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SOUTH AFRICA


  
  

 

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

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Update No: 082 - (03/11/08)

Will ANC Split?
Tensions between former defence minister Mosiuoa Lekota and African National Congress (ANC) alliance leaders have burst into the public domain, fuelling speculation that a split in the ANC is imminent. Lekota has announced that he and other disgruntled members may break away from the ANC and form a new group to challenge the Jacob Zuma led governing party. He has invited stakeholders to a national convention November 2 to discuss an electoral alternative to the ANC. Perhaps this is the moment for a new political force to emerge in South Africa? Could an ANC split be a good thing? The row took a nasty turn when Transport Minister Jeff Radebe, on behalf of the ANC leadership, lashed out at Lekota October 5, for his open letter to ANC secretary-general Gwede Mantashe. In the letter the former defence minister and ANC national chairman accused the new leadership under Jacob Zuma of departing from the Freedom Charter. Lekota had quit his cabinet post in apparent sympathy with Mbeki. 

ANC president Jacob Zuma questioned the motives of dissidents in the ANC, October 14, describing them as "charlatans". Zuma said that no individual member was "bigger" than the ANC. In a distinctly left-leaning speech, Zuma questioned the motives of dissidents in the ANC. "What is it that makes them angry and bitter? Is it class divisions, they now want to steal the Freedom Charter from the ANC? Time will tell, the truth will indicate who we are dealing with," he said. Zuma said "class realignment" best explained the reason for the possible formation of a breakaway party and questioned whether former defence minister Mosiuoa Lekota and his followers could improve on the ANC's policies. Lekota has announced a planned convention to discuss the possibility of a new political party. Zuma also issued a warning to any ANC members who wanted to split from the party, that it would act against them decisively. "We would like to warn all who intend to join the campaign to undermine and divide the ANC. We will act very decisively to rid the movement of factionalism." 

Former Archbishop of Cape Town Desmond Tutu has said that if South Africa held elections tomorrow he would not vote because of bickering in the ruling party. In an interview Archbishop Tutu said he would welcome a viable opposition. He also said African National Congress leader Jacob Zuma should not accept the job of president with corruption allegations hanging over him. Archbishop Tutu's comments come amid mounting speculation about the formation of a splinter party from the ANC. Archbishop Tutu said he was dismayed by the political acrimony. "I would be sufficiently unhappy not to vote," he said. The Nobel peace laureate said he would only vote if "there are attempts at healing rifts and people are not into the business of rubbing people's noses in the dust". Amid the speculation that disgruntled ANC members could break off to form a separate party, he also said he would welcome a genuine opposition.

The Zuma Prosecution story continues
A South African judge has granted prosecutors leave to appeal against a ruling quashing corruption charges against ruling party leader Jacob Zuma in September, Judge Chris Nicolson dismissed charges against Mr Zuma and suggested his rival, ex-President Thabo Mbeki, had interfered in the case. The ruling opened the way for the ANC to depose Mr Mbeki as president. Mr Zuma has denied charges of graft, money-laundering and racketeering. In his ruling in September, Judge Nicolson said the prosecution should have consulted Mr Zuma before renewing the charges, originally put on hold two years ago. Correspondents say it is a legal setback for Mr Zuma, who is favourite to become president after elections next year. Mr Zuma was re-charged in connection with a 1999 arms deal last December, shortly after he had beaten Mr Mbeki in a bitter fight to lead the ANC. Mr Mbeki strongly denies that he interfered in the prosecution of Mr Zuma and has appealed against that section of the ruling. 

South African Communist Party Rides High
A fundamental shift to the left in economic policy emerged from the ANC's economic policy summit October 18 and 19 with its communist and trade union allies. There were clear signs that the South African Communist Party (SACP) in particular is scoring huge successes in redirecting national policy. Changes to policy decided at the summit include the creation of a two-tier cabinet, a planning commission, and an industrial policy that focuses more sharply on job creation. The changes will surprise, if not shock, analysts who had been taken in by repeated assurances by the new ANC leadership that no policy changes were envisaged. Yet SACP deputy general secretary Jeremy Cronin signalled the overhaul October 19: "Very important and fundamental paradigm shifts are occurring." This is the first time the ANC has committed itself to these changes since its elective conference in Polokwane, which saw policy shift to the left.

ANC - Lekota 'Behaving Like a Spoilt Child'
Senior African National Congress (ANC) leaders lashed out October 5 at former defence minister Mosiuoa Lekota's criticism of the ruling party leadership, saying he was a "publicity-seeking spoiler" who had no organisational base. They accused him of "hype" tactics that would end in failure. Lekota has been vocal in his opposition to the ANC's recall of former president Thabo Mbeki and in an open letter to the party's top brass he accused the ANC under Jacob Zuma of veering from its core principles enshrined in the Freedom Charter. The public spat fuelled speculation that a split in the ANC was imminent and would be fronted by Mbeki loyalists. ANC secretary-general Gwede Mantashe dismissed a possible split in the ruling party and said Lekota's two open letters to him were not deserving of his attention because Lekota was seeking publicity "like a spoilt child". "As a member of the ANC he knows where we are. Luthuli House is not a media house or the SABC. He should engage the ANC not "Gwede". In fact the attempt to make this an issue of Gwede, "is likely to backfire," Mantashe said. Lekota said he was not planning on meeting the ANC leadership over his feelings but the ball was in the ANC's court. On Mantashe's comments that he was behaving like a spoilt child he said, "I don't know if that is the view of the secretary-general or the whole ANC." Gauteng housing MEC Nomvula Mokonyane, who serves on the ANC national executive, also slammed Lekota, saying he "has no mass base" and can only "hype". "When we worked with comrade Terror (Lekota) in the 1980s he was the publicity secretary of the United Democratic Front, so we are used to him hyping this up," Mokonyane said. She said Lekota's tactics would fail because he should know that "you can't contest the ANC because of its location in the community". Speculation of a split in the ANC following the party's decision to recall Mbeki has reached fever pitch. While several meetings have been held, it has been learnt that no clear plan on launching a break-away party has been formalised. The possibility of a split involving former ANC leaders and cabinet ministers would complicate the ANC's election preparations and could make ANC president Jacob Zuma's task more arduous when hitting the campaign trail later this year. Given that President Motlanthe has not yet announced a date for next year's elections, it remains unclear whether a new party will be registered in time to contest the 2009 poll.

Breakaway Movement Vows to Continue Fight 
South Africa's former defence minister and leader of a splinter ruling party group said October 25 he would not be deterred forming a new party before next year's polls, a report said. "We will not be intimidated," said Mosiuoa Lekota, a firebrand veteran of the African National Congress (ANC), according to a report by the SAPA news agency. "I am not going to let go (of) my principles like that," Lekota told a crowd of some 3,000 in the country's Northern Cape region. The meeting was however heckled by some 300 ANC members. Lekota announced his plans to break from the party, Africa's oldest liberation movement, after former South African president Thabo Mbeki was forced to step down as head of state due to a power struggle within the ANC. Mbeki resigned just months ahead of the end of his second and last term as head of state following pressure from the party, now headed by his arch-foe Jacob Zuma, who is tipped as the frontrunner in the 2009 presidential election. The ANC has suspended key leaders of the breakaway movement, including Lekota, an Mbeki loyalist, over their plans to form a new group. The dissidents say the party has lost its original character and democratic make up. The dissidents are organising a convention on November 2 to lay the groundwork for their splinter group to become an official political party. They hope to launch the group in December, and plan a series of rallies to boost their support around the country. Only a few prominent ANC officials have so far followed Lekota, among them Mbhazima Shilowa, the premier of the country's richest province, who complained the party has been hijacked by Zuma's supporters. Two former members of ANC's national executive committee as well as a former leader of the powerful labour unions have signed on to help organise the party, though it still lacks a nationally recognisable leader. Although the breakaway is gaining momentum, analysts say the new party stands little chance of actually defeating the ANC at the polls. Zuma, closely allied with South Africa's powerful labour unions, enjoys support from the millions of people still mired in unemployment and poverty 14 years after the end of apartheid. 

ANC Insults Due to Panic, Says Shilowa
Former Gauteng premier Mbhazima Shilowa - now the "volunteer-in-chief" of a potential breakaway party, painted a picture October 22, of an African National Congress (ANC) in panic and disarray. The strong reaction by the ANC leadership to those who had left showed they were worried about a new party, he said. Shilowa said that contrary to what ANC leaders had said, their insults to dissidents showed their concern about the threat posed by a breakaway that he, former party chairman Mosiuoa Lekota and other dissidents are expected to form. "Why do you insult? It is because you are worried. Forget about what they say that they are not worried. They are very worried," Shilowa said. Reacting to Shilowa's resignation and Lekota's call for a national convention, ANC Women's League president Angie Motshekga said the ANC had not gone to the dogs, but that the dogs had left the party. The Congress of South African Trade Unions said Shilowa had "changed from being a darling of workers to a member of expensive, elitist, whisky-drinking and cigar-smoking clubs". Shilowa quit the premiership and the party, citing dissatisfaction with its decision to recall former president Thabo Mbeki. Former Western Cape community safety MEC Leonard Ramatlakane said he too had resigned from the party. Shilowa said signs that the party was worried included its holding of a national executive committee meeting within a few weeks of an earlier one. It had also held meetings countrywide to discuss measures to prevent an exodus. Some ANC members were undemocratic for threatening dissidents, he said, referring to Senzo Mchunu in KwaZulu- Natal who reportedly said that the breakaway would not be allowed to establish a presence in that province. "What right has he got to prevent us from establishing a presence there?" He had told his colleagues to advise people leaving the ANC not to burn or deface ANC membership cards, regalia, emblems and flags. Preparations for the convention were on track and the venue would be finalised soon. Shilowa said there had been a "huge" response from business. "Money is not going to be our problem. Putting together an election platform is what is going to be our problem."

Government Abolishes Crime-Fighting Unit
South Africa's parliament at the behest of the majority ANC has voted to abolish the country's independent crime-fighting unit, the Scorpions. The body has been behind several high-profile political investigations, including a corruption probe against ruling ANC party leader Jacob Zuma. In September a judge dismissed charges against Mr Zuma, who is widely expected to become president after polls next year. Opposition parties accuse the governing African National Congress of waging a political campaign against the unit. A parliamentary debate October 23 and vote had been seen as formalities, as the ANC had already spelled out plans to disband the Scorpions. They followed a series of failed attempts by opposition parties and members of the public to save the body. The ANC-dominated parliament voted by a margin of about four to one to disband the Scorpions and create a new force of criminal investigators that will be integrated into the police. The Scorpions unit has shaken South Africa's political landscape in the last few years, probing and arresting several prominent politicians. Among those pursued were ANC former chief whip Tony Yengeni and Winnie Madikizela-Mandela, the former wife of ex-President Nelson Mandela. The Scorpions also led an investigation against suspended police commissioner Jacki Selebi, who faces trial next year. But observers say the unit, formally known as the Directorate of Special Operations, pushed its luck too far when it pressed corruption charges against Mr Zuma. That case was at the centre of a power struggle between Mr Zuma and Thabo Mbeki, with Mr Zuma's allies accusing Mr Mbeki's supporters of using the Scorpions to stop his rival gaining power. Mr Mbeki stepped down as president after Judge Chris Nicholson suggested that he had interfered in the case against Mr Zuma. The former president has strongly denied this and has appealed to the constitutional court against the judge's ruling. 

Zuma Praises Mbeki's Role and Encourages Tutu to Talk to ANC
African National Congress (ANC) president Jacob Zuma praised former president Thabo Mbeki's contribution to SA and the rest of the continent October 7. He said the government under Mbeki's leadership had "performed exceptionally well". Speaking at a gathering of black business leaders, Zuma said there would be no "dramatic" policy changes, but that "individuals deployed in certain stations were welcome to enhance the implementation of policies". He said black business professionals were important to the ANC's endeavours to transform the economy and create wealth and jobs. Zuma praised broad-based black economic empowerment policies, saying they should provide for the participation of women and youth. Priorities for the ANC in the run-up to elections next year would remain the delivery of basic services, continuing to build on successes achieved over the past 14 years and creating sustainable jobs. He also played down talk of a split in the ANC, saying if a new party was formed it would probably not have a long lifespan. "What kind of alternative policies could you put across alternate to the ANC, that would challenge the ANC? I don't think so, but I'm not saying it can't happen." Zuma invited Archbishop Desmond Tutu, who has said he would not vote in the elections, to raise his problems with the ruling party. "As the ANC we respect the elders of our nation and do not take their views lightly. We are puzzled as to why he wants to deny himself the right to vote, which he earned through the blood, sweat and tears of our people, and which he himself campaigned tirelessly for," Zuma said. Businessman Sandile Zungu told the audience the black business community felt it was important to create a platform for Zuma to share his vision for the future. "We wish you, Mr President, good luck and we want you to hold your head high when you become president. "We recognise you have gone through pains and we assure you your pain is our pain. The relationship between black business and the ANC goes a long way back and it is important, especially at this time." Earlier, in an interview with SAfm, Zuma said that according to the constitution he was innocent of fraud and corruption charges until a court found otherwise. "When we think and say things, we must remember what the constitution says ... Don't condemn a man ... a court has to find you guilty."

ZIM : The joy is Dissipating
The joy Zimbabweans felt after the power-sharing deal was signed September 15 is fast dissipating, and the deadlock between the ruling ZANU-PF and the opposition Movement for Democratic Change (MDC) is becoming part of a familiar political landscape, while the humanitarian situation worsens. Citizens trying to navigate the country's economic meltdown view the apparent lack of urgency by politicians in resolving the impasse as self-serving at the expense of the country. The power-sharing deal, brokered by Thabo Mbeki a few days before his own party forced him to resign as President of South Africa, hit obstacles soon after it was signed, when President Robert Mugabe's ZANU-PF and the MDC failed to reach agreement on the composition of a new cabinet. Mbeki has continued in his mediation role since stepping down as president although there are increasing calls for him to be replaced in this role for his apparent inability to force any real compromise from Robert Mugabe.

Zimbabwe - Western Envoy Criticises Mbeki
A western diplomat has expressed concerns about former president Thabo Mbeki's failure to pressure Zimbabwean President Robert Mugabe over violating his public commitment to that country's power-sharing pact. The concerns support the Movement for Democratic Change's (MDC) growing lack of confidence in Mbeki's ability to take the process further. The MDC also accuses him of endorsing Mugabe's choice of cabinet positions in his report to the Southern African Development Community (SADC) troika meeting in Swaziland late October. The diplomat said Mbeki's report to the troika proved he was not leaning on Mugabe to make concessions. Mugabe has assigned all key positions, including justice, defence, intelligence, police, home affairs, finance, tourism and mines, to Zanu (PF) members. Tsvangirai has refused to compromise on finance and home affairs, which includes the police. He says that for the country to recover the MDC needs to drive the reform process, and ensure that the police restore the rule of law. Meanwhile, the MDC has asked the African National Congress if its president, Jacob Zuma, will take over mediation. The MDC has also pinned its hopes on President Kgalema Motlanthe. He is also SADC chairman and a central figure of the ANC and its tripartite alliance partners which has been hostile to Mugabe's regime in the past. Mbeki has been accused of siding with Zimbabwe's liberation movement to the detriment of the country's greater good. The diplomat expressed doubt that foreign aid for Zimbabwe's economic recovery was likely if certain key ministries were not given to the MDC. Most international funding institutions no longer trust Mugabe's technocrats and cronies. The Global Fund to fight AIDS, Tuberculos-is and Malaria, last year rejected proposals from Zimbabwe for further grants to combat TB and malaria. Zimbabwe was seeking a total of $48,5m for malaria and $25,5m for tuberculosis over five years. Of $32,7m approved previously, about $25m has been withheld after allegations of misappropriation of resources and theft by the ruling party surfaced. He said Mugabe was refusing to relinquish power or negotiate a political solution or exit because there was still "enough meat on the carcass for him and his closest allies to survive a while longer".

Interest Rates 
The Reserve Bank held interest rates steady October 9, as expected, saying the outlook for inflation had improved but warning that the rand's sharp depreciation posed a threat. South Africa did not need to join a round of rate cuts by central banks globally as its financial system remained stable in the face of global turmoil said Bank governor Tito Mboweni. But he pointed out that local shares and the rand had been hit hard by global risk aversion, and the Bank was "monitoring developments closely". The Bank stuck to its view that inflation would not return to its target range until the second quarter of 2010. Mboweni said the Bank's forecasts for a fall in inflation were in line with estimates from analysts, which range between two and three percentage points. "We are probably not far off from the private sector," he said.

The rand's collapse in October will push inflation up next year and is likely to delay, but not prevent a series of interest rate cuts which markets had anticipated by the end of this year. The weaker currency should also help insulate South Africa's economy from waning global demand by boosting the appeal of its exports, helping to compensate for steep falls in commodity prices. With global markets as volatile as they are, the Reserve Bank is likely to keep monetary policy on hold until it is clear where the rand will settle, rather than hike rates in a knee-jerk response to rising inflation. "Inflation is not an issue in the current environment," said Standard Bank group economist Goolam Ballim. "The Bank will exercise prudence, which implies future easing in interest rates, but not hasty." Bank Governor Tito Mboweni told academics October 15. Risks to South Africa's economy have escalated with rising inflation, and interest rates may ultimately have to climb again to tame price pressures, the International Monetary Fund (IMF) said October 22. In an annual country report concluded in mid-August, the IMF also warned of threats posed by the widening deficit on South Africa's current account, its broadest measure of trade in goods and services. It predicted the shortfall would balloon to 9% of gross domestic product (GDP) this year, its highest since 1951, from 7,3% last year.

Economy Will Ride Out the Storm - Manuel
South Africa will weather the global financial storm well, although economic growth will slow sharply over the next two years while the budget surplus swings back to a deficit, Finance Minister Trevor Manuel said October 21. A sound banking sector would help the economy escape the worst fallout of the international credit crisis, but waning export demand, exchange rate turbulence and widespread uncertainty would curb growth, he said. "The storm has arrived, it is fiercer than anyone could have imagined and its course cannot be predicted," Manuel told Parliament while presenting the treasury's medium-term budget policy statement. But, he said, "we will ride out this storm". Analysts agreed. "In an environment in which global economies are following each other like lemmings into recession, these revisions do not signal loss of fiscal credibility," said Brait economist Colen Garrow. Manuel revised his growth forecasts down to 3,7% this year and 3% next year, from 4,0% and 4,2% respectively in the February budget. That was broadly in line with forecasts from economists. Despite an increase in spending to offset rising inflation, the budget balance would stay in the black in fiscal 2008-09, although the surplus would shrink to 0,1% of gross domestic product (GDP) from a 0,8% budget estimate. Over the next two years, official coffers will slip into the red as slowing growth and exports further erode tax revenues. Forecasts for a modest surplus over the next two years were revised to a deficit of 1,6% of GDP in 2009-10 and 1,1% of GDP in 2010-11. Markets took the news in their stride, although bonds weakened a little on prospects of more government borrowing. "Relief all around ... In the context of the challenges SA faces, this is still a sound performance," said Razia Khan, regional head for Africa at Standard Chartered in London. "It compares very favourably with key economies globally, that now face at least a few years of considerably wider fiscal deficits." Khan said the budget should help settle market fears of imminent changes to economic policy, instigated by the new leadership of the African National Congress, which is heavily backed by its left-wing allies, the Congress of South African Trade Unions and the South African Communist Party. Manuel also dismissed those concerns, telling reporters that SA's spending priorities remained on track, with the focus on education, health and access to decent jobs. "There aren't going to be seismic shifts in policy, it's about implementation," he said. Infrastructure spending would support the economy as domestic and global demand waned, with public sector capital investment reaching R600bn over the next three years, up from an estimated R568bn in the February budget. Real spending - which takes inflation into account - would grow about 6% a year over the next three years, the treasury said - in line with budget forecasts. On a more worrying note, the deficit on SA's current account - its broadest measure of trade in goods and services - was set to widen more sharply than expected. The treasury predicts it will balloon to 7,6% of GDP this year from 7,3% last year, reaching 8,9% in 2010 and 8,8% in 2011. All of those ratios are the biggest since 1951, when the shortfall swelled to 10,1% of GDP. The treasury said that the flexible exchange rate of the rand, which has depreciated by more than 30% this year, would cushion the blow to the economy of capital flow "shocks".

Country Will Continue Path Focussed on Poverty and Unemployment
The current economic storm prevailing on global markets will not deter government from focussing on its fight against persistent challenges of poverty and unemployment. "Our challenges are to eliminate poverty, to raise employment, to broaden opportunity and to improve the lives of all, particularly the most disadvantaged among us. "We will remain focused on meeting these challenges during the present storm and beyond," said Finance Minister Trevor Manuel. The minister was delivering the Mid-Term Budget Policy Statement (MTBPS) in Parliament October 21. The structure and framework of the budget reinforces that government will be focussing on striving to attain faster economic growth, higher levels of investment, rising employment and reduced levels of poverty. The MTBPS, which is a three year guideline to government expenditure, prioritises education, health care, fighting crime, rural development and extending access to housing, water, sanitation, electricity and public transport. Mr Manuel highlighted government's commitment to putting people first and to adopting policies that support growth and development. "The world is experiencing a financial crisis on a scale not seen since the 1930s. The prospects for global growth are poor and the short-term outlook is clouded by uncertainty. "However, South Africa's longer-term economic expansion rests on sound economic policies, healthy public finances and resilient financial institutions," the minister told Parliament. The healthy state of South Africa's financial sector relative to that of the United States, Germany, Britain, among others, will help the country escape the worst effects of the global economic downturn, Mr Manuel said. Lower domestic growth prospects due to decreasing export demand, financial volatility, exchange rate fluctuations and uncertain economic conditions in the future will, however, have an affect on South Africa's emerging market economy. The world is facing an economic crisis last seen when panic selling led to the crash of Wall Street in 1929 spurred on by financial institutions' excessive credit extension to unworthy consumer. While developed economies are cash strapped as major banks continue to be hesitant to lend to each other, it is the emerging markets who will bare the brunt of the liquidity crisis, economists believe. Risk aversion has caused massive foreign investor capital flight, plunging currencies in emerging markets to record lows. The Rand itself has registered some of its greatest loses in recent times dropping to more than R10 to the Dollar. The economic crisis is also affecting South Africa's primary driver of the economy, the commodities sector. As the fear of a global recession sets in, demand for gold, platinum, oil, diamonds, copper and other commodities has decreased leading to a drop in commodity prices across the board. "The proposed fiscal framework for the 2009 Budget takes into account both slower economic growth and the need to support continued infrastructure investment and social development in a context of heightened uncertainty," the minister said.

Economists More Gloomy Than Manuel
The economic crunch was on its way and bringing with it shrinking corporate profits and job cuts, economists warned MPs. Rather than the more benign scenario painted by Finance Minister Trevor Manuel in his medium-term budget policy statement October 21, the economists said there was considerable risk of a more gloomy outcome. The key assumption of the treasury's hopeful expectations was that effective international policy co-ordination and regulatory interventions would limit the fallout of the financial crisis on the real economy. Medium-term adjustments would be followed by more balanced growth. Failing this, deep recession in the developed world "will result in a reduction in international trade with a concomitant decline in economic growth in emerging markets and continuing financial volatility", the medium-term budget policy statement said. "In such an environment, SA could expect a prolonged period of much slower growth (and) real income and corporate profits would come under pressure." The latter scenario is the one that Sanlam chief economist Jac Laubscher and Standard Bank chief economist Goolam Ballim believe is more probable. Instead of the "too optimistic" growth in gross domestic product of 3% forecast by the treasury for next year, growth was more likely to slide to 2%-2,5%, they told Parliament's finance committee during hearings on the medium-term budget policy statement. "We can take it for granted that recession is on its way. The big question is how severe this recession will be and how long it will last," Laubscher said. The recession was likely to be prolonged because of a long process of adjustment in the financial sector. "There are tentative signs of stabilisation in the interbank money market internationally but it will take a long time before we get back to normal activity in the financial system. "The financial system needs to be reformed and this process will take quite a few years," Laubscher said. The South African economy was already very weak in terms of motor vehicle and retail sales, with car sales already about 30% lower than last year. Ballim said emerging markets were already slowing down dramatically and warned that the crisis carried the danger of dislodging the government from the "pragmatic and sustainable" fiscal policy choices made in the past. A 2,5% growth rate next year probably exaggerated the underlying reality of consumer sentiment and wellbeing as it would be bolstered by investment spending. Laubscher also believed that the treasury's forecast for the deficit on the current account of the balance of payments of 8%-9% over the next three years was too optimistic in the light of global developments. Financing the deficit would pose "an enormous challenge", Laubscher said. Portfolio dis-investment from SA in October alone had been the largest amount in history by far and reflected investor nervousness about the perceived risk of emerging markets.

Rand Logs Fifth Weekly Drop as Stocks and Gold Slide 
South Africa's rand fell for a fifth week as stocks and commodities slumped and investors sold higher-yielding assets on concern the worldwide financial crisis will crimp economic growth. The rand also dropped to a record against the Japanese yen as South Africa's benchmark equity index declined to the lowest level in more than two years. The currency weakened as a decline in gold, the country's biggest export, eroded earnings prospects for the biggest producer of precious metals. ``Negative speculative sentiment toward'' emerging markets ``is turning the rand into a one-way downward bet,'' said Ian Cruickshanks, head of research at Nedbank Treasury in Johannesburg. ``We're not masters of our own currency.'' The rand slumped 11 percent this to 11.1480 per dollar October 24, extending its drop this year to almost 40 percent. Against the euro, the rand slid 5.8 percent in the week to 14.09. It fell 18 percent versus the yen. Africa's biggest economy relies on the inflows to finance the shortfall in its current account, a measure of trade in goods and services, which has exceeded 7 percent of gross domestic product for four consecutive quarters. The deficit will reach 7.6 percent of GDP this year before swelling to 7.8 percent next year and 8.9 percent in 2010, Finance Minister Trevor Manuel said in his mid-term budget speech October. 21. Manuel also slashed his economic growth forecast for next year to 3 percent from 4.2 percent. ``The focus is on external vulnerabilities, whether on the capital or current account,'' said Ngotho. ``Countries with the biggest external imbalances are suffering most.'' Gold plunged 9.2 percent in the past five days, dropping to $682.41 an ounce October 21, the lowest in more than a year. Platinum, South Africa's second-biggest export earner, fell 11.4 percent to $773.75 an ounce. ``The commodity super-cycle has broken, which automatically translates into weaker export performance,'' said Cruickshanks. ``Commodities are still the backbone of this economy.'' South Africa produces almost 80 percent of the world's platinum and about 10 percent of its gold, typically causing the rand to trade in tandem with the metals' prices. Government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 adding 56 basis points to 9.86 percent. The yield on the 13 percent note maturing in August 2010 climbed 118 basis points to 10.69 percent. Yields move inversely to bond prices. ``The severe currency weakness has made people adjust their interest rate expectations,'' said, Mokgatla Madisha a bond trader at Investec Asset Management in Cape Town, which oversees around $60 billion dollars in assets. ``The market is now pricing in the small possibility of an interest-rate hike early next year, whereas a couple weeks ago investors were looking for cuts as early as December.'' South Africa's main interest rate is 12 percent. 

Most Opposition Parties Hope New Government Will Leave Economic Policy As It is Next Year
Most opposition parties welcomed Finance Minister Trevor Manuel's mini budget, saying they hoped next year's government would not change economic policy. Democratic Alliance (DA) finance spokesman Kobus Marais said the DA identified strongly with Manuel's priorities, especially measures to create jobs, reduce crime, improve services like education and health, reduce rural poverty and increase social grants. He said members of the tripartite alliance would be well served to heed Manuel's warning that if a conservative fiscal stance had not been adopted, SA would have been a lot worse off considering the global crises. Inkatha Freedom Party (IFP) MP Narend Singh welcomed the budget, saying he hoped the leadership struggle in the African National Congress (ANC) would not affect government economic policy beyond the budget. The IFP hoped the ANC's policy would remain unchanged in the face of challenges from its alliance partners for "a more interventionist, expenditure-driven" model. The Freedom Front Plus praised Manuel for resisting pressure from the alliance. This was evident in his refusal to adjust inflation targets, it said. Independent Democrats economic affairs spokesman Lance Greyling described the budget as a good framework which addressed many of his party's concerns. "The key challenge for government and all departments must now be actually to spend their budgets in line with designated programmes." The United Democratic (UDM) Movement was unhappy with the budget, saying the ANC was caught between electioneering and playing to the markets. "The reality of the budget process is that it is not realistic or constitutionally possible to affect any major budgetary shifts midstream through the budget cycle," said UDM MP Jackson Bici. The politically nonaligned Federation of Unions of South Africa said it was "impressed" with the budget for striking a balance between maximising economic growth and thriftiness on one hand, and social responsibility on the other. The Alliance for Children's Entitlement to Social Security and the Black Sash were both disappointed that the child grant was not extended to all children below 18.

Fears of Global Recession Causes Investor Pullouts
As fears of a global recession sets in, international investors are withdrawing funds from emerging markets. According to Sanlam Group economist Jac Laubscher, in the past the Rand acted as a cushion, shielding the economy to a degree and absorbing much of the madness on the global markets. "With fears of a global recession rising at the moment, investments are being withdrawn from emerging markets. "Within emerging markets, South Africa is one of the biggest commodity producers. In times of recession, commodity prices will be substantially lower which is also hurting our economy," Mr Laubscher said. South Africa's high current account deficit, is another stumbling block for the economy, he said. A high current account deficit is dependant on and requires a constant inflow of foreign capital, but investor capital flight in the face of recession will put the South African economy under pressure. The high current account deficit is mainly due to South Africa's need for construction materials and machinery to feed into its multi-billion rand infrastructure overhaul ahead of the 2009 FIFA Confederations Cup and World Cup in 2010. South Africa has, however, managed to build up large foreign reserves and the Rand has remained resilient in the face of prevailing market conditions, said Mr Laubscher. "Its ironic that because the eye of the storm has fallen in developed countries, that developing countries are effectively paying the price with investors withdrawing to reinvest in developed countries. "It's almost a redefining of what risk actually is," he said. South Africa's local currency dropped to its lowest levels against major currencies, registering its biggest loss to the Dollar since August 2002 October 15. The price of gold and platinum, South Africa's main commodities, has taken substantial knocks dropping by 1.27 percent and 4.08 percent respectively. The price of Brent Crude oil, trading at R67.91, is also off major highs sustained earlier this year when record oil prices rocked the market at $147 per barrel.

Recession Grips Retail as Sales Fall 5,5 Percent

Retail sales fell 5,5% in August compared with the same month last year, the steepest annual fall since records began a decade ago, official data showed October 15. After a drop of 4,6% in July, the figures mark the fourth successive monthly fall and back the view that the economy's third-biggest sector has slipped into a recession, which is defined as two successive quarters of contractions. "The dreadful performance of retail trade sales confirms that consumption expenditure remains under pressure," said Efficient Research economist Fanie Joubert. No respite was likely until interest rates start to fall, "possibly early next year". Rising debt costs, soaring inflation and slowing growth in disposable income have taken a toll on consumer spending, which is the economy's main growth engine. Retail sales, which account for 14% of gross domestic product, contracted 2,2% in the second quarter of this year - the first fall in seven years. Goldman Sachs economist Ashok Bhundia said that August probably signals the worst for the slide in retail sales, but growth would not turn positive until the end of the year. He predicted that the sector - which includes hotels, restaurants and wholesalers - would contract 1,3% this year, then rebound 3% next year. That compares with growth of 5,5% last year and 9,7% in 2006 - when interest rates began to rise. "We are in a recession as far as the retail sector is concerned," Bhundia said. This will restrain economic growth, but output is still expected to expand this year, despite mounting concern over the effect of a recession in several of SA's main trade partners -- Europe, the UK and the US. The Reserve Bank has lifted lending rates by five percentage points since June 2006 in a bid to curb price pressures, but inflation has continued to climb at its fastest pace in history. "Today's data add to evidence that the economy is slowing, which should eventually curb inflation pressures and prompt the Bank to relax its monetary stance," said Citigroup economist Jean-Francois Mercier. But risks to the outlook for inflation - dominated by the weaker rand - made interest rate cuts unlikely before June next year, he said. In the first eight months of this year, retail sales fell 1,7% compared with the same period last year, when they rose 7,8%, Statistics SA said October 15. In the three months to the end of August, retail sales fell 3,8% versus the previous quarter, the seasonally adjusted figures showed. A breakdown of the data showed that on a nominal basis, durable goods were again hardest hit, as they are most sensitive to higher interest rates. Sales of household furniture, appliances and equipment fell by an annual rate of 3,6%. Sales by general retailers rose 11,1% - down from 11,3% in July. Mercier said the method used by Stats SA to adjust the data for inflation may exaggerate weakness in the sector. "Nonetheless, even after taking this into account, we still think sales would be down on a year-on-year basis," he said. Absa Capital economist Monale Ratsoma said the figures showed efforts by the Bank to curb inflation have had little success, with the main CPIX gauge up by a record 13,6% in August.

SARS Sure of Meeting Revenue Target
The South African Revenue Service (SARS) is confident that it will meet the R642,3bn tax revenue target set by Finance Minister Trevor Manuel in his February budget despite the economic slowdown forecast for the year. This achievement will allow the government to contain the effect of inflation and its R60bn loan to Eskom, and maintain a consolidated budget surplus this year of 0,1% of gross domestic product compared with the 0,8% surplus forecast in February. Next year, the budget deficit is expected to fall further, to 1,6%, before improving to 1,1% in 2010. Personal income tax estimates have been revised upwards from R191bn to R201bn and corporate income tax from R156,5bn to R158,9bn, while VAT receipts are expected to remain stable at R167bn. SARS commissioner Pravin Gordhan said some factors such as nominal inflation were driving up some sources of revenue such as VAT, while other factors such as imports were driving it down. "While tax collection is expected to be close to the budgeted figure, revenue as a share of gross domestic product will be lower than expected," the medium-term budget policy statement said. "Revenue growth is likely to moderate over the next two years in line with corporate profitability." Gross tax revenue is expected to rise 8,9% to R699bn next year, representing 26,9% of gross domestic product, compared with 27,1% this year. Non interest government expenditure is expected to show real growth of 11,5% to R682,2bn in the 2009- 10 fiscal year from this year's revised estimate of R582bn. The medium-term budget framework adds R170,8bn to spending plans for the next three years and includes R50bn of the R60bn loan to Eskom, as well as a R59bn adjustment to spending plans to compensate for the effects of higher inflation, particularly on salaries, social grants, fuel and capital projects. A R36bn contingency reserve has been pencilled in for the next three years. A total of R27,7bn has been added to this year's spending plans, R7,7bn of which will cover the higher-than-expected inflation costs of personnel and capital projects, R2,5bn for the Road Accident Fund and R1,4bn for the 2010 Soccer World C up spending. The medium-term budget policy statement said further resources would be allocated to public sector employment programmes as well as incentives for private employers and non-governmental organisations to use more labour-intensive methods.

Wealth Gap Becoming a Chasm
Despite the dismantling of apartheid in the early 1990s, and significant annual economic growth over the past 10 years, South African cities have the highest levels of inequality in the world, according to the UN Habitat's latest State of the World's Cities report. The flagship report, published every two years, says even though local governments in the continent's richest country have adopted policies to fight poverty, efforts to bridge the gap between rich and poor have for the most part failed. At the report's launch, UN-Habitat executive director Anna Tibaijuka said inequalities were not only increasing in South Africa's urban centres, but were also becoming more entrenched, "which suggests that failures in wealth distribution are largely the result of structural or systemic flaws". "In Africa, urban income inequalities are highest in southern Africa," she said. "South Africa stands out as a country that has yet to break out of an economic and political model that concentrates resources." Historically, the gap between the haves and have-nots has been vast due to the nature of the apartheid regime, which for decades enriched the country's white population at the expense of their black, coloured and Indian co-inhabitants. Despite majority rule since 1994, the trend has continued. The Johannesburg Poverty and Livelihoods Study (JPLS), released by the Centre for Social Development in Africa at the University of Johannesburg in September, shone the spotlight on eight of the city's most deprived communities to highlight the gravity of their situation. Of the 1,409 households surveyed in the third quarter of 2007, just over half (51 percent) earned below US$230 per month, and one in five people had no income at all. This contrasts with the wealth of the northern suburbs, where behind high walls are swimming pools, private schools and German luxury cars parked in double garages. According to Jean du Plessis, a housing and land researcher and former deputy director of the Geneva-based Centre of Housing Rights and Evictions, one of the legacies of apartheid has been the rapid urbanisation of South Africa's cities, which has contributed to current urban inequalities. "Under apartheid the majority of South Africans were not allowed to move freely or to acquire secure land rights in urban centres. Once this inequitable system collapsed in the early 1990s, you had accelerated movement of black people from rural to urban areas. A further contributing factor has been a decline in subsistence agriculture," he said. UN-Habitat figures show that South Africa's urban population is now at 58 percent, and of the total urban population, 33 percent are living in slums and squatter camps where basic service delivery is poor. Du Plessis added that the challenge for local government has been: how do you deal with this massive influx of people in terms of providing housing, services and jobs? "City mangers have focused on the provision of formal, subsidised housing as the solution, which is a long, slow and limited process. In the meantime, hundreds of thousands of families have ended up living in informal settlements, under constant fear of forced eviction," he said. "In my view, the starting point should have been providing security of tenure to everyone needing a place to live in the cities, and to follow that up with intensive development support."

Xenophobia Victims At Risk as Camps Close
Amnesty International today said that those displaced by May’s xenophobic violence in South Africa face serious threats to their safety, as the last remaining camps for the displaced are closed and their asylum-claims are overwhelmingly rejected. The warning came as the South African government claimed it was handling the after-effects of the violence well at the annual meeting of member states of the UN Refugee Agency (UNHCR) in Geneva. “The South African delegation presented a highly embellished picture of its response to the displacement crisis,” said Louise Moor, Amnesty International’s refugee rights expert, who visited the camps for the displaced in September. Amnesty International called for an immediate halt to any deportations of displaced people from South Africa, pending access to an effective appeal process with full procedural safeguards. “The authorities are closing camps despite having no plan for the safe reintegration of those at risk of violence, and officials are rejecting nearly all asylum claims -- using gravely flawed procedures, in violation of international law,” said Louise Moor. “These people are not only at risk in South Africa, but also facing the risk of being forced to return to countries with serious human rights problems, like Somalia, Democratic Republic of Congo and Zimbabwe. They have no safe place to go.” The organisation is urging the South African government to honour its obligations towards those displaced by the xenophobic violence of last May, and called on the UNHCR to intervene. The violence in May led to thousands of people fleeing their homes to escape beating, sexual assaults, looting and destruction of property. “While it is true that those displaced by the May violence initially received temporary protection and access to basic services in camps, they are now at serious risk of further human rights abuses,” said Louise Moor. The rejection rate in the Cape Town asylum determinations appears to have been even higher than that in Gauteng -- over 98 per cent. Somalis, Congolese from Eastern Democratic Republic of Congo and Zimbabweans were amongst those whose asylum claims were rejected. Provincial authorities closed the last site for displaced persons in Gauteng, Akasia camp, October 6 without having in place a publicly-accessible government plan for safe and sustainable re-integration into local communities for displaced persons. Civil society organisations have not received adequate support or commitment from provincial authorities in Gauteng province in their efforts to engage local communities for the safe return of displaced persons. The financial assistance offered by international agencies to displaced persons is seriously insufficient to find safe accommodation and to meet other aspects of a sustainable return. Violence against displaced persons attempting to return to local South African communities continues, in particular against Somali nationals, with police failing to accept that these crimes are part of a continuing pattern of xenophobic attacks. Medical charity Medecins Sans Frontieres (MSF) has sharply criticised the forced closure of South African migrant camps over the last two days. "There is no solution for these people, they have nowhere to go," an MSF spokesman said. The camps, holding 1,200 foreigners driven from their homes by May's xenophobic violence, are being shut around the city of Johannesburg. 

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AUTOMOBILES

Toyota and VW Ahead of General Motors in Sales

Car makers are scrambling for market share as passenger car sales keep plummeting. General Motors SA (GMSA) has managed to gain market share in the cut-throat passenger car sector, although it remains far behind its two major rivals -- Toyota SA and Volkswagen SA. In the year to July GMSA secured a market share in passenger cars of 14,07%, Response Group Trendline and the National Association of Automobile Manufacturers of SA (Naamsa) said. Last year, its share stood at 13,75%. Malcolm Gauld, vice-president of sales and marketing at GMSA, said Chevrolet sales continued to grow with 1900 units in August being the best month for the brand since reintroduction in 2003. "It is noteworthy that sales of our more affordable vehicles reached an all time high with our Chevrolet brand's Spark and Aveo recording more than 1100 units," Gauld said. Toyota's market share also remained robust. Response Group Trendline and Naamsa reported that in the year to July Toyota garnered market share of 26,72% against 26,03% last year. "Our brand core values of quality, durability and reliability as well as excellent resale value of our vehicles have all contributed to our success during this tough period," Toyota's Ferdi de Vos said. "We will continue to offer excellent quality, customer-orientated service as well as high quality, reliable vehicles that our customers are proud to drive. "We hope that this will strengthen our brand and market share in the long term," he said. However, Volkswagen lagged. According to Response Group Trendline and Naamsa, the company's market share in the year to July fell to 15,14% from 17,41% last year. Volkswagen, along with its competitors, are battling with dwindling car sales. "Under these conditions demand for new passenger cars is set to remain under pressure for the remainder of 2008 and into 2009," Volkswagen sales and marketing director Mike Glendinning said. Gauld said: "We expect the retail market to continue to weaken, albeit at a slower rate than in recent months, primarily due to interest rates being held at the current level. "The uncertainty associated with these variables is causing many consumers to adopt a wait-and-see attitude which has resulted in a considerable slowing in new vehicle demand."

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AVIATION

Airbus 'Hopeful' on SAA Dispute

South African Airways (SAA) was locked into its $727m contract with Airbus for 15 A320 jetliners, part of a larger deal involving four different Airbus products, the aircraft manufacturer said September 15. Airbus sales vice-president for Africa and the Indian Ocean region Hadi Akoum said the deal signed in 2002 was for the supply of not only the A320-200s but also nine A340-600s, six A340-300Es and 11 A319-100s. "The A320s were part of a larger contract, and could not be cancelled on their own," he said. Akoum said Airbus was hopeful it would reach resolution with SAA in the next two months on the outstanding payments. SAA, which is modernising, is believed to have asked Airbus to incorporate the previously paid pre-delivery payments into any new order. Airbus has said it was considering replacing the order for the A320s with an Airbus product that SAA felt would best suit its present business model. There was concern recently that taxpayers would have to foot the bill after it emerged that SAA, which received R653m in March from the government, would need to pay millions of dollars for aircraft orders it allegedly cancelled four years ago. Akoum said the deal with Airbus in 2002 was intended to help the company cut costs by providing it with a range of aircraft that used the same parts and could be flown by the same pilots. In 2002, SAA ordered the 15 aircraft, but two years later the board elected to cancel the order. SAA sent a letter to Airbus notifying it of the decision to cancel the contract. It received a letter of confirmation of receipt from Airbus, but no acknowledgement that the order had been cancelled. SAA assumed the matter was closed and wrote off the pre- delivery payment as part of the deal until Airbus contacted SAA and demanded the outstanding money. Asked how SAA could have believed that the deal had been cancelled, Akoum, who was not then in charge of the region, said: "At the time, SAA still fell under Transnet and there was some confusion about its position." There were also some leadership changes in 2004, with Khaya Ngqula replacing Andre Viljoen as CEO. It was Viljoen who signed the deal. Linden Birns, spokesman for Airbus, said yesterday that Airbus and SAA had been trying to resolve the dispute for a number of years. "The issue did not just emerge. They have been negotiating for some time now," he said. Akoum was upbeat on SAA's prospects, despite increased competition and soaring fuel costs, but he warned that smaller South African airlines using older, less economical aircraft, may feel the pinch. He said that while the fuel price was improving, it was still making up 60% of the costs for the smaller carriers. "If the fuel price increases 20%-40%, it translates into a 30% increase for those airlines, many of whom are operating on a 10% margin." These airlines could not sustain this indefinitely, he said.

Aviation and Defence Industries Can Help Attract Investment
The South African aerospace industry has the capability to grow and attract investment, says the Minister of Defence Mosiuoa Lekota. The minister was speaking at the opening of the Africa Aerospace and Defence 2008 exhibition at Ysterplaat Air Force Base in Cape Town September 17. He said the local commercial and general aviation industries, along with the security and defence industries, could assist in attracting foreign direct investment into South Africa, while generating spin-offs in other clusters of the economy. The opening was attended by high-level delegations from around the globe as well as an array of leaders in the aerospace and defence technology industry, such as Denel, Air Transport Europe, Aerosud, Air Defence Systems, Saab Grintek and BAE Systems. The minister said these stakeholders played a vital role in the development and sustenance of the industry. He said South Africa fully supported the innovative approaches of these companies in forging business alliances with international groups for much-needed products and technologies. Their participation in international programmes with companies like Airbus and Boeing which are world leaders in aviation, was appreciated, said Minister Lekota. "Such international collaboration addresses issues such as technology development, skills and job creation and retention, greater SMME [Small, Medium and Macro Enterprises] opportunities, downstream training and development, as well as enhanced growth of the micro economy."
Minister Lekota said that there was great potential for export which would stimulate industrial innovation, competitiveness and supply chain growth. He assured the industry leaders that government would continue to promote the aviation and aerospace industries in their drive to achieve international quality output. The benefits of the aviation sector in the economy, which was increasingly spilling over into the region as a whole, have been seen such as the growing number of delegations attending at this year's Aerospace show. "This is evident that our region and continent is consolidating efforts in search of new areas of co-operation. The ever-growing need to forge structures of mutual defence and security - is a welcome development. "We must collectively build on what already exists in our region and what is more affordable before we cast our sights on markets in distant lands." The minister said he was confident that the diverse products and systems on show at the exhibition had the potential to provide the solutions to unique aviation, security and defence-related challenges on our continent and in many regions around the world. The AAD is co-owned by the SA Aerospace, Maritime and Defence Industries Association, Armscor, the Department of Defence and the Commercial Aviation Association of Southern Africa. It has become an integral part of the international aerospace and defence calendar. This year marks the second time it has been held in Cape Town.

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BAE Benefits From British Partnership
Business for defence equipment manufacturer BAE Land Systems had quadrupled since it joined the British BAE Systems group to an annual turnover of R2,5bn for the past two years, Johan Steyn, MD of the South African company, said September 17. Steyn was speaking at the Africa Aerospace and Defence expo and said the key to the company's success in recent years had been its partnering agreement with BAE. Steyn said since the company had become part of BAE Systems it had significantly increased its sales, which he attributed to the global footprint and exposure the Boksburg-based company had received from being part of the wider group. BAE Land Systems produces mainly mine protected vehicles and has sold large numbers to the US military forces. Its vehicles are used in war zones such as Iraq and Afghanistan, as well as by the United Nations in the missions the organisation has launched in areas of conflict. Steyn said he foresaw that mine protected vehicles would continue to be the mainstay of the company's business, and even increasingly, but not at the rate previously experienced. He said "partnering is the name of the game" for South African companies looking to grow their business overseas. What was needed was "in-country assistance from a strong local partner". He said defence equipment customers wanted to ensure they had a local base to support whatever they bought.

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Surging Fuel Bill Harms Comair
Comair, the airline that operates British Airways in SA and budget airline kulula, said September 17, a R380m surge in fuel costs had affected profitability. With attributable earnings plunging 43% from R109m to R62m. Joint CEO Erik Venter said: "Our earnings were severely impacted by the exceptionally high oil price, particularly during the second half of the financial year." The price of jet fuel was R2/l six years ago. In the past six months it has risen from R4/l to R8/l, Venter said. "The trading environment that we experienced during the second half of the financial year has been the toughest in the history of the industry," Venter said. Headline earnings per share fell to 15,4c from 25,2c. However, revenue increased 21% to R2,7bn as a result of increased customer volumes and a higher yield on ticket price, which rose on average 11%, at both British Airways and kulula. Cash generation remained strong and allowed significant investment in the company's new Boeing aircraft, which delivered fuel savings of 26% a seat over the old MD82s. "New aircraft are not the only area in which the company intends building greater efficiency," said Venter. "Even though we've recently seen some respite from the oil price, we are planning our business around permanently high energy costs. "Our team were tasked to identify further efficiency opportunities in the business and came back with over R100m per annum in additional savings." Venter said ancillary profits from the group's travel business, flight training facilities and ground handling operations contributed more than a quarter of total profits. Comair, which recently launched online travel packages in SA, expected a decline in customer volumes due to high inflation, slower economic growth and the credit crunch. High oil prices, a volatile exchange rate and "un-competitive behaviour of our state-owned competitors" posed a challenge for the airline.

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BANKING AND FINANCE

Financial Turmoil in U.S. Will Hit Old Mutual Hardest

Of all South Africa's listed financial institutions, Old Mutual probably has the biggest exposure to the rapidly worsening global credit crisis. It's not surprising then that it was one of the big losers among the insurance stocks on the JSE September 15, falling 4,99% to R13,34. This compared with its local competitor Sanlam, which actually gained 1,63% on the day to R18,10, as did Metropolitan, whose share price rose 0,83% to close at R13,41. With world equity markets sliding in response to the bankruptcy of the Lehman Brothers investment bank September 15, Old Mutual may have to tell its shareholders it is facing a fourth $50m write-down in its US businesses. When Old Mutual announced the resignation of its CEO for eight years, Jim Sutcliffe, ostensibly due to the recurring problem of write-downs in its US businesses, the group said it had about 60 days to rectify the problems. However, with the markets going the way they are, it seems Old Mutual's new CEO Julian Roberts may not even have that long. Maybe he will even be forced to sell some of the US operations. Moves by US authorities to allow American International Group (AIG) to free up to $20bn of capital in its subsidiaries in the wake of the global credit crisis indicate there are indeed problems in the US life market. AIG, arguably one of the biggest life insurance groups in the world, saw its share price plunge more than 60% in New York trading yesterday. If AIG is having trouble raising capital, how difficult is it going to be for other financial institutions out there? 

Vehicle Finance and Offshore Assets Cause Firstrand Decline
Firstrand, one of SA's largest banking groups, released its annual financial results September 16 and reported the first profit decline in its 10-year history, with attributable profit falling 1% to R13,03bn and headline earnings dropping 9% to R9,9bn. The group had taken pain in vehicle financing and offshore equity portfolios - but the bulk of the company had made positive returns, it said. FirstRand was the last of the big four banks to release results this season and, although it published annual results, unlike the rest who were reporting half-year results, it illustra-ted many of the same trends - a drop in retail business, a rise in impairments, growth in commercial business and increased capital adequacy ratios. The dividend was unchanged at 82,5c. "We apologise to shareholders for the losses," CE Paul Harris said when discussing the shut down of the international equity portfolio. This affected group profit and was managed by subsidiary Rand Merchant Bank (RMB), which sold down 95% of the portfolio as market volatility showed no sign of respite. But other divisions of RMB grew. Momentum turned in what Harris described as an "outstanding performance", First National Bank (FNB) did similarly well, while Wesbank's profit declined as consumers stopped buying cars and started defaulting on car loans. Harris said management earnings had been affected by the poor performance. FirstRand predicted Wesbank's woes, but not the international equity portfolio's demise. Nonetheless, Harris said it could be true that FirstRand would be the first local banking group to show a recovery next year. "Our books are aged quite well for a quick recovery." He said, however, there was nothing tucked away to add to the possible bounce. Patrice Rassou, senior portfolio manager at Sanlam Investment Management, said FirstRand's results were within expectations. "My sense is that the second half has gotten much worse with regard to the operating environment due to the bad debt cycle, especially in the home loans market," Rassou said. He felt RMB's results were above expectation and that it had done well to close its offshore exposure without incurring more serious losses. As for Wesbank, Rassou said that while he felt it was premature to say whether FirstRand would recover faster than other banks, its more detailed disclosure yesterday added some comfort. Nothing in the group's numbers had him overly worried. As for FirstRand's outlook, the group was cautious, especially with the tumultuous market conditions experienced recently, but management believed there could be an interest rate cut by next June and an easing in consumer sentiment. It expected commercial business to continue to grow but was mindful that corporate clients would feel more pain as spending slowed. "Interest rates have to come off before there's a bounce, but I think they will. They're biting and doing what they're supposed to do. With petrol coming down, we've had decreases in some year on year prices. I think rates are going to get a lot better and we'll overshoot on the downside," he said. In the year ahead FirstRand will focus on cost cutting and there will be staff layoffs, particularly in the FNB stable. The group was also working in India, Brazil and certain African countries and had an eye on Nigeria. Michael Jordaan, CE of FNB, said that with the easing of the Zimbabwean situation, FNB would consider that market too. Harris said the group could not make predictions about performance in the risky environment, but the aim was to produce superior returns.

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ELECTRICITY

Eskom Secures German Loan Deal

Power supplier Eskom has signed an export credit financing loan agreement with Germany's KfW IPEX-Bank for about R2,8bn, to partially finance the six boilers that the Hitachi consortium will supply to Eskom's Medupi power station in Limpopo. Due for commissioning in 2012, the 4788MW Medupi coal-fired power station -- in Laphalale, Limpopo -- will be the first base load power station to come into operation since the construction of Majuba power station in the late 1980s. It is part of Eskom's multi-billion rand build programme to increase electricity capacity. The power station's six units will be commissioned at nine-monthly intervals, with the last unit scheduled for 2015. Eskom says the loan is payable over 12 years after the commissioning of the units. KfW IPEX-Bank and HSBC Bank arranged the export finance cover from German export credit agency Hermes. Eskom outgoing finance director Bongani Nqwababa and KfW IPEX-Bank first vice-president Peter Purkl signed the agreement. Hitachi Power Africa chief financial officer Robin Duff September 11 said the manufacturing of the boilers was on course to commence in November. "The design of the boilers is also well advanced. It is being done in Germany," Duff said. The total of the design, building, supply and commission of the units, is about R20bn, according to Hitachi, who will also provide boilers to Eskom's six-unit 4818 Kusile power station in Mpumalanga. Eskom has turned to domestic and foreign markets to fulfil its multibillion rand funding requirements. Spokesman Fani Zulu said the utility will diversify its sources of funding internationally, using different geographies, maturity periods and funding instruments. The instruments include syndicated loans, bonds and export credit finance. In diversifying its geographical spread of funding sources, Eskom has added South America and Middle East to targeted markets. Zulu said Eskom would, from time to time, embark on road shows to meet key players in the domestic and foreign markets. "We are engaged in a 25-year (capacity expenditure) programme. Thus, we need to have a relationship with the market. We have always had road shows, even when we did not have a funding requirement. Now we have embarked on a build programme, it is important that the market has access to Eskom."

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INTERNATIONAL ECONOMIC RELATIONS

Venezuela Relationship 'Real, Actual, Practical' 

Bilateral agreements signed between South Africa and Venezuela prove the relationship is "real, actual and practical," says President Thabo Mbeki, after meeting with Venezuelan President Hugo Chavez September 1. "The agreements that have been signed here today show that, indeed, the relationship has taken on a strategic character. "The relationship is real, actual and practical. We spoke of a strategic partnership which means we will learn from each other. "We will draw on each others' strengths and weaknesses, and we will act in partnership to deal [with a number of] issues raised," Mr Mbeki said. Discussions between Mr Mbeki and his counterpart also looked beyond bilateral relations to the situation in Venezuela, South Africa, South America, Africa and the world, Mr Mbeki said.Both presidents expressed that they were very pleased that the issue of the strengthening and enhancing of South-South relations received attention. "It will be a mutually beneficial agreement and relationship," Mr Mbeki added. Agreements and Memorandums of Understanding (MOUs) were signed on energy, upstream oil and gas, and offshore oilfields in Venezuela, said President Mbeki. "The agreements we have signed provide for the further detailing and discussion to expand co-operation in the field of oil and energy. "One main purpose of the agreements is to cut out the intermediary. So you have direct state-to-state relations in the area. "This will remove certain costs reducing the price somewhat," said Mr Mbeki. President Chavez said they were realising more and more that it was essential to pave a true path towards the future together. "We are a mix of Africa and America ... White, Black, Indian, and [therefore] we greet you [South Africa] from the bottom of our hearts as we are in Mother Africa. "The struggle for liberation in Latin America has always been inspired by the struggle for liberation in South Africa and Africa," said President Chavez. The Venezuelan President highlighted that he would like the relationship between the two countries to attain a profoundly strategic level. "The world is faced by a financial, food, energy, ecological and moral crisis ... and it is therefore of the utmost importance to unite the people of the South. "I would like to stress that the energy and oil agreements that were signed should all be implemented as soon as possible. "PetroSA should immediately go to Venezuela to work with us to exploit the vast opportunities in oil," President Chavez said. Venezuela has one of the largest oil reserves in the world and is the world's fifth-largest exporter. South Africa is the region's largest oil consumer- more than 68 percent of the Southern African Development Community's total consumption- and the second-largest oil consumer in Africa after Egypt. In July, Minerals and Energy Minister Buyelwa Sonjica visited Venezuela and the Department of Foreign Affairs said the visit had paved the way for closer co-operation between the two countries. Venezuela has one of the largest oil reserves in the world and developing commercial relations in this sector could provide alternative sources of energy to South Africa, the department said. The deal is expected to provide PetroSA with immediate and direct crude oil from the Venezuela's state-owned petroleum company at a preferential rate. South Africa's State-owned oil company PetroSA reportedly said that it would acquire an oil-producing asset in Venezuela, following the visit by President Chavez to South Africa. The deal also seeks to pursue commercial opportunities around gas-to-liquid technology - an area where PetroSA is a world leader with enormous capacity.

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MANUFACTURING

Factories Falter After a Brief 'Bounce'

Factory output faltered in July, with annual growth in the economy's second-biggest sector slowing to 3,3% in the face of waning local and global demand and rising input costs, official data showed September 11. Mining production plunged 13% in the same month but this was due mainly to deferred maintenance among platinum producers, Statistics SA said. The data supported the view that a strong second-quarter rebound for the two sectors, which together account for 21% of the economy, stemmed mainly from restored power supply and may be short-lived. They also backed the message of a survey showing that confidence in the manufacturing sector, which provides 14% of formal employment, dived to a nine-year low in the third quarter. Goldman Sachs economist Ashok Bhundia said factory output, which rose by a revised 5,7% in June, might contract in the third quarter. A recovery in the sector in the longer term would depend largely on external demand conditions, he said. Manufacturing has been hit by the triple whammy of rising domestic interest rates, which have curbed consumer demand, global economic slowdown and soaring inflation. That two of SA's main trade partners, the UK and Europe, face recession this year does not bode well for factory exports, despite a sharp fall in the rand, which has hit a five-year low against the dollar. Rand weakness normally makes local products more competitive globally. "Insufficient demand driven by a slowing domestic and international growth setting, together with stubbornly high input prices, will continue to weigh on output growth in future months," said Standard Bank economist Danelee van Dyk. Manufacturing output fell 0,4% in July itself, while growth in the three months to the end of July slowed to a meagre 0,2%, seasonally adjusted, the data showed. In the first seven months of this year, production grew 3,4% -- down from 5% in the same period of last year. "This is more gloomy news on the economy," said Standard Chartered's regional research head for Africa, Razia Khan. But some analysts said the data were surprisingly resilient, given that the purchasing managers' index (PMI) -- a health gauge for the sector -- has produced readings below 50 for six out of eight months this year. That would normally point to contracting output, while a reading above 50 indicates an expansion in activity. The monthly PMI slumped to a record low at 42,8 in July but rebounded to 47 last month as falling oil prices provided relief for the rising cost of inputs. "We see very little in other economic indicators to suggest that manufacturing production could continue to show strength," Absa Capital said. Output from factories, which provide 14% of formal employment, rose 14,5% in the second quarter after falling 1% in the previous quarter, official data showed earlier this year. But in the three months to end-July, five of nine industries fell compared with the previous three months, Stats SA said. Motor vehicle parts dived 6,4%, reflecting pain inflicted on the industry by the rising cost of household debt. Glass and non-metal industry contracted 6,4% in the quarter while textiles, clothing and footwear fell 2,9%. Furniture production rose 5,1%, which was a surprise given that durable goods purchases have also been hit by rising debt costs. Analysts said a slowdown in fixed investment from the private sector had negative implications for factory output in the near term.

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PETROCHEMICALS

Building of Coega Refinery 'Now Urgent'
PetroSA's plan to build a "world class" $11bn crude oil refinery at Coega in Eastern Cape is aimed at catapulting the national oil company on to the international stage. Jörn Falbe, vice-president of PetroSA's new ventures midstream, said mid-September that SA needed to get out of the "fix-it" mode, and the Coega project provided the last opportunity to build a refinery which would concentrate on handling heavy crude supplies from the Atlantic region - Venezuela, Brazil and Angola - to maximise returns. This would also reduce SA's traditional reliance on light sweet crude from the Middle East. The recent visit to SA by Venezuela's President Hugo Chavez had sparked renewed interest in the project, which was expected to be able to refine up to 400000 barrels a year. A mission from SA will visit Venezuela, while the Venezuelans will send a team to SA at the same time. The South African team will look into the possibilities of crude oil exploration, while the Venezuelans will be looking at the use of oil bulk storage facilities and details of the proposed refinery. Falbe, an engineer with years of experience at world oil giant Shell, said the next six months would be critical for the project as it moves into the front-end engineering and design (FEED) phase. HSBC bank has already been appointed as a financial adviser and the pre-feasibility study has been completed by leading global engineering, construction and services company KBR. Falbe said PetroSA found itself in the same position Eskom did a few years ago when the government declined to commit major investments into the electricity utility. While the minister of public enterprises was committed to drive the programme forward, a final investment decision was yet to be made. Falbe said contrary to perceptions, the new Coega refinery would not be reliant on oil supplies promised by Chavez during his recent visit, since it could also count on potential supplies from Brazil and Angola, where similar heavy crude deposits can be found. The next step in the Coega project would be selecting an engineering partner to complete the FEED study. Falbe said this process was well under way. PetroSA had initially started with 30 potential partners but these were reduced to eight and have been further whittled down to four. Falbe did not want to identify the parties at this stage but did say they were "global players -- the world's best". Falbe said the opportunity to build the refinery, which would be strategically placed to serve the rapidly growing Indian and Chinese markets, apart from Africa, was "now". "It's now or never," he said.

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Sasol Cuts Stake in $6 Billion Project
Petrochemicals group Sasol had reduced its interest in the Escravos natural gas-to-liquids project in Nigeria, from 37,5% to 10%, the company said September 4. As a result of the reduction in the interest, Sasol -- due to release its year-end results - has suffered an impairment of R362m in operating profit this year. The group said the impairment related to interest previously capitalised on the project. Sasol said it and its partners in the project agreed that Chevron would buy an additional 27,5% interest, while Sasol retained 10%. The group did not indicate the value of the transaction. Sasol said the reduction of its interest related to the rising costs of the project. In May this year, the group said it expected the capital cost of the project to increase to $6bn and it was reviewing all factors that affected the project's economics. Sasol GM for international energy Lean Strauss reiterated the group's commitment in the project. "Sasol remains fully committed to the Escravos gas-to-liquids project, which continues to utilise our technology under licence, by providing our full range of technical and skills support," Strauss said. Sasol said definitive deals would be finalised "in due course" and would be subject to regulatory approvals. The 34000-barrels-a-day project's construction schedule has been delayed. The completion date has been shifted to 2011 from a previous start-up date of 2010. Escravos is among various projects Sasol has embarked upon recently. It is ramping up production at the Oryx gas-to-liquids project in Qatar, where it is in a joint venture with Qatar Petroleum. Last week it announced it would proceed with a feasibility study on the 80000-barrels-a-day coal-to-liquid project in China's Ningxia Hui Autonomous Region. Sasol this week announced plans to start exploring for hydrocarbons in Papua New Guinea next month after acquiring a 51% interest in four hydrocarbon prospecting licences in the country.

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PetroSA Scoops International Award
South Africa's Petroleum, Oil and Gas Corporation of South Africa (PetroSA) with its joint venture company has won a prestigious international award for its Gas-To-Liquids (GTL) technology. The GTL.F1 joint venture company, in which PetroSA partnered with two major international companies, was September 18 named a winner in the category of Project Innovation of the Year for 2007 at the Petroleum Economist Awards in London. Commenting on the award, the PetroSA Chief Executive Officer, Sipho Mkhize said the award was due recognition for the company's unrelenting quest to be a leader in the global energy sector. "We firmly believe in growth through partnerships," Mr Mkhize said. The awards are an annual ceremony that recognises and celebrates excellence in the energy sector. Decided by an international panel of adjudicators, the winners in each category are acknowledged as industry leaders by peers in the energy sector. "At PetroSA our vision is to be a leading African energy company. Awards like this confirm to us that we are well on our way to achieving this challenging goal," added Mr Mkize. The GTL.F1 entity is a Swiss registered company, founded in 2005 by PetroSA, Statoil Hydro (Norway) and Lurgi (Germany) to market and license proprietary technologies for GTL investments. The goal for the joint venture partners was to construct a demonstration plant with a larger size and capacity than typically used in GTL technology development. The configuration was thought to be as close as possible to a commercial plant to reduce scale-up risks and it was essential to locate the plant in a realistic GTL plant environment, making PetroSA's GTL site in Mossel Bay a logical choice. A large Fischer Tropsch Semi Commercial Unit (FTSCU) with the capacity to produce up to 1000 bbl/d of hydrocarbon products has been commissioned at the Mossel Bay refinery. The FTSCU is fully integrated into the existing PetroSA GTL Refinery Plant. The award comes hard on the heels of a recent announcement that PetroSA had concluded a framework for co-operation with Venezuelan national oil company PDVSA. The proposal allows PetroSA to participate in exploration and production activities in Venezuela's Orinoco Oil Belt. According to the company they are also pushing hard to realise the strategic objective of constructing the 400 000 barrels of crude a day, $11 billion refinery at Coega in Port Elizabeth. The company expects to announce the engineering partner for the project within weeks. "All these initiatives ensure that as PetroSA, we are able to make a significant contribution towards improving and sustaining South Africa's future liquid fuels needs," said Mr Mkhize. He added that the company was committed to the objective of making PetroSA a competitive, fully-integrated and sustainable national oil company. The Petroleum Economist Award is the second major international honour bestowed on PetroSA this year. In May PetroSA, as joint venture partner of GTL.F1, was presented with the CWC World GTL award for innovation in the development of the technology at a function in London. GTL technology is recognised the world over for its ability to produce some of the cleanest fuels on the globe. Further, the national oil-company is an acknowledged leader in the operation and development of the GTL technology. The company was the first in the world to operate a commercial size GTL refinery since 1992. The Mossel Bay refinery is the world's largest fully-operational GTL plant. It produces clean fuels to the equivalent of 45 000 barrels of crude per day.

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TELECOMMUNICATIONS

Telkom's Talks With Mvela Put on Hold 

Telkom's speculative talks to sell its fixed-line assets to black-empowered investment house Mvelaphanda have been scrapped, with the two parties agreeing to postpone discussions until the financial markets are no longer in turmoil. Mvelaphanda was looking to pay "in excess of R35bn" for Telkom's assets if the operator divested its 50% stake in cellular network Vodacom. Mvela CEO Mark Willcox said September 18 the discussions had been shelved mainly because the parties were unable to agree on a sensible price given the crisis in financial markets. Calling off the talks will not affect the continuing discussions between Telkom and Vodafone, which has bid about R19bn for a 12,5% stake in Vodacom, provided Telkom unbundles the rest of its shares in Vodacom. Analysts believe a deal with Vodafone is close to conclusion, but they had been less certain about the likelihood of the tie-up with Mvela going ahead. "We have jointly decided to cease further negotiations," Willcox said. The discussions for Mvela to take over Telkom's operations had been very constructive, but given the state of the markets, agreeing on a price that satisfied both parties had become too much of a mission. The talks might well be resumed "once the financial world knows where it's going again", he said. “We hadn't finalised a price and, given the current unprecedented market volatility, both parties have taken the formal view to suspend discussions. Mvela remains highly interested in the assets and, once the markets settle, we can assess what financing is available," Willcox said. Mvela was interested in buying Telkom's fixed-line business -- and its growing footprint in other African countries -- because Telkom had a good turnaround strategy, was a dominant player in southern Africa, and had a good management team, Willcox said. "It just needs to be unbundled from Vodacom and able to create its own mobile offering for the market." The potential deal with Vodafone will see Telkom shed its ownership stake in Vodacom entirely. That will leave Telkom lacking any mobile partner at a time when a successful operator needs to be able to offer a combination of fixed and mobile voice and data services. But once it no longer has a vested interest in Vodacom, Telkom could form a fresh partnership with another mobile player, or possibly with a variety of different mobile operators, to help meet its goal of entering more African countries. Speculation in the media had put a R90bn price tag on the amount Mvela was prepared to pay, but Willcox said that had been inaccurate. Telkom's fixed-line assets were worth about R35bn, he said, and Mvela had offered somewhere above that figure. News that its bid was so much lower than the speculative amount would probably have upset Telkom's public shareholders, however, with some analysts already having criticised the supposed price tag of R90bn as being undervalued. Telkom has not shed any further light on a last-minute bid for its business by Nigeria's mobile operator, Globacom, which was submitted by Globacom owner Mike Adenuga. Globacom is interested in taking over the whole of Telkom, purely as a means to let it merge its business with the 50% stake in Vodacom held by Telkom. A source said the bid by Globacom was certainly interesting but Telkom was so deeply into discussions with the UK's Vodafone that negotiations between those two companies were unlikely to be disrupted.

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Telkom Plans to Invest in Nigeria's Multi-Links
Telkom plans to invest more than R4,3bn to expand the network and services being offered by Multi-Links, the majority-owned Nigerian private telecommunications firm it acquired last year for $280m. The expenditure is part of an expansion programme of more than R11bn that Telkom, Africa's largest fixed-phone operator, will incur during the 2009 financial year as part of an investment strategy to consolidate its position as a leading pan-African telecommunications operator. Telkom said it wanted to expand the subscriber base of Multi-Links from more than a million customers as of May to 3- million next year. "Capital expenditure of $160m was spent during the 2008 financial year to accelerate the expansion of Multi-Links' network and quality operating systems," Telkom CEO Reuben September said September 16. "We plan to invest $533m in capital expenditure for the 2009 financial year to further extend the network and services, and take advantage of the enormous growth opportunities in Nigeria." Multi-Links operates in several Nigerian cities on a Code Division Multiple Access (CDMA) platform. This is a cellular technology that competes with the standard GSM mobile technology on which many cellular networks operate. Multi-Links has been given a unified licence to offer the full complement of roaming, voice, internet and data services. The company generated revenue of R845m and a loss before tax of R63,5m in the year to March, but a tax credit helped Multi-Links to post a profit after tax of R49m. "Multi-Links' strategy will focus on brand awareness and promotional campaigns to increase revenue of fixed-wireless and mobile customers," Telkom said. "The prospects for Multi-Links are good and the company intends to capitalise on Telkom's brand and access to international connectivity." Telkom acting chief finance officer Deon Fredericks said the group's capital expenditure programme during 2009 would total R11,3bn, with at least R7bn earmarked for investments on its fixed-line network and the balance on Multi-Links. Telkom was targeting compound annual revenue growth of up to 10% in the next three years, and expected to benefit from increased revenues from data, broadband and converged businesses, as well as from its subsidiaries.

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Telkom Seeks R1,3 Billion Outsourcing Saving
Telkom may be able to trim R1,3bn a year off its running costs with a deal to outsource the care and maintenance of its core network. The operator is assessing proposals by international equipment suppliers and technology integration providers, and will enter detailed talks with prospective partners soon. Chief operating officer Motlatsi Nzeku said that expressions of interest had been received from many groups, including Ericsson, Nokia-Siemens and Cisco, as well as systems integration specialists. The next step was to firm up requirements for service levels and cost structures. It would then negotiate with bidders and evaluate their technical skills and ability to meet expectations. The effect on its 26000 staff will be high. Union Solidarity expects up to 19 000 jobs to be affected if networking facilities, Telkom Direct shops and logistics processes are outsourced. Solidarity spokesman Jaco Kleynhans said it did not oppose the plan, as SA needed a better infrastructure, which a more technically accomplished player could provide. But job protection conditions would have to be met before the union would give its full support, he said. Nzeku said the contract was probably too large for a single winner. He expected a decision in the first quarter of next year. Telkom needs to cut running costs with demand dwindling. New customers signing up for its services are down 30% a year, and 28% of consumers and small businesses default on their bills. "You have to balance the capacity on the inside to match the demand," Nzeku said. Having employees work exclusively for Telkom while several other companies did the same was inefficient. It led to a "wage auction" as skilled technicians hopped from job to job. The answer was for one world-class operator, equipment supplier or integration company to provide network-management services to several operators simultaneously. "That's a lot more efficient in the use of skills, equipment and systems," Nzeku said. Exact terms are not yet defined, but the tender will be to manage and when necessary upgrade all Telkom public networks. It will not outsource networks it provides exclusively for big customers such as Absa. Case studies showed operators could typically cut running costs by 28%, and boost service quality by 10%-15%. That would save about R1,3bn of the annual R4,8bn Telkom's networks cost to run. Nzeku said union representatives had been taken to several countries including New Zealand, Brazil and Germany to study operators that had outsourced some activities. Job losses posed a major challenge, so the unions "will not be enthusiastic about this", he said. However, Kleynhans said: "We are not that negative about it. We are going to work with Telkom to make it successful because it's in the interests of the industry that changes happen. "The economy needs a good infrastructure, and part of that is a good telecoms infrastructure. "We really need a world-class industry, and outsourcing will have a positive effect because Telkom is far behind some other companies in the way it operates." One hitch could be Solidarity's insistence that no jobs are lost, as bidders may be reluctant to absorb vast numbers of extra staff.

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Unions May Strike Against Telkom Outsourcing
Telkom's dramatic plan to outsource the running of its core networks has provoked a backlash from two unions, which may strike to keep the annual R4,8bn task of running the networks in-house. The Communication Workers' Union (CWU) and the South African Communications Union are deciding whether to strike or seek an interdict to halt the outsourcing unless managers agree to hear their proposals. CWU national treasurer Richard Poulton said the unions had declared a dispute against Telkom's unilateral restructuring. The CWU represents more than 65% of the workforce, and it is angry that Solidarity, with 10% of the staff, largely backs the outsourcing plan. Telkom is assessing proposals by local and global companies eager to manage and maintain its network infrastructure. It believes outsourcing to a more experienced operator, a telecoms equipment supplier or a systems integrator, could save about R1,3bn a year and boost service quality levels up to 15%. Poulton said September 10, Telkom had rushed to identify potential bidders to take over its networking operations and information technology division without adequate consultation. Unions were "shocked" that Telkom had already issued requests for proposals to short-listed companies. "We cannot understand why the company wants to outsource, and why at such an incredibly fast pace. We are dealing with the future of more than 18000 workers and their families," Poulton said. One insider fears the motive is purely political, driven by managers anxious to protect their jobs. Mvelaphanda investment house and Nigeria's Globacom are negotiating to buy Telkom. But if the managers outsource most of its business beforehand, Telkom may become a far less attractive target. That would avoid new owners appointing fresh managers. A change of government may also see new executives appointed, so outsourcing may be designed to protect existing heads. The CWU partly supports that theory, saying: "We believe that the haste to outsource is linked to some people who have lost at Polokwane and want to secure their futures before April next year at the cost of workers and their families." The unions said they had not had a chance to present ideas on keeping Telkom profitable and cutting costs. Talks should look at areas of inefficiency, and assess if high costs had more to do with executive pay than worker inefficiency, Poulton said. Solidarity said it would support outsourcing as SA would gain a more efficient, cheaper-to-run telecoms infrastructure with operations outsourced.

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