Turning first to political matters, we regard South Africa's 2009 parliamentary elections to have been an extraordinary event in many respects. Perhaps most importantly, the ruling ANC scored a clear electoral victory, gaining 65.9% of all votes, followed by the Democratic Alliance (DA, 16.7%) and the Congress of the People (COPE, 7.4%). While it represented one of its weakest results in years, the outcome is nevertheless impressive given the difficult circumstances the ANC has faced over the past year. Indeed, with the ruling party weakened by the formation of the rival COPE and Jacob Zuma's credibility battered by allegations of corruption, many expected the ANC to fare significantly worse. The result constitutes a vote of confidence and gives the party a strong mandate to rule the country over the coming five years.

The latest economic indicators suggest that the ANC will have to guide the country through tough economic conditions for some time to come. Figures published by Statistics South Africa clearly show the full extent to which the South African economy is exposed to the downturn in domestic and global demand. With Q109 seasonally-adjusted real GDP growth contracting by 6.4% q-o-q on an annualised basis (one of the worst quarterly performances in more than 20 years), we believe there remains no doubt at all that the South African economy will plunge into a full-year recession in 2009 – a scenario we have highlighted for a long time. In our view, collapsing domestic private consumption and a sharp contraction of export growth are the key determinants of South Africa's rapidly worsening growth prospects.

We maintain our view that preparations for the football World Cup are an important driver of private investment, in particular into the country's infrastructure. This was clearly reflected in the construction sector remaining one of the few industries to register positive growth early in 2009.

Turning specifically to the defence industry, we note that domestic arms producers have been forced to make significant adjustments in light of increased foreign competition resulting from the lifting of arms embargos. Although companies have laid-off significant numbers of employees, recent procurement packages may reverse this trend in the long-term. Nevertheless, it is likely that recent government orders will increase arms imports. Despite some signs that inroads into international export markets are boosting company results, it is imperative that the South African defence industry breaks into international markets. The key factors presently holding back the industry are a lack of funding, policy, and research and development (R&D).

The significant players remain Denel, the former manufacturing divisions of Armscor, BAE Systems’ Land Systems South Africa, African Defence Systems (ADS), Grintek Defence & Technologies, Reutech and the civil and military aviation industry specialist Aerosud.

In the last quarter, we introduced an innovative ratings system entitled the City Terrorism Rating (CTR).

The CTR provides an at-a-glance assessment of the risk of a terrorist attack in a given city by weighing a number of significant measures. At present, we assess the CTRs for Cape Town, Johannesburg and Pretoria at 92.5, 87.5 and 85.0, respectively, out of 100. This places them sixth, 12th and 16th, respectively, among the 40 African cities assessed. The CTR is based on a detailed Terrorism Rating (TR) for the country taken as a whole, and an assessment of the prevalence and threat of terrorism for the city in question. This latter assessment takes into account the frequency of past attacks, whether the city is a target for terrorist activity, and the likely extent of possible terrorist attacks.