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Tuesday, 12 June, 2001, 17:17 GMT 18:17 UK
Investing in South Africa
Mercedes C-class
The next Mercedes you see in the UK might be South Africa made
President Thabo Mbeki, accompanied by a bevy of minister and business leaders, is in the UK to promote trade and investment in South Africa. BBC News Online examines his chances of success.

South Africa has been the victim of negativism, where positive developments have been down played while the country's problems have been continually highlighted

Digby Jones
Confederation of British Industry
Thabo Mbeki and his delegation have one key goal: To persuade UK government and industry that South Africa has a stable economy and is a good place to invest.

The UK is still the biggest foreign investor in South Africa, with 12bn tied-up in the country.

Nine of the 20 largest foreign employers in the country are British.

"Africa needs a successful South Africa and the world needs a successful Africa. President Mbeki is critical to that process," a British official said.

Queen Elizabeth and Thabo Mbeki
Thabo Mbeki takes tea with Britain's queen
The state visit is the first to Britain by Mr Mbeki since he took over from Nelson Mandela in 1999 and the second by a South African head of state in five years.

And it comes at a crucial time for South Africa, which is struggling to transform its economy in the post-apartheid era.

Foreign investment

South Africa urgently needs foreign investment. Struggling with an unemployment rate of 23%, economic growth is the only way forward to lift the country out of poverty.

But while the UK is already the biggest foreign investor in the country, he will face a sceptical audience that fears South Africa, seven years after apartheid, cannot remain an island of calm on a turbulent continent.

Investors are particularly worried about the economic turmoil caused by land reforms in neighbouring Zimbabwe, which is South Africa's largest African trading partner.

But these fears are being stoked by the sensation-seeking foreign media and the predominantly white-owned domestic newspapers, says Digby Jones, the head of the Confederation of British Industry.

"One of the reasons why South Africa has failed to attract the levels of foreign investment it needs is due to the unfavourable portrayal of the country's development, resulting in restrained business confidence," Digby Jones told a conference in January.

"South Africa has been the victim of negativism, where positive developments have been downplayed while the country's problems have been continually highlighted," he said.

British investment

In May, South Africa began wooing UK investment banks and institutional investors in a bid to raise more than 4bn from privatisations.

Up for grabs will be the country's key telecoms, energy and airline assets, which are expected to have dual listings in Johannesburg and London.

The country has reported rising business confidence and has been praised by the International Monetary Fund for its economic policies.

However, there are fears that direct investment has been flowing out of South Africa in recent years, with some of the country's largest companies - including mining giant Anglo-American, brewer South African Breweries, and insurer Old Mutual - decamping to London rather than stay in Johannesburg.

Strong economy

One of the key factors for investors will be the condition of the South Africa's currency, the rand.

The rand plunged in the first years after apartheid, and the investment outflows duly push it to an all-time low of 8.16 against the dollar in April. During the past three years along it has fallen by almost 40%.

But South Africa is the continent's strongest economy, accounting for around a third of its gross domestic product.

Last year the country reported growth of 3%, with projections of 3.4% for next year and 3% in 2003, while inflation has been pushed to its lowest level for decades, allowing the central bank to cut interest rates.

Digby Jones, Director General, CBI
Digby Jones blames poor investment on negative news reporting
Britain is one of South Africa's biggest trading partners, with 4bn ($5.49bn) of goods traded in 2000, a 40% rise on the year before.

South Africa even produces right-hand drive Mercedes C-class and BMW series-3 cars, which are exported to the UK and the rest of the world.

Trade agreements have been reached expanding export opportunities and creating a visible trade surplus with the UK.

These include the EU-South Africa Free Trade Agreement, the African Growth and Opportunities Act in the US, which opens up the American market, and the a regional Free Trade Protocol to establish a free trade zone.

Bad neighbour syndrome

But the South African has suffered because Zimbabwe has become an international pariah due to a government-backed, and often violent, campaign to redistribute mainly white-owned commercial farmland to landless blacks.

South Africa's northern neighbour is now facing its deepest economic crisis since independence in 1980, which has sent shockwaves across the region, pressuring South Africa's financial markets.

Mr Mbeki outlined his position on Zimbabwe to the South African Chamber of Business convention last month.

He said South Africa would not allow Zimbabwe's economy to collapse and that Zimbabwe-style land grabs would never happen in his country.

And next month he will also give more details about the Millennium Africa Recovery Plan (MAP), conceived with the presidents of Algeria and Nigeria, which he describes as "African solutions to African problems".

The MAP is viewed as an African Marshall Plan to encourage stability and economic growth on the conflict-torn continent.

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