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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: 081 - (29/09/08)

Kgalema Motlanthe was sworn in as South Africa's ‘caretaker’ president September 25. He was not even an MP until May this year but has a long history as an official in the ruling African National Congress (ANC) and a trade unionist. He is seen as a close ally of ANC leader Jacob Zuma, who is expected to become South African president after elections due next year. Mr Motlanthe's low public profile and lack of a personal support base mean he is regarded as a safe interim president. It is doubtful he will hold on to the presidency once Mr Zuma decides his time has come, although that could change! 

Opposition political parties and analysts say the ANC deputy president Kgalema Motlanthe is the best choice to replace President Thabo Mbeki. Democratic Alliance (DA) leader Helen Zille said her party believed that Motlanthe's nomination was the best case scenario "under the circumstances". "Motlanthe is perhaps the most level-headed and reasonable of all the politicians in the Zuma camp. Mr Motlanthe's first task will be to ensure a smooth political transition given the talk of feuding and divisions within his party. He said his focus was continuity as he retained key cabinet figures such as the finance minister, Trevor Manuel. But the controversial health minister was among those he replaced. In his first speech as president, Mr Motlanthe vowed that he would "not allow the stability of our democratic order to be compromised". The ANC veteran won three-quarters of the votes cast by MPs in a secret ballot in parliament in Cape Town earlier on September 25. 

Thabo Mbeki formally resigned as the president of South Africa, September 21, one day after accepting a call by the ANC to resign. In a televised address, Mr Mbeki said he had handed a resignation letter to the speaker of the National Assembly. Contrary to what some in the ANC leadership are insisting, the ousting of Mbeki was not a step taken with the best interests of the country in mind, nor was it even the outcome that suited the ruling party as a whole. It was what Jacob Zuma's supporters believed they had to do to increase his chances of avoiding trial on fraud and corruption charges, and therefore succeeding Mbeki. The South African Communist Party and Cosatu, in particular, put all of their eggs in the Zuma basket years ago, so it is unthinkable they may not get any return in the form of vastly increased influence within the alliance. 

Is it possible that Nelson Mandela's hand-picked successor should be humiliated by a political organisation he has served for some 52 years, over a judge's speculation that he might have brought political pressure to bear on his rival's prosecution? The answer is that it is not only possible, but also that it has already happened.

President Mbeki’s fate was effectively sealed September 12 when Jacob Zuma’s corruption case was thrown out of court. The judge effectively accused Mr Mbeki of interfering with the judicial process. The ANC, they would say, was left with little choice but to move against him. Many in South Africa see this as an effect a bloodless coup. Mbeki is being forced out of office early after a bitter struggle with Jacob Zuma, over the fallout from a U.S.$30 billion arms deal. The roots of the crisis over Mbeki's leadership, and his party's loss of confidence in him, lie in allegations of bribery and corruption around the arms deal where Zuma was charged. On September 20, ANC Secretary-General Gwede Mantashe announced that the ANC had decided to recall President Thabo Mbeki before his term of office expired. The decision to call for Mr Mbeki's early resignation was taken at a meeting of the ANC's National Executive Committee (NEC). The ANC's Secretary General Gwede Mantashe said the move had followed "a long and difficult discussion". He said Mr Mbeki, who has ruled for more than a decade, "did not display shock" at the decision and had agreed to participate "in the process and the formalities". The decision had been taken for "stability and for a peaceful and prosperous South Africa", Mr Mantashe told a news conference. 

Thabo Mbeki, who presided over South Africa's longest period of economic growth, told the nation that he has resigned as head of state, deepening the country's worst political crisis since apartheid. Mbeki took over from Nelson Mandela as president in 1999. He won a second term in 2004. Perhaps his biggest policy success has been South Africa's rapid economic growth since the end of apartheid. Domestically, his government's handling of the HIV/Aids crisis and failure to stem violent crime in the country has weakened his hand. The ANC chose to oust Mbeki about a week after a judge who threw out corruption charges against Zuma suggested there was high-level political meddling in the case. The fatal political blow came just after Mbeki scored his biggest foreign policy coup by mediating a power-sharing deal in Zimbabwe signed September 15. Aids will remain a blemish on Mbeki’s record. The arms deal will remain a mark on him as well, and more so rather than less so. Everything that's happened to Mbeki can be seen as a consequence of the arms deal.

Nelson Mandela has congratulated South Africa's new president, Kgalema Motlanthe, describing him as a "quiet, firm and principled" leader who can unite the country. Mandela wrote in a letter to Motlanthe, which was released to the media. "You are a quiet, firm and principled leader, one who puts reason above emotions and one who seeks to unite rather than divide. We know that our country is in good hands with you at the helm of government." 

The SA Institute of Race Relations has tipped President Kgalema Motlanthe to "lead South Africa to 2014". The institute welcomed the appointment and speculated that Motlanthe was better positioned than ANC president Jacob Zuma to be president of the country after the 2009 elections. "If Motlanthe manages to unite the divided ANC, retain investor confidence and correct the many flaws of the Mbeki era, it will be very difficult for the ANC to make the case that he should be replaced by Jacob Zuma after the 2009 elections," the institute's deputy chief executive, Frans Cronje, said.

South Africans, whose social and economic problems have been overshadowed by the fierce rivalry between Mbeki and Zuma, are bracing for a period of uncertainty and a deeply divided ANC is unlikely to ease their concerns over rampant crime, social ills and an AIDS epidemic ravaging millions. President Thabo Mbeki's decision to step down as head of state will not usher in early elections. Internal conflict and squabbling in the ANC mean that the ruling party is in no shape to fight an election, so the country will not have a third democratically elected president before the 2009 poll. Supporters of Mbeki may split from the ANC and contest elections as a breakaway party in 2009. The move threatens to shatter the foundations of the country's post-apartheid political landscape, which has been dominated by the ANC. Now that Mbeki is out of the picture, Zuma could come under pressure from his left-leaning allies in trade unions to ease poverty while he tries to win over the confidence of foreign investors who would not welcome more government spending. 

South African financial markets closed significantly weaker September 23 after the news of the resignation of 11 cabinet ministers thundered across the country and wreaked havoc with investor confidence both at home and abroad. Finance Minster Trevor Manuel was the person everyone cared about, but after the initial shock of his resignation, Manuel and his department moved quickly to say that he was "duty bound" to tender his resignation but was happy to stay on if the party asked him to do so. ANC Secretary General, Gwede Mantashe confirmed that Manuel would be staying on as minister of finance. Many believe that Trevor Manuel should be South Africa's next president. In the 10 years since Nelson Mandela handed the country to Thabo Mbeki, the local markets have barely reacted to South African political news, that was until Manuel seemed to have quit. With Thabo Mbeki having been shown the door by the new ANC leadership, it was not going to be easy for three of his fiercest defenders in the executive to hang in there until after 2009's elections. Supporters of ANC president Jacob Zuma have long been baying for the scalps of Public Enterprises Minister Alec Erwin, Defence Minister Mosiuoa Lekota and Minister in the Presidency Essop Pahad. 

Zimbabwe's Prime Minister-designate Morgan Tsvangirai has said President Robert Mugabe has nothing to fear from the historic deal signed September 15. In his first interview as PM, Mr Tsvangirai said that Mr Mugabe had a "paranoid obsession" that there was an attempt to overthrow him. Mr Tsvangirai said this was not the case and that confidence was vital if Zimbabwe was to be rebuilt. The power-sharing deal ended a decade of rivalry between the two men. The division of cabinet posts have not yet been finalised but the deal proposes a 50-50 division of power, with Mr Mugabe remaining head of state and head of the cabinet. Mr Tsvangirai will head a council of ministers, which will be responsible for the day-to-day managing of the country's affairs. Mr Tsvangirai said the government's first practical step would be to provide people with food and remove the climate of "pervasive fear". Editorials in the African press give a guarded response to the new power-sharing deal in Zimbabwe. Many feel the key challenge will be trying to get the impoverished African country's economy back on track, by attracting investment and bringing down inflation. However, they also feel the coalition still has to prove that it is truly capable of turning a new page and putting "the nation first." 

Will The Need For ANC Unity Cost Jacob Zuma the Presidency?
For the good of South Africa, the only way to unify the ANC is to sacrifice the party leader and keep interim leader Kgalema Motlanthe as president. By forcing out President Thabo Mbeki so vindictively, the ANC leadership may have to sacrifice Jacob Zuma, the party leader, to prevent a backlash that could break up the party ahead of next year's general elections. Judge Chris Nicholson, who cleared corruption charges against Zuma on a technicality, emphasised he did not give a verdict on the charges, but proposed the prosecutors recharge Zuma, provided they do so by following the proper procedures. The prosecutors have been under such an attack from the Zuma camp now that their very credibility may rest on recharging Zuma. In any event, they know that if Zuma comes to power, the prosecuting unit may be broken up. Furthermore, a number of private prosecutions against Zuma have been lined up – so it is difficult to see how Zuma is going to extricate himself out of the very real criminal charges, which have already seen his former financial advisor sent to jail for 15 years. Zuma is not entirely in control of his own coalition: rather they may actually be in charge of him. He opposed efforts to oust Mbeki, because he feared he will inherit a divided party, unprepared to run a general election. He was rudely overruled by his own militants. Until September 22, the Zuma camp in control of the ANC had planned to appoint Baleka Mbete, the speaker of parliament, and the ANC's chairwoman, and a more pliable supporter, as interim president to smooth the way for Zuma and to create an environment for Zuma's legal charges to be withdrawn. However, Motlanthe's elevation as interim president shows that divisions with Zuma's coalition are now deepening. Motlanthe was the choice of those in the Zuma coalition who are more interested in keeping the ANC united, and securing a pro-poor government focus, rather then putting Zuma into the presidency. They have long seen him as an alternative candidate for the presidency if Zuma stumbles over his legal hurdles. Motlanthe does things by the book. Motlanthe is also one of the few ANC leaders with support in both the Mbeki and Zuma camps. Zuma rightly perceives him as a serious rival. In this crisis, there may be openings for other young Turks of Motlanthe's generation. To contain the young Turks – Motlanthe, Phosa, Sexwale and Ramaphosa, Zuma has promised to stay as president for one term only, and then allow a competitive election for the leadership between them. But Mothlante will now have inside track, because he is already an MP, while the others, including Zuma are not. He will be presiding president for six months, which is enough to show his credentials not only as a unifying figure, but a source of new ideas, energy and principle, and to contrast this to the divisive potential of a populist Zuma. It will be ironic if it takes the ANC to go through such a destructive process, if it eventually get some sense and appoint Motlanthe or any other of the younger talent, Phosa, Sexwale and Ramaphosa as new leader, such an obvious solution to unite the ANC and the country again, and should have been done a long time before.

Reshuffle Advances For Zuma Allies Amid Reappointments 
After the brutal purge of former president Thabo Mbeki it was payback time for key members of the Jacob Zuma camp September 25 in the ruling party with cabinet positions as well as a mass reappointment of many members of the Mbeki cabinet. Within a few hours of his election as president, Kgalema Motlanthe sent a signal that in the interests of stability most of the Mbeki cabinet would be retained, including some who resigned earlier in the week. Most notable of these is Finance Minister Trevor Manuel. It has also been interpreted as a positive sign that many of the appointments come from experienced MPs. And in a firm nod to civil society, former health minister Manto Tshabalala-Msimang lost her job, and was given a new one in the largely redundant (and politically harmless) position of minister in the presidency -- Essop Pahad's old job. Principal of the new appointments was that of National Assembly speaker Baleka Mbete as deputy president to replace Phumzile Mlambo-Ngcuka, who resigned from the post as well as from Parliament. Mbete is a key member of the Zuma leadership of the African National Congress and national chairwoman of the party. In another critical change, the vacancy created by defence minister Mosiuoa Lekota's resignation was filled by moving Charles Nqakula from safety and security to the defence portfolio. An enthusiastic campaigner for Zuma in the run-up to the Polokwane conference, newly appointed ANC chief whip Nathi Mthethwa was rewarded with the safety and security ministry job. In a surprise move, struggle veteran and former finance committee chairwoman Barbara Hogan was appointed health minister. She has a reputation for diligence and skill. Another staunch Zuma supporter, Siyabonga Cwele, who was chairman of Parliament's joint standing committee on intelligence, replaced Ronnie Kasrils, who indicated on resigning this week that he would not be available for reappointment. Another Mbeki minister, Sydney Mufamadi, was replaced at provincial and local government by Sicelo Shiceka, rocketing into a full cabinet post from the relative obscurity of the National Council of Provinces. Liberation struggle veterans Geraldine Fraser-Moleketi and husband Jabu Moleketi as well as Public Works Minister Thoko Didiza announced September 25 that they would not be available for appointment to Motlanthe's cabinet. These three tendered their resignations as MPs after their resignations from Mbeki's cabinet. Fraser-Moleketi was public service and administration minister, and Moleketi deputy finance minister. Didiza was replaced by the highly experienced chairman of committees Geof Doidge. The chairman of the public service committee, Richard Baloyi, was appointed public service and administration minister. The post of deputy finance minister is still vacant. In another surprise move, Motlanthe moved justice minister Brigitte Mabandla to the hot seat at public enterprises vacated by Alec Erwin, and replaced her at justice with the deputy education minister Enver Surtee. Surtee leapfrogged Deputy Justice Minister Johnny de Lange, who retained that job. In the other changes at deputy minister level, chairman of the defence committee Fizile Bhengu replaced Mluleki George, who resigned, while Molefi Sefularo took over the deputy health minister's slot, which had been vacant since Mbeki dismissed Nosiwe Madlala-Routledge. Last night night, the National Assembly voted for Gwen Mahlangu-Nkabinde to become speaker to replace Mbete. Mahlangu-Nkabinde, previously National Assembly deputy speaker, garnered 260 votes against the 45 votes cast for the only other nominee, Democratic Alliance parliamentary leader Sandra Botha.

The Idea of an ANC Splinter Party and its Prospects
The dismissal of Thabo Mbeki and the walkout by eleven ministers and some deputies indicates that a severe split exists within the African National Congress (ANC), despite claims to the contrary. The fissure began in 2005 when Zuma was fired by Mbeki and persisted well beyond the Polokwane Congress in December 2007. Frantic efforts have been made to keep the fight within the ANC and restore unity -seemingly without avail. Crises are usually fertile ground for fear, panic and opportunity - opportunity for those who see it. It would not have evaded the imagination of some that perhaps the whole sordid situation of the palace coup within the ANC may give birth to something new and lively in South African politics – the formation of a new political party. There is a strong chance that an ANC splinter group of the crestfallen that cannot reconcile itself with the new ANC leadership will contest either this election or the next. Nobody is saying anything yet, but the rumours are flying.
This rumour has being doing the rounds for about two months now and started when the Democratic Alliance (DA) was thought to be talking to some individuals within the ANC about the formation of a new party and possible merger. Differences between camps go beyond personalities and position, which makes the split within the ANC inevitable. These differences are fundamentally about ideas and not just power. After 14 years of rule, the party has put a lid on different intellectual traditions of how South Africa should be governed. This is at the heart of the current rift. The ability of the ANC to reconcile these ideological differences has not borne any fruit. The divide between the believers in real-politik and those who believe that the revolution was stolen from the masses has reached no final resolution within the party. They essentially have given birth to two different strands of the ANC's National Democratic Revolution (NDR). They are rarely spoken of in this way because the party has tended to paper over these differences denying their existence. The first is Mbeki's pragmatic socialism and accommodation of capital. A whole intelligentsia, bureaucratic elite as well as economic interest groups have suckled on the reversioned NDR. The second is the emergence of more populist tendencies that have begun to already air their views on a range of issues facing South Africa. They have more radical views about the NDR. The second tendency feels that socialism requires deepening and that some radical political and economic restructuring is required. The second accuses the first of being overly accommodating towards international and local capital. Vignettes of this debate have slowly surfaced around issues of inflation targeting, budgetary spend, economic restructuring and proposals for the creation of a 'super-cabinet' to ensure that state planning is more centralised and better co-ordinated. What impact will a new party have, if it ever comes into existence? It is still too early to tell. 

South African Cabinet Exodus 
More than a third of South Africa's cabinet stepped down September 23 after President Thabo Mbeki resigned, in the biggest political crisis since the end of apartheid. The list of resignations included respected Finance Minister Trevor Manuel, immediately shaking markets, but they recovered when his office said he was ready to serve under a new president. The resignation of 10 ministers and the deputy president out of a cabinet of 30 followed Mbeki's decision September 21 to step down after his ruling African National Congress withdrew its support. The demise of Mbeki was the climax of a long and bitter battle with Jacob Zuma -- who toppled him as ANC leader in December -- which has seriously split the formerly monolithic party. Parliament is expected to appoint deputy ANC leader Kgalema Motlanthe as interim president September 25 until a general election next year which Zuma is widely expected to win. Mbeki's resignation followed accusations of meddling in a long running graft case against his rival. Treasury spokeswoman Thoraya Pandy said Manuel had "resigned as a member of the cabinet and felt duty bound to do so as he served at the pleasure of the president, and President Mbeki had resigned. "However, the minister has indicated a strong willingness to assist and to serve the new administration in whatever capacity they may ask of him." The rand, which had tumbled on first news that Manuel was stepping down, regained its losses. Several analysts criticized the way in which Manuel's resignation was initially announced without mentioning his willingness to serve under another president. Ratings agency Fitch also expressed concern over the way the resignations were handled. "This uncertainty is definitely unhelpful," Fitch head of Middle East and Africa Richard Fox told Reuters. "But the strength of South Africa is that its institutions are strong and the Treasury is larger than one person. If Manuel was to go, we would not take any immediate ratings action." Nevertheless the resignations as a whole are likely to raise investor fears of political instability in Africa's biggest economy. Zuma has tried to reassure foreign investors he would not bow to pressure from leftist union allies to shift away from business-friendly policies. He has made clear his backing for Motlanthe and pledged September 22 that the party would ensure a smooth transition and unchanged economic policy. But the ANC has suffered unprecedented divisions because of the long struggle between Mbeki and Zuma. Helen Zille, head of the opposition Democratic Alliance, attacked the ANC over the resignation of qualified ministers. "That the ANC is willing to sacrifice them and risk our country's stability in order to wreak revenge on the president, speaks volumes about its lack of commitment to stable government," she said in a statement.

Joy at Demise of 'Dr Beetroot' 
South African Aids campaigners have serenaded the new health minister and rejoiced at the departure of her controversial predecessor. They have long called for the dismissal of Manto Tshabalala-Msimang, known as "Dr Beetroot" for her advocacy of healthy eating rather than drugs. Some 5.5 million South Africans are HIV-positive. This is more than in any other country in the world. The government of former President Thabo Mbeki has long been criticised for not doing enough to distribute the anti-retroviral drugs that scientists say are the most effective way of combating Aids. Dr Tshabalala-Msimang said the drugs were too expensive for South Africa and warned of possible harmful side-effects. Instead, she urged people with HIV to eat lots of garlic and beetroot. Ms Hogan came down from her flat and drank champagne with the activists. South Africa's leading Aids lobby group, the Treatment Action Campaign (TAC), said Ms Hogan had been one of the few MPs to speak out on HIV/Aids during Mr Mbeki's time in office. "She has a reputation for being hard-working, competent and principled," a TAC statement said. "We believe that the period of politically supported AIDS denialism has ended," it said. Ms Hogan spent eight years in prison in the 1980s for campaigning against the white minority apartheid government. She has been an MP for the ruling African National Congress since apartheid was ended in 1994. Aids Law Project attorney Fatima Hassan said the group was "ecstatic about the appointment of Barbara Hogan," the Sowetan newspaper reports. "Manto Tshabalala-Msimang should have been replaced a long time ago," she said. Mr Mbeki resigned September 25, to be replaced by Kgalema Motlanthe, who carried out a cabinet reshuffle. Dr Tshabalala-Msimang was moved to become a minister in the president's office. 

Tutu Warns of 'Banana Republic' Future
Archbishop Desmond Tutu said September 22 he was "deeply disturbed" by President Thabo Mbeki's "humiliating" axing, which meant SA had been subordinated to a political party. In a statement in defence of Mbeki, he warned SA could be on its way to becoming a banana republic. He said Mbeki had come across as a "dignified man" in his resignation address on TV September 21. Tutu said SA, as stated in the Freedom Charter, belonged to all and not to any political formation, "however powerful". Perhaps now was the time to call for constitutional changes so presidents could be elected directly by all South Africans. Party lists should be abolished as "they are pernicious and produce sycophants". Tutu described African National Congress (ANC) deputy leader Kgalema Motlanthe as a "conciliatory person who wants to act out of integrity. I suppose I shouldn't be saying this as it might be the kiss of death for him, but he is someone many people would not be too embarrassed to have as a head of state." However, SA need not have been in this position as Mbeki had only six months to serve out his term. "I can't imagine that a party could say unity is far more important than the stability of the nation." Not instituting a commission of inquiry into the arms deal, as suggested by Judge Chris Nicholson, was one of the mistakes of the Mbeki administration. This was something Tutu and others had called for long ago. Tutu said he was "deeply disturbed" by recent events. The "so-called" recalling of Mbeki fitted the pattern of settling old scores and "throwing about of weight that has happened post-Polokwane". He questioned why two premiers had to be sacked with only a few months left to serve "if it is not to prove that there are new cocks of the walk? Why humiliate the nation's president in this fashion without giving him the chance to respond to any charges that the (ANC's) national executive committee might have laid?" Ironically, one of the reasons Nicholson declared ANC president Jacob Zuma's indictment invalid was that the National Prosecuting Authority did not afford him the right to explain why he should not be charged. SA was seeing people flexing their muscles and settling scores. There was little concern about the repercussions. Tutu said if SA were a democracy there had to be certainty that those who ruled it were "as un-corrupt as possible". He said a court of law would ultimately decide on whether Zuma was corrupt or not. Tutu said Mbeki had scored many significant achievements in SA's economy and in promoting peace in Africa, most recently in Zimbabwe. But he had made many enemies, "even within his own party", for his intolerance of challenges and dissent. "

How did it all go so wrong?
President Thabo Mbeki offered a grand vision of South Africa's renaissance. He promised to fix the economy and alleviate poverty. But nine years on, he has been forced from office in utter humiliation. It all began well enough. South Africans, black and white, loved Nelson Mandela. They virtually swooned at his feet, marvelling at his inspiration and example and wondering if the country could have been saved without him. But in 1999, at the end of the great man's five years as president, there was a consensus that his job of unifying the reborn nation was done and what was required was someone who knew how to run a government. It was the moment that Thabo Mbeki had spent four decades of his life working toward, and South Africa was ready for him. He had been Mandela's deputy president during the previous five years of African National Congress (ANC) rule in the immediate post-apartheid years. "Mbeki pretty much ran the show from 1994," says Mark Gevisser, author of the most authoritative biography to date of Mbeki. "He was Mandela's de facto prime minister. His approach was very technocratic, about establishing systems of government, and he worked very hard to do that and was effective in many ways. It's what people expected and hoped for from his presidency."Nine years later, as Mbeki prepares to leave office prematurely, humiliated and rejected by the party he dedicated half a century of his life to, there are few who do not believe he was the architect of his own downfall. The vision of a new Africa has long since been buried under the years of vilification for fiddling with intellectual debate over the origins of Aids while hundreds of thousands of the people died of the disease. The promise of good administration has given way to accusations that he purged state institutions of critics, interfered with the justice system and protected corrupt officials from investigation, most notably the country's police chief, who was accused of links to organised crime and covering up a murder. Even Mbeki's much vaunted economic policies, which have seen growth and financial stability, are vilified by the people now taking over the country as enriching a new black elite but leaving the mass of poor behind. The Aids debacle damaged Mbeki's standing enormously, and was a serious blow to his attempts to change international perceptions of Africa. The statesman was now seen as deeply unstable. It also alienated many former supporters and exposed his style of government. Mbeki surrounded himself with a clique, some of whom demonstrated a political ruthlessness and thuggery not seen in the Mandela era. The fight over Aids made clear that dissent would not be tolerated. Mbeki didn't know it but that hatred eventually manifested itself around a contagion he introduced into South African politics years earlier. Corruption was little noticed at first but in time spread through the system, infecting the government and its party, and ultimately bringing down the president. In the mid-90s South Africa was negotiating its biggest weapons buying deal ever with a clutch of arms manufacturers. There were those in the ANC and outside who asked why a relatively poor society embarking on the enormous challenge of trying to right apartheid's wrongs was spending billions of pounds on fighter jets, submarines and ships when there was no perceivable military threat. But such considerations were brushed aside as the government offered the - subsequently disproved - claim that the weapons contracts would generate large numbers of jobs. ANC members of the investigating parliamentary committee were called before party leaders including Essop Pahad, a minister and long-standing friend of Mbeki, who "launched into a ferocious diatribe". Mbeki initially covered for his deputy president, Jacob Zuma, when he was accused of corruption. But in 2005, Zuma's financial advisor was sentenced to 15 years in prison for procuring bribes on behalf of the deputy president from a French arms company. Mbeki sacked him. The president said he was acting in the national interest. Zuma suspected that the president had taken the opportunity to force out a growing political threat. From that followed what a high court judge recently described as a "titanic political struggle" for control of the ANC. The various interests that had come to loathe Mbeki over his policies, his style of government or his human failings coalesced around Zuma as he sought to stay out of jail by challenging the president for control of the ANC at the party's four-yearly conference in Polokwane last December. Mbeki had alienated too many people. He was swept out as ANC leader as Zuma and his allies were elected to most of the senior posts. Mbeki was humiliated and disbelieving. But worse was to come. When prosecutors revived the corruption case against Zuma, his allies saw Mbeki's hand. Justice Chris Nicholson agreed, throwing it out earlier this month with a judgment that essentially accused the president and his cabinet of misusing the judicial system to get at Mbeki's political enemies. With that, Zuma and his allies at the top of the ANC moved and toppled Mbeki. 

Why Mbeki Had To Go
The African National Congress's decision to sack President Thabo Mbeki has been described by some South African commentators as "regicide". Certainly it is unprecedented in South African history that a head of state is dismissed in this way. Nor is the ANC the kind of organisation that goes in for this humiliation of its leaders. So why did it happen? The immediate cause was Mr Mbeki's ongoing feud with his former deputy, the ANC party leader Jacob Zuma. But this was not just a personal vendetta between two men. Behind these events lie two major factors: one political, one personal. Thabo Mbeki, although a former member of the South African Communist Party, has used conventional economic policies to drive the country's development agenda. Tight monetary and budgetary targets have been set and met. The result has been a period of unprecedented economic growth, reaching 5% a year in recent years. In June 1996 Finance Minister Trevor Manuel introduced a neo-liberal economic strategy known as Growth, Employment and Redistribution (Gear). This included commitments to open markets, privatisation and a favourable investment climate. The ANC is in a formal alliance with two groups on the left, the Communists and the trade union movement, Cosatu. Both were fiercely critical of the strategy and argued that they had been excluded from its development and implementation. In the report to the Communist Party Congress in July 1998 the Central Committee spelled out their objections to Gear in great detail. This concluded: "We remain convinced that Gear is the wrong policy. It was wrong in the process that developed it, it is wrong in its overall strategic conception, and it is wrong in much of its detail. 

"At the end of the day, we cannot allow our entire transformation struggle to be held hostage by conservative approaches to the budget deficit." In May this year Blade Nzimande, General Secretary of the Communist Party wrote: "Despite the many modest gains that our own democracy has made since the 1994 democratic breakthrough, our own self-imposed structural adjustment programme, Gear, failed to make a dent in unemployment (unemployment actually increased dramatically between 1996 and 2006), and eroded the capacity to build a developmental state." These criticisms are not just held by the Communist Party, they are a reflection of the unease on the left as a whole at the policies that Thabo Mbeki adopted. Anger at the president's strategy to tackle the problems of unemployment, in particular, contributed to his downfall. All politicians make enemies. That is the nature of the game. But President Mbeki has made more than most. One example should suffice to illustrate the problem. In April 2001 the country's national daily, the Star, had a headline that read "Mbeki plot rocks ANC". President Mbeki had sent his minister of safety and security to accuse three leading members of the party of plotting to oust him. The accused - former ANC secretary-general, Cyril Ramaphosa and two former provincial premiers, Tokyo Sexwale and Mathews Phosa ­- were among the party's most respected figures. All three were men who had driven to seek their fortunes in business after being marginalised by Mr Mbeki. To this day there is no clear explanation of why these extraordinary charges were made. Nelson Mandela himself emerged from retirement to say that he held all three in "high esteem". The Mail and Guardian newspaper commented at the time that it was a strategy worth of Joseph Stalin and said: "Many observers have dismissed the plot theories as a strategy to warn off potential competitors with ambitions to challenge Mbeki's leadership." No evidence was ever led against them, no charges were laid and the matter was swept under the carpet. However, it was certainly not forgotten. Today Mathew Phosa is the ANC Treasurer General, one of the top party posts. Cyril Ramaphosa and Tokyo Sexwale are members of the National Executive. Their names, along with those of Zwelinzima Vavi, leader of the trade unions in Cosatu and Blade Nzimande of the Communist Party, have been cited in the South African press as among those who wielded the knife against Thabo Mbeki. The political and the personal had come together. 

Rise and fall of Thabo Mbeki 
Thabo Mbeki was born into one of the leading families of the African National Congress. His father - Govan - was a stalwart of both the ANC and the Communist Party. Thabo spent his early years in the rural Transkei. His father was often away on party business and he worked in the family store while he went to school. At 14 Thabo Mbeki joined the ANC, and the party became his life. He left South Africa in 1962, travelling to Tanzania before going on to Britain where he studied economics at Sussex University. He was a popular figure, although his contemporaries remarked that he was always somewhat aloof. In 1970 Thabo Mbeki went to the Soviet Union for military training and then on to the Zambian capital, Lusaka, where he was integrated into the exile structures of the ANC. He served the movement in Botswana, Swaziland and Nigeria before returning to Lusaka to become political secretary to the party's leader, Oliver Tambo. In 1985 Mr Mbeki was a member of a delegation that opened secret talks with South African businessmen and leading Afrikaners - paving the way for the unbanning of the ANC and the end of apartheid. In May 1994 he became deputy president under Nelson Mandela. It was Mr Mbeki who chaired the key committee that negotiated the controversial $5bn (£2.7bn) deal to modernise the country's defence force. It was a deal that was to haunt both him and the country - with allegations of corruption against leading ANC members, including its current leader, Jacob Zuma. In December 1997 Mr Mbeki succeeded Mr Mandela as ANC leader. He became president two years later - winning a second term in 2004. As leader of South Africa he has had his fair share of strengths and weaknesses. He was widely criticised for his unexplained stand on HIV and Aids, when he supported alternative treatments rather than backing medical advice. His stand on Zimbabwe was also attacked, when he resolutely refused to openly pressurise President Robert Mugabe, insisting that quiet diplomacy would yield results. This week his stand finally paid dividends when a power-sharing deal was agreed. Mr Mbeki's stand on other African issues won wide support - with his vision of an African Renaissance. Under his leadership South African troops went into Darfur and supported peace operations in Burundi. He backed efforts to bring peace to the Democratic Republic of Congo and - less successfully - in Ivory Coast. But it was his role at home that caused Thabo Mbeki's downfall. Many within the ANC believed he was an inveterate plotter, and many had the scars to prove it. His alleged role in plotting against Mr Zuma, his former deputy, was the last straw. Now Thabo Mbeki has been made to pay the price. 

Zuma's Triumph in the Courtroom 
Jacob Zuma took his seat September 12 with a smile and wave to his supporters. The senior members of the ANC (African National Congress) who had travelled down to Pietermaritzburg to support him responded with a round of applause. It was only when Judge Chris Nicholson walked in - wearing flowing red robes - that the attention focused on the matter at hand. Sixteen charges of corruption, money laundering, fraud and racketeering had been brought against the ANC president. A month ago - in the latest step of a drawn out legal process - Mr Zuma's lawyer had asked Judge Nicholson for the charges to be struck down as unlawful. The judge read his ruling at a steady pace. Talking the court through the steps which had brought Mr Zuma to this point, his words were broadcast live on South African TV. It had all begun with an arms deal in 1999, an investigation that followed, and then in 2005 Mr Zuma's financial adviser Schabir Schaik was jailed for 15 years for corruption. The first charges brought against Mr Zuma were struck off in 2006, and this was the second attempt by South Africa's National Prosecution Authority to bring the 66-year-old to trial. Outside, a crowd of several thousand Zuma supporters listened to every word. "It's like a football team," one man told me, "We've come here to support our man JZ". And there were elements of a football match. Zuma's crowds sang well-practised songs and chants - and many were dressed in the ANC colours of black, green and gold. Some had shirts with Nelson Mandela on. Others were wrapped in Jacob Zuma fabric. Thabo Mbeki, South Africa's current president and adversary of Mr Zuma, was conspicuous by his absence. Then two hours after he began, Judge Nicholson delivered his killer line. "It is declared that the decision taken by the National Prosecuting Authority to prosecute the applicant is invalid and set aside." The gallery inside the court erupted. Across the road the party started. Veterans of the anti-apartheid struggle danced in khaki military uniforms, while large groups stomped their feet and waved sticks in the air. "I'm so happy," a woman wrapped in a Zuma sheet told me. "Zuma is one of us. He is our man and he will be our president." The judge went still further, endorsing Mr Zuma's long standing complaint that there were political motives behind the decision to press charges against him. Mr Zuma was charged in December 2007 - shortly after he had beaten Thabo Mbeki to the presidency of the ANC at a meeting in Polokwane. Calling the timing "most unfortunate", Judge Nicholson said that it suggested that "baleful political influence" was continuing. Half an hour after the verdict, Jacob Zuma took to the stage to a hero's welcome. His supporters' very public battle against the corruption charges has been widely reported as an ANC assault on the independence of the judiciary. "I believe that this judgement is a lesson to all of us," Mr Zuma said. "It is a lesson particularly to the legal fraternity. It is a victory for the judiciary. It is a victory for our justice system." It is expected that Mr Zuma will now seek a permanent stay of prosecution to prevent corruption charges being brought against him for a third time. "We need to sit down and apply our minds," prosecution spokesman Tlali Tlali said. "To see if there are options legally available for us to explore. Then we will come back to you and say if we are going to continue the matter or abandon it," the spokesman said. 
The prosecutor could try again but the momentum now seems to be firmly with Jacob Zuma. The dismissing of the corruption charges make it a near certainty Mr Zuma will follow Nelson Mandela and Thabo Mbeki as South Africa's third democratically elected president.

Zuma Decision After Nicholson Appeal - NPA
Less than a week after Judge Chris Nicholson set aside the prosecutor's decision to charge African National Congress president Jacob Zuma, the National Prosecuting Authority (NPA) said September 17 it had decided to apply for leave to appeal against the judgment. However, the NPA said the decision on whether to recharge Zuma would be made after the finalisation of the appeal. NPA spokesman Tlali Tlali said one of the grounds of appeal was that the court's interpretation of the constitution and the NPA Act regarding the national director of public prosecutions' obligation to solicit representations from Zuma before recharging him was incorrect. The NPA said the judgment had also made serious legal findings affecting the operational processes in the NPA. Nicholson said the reading of section 179 (5)(d) of the constitution and the similarly worded section 22(2)(c) of the NPA Act meant the national director of public prosecutions ought to have taken representations from Zuma before deciding to prosecute him. When passing judgment on the NPA's decision, Nicholson stressed that Zuma's application had nothing to with his guilt or innocence. "It deals only with a procedural point relating to his right to make representations before the (NPA) makes a decision on whether to charge him again. Once these matters are cured the state is at liberty to proceed again against (Zuma), subject to any further proceedings he may bring." Nicholson's judgment also criticised former national director of public prosecutions Bulelani Ngcuka for not charging Zuma together with his former financial adviser, Schabir Shaik, in 2003 and said the decision not to prosecute when there was a prima facie case was "bizarre". "In other words, Mr Ngcuka was saying that he had what would normally be sufficient to prosecute (Zuma) and yet he declined to so. This decision was most strange for other important reasons connected to the nature of the offences. "Bribery ... is a bilateral offence. It cannot be committed by a person alone." He said that, as the prosecution policy pointed out, the circumstances of the offender could be taken into account, but if the implicated person occupied the second-most senior position in government as deputy president, that was hardly a reason to decline to prosecute. "The more senior the status of a person in the government hierarchy the more seriously the courts regard his corruption," Nicholson said. He said if there was a prima facie case of serious corruption against Zuma, there were no reasons of public policy why he should not have been prosecuted with Shaik. Nicholson also said there was a breach of the independence of the office of the national director of public prosecutions and interference from political superiors.

Pikoli Inquiry 'a Separate Matter'
Frene Ginwala, chairwoman of the inquiry into suspended national director of public prosecutions Vusi Pikoli's fitness to hold office, September 15 said Judge Chris Nicholson's judgment in African National Congress (ANC) president Jacob Zuma's case "should not have any bearing" on her inquiry. She also said "the judgment should not have dealt with any aspect of my inquiry". Ginwala's inquiry is different to Nicholson's case, and is also not a judicial one, so she is not bound as she would be, if it was in court, to apply the ordinary rules of evidence or precedent. But the cases overlap because both Zuma and Pikoli argued that the executive had unlawfully meddled in the independence of the National Prosecuting Authority (NPA). President Thabo Mbeki said the reason for Pikoli's suspension was a breakdown in his relationship with Justice Minister Brigitte Mabandla. Pikoli had from the outset of the inquiry argued that the sole reason for his suspension was to stop the intended prosecution of police commissioner Jackie Selebi. Zuma argued before Nicholson that the decision by the NPA, first not to prosecute and then later, to prosecute, was motivated by political conspiracy. Consequently, Nicholson's judgment made findings as to what the appropriate relationship between the executive and the NPA was. Nicholson also made factual findings as to whether there was "political meddling" by the executive in prosecutorial decision making. Both of these issues were before Ginwala's inquiry. But Ginwala said Nicholson "did not have a mandate nor has he seen the evidence" before her inquiry and what he said in his judgment about the NPA and Pikoli was a "personal view".

Elevation of Zuma 'Jeopardising Justice'
The decision by the African National Congress national working committee (NWC) that Jacob Zuma should be SA's next president lay at the heart of the attacks on the independence of the judiciary. Addressing the Cape Town Press Club September 11, Prof Pierre de Vos, a constitutional law expert at the University of the Western Cape, said the NWC should reconsider its decision. If it did not, it would sent out a "bad signal" to the judiciary about respect and decisions. He said what the decision indicated was that, irrespective of what the courts decided, "our man (Jacob Zuma) will be president". This had led to the situation where threats were issued by the ANC Youth League to intimidate specific judges, something that was "outrageous and completely against the principles of respect for independence of judiciary". De Vos said it was accepted that there were some legal hurdles standing in the way of Zuma becoming president of the country. If those legal hurdles were to disappear in such a way that it would not undermine the respect and independence of the judiciary, SA "might muddle" through the crisis. However, if there were a fight to the death between the ANC and judiciary, "then all bets are off". "Then there will be a danger to our country and our democracy, because then one of the three pillars of democracy would be destroyed. It will not be the politicians who would go, but the judiciary," said De Vos. He said Zuma was in the position he was in today because of the special treatment he had received from the then national director of public prosecutions, Bulelani Ngcuka. Ngcuka did not charge Zuma when there was a clear case against the ANC president. He said while businessman Schabir Shaik was charged and convicted, Zuma was not. This was a special favour from Ngcuka and not an infringement of Zuma's rights, as so many people were arguing. Asked whether President Thabo Mbeki should be doing more to protect the independence of the courts, De Vos said yes, but the reality was that Mbeki was a "lame duck" and the shots were being called by Luthuli House. The real issue was that the ANC itself should discipline those members who were not adhering to the basic respect for the independence of the judiciary, and "not only through speeches", referring to conciliatory remarks uttered by the ANC president. "That's not the test: the test is what action is taken."

Zimbabwe Leaders Proclaim New Era
Cheers greeted President Robert Mugabe and the new prime minister and leader of the Movement for Democratic Change (MDC), Morgan Tsvangirai, September 15, as they climbed onto the stage of the Harare International Conference in the capital to sign the 55-page document putting their power-sharing deal into effect. They did so under the watchful eyes of the South African president, Thabo Mbeki, who had brought the two men together over a protracted and often precarious two-month period of negotiations. The signing ceremony took place before a large crowd of invited guests, including heads of state and leaders of other African countries, including the chairperson of the African Union and Tanzanian President, Jakaya Kikwete. The full details and content of the deal have not been confirmed but they propose a 50-50 division of power, with President Mugabe remaining head of state, head of the cabinet and head of the armed services. Morgan Tsvangirai will preside over the council of ministers and will be in charge of the police. The most arresting moment came when the two men, President Mugabe and Prime Minister Tsvangirai - for so long sworn enemies - shook hands briefly and exchanged a few words to the sound of wild cheers coming from hundreds of people in the hall. After the ceremony the new Deputy Prime Minister Arthur Mutambara, who leads a small breakaway faction of the MDC, made a speech calling for a new future for Zimbabwe. He was followed by Morgan Tsvangirai, who said - borrowing a phrase from Mr Mugabe's comments on reconciliation at the time of Zimbabwe's independence - that "it is time to turn our swords into plough-shares". He called on all the people of Zimbabwe to put division and hatred into the past and he urged everyone to work together. The priority, he said, was to "stop the devastating food shortages affecting the country". He also turned to the international community to help rebuild the country. "We need electricity, water, petrol for our vehicles," he said, "and we need to access our cash from bank." It is the crippled Zimbabwean economy, with official inflation running at more than 11,000,000% annually, which poses the biggest threat to the country's future stability. When President Mugabe came to the microphone, there were cheers, but also some boos from the crowd. He called the event "historic", and reminded his audience that Zimbabwe has emerged from a liberation struggle. "We decided it was not right to bear the yoke of colonialism any longer", he said. He then accused Britain of meddling in Zimbabwe's affairs, saying the former colonial masters had interfered calling for "regime change... and imposing sanctions". He congratulated and thanked the Southern African Development Community (SADC) for helping to solve the difficulties that Zimbabwe has faced. President Mugabe said his party, Zanu-PF, was committed to the power-sharing deal, but his speech was marked by repeated references to Zimbabwe's past, and not about the challenges that the country faces in the future. The eyes of the Zimbabwe's neighbours, the continent of Africa and the whole world will be fixed now on seeing whether this historic deal does indeed result in a genuine sharing out of executive authority. 

US and EU keep Zimbabwe Sanctions 
The US and the EU say there will be no immediate end to sanctions on Zimbabwe, despite a historic power-sharing deal signed in Harare September 15. EU foreign ministers said the measures would continue until the new government took steps to restore democracy. Robert Mugabe said he was committed to national unity and would do "his best". His rival Morgan Tsvangirai, the new prime minister, said the agreement provided the best hope for Zimbabwe and called for its full implementation. EU foreign policy chief Javier Solana said a decision on lifting sanctions on Zimbabwean officials had been postponed until October. The International Monetary Fund, which suspended financial and technical assistance in 2006, said it stood ready for talks with the new government about stabilising the economy. But it added that Harare would have to take clear steps to resolve the economic crisis in a country where inflation stands at more than 11,000,000%. In a statement, the 27 EU ministers said they would watch for the agreement's implementation, especially the "immediate cessation of all forms of intimidation and violence". UK Foreign Secretary David Miliband said Zimbabwe's new administration would have to make significant progress before the lifting of sanctions was considered. Meanwhile, a senior US diplomat told the BBC that Washington wanted to help Zimbabwe, but would need to see proof that Mr Mugabe had relinquished some genuine power to Mr Tsvangirai, leader of the Movement for Democratic Change (MDC). African leaders shake hands following the signingUS Assistant Secretary of State for African Affairs, Jendayi Frazer, said: "We haven't yet had a chance to study the details of the agreement, nor do we know who will be in the cabinet of this new government, so in some ways it's a bit premature for us to comment until we have the full picture." Mr Mugabe, Mr Tsvangirai and Arthur Mutambara - leader of a breakaway MDC faction - shook hands to rapturous applause having signed the agreement in front of some 3,000 invited guests. Despite the agreement, South African President Thabo Mbeki, who had brokered power-sharing negotiations since July, warned the unity government's full composition was yet to be finalised. 

Tsvangirai Calls for Urgent Assistance
Morgan Tsvangirai, invested as Prime Minister of Zimbabwe as part of a power-sharing deal with his bitter rival, President Robert Mugabe, called for international support to help the raise the country off its economic haunches at the signing of the agreement in Harare September 15. The deal, mediated by South African President Thabo Mbeki, will see Tsvangirai, leader of the opposition Movement for Democratic Change, share executive powers with Mugabe in the first dilution of Mugabe's powers since he assumed the presidency in 1980, when the country won its independence from Britain. Mugabe will remain executive president and chair cabinet, as well as the National Security Council - also known as the Joint Operations Command (JOC), the country's overarching security body that includes the chiefs of the army, police, and Central Intelligence Organisation, the feared secret police. Mugabe, or his party, ZANU-PF, will also appoint two vice-presidents. Tsvangirai, as executive prime minister, will chair a Council of Ministers and hold the post of deputy chairperson of the cabinet, as well as being a participating member of the National Security Council. Tsvangirai will appoint a deputy prime minister, while the MDC faction, led by Arthur Mutambara, will appoint a second deputy prime minister, most likely himself. Mbeki said there were still outstanding details to be finalised. "Some discussions have already started about the constitution of this inclusive government, [but] they have not yet concluded. I am confident that they will do so as soon as possible." Zimbabwe, once prosperous, faces an economic meltdown in which inflation is officially estimated at more than 11 million percent, unemployment is above 80 percent, there are shortages of food, electricity, fuel and foreign currency, and the UN forecasts that more than five million of the country's 12 million people will need food assistance in the first quarter of 2009. Tsvangirai, who introduced himself in his speech as "I, the Prime Minister of Zimbabwe," said, "A new beginning will be built more quickly with support from the international community. "We are grateful for the support you have shown us over the past nine years, and we appeal to our regional neighbours, our African brothers and sisters and the international community to assist us in rebuilding our nation, to assist us to address problems facing our society, our education and health care systems, and our economy. 

No Change in Country's Investment Rating
South Africa's dramatic political transition did not so far warrant a reassessment of its investment grade credit ratings, three top rating agencies said September 22. But they warned that President Thabo Mbeki's abrupt departure had launched a prolonged period of uncertainty, which global investors might see as negative. "I don't see any upside at the moment as far as the South African credit story is concerned," said Konrad Reuss, Standard & Poor's MD for SA and southern Africa. "I do see a number of potential downsides, but it's too early to say exactly where this is going. "We are monitoring events quite closely as we are definitely in for a prolonged period of uncertainty," he said. Kristin Lindow, senior vice-president of Moody's Investors Service and its lead analyst for SA, made similar comments. "Moody's expects to monitor developments closely in coming months to determine whether the latest developments warrant any revisions to its views on the likelihood of policy continuity in the coming years," she said. Local markets took the news of Mbeki's departure in their stride September 22. African National Congress (ANC) president Jacob Zuma, who is likely to get SA's top post after the election, moved quickly to reassure the business and investment community yesterday, saying economic policies would remain stable. There is concern that Zuma's left-wing allies would persuade a new government to abandon prudent fiscal policies and embark on an unsustainable spending spree as it redoubles its efforts to alleviate poverty. Mbeki's departure does not mean that this is on the cards, but analysts said the treasury's medium-term budget policy statement next month would be scrutinised closely for any sign of a destabilising shift to the left. Severe volatility in global markets mean that if SA's political landscape starts to be seen as hostile to business any rise in risk aversion would punish local assets more severely than would otherwise be the case. "The interim government has to manage the transition carefully to make it as smooth as possible," said Veronica Kalema, a sovereign analyst at Fitch Ratings. "The situation is still fluid ... it has added to political uncertainty, and SA is facing a challenging global and domestic backdrop at the same time." For now any big shift in economic policies was seen as unlikely, she said. Kalema and Lindow said reports that ANC deputy president Kgalema Motlanthe would replace Mbeki until the election were good news for markets as he was seen as an astute politician who would manage transition well. But Lindow said Zuma might have raised the expectations of SA's poor majority to unrealistic levels. "Managing these overblown expectations downward will be required to maintain political stability." Reuss said that while there was some scope for more spending the main obstacle to improving the lives of poor people was service delivery. It was difficult to see how a new government would tackle that more successfully, given SA's skills and capacity constraints.

Zuma Speaks Up for Media Freedom
ANC president Jacob Zuma defended media freedom in SA September 15, saying it was a key element in the constitution. This comes just a week after the party criticised Jonathan Shapiro's (Zapiro's) controversial cartoon in the Sunday Times depicting Lady Justice being held down by Zuma's supporters while he unbuckled his belt. The ANC labelled the cartoon disgusting, an abuse of press freedom, an attack on the ANC and a violation of Zuma's rights. Zuma's defence of press freedom came during an address to members of the Hellenic, Italian and Portuguese communities in Johannesburg. "Our country needs a media that is free of political control and influence. "A subservient media is dangerous to our democracy as it allows those in power to abuse the rights of others at will, knowing that they enjoy the full backing of the media," Zuma said. While the media fraternity largely came out in support of Shapiro, citing freedom of expression, some of Zuma's staunchest allies labelled the cartoonist racist and counter- revolutionary. The ANC's change of tack comes after the Pieter- maritzburg High Court threw out the state's corruption case against Zuma and signals the offer of an olive branch to the media. In welcoming Friday's judgment, Zuma said it boosted the party's faith in the judiciary. The meeting, held under the umbrella of the HIP (Hellenic/Italian/Portuguese) Alliance, raised a number of concerns with Zuma, among them crime, access to healthcare, affirmative action and trade barriers. The meeting formed part of the ANC's outreach programme, which aims to create an open dialogue and get policy input from minority communities ahead of next year's elections. Zuma has previously been criticised for playing to the crowd in such meetings and flip-flopping on popular issues such as affirmative action and economic policy. Last night, Zuma did not play to the crowd, simply outlining the ANC's position. On crime, healthcare and multiracialism, Zuma spelt out ANC policy to the letter. On affirmative action, Zuma disappointed the crowd when he dismissed the possibility of it being scrapped. Affirmative action aims to ensure that previously disadvantaged people have equal opportunities in the job market. While encouraging engagement on the issue, Zuma said that affirmative action could only have a sunset clause once the playing fields had been levelled. He said affirmative action may "wither away" with time. Many in the audience expressed disappointment in Zuma's inability to answer questions raised from the audience. Zuma read largely from a prepared speech. Many described this as a "missed opportunity" to secure new voters for the ANC.

Budget Shock for Zuma as Surplus 'Disappears'
It seems increasingly likely that the government's much-vaunted budget surplus will not be available to its successors next year, with much of the funds already committed to rescuing Eskom and paying higher wages to public sector workers. Congress of South African Trade Unions (Cosatu) leaders said September 3 they had been told informally that the forecast 2009-10 budget surplus of R11,3bn had been severely diminished. The topic was discussed at Cosatu's three-day central executive meeting. The treasury declined to comment, saying the "fiscal framework" would be updated by its medium-term budget policy statement on October 21. The surprise development will hobble the new government, probably led by Jacob Zuma, in delivering on pledges of far-reaching measures to alleviate poverty and create jobs. It may also spook financial markets, weighing on government bonds and the rand, already unsettled by the huge deficit on the current account, the broadest measure of trade. Finance MECs have been ordered not to reveal the contents of a budget council lekgotla in August, where Finance Minister Trevor Manuel reportedly warned them not to come cap in hand looking for extra funds, as there were not any. "We have been sworn to secrecy. I really cannot comment on this matter," one MEC said. Next year's forecast budget surplus, put at 0,6% of gross domestic product (GDP), has now been allocated to Eskom's recapitalisation and higher wage bills to compensate for soaring inflation. The African National Congress (ANC) and its Cosatu and South African Communist Party (SACP) allies have not been informed formally about the erosion of the budget surplus, already a controversial issue for the alliance. Cosatu had argued that the surplus - recorded for the first time in fiscal 2006-07 - should be spent to ease the hardships of the poor. The treasury has said the surplus is cyclical, which means it stems from revenues generated by faster economic growth, rising commodity prices and a favourable global environment. This means the extra money should not be spent on policies that cannot be sustained when the tide turns. Officials said last year that if temporary tax revenues were excluded the budget would show an average deficit of 0,6% of GDP over the next few years. Some members of the ANC's tripartite alliance believe the government scrapped the surplus to frustrate the efforts of the incoming administration. But Cosatu spokesman Patrick Craven said that if the money was spent on Eskom's recapitalisation and public service pay, the federation would not take issue. ANC secretary-general Gwede Mantashe also said "it would not be a train smash" if the bulk of the surplus went to Eskom. The government will lend the power utility R60bn over three years to help fund its badly needed expansion programme, with half of that amount allocated for next year alone. SACP general secretary Blade Nzimande said that while his party did not object to pumping state funds into Eskom he took issue with lack of consultation on the surplus. "If this is true, there should have been consultation on how the surplus should have been used. We don't need a piecemeal strategy. We need a comprehensive strategy," he said. Local bond markets may take fright if the forecast surplus gives way to a deficit as this means the government would have to borrow more, boosting supply. But a smaller surplus, or even a balanced budget, is unlikely to be taken badly. Another critical issue is how money is spent amid investor concern that a more left-leaning government would pump cash into unsustainable social welfare policies. "I think we are going to spend more, but if it delivers economic growth it's more palatable," said Brait economist Colen Garrow. "If we started spending to the extent of a large fiscal deficit that would be concerning." Garrow said markets would be sensitive to hints that surpluses would disappear. "Markets have been told that over the following three years we are likely to have budget surpluses. If there are none it will be a shock," he said. Lined up with the current account deficit - which hit a 26-year peak at 9% of GDP early this year - a shrinking fiscal surplus would be likely to weigh on the rand, he said. News of the disappearing surplus is likely to spark renewed anger and suspicion among the alliance partners. "The money is already locked into a particular trajectory. Anything we want to do about the Polokwane resolutions will now be severely hampered," an alliance leader said. Alliance leaders were told they would have only an additional R6bn-R7bn to spend on developmental programmes, including more free schools, health and speeding up land reform.

Country Falls in Economic Freedom Ranking
Weaker legal structures and less protection of property rights were among the factors behind SA slipping in a global ranking of economic freedom published September 16. SA fell to 54th place from 49th out of 141 countries in the latest annual Economic Freedom of the World annual report. Hong Kong and Singapore were one and two. Angola, Burma and Zimbabwe were the bottom three. Independence of the judiciary and impartiality of the courts both rated lower in the report, which compared data collected in 2006 with that of the previous year. The report, headed by Canada's Fraser Institute, with local input provided by the Free Market Foundation, measures economic freedom by considering aspects such as size of government, the legal system, access to "sound" money that is not eroded by inflation or hindered by foreign exchange controls, freedom to trade internationally, and regulation of credit, labour and business. "The single most important factor in economic growth is the legal system," said Leon Louw, executive director of the Free Market Foundation. "The laws of economics say to governments, 'You can really mess up on a lot of things and we'll forgive you provided you have a good legal system'." Measures of the strength of the legal and judicial system, compiled from secondary sources such as the Institute for Management Development's Global Competitiveness Report and the World Bank's Doing Business report, improved in the years up to 2005. This was a consequence of the government's respect for intellectual property rights over anti-AIDS drugs and the voluntary rather than mandatory nature of black economic empowerment as it evolved, Louw said. "If you slip, you get very severely and quickly punished which is what we are at risk of happening," he said. Louw said he expected SA to improve in years to come. The way the legal system had fought back against attacks gave grounds for hope. "If you stand back and look at what the law has been doing, it has withstood the assault, not just intact, but come out of it stronger than before. It won the fight," he said. There are other positives, such as the government's decision to shelve the Expropriation Bill, which could have meant confiscation of land. "That had many people on the edge of their chairs, but the bill was withdrawn, and has been shelved. You could argue that when the threat was there of eroding property rights, the government backed down." One area that did not look good, however, was the rising level of government red tape, Louw said. "I expect the 2007-08 scores, from the World Bank's Doing Business report, I expect a significant decline there. We've been drowned in regulation." Louw said there were too many restrictions on lending money. "We've seen the collapse of every credit- intensive sector. It is nosediving in response to being smothered by red tape. We have the opposite of subprime crisis. We have the super prime crisis. In SA, we're making responsible credit prohibitively costly."

Mboweni Warns Country of Credit Crunch Risk
Global financial turmoil posed a clear threat to SA's economy and markets although local banks were relatively insulated from the crisis, Reserve Bank Governor Tito Mboweni said September 18. He told the Bank's annual general meeting that so far the Bank had not needed to intervene to deal with the global credit crisis, which prompted a cash injection of $180bn from central banks around the world, taking the total made available to $250bn. SA's banks had little direct exposure to the US subprime mortgage market, although there were indirect effects, such as higher funding costs, he said. Mboweni said local markets had not been spared the effect of a sharp repricing of global risk, and that the Bank would "closely monitor" the spillover effects. These had spurred a foreign sell-off of local shares and bonds with net equity sales at R18bn in the year so far, he said. "Increased market volatility, a significant repricing of risk, rising costs of international capital and less capital flows to emerging markets clearly pose threats to the domestic economy and financial markets "Global and domestic developments are expected to continue to pose serious challenges for the Bank in the coming year." Analysts say calls for President Thabo Mbeki to step down have had no effect on local markets yet as global investors have bigger things to worry about. But they say that after the dust settles and investors have time to consider the country's political crisis, there will be fallout for the rand, bonds and shares. "Right now the world is so worried about other things it is not paying attention to SA," said Absa Capital research head Jeff Gable. "But when it has time to look, we are very exposed to a reduction in risk appetite." Mboweni said growth had shown signs of moderating, and the economy appeared to be growing "somewhat below" its estimated potential output, which the Bank has previously estimated at 4,5%. That inflation had breached its official target range for some time should not be seen as a failure of the policy, which allowed for "temporary deviations" due to shocks, he said. Inflation measured by CPIX has exceeded its 3%-6% target since April last year, buoyed initially by surging food and fuel prices, prompting the Bank to raise interest rates by five percentage points since June 2006. It left the repo rate steady at 12% at its monetary policy meeting in August, saying inflation would fall sharply next year, and the economy was taking strain. But Mboweni signalled that markets should not assume interest rates had peaked. It was important that inflation expectations remained "well-anchored on the low side, not the high side", he said. "Failure to respond appropriately could inevitably cause expectations to become dislodged and result in a further acceleration of inflation."

Fears of Retail Recession as Sales Tumble
Retail sales fell 4,6% in July compared with the same month last year - the sharpest annual fall since records began a decade ago, fanning fears the key sector was sliding into a recession. The rising cost of debt, soaring inflation and a sharp slowdown in growth of disposable income has curbed consumer spending, the economy's main growth engine, since 2006. Analysts said things would get worse before they got better, with light at the end of the tunnel only likely to appear when inflation starts falling next year, paving the way for cuts in interest rates. "Growth in real retail sales has been in negative territory for three consecutive months, setting the scene for a recession in the sector," Standard Bank economist Johan Botha said in a research note. "The outlook remains poor over the medium term ... retailers are not only suffering falling demand but also rising input costs, which have consistently impacted on profitability," he said. Retail and wholesale sales is the economy's third-biggest sector, making up about 14% of gross domestic product. This sector has been hit hardest by a five percentage point cumulative rise in lending since June 2006, which has driven prime lending rates set by banks up to 15,5%. As it takes changes in interest rates up to two years to take full effect, there is likely to be more pain in the pipeline for local consumers and retailers, with tougher credit rules introduced last year also taking a toll on demand. "This news continues to fulfil our forecast that retail sales will decline for most of 2008," Investec economist Annabel Bishop said. "Retail sales growth will tentatively turn positive in the second quarter of 2009 ... and then strengthen during the year if rate cuts and lower inflation materialise as expected." Reserve Bank governor Tito Mboweni said early September that SA households have finally responded to higher interest rates, with their debt falling to 76,7% of disposable income in the second quarter from a record 78,2% in the first. That was the first decline in the ratio since the final quarter of 2003, and supports the case for lowering interest rates next year - provided that inflation also starts to subside. In the three months to the end of July, retail sales contracted 3,4% versus the previous three months, after adjustments for inflation, Statistics SA said. Sales also fell 1,8% over the first seven months of this year compared with the same period last year, the data showed. This was despite the fact that a new survey sample backdated to 1998 raised the level of retail sales for the three months between April and June by 1,6%. That led to upward revisions in the data for that period, with a 0,1% decline in April revised to a 0,2% increase. The fall in May was revised to 3,4% from 4,2% while the June decline was revised to 1,5% from 2,6%. In the detail of the data, sales of durable goods rose by an annual rate of 3,4%, down from 11,1% in June - and after eight months in a row of declines. Sales of pharmaceutical and medical goods rose a robust 23,3% while sales of textile, clothing and footwear - which are also sensitive to interest rates - rose 14,3%, down from 16,8% in June.

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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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