TradeTrends Weekly - 26 April 1999

[JTV Aphelion]

 

J T V  A P H E L I O N  cc

T R A D E   M A N A G E M E N T   C O N S U L T A N T S

---

TradeTrends Weekly

(No.11, 26 April 1999)

 

Welcome

As always, greetings to our existing subscribers, and a hearty welcome to new ones.  Please remember that we would like this newsletter to be as interactive as possible.  All contributions by subscribers are appreciated.  You are also more than welcome to request a certain topic to be covered in one or more of our editions.

 

In this issue

 

1. SA competitiveness ranking disappoints 
2. March trade surplus figures
3. JSE gets accolades
4. Southern African tobacco companies under pressure
5. US-SA trade relations trip over pharmaceuticals
6. On a lighter note
7. Internet resources

1.    SA competitiveness ranking disappoints

 

The latest edition of the World Competitiveness Yearbook (issued by the influential IMD of Switzerland) ranks South Africa 42nd out of 47 countries.  The only worse performers were Colombia, Poland, Venezuela, Indonesia and Russia.

 

Several issues contributed to the poor ranking, chief of which are: unemployment, lack of skilled labour, the so-called "brain drain", discrimination, industrial relations and labour regulations.  Other aspects mentioned by IMD was SA's high levels of crime and violence, and uncertainty over the post-Mandela era.

 

However, the latter issue should, in reality, not be cause for concern.  The transition of power from President Mandela to his Deputy, Thabo Mbeki, has been extremely well-managed.  De facto control has vested with Mbeki for at least two years, without any serious hiccups along the way.  Perhaps the reason for lingering questions about Mbeki's future policy directions can be found in the inability of analysts to "define" the future SA president.  Mbeki has not allowed himself to be neatly packaged, making it difficult for observers to take their measure of arguably one of the most powerful men in Africa.

 

2.    March trade surplus figures

The latest SA trade surplus figures have come as a nice surprise: it not only exceeded expectations by coming in at R2.5 billion (approx. US$420 million) rather than the expected R1 billion ($168 m), but the cumulative figures for the year to date now stand at R4.6 billion ($770 m), as compared to the R1.6 billion ($270 m) recorded in the same period of 1998.

 

The latest figures will further bolster the rand, which has not only managed to hold its own, but has strengthened against major currencies (dollar, euro & sterling) over the past few weeks.  The stronger rand should bring some relief to hard-pressed consumers, although it is likely to have a negative effect on the margins of gold producers and companies with large percentages of earnings derived from international subsidiaries.

 

3.    JSE gets accolades

According to ratings released by Morgan Stanley Capital International, the Johannesburg Stock Exchange has been one of the top performers worldwide, measured in terms of dollar-denominated returns for the year to date.

 

The JSE was ranked eighth, with 23.82% growth.  Other top performers are Turkey, Mexico, Chile, Korea, Singapore and Taiwan.  However, the list of countries in the top ten tells its own story: it was the very same markets that suffered very serious blows in last year's emerging market turmoil.  They remain vulnerable, although emerging markets are recovering at an impressive rate, with investor confidence steadily improving.

 

With analysts expecting a rise in commodity prices (on the back of sharply rising oil prices), the JSE's ranking could further improve over the course of the year.

 

4.    Southern African tobacco companies under pressure

South African and Zimbabwean tobacco producers and cigarette manufacturers have had a terrible week, without any signs of pressure on them easing, although the reasons for their woes are quite different.

 

After being passed by Parliament and ratified by President Mandela on 14 April, the Tobacco Products Control Amendment Act was gazetted last Friday.  The Act places a ban on all forms of tobacco advertising, and also severely restricts the places where people may smoke.  It is one of the toughest pieces of anti-tobacco legislation in the world.

 

British American Tobacco (BAT) said in a statement that they reserved the right to launch a challenge in the Constitutional Court, most likely basing any possible court action on issues such as freedom of commercial speech.

 

In other developments in the tobacco sector, Zimbabwean producers are coming under increased pressure as a result of competition from Brazilian competitors.  The latter country not only has an enormous annual crop, but their prices are significantly lower.  In addition, Zimbabwean producers and merchants are struggling to maintain profitability as a result of high taxes and levies amidst a chaotic economic environment.  Inflation is still running at over 40%, and many smaller producers are falling by the wayside since they cannot withstand the combined pressure of high financing costs and taxes.

 

However, it seems as if the woes of Southern African producers and tobacco companies are simply part of the global anti-tobacco trend, with SA retail sales of cigarettes falling by 10% over the past year. 

5.    US-SA trade relations trip over pharmaceuticals

SA Health minister Nkosana Zuma's controversial Medicines and Related Substances Control Amendments Act of 1997 and the Medicines and Medical Device Regulatory Act of 1998 are again in the news - and again bedevilling US-SA trade relations. 

 

Last week US Aids activists were demonstrating in Washington - charging the US government with wanting to force the SA government to change the legislation and by so-doing denying SA Aids sufferers affordable access to drugs such as AZT.  And this week US trade officials must decide whether or not to increase the pressure on SA - which has already been placed on the US's 'watchlist' of countries regarded as being unreliable with respect to enforcement of intellectual property rights.  

 

The essential problem is that Zuma's legislation forces SA  pharmaceutical manufacturers to reduce the price of medicines purchased by the state.  The government also retains for itself the option to purchase 'parallel imports' from producers other than the patent holder - and  it can allow (even require) SA companies to manufacture patented formulae held by others - provided such manufcaturers are able and willing to do so.

 

SA's policy in this regard does not contravene the WTO's Trips (Trade-related Intellectual Property) agreement, which does not categorically rule out such practices (it even allows compulsory third-party licensing if done properly). The US companies whose patents are in danger of being infringed  have, therefore, little hope of succesfully challenging the legislation at the WTO.  

 

There is evidence that SA may be forcing the issue on behalf of not only itself, but other developing nations who share SA's view that the Trips agreement is inconsistent with the aim of providing acceptable healthcare to their (mostly poor) people.  

 

SA, and developing nations generally, certainly have a problem when it comes to pharmaceuticals.  AZT, for example, is unaffordable - yet could save or productively prolong - millions of lives.  But great care must be taken when taking on the Goliath - a wrong step could draw a harsh and destructive response from the US.       

 

6.    On a lighter note

The Cape-based Sunday Argus this weekend reported that an Italian judge has ruled that "Italians can no longer make love in cars unless they cover up the windows (steam won't do, he added)."  Offenders "caught in the act" (so to speak) face a maximum sentence of three years in jail.

 

Perhaps one of our entrepreneurial subscribers can develop discreet, functional window covers for export to Italy.  Just imagine the possibilities: sheer silks from China and Japan, cotton animal prints from Africa...  Or perhaps Italian car manufacturers will add window covers that are released at the push of a button (or operated by a sensor in the vehicle - detecting heavy breathing) as a standard feature on all their cars, replacing airbags as the most sought-after safety feature.

7.    Internet Resources

April 30 sees the launch of a new SA web site, which can be found at www.eez.co.za.  The site, operated by the Johannesburg Stock Exchange, is known as the Emerging Enterprise Zone, and its main function will be to act as "matchmaker" between small and medium sized enterprises (SMEs) and corporate investors. Such resources are much needed if SA is to succeed in jumpstarting economic growth.

 

Features of the site include a currency converter to make it easier for foreign investors to assess the potential of specific business opportunities.

 

Definitely well worth a visit and, perhaps, deserving of a permanent addition to your list of "favourites".

 

 

---

Published & edited by JTV Aphelion cc.  All rights reserved.  www.aphelion.co.za

To unsubscribe, send a blank e-mail message, with the word "unsubscribe" in the subject line to subs...@aphelion.co.za.