliver debt relief by the end of 2005...'" the president quoted Mr Brown. The President told delegates the controversy concerning Iran's intentions to use nuclear technology took a turn for the worse explaining that it was not known where the escalating confrontation on this matter would end. "We are however absolutely convinced that conflict over this issue can only add to heightened global tension, which none of us need." He also saluted the Israeli government for the closure of the settlements in Gaza and the withdrawal of the Israeli Defence Force from this occupied Palestinian territory. "We fervently hope that this historic step will open the way to the full, speedy and unqualified implement of the Road Map."
The Congress is expected to emerge with solutions affecting the petroleum industry, especially bottlenecks affecting refineries. It has brought together about 4 000 delegates from across the world - most of whom are specialists and pioneers in the petroleum sector, including industry executives, ministers, junior professionals and speakers, among others.



Spending Spree Picks Up Pace

Household spending, the main driver of economic expansion in the past year increased steadily in the second quarter, picking up slightly from a slowdown in the first three months of the year, the Reserve Bank said September 22. According to the Bank's quarterly bulletin, consumption spending by households grew by a seasonally adjusted and annualised 6%, compared with 5,5% in the first quarter, following a surprise rate cut by the Bank in April, which stimulated consumption. This contributed to impressive growth in gross domestic expenditure of 5% in the second quarter, after a slump to 1,5% in the first. For the first time in recent quarters, growth in expenditure was in line with growth in gross domestic product, which economists said was a "positive trend" that could help to "alleviate pressure" on the current account of the balance of payments. Statistics SA reported growth in gross domestic product of 4,8% in the second quarter. The hefty deficit on the current account, which shrank slightly in the second quarter, is partly the result of robust consumer demand for imported goods. The bulletin shows that gross saving as a percentage of gross domestic product increased to 13,5% in the second quarter from 13% in the first. This is low compared with other emerging markets, such as China, which has a savings rate of 50% of gross domestic product. SA's chronically low savings rate is inhibiting economic growth, and a savings rate of about 20% of gross domestic product is seen as more enabling for higher growth rates, while providing a cushion against financial shocks.



Umthunzi Wants R1,6bn Payout

Umthunzi Telecoms Consortium said September 19 that its shareholders were "traumatised" by Transnet's decision to terminate talks with the empowerment group on the sale of the state asset's 5% stake in cell-phone operator MTN. The consortium, led by businessman Sandile Zungu, was selected as the preferred bidder last year after what government described as a "robust and competitive process". Government said in April last year that it was satisfied with the quality of bids it had received. Zungu accused Transnet's new management, led by Maria Ramos, of overruling a cabinet decision. "Umthunzi shareholders are angry and traumatised by the experience," said Zungu. "All we want is the implementation of the agreement (with Transnet)." He said if Transnet was unable to implement the deal, it should pay compensation of R1,6bn, the increase of the value of the MTN shares since April last year. The shares are now valued at R4bn. Zungu said that the consortium was also considering legal action against Transnet for breach of an agreement. "We are ready for the long-haul of the legal process," he said. The public enterprises department, to which Transnet accounts, said last year that Umthunzi had met the objectives of the first phase of the sale, which included offer price, the ability to fund the transaction and broad-based black economic empowerment objectives. The 80-million MTN shares were valued at R2,5bn last year. But Transnet announced that it had terminated the 15-month long talks with Umthunzi, citing "failure to agree a mutually beneficial transaction". "Consequently, Transnet is considering various options," said Transnet spokesman John Dludlu. He would not divulge details of the disagreements with Umthunzi, but said that Transnet was "deeply committed to leveraging meaningful black economic empowerment." Dludlu said the parastatal had to realise maximum value for pension fund members on whose behalf the shares were being held in a trust. Analysts said Transnet's remarks suggested it had doubts about Umthunzi's ability to hold on to the shares for a long period of time. There was speculation that Umthunzi wanted to sell the shares as soon as was practically possible to reduce its debt. Zungu dismissed the allegations as "nothing but red herring and spurious claims."


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