Читать книгу New South African Review 1 - Anthony Butler - Страница 25

The South African financial system had developed along similar lines to that of the English and US systems and can be described as market-based rather than bank-based (Roux 1991). In other words, South African businesses that require finance for long-term investment use retained earnings or seek finance in securities markets. The state-owned Industrial Development Corporation does provide some industrial finance but on the whole its lending is a very small share of total lending in the country and its main customers have been large, capital intensive projects in the mining and minerals sectors (Roberts 2008). The banks and other monetary institutions largely provided business with short-term operating capital and serviced the credit card, home mortgage, vehicle lease and finance and other short-term lending for consumption.

Figure 4 shows that during the period 1990 to 2008 this form of credit allocation continued in the economy. One can see the growth in mortgage advances from 2003 to 2008 which supported the growth of a housing price bubble in the relatively more affluent real estate market in South Africa. House price increases in South Africa were higher than in the US during the period 2003 to 2007, when US subprime lending was rampant. For the period 1990 to 2008, investment was a relatively very small share of total private sector credit extension.

An important phenomenon in the global economy and South Africa is that the size and influence of the financial sector grew from the 1980s, when financial markets and cross-border capital flows were liberalised. The market-based banking system and banking deregulation by the apartheid state during the 1980s supported the growth of the South African financial sector. Further, the political changes, the decline in MEC investments and trade liberalisation led to greater private sector interest in financial assets from the mid-1990s. Figure 5 shows that value added by the finance and insurance services sector increased rapidly during the 1980s when economic growth and investment as a percentage of GDP declined significantly. The contribution of the finance and insurance sectors to GDP grew even more rapidly from 1994 to 2007, while overall investment levels remained relatively low. An improvement in investment levels from 2003 included the impact of government’s infrastructure investments from 2006, increased services sector investment linked to financial sector growth, increased household consumption and more household construction and purchase of automobiles. In short, the growth of the financial sector and its increased share of GDP were not associated with higher levels of investment.

Figure 5: Private sector credit extension by all monetary institutions by type (percentages of total)

Source: calculated using SARB data

An important aspect of the financialisation of the South African economy during the postapartheid period was increased capital inflows, particularly short-term portfolio flows from developed countries. These short-term flows signalled not only the end of apartheid financial isolation but, more importantly, a change in sentiment about South Africa by global financiers, after they had ignored South Africa subsequent to its 1985 debt crisis. The slow liberalisation of exchange controls by the South African government from 1996 may also have affected this sentiment but the more important reason for the increased flows to South Africa was the huge increase in global liquidity that was accompanied by large movements of short-term portfolio flows into certain developing countries in Asia, Latin America and South Africa in Africa.

I argued in 2006 that the surge in net short-term capital flows to South Africa increased macroeconomic instability with more volatility in exchange rates, interest rates and inflation associated with changes in capital inflows (see Mohamed 2006). A stark illustration of this volatility and instability was the sharp drop in the rand to dollar exchange rate of 35 per cent in 2001, which could be defined as a currency crisis. This was caused by a rapid decline in net portfolio flows in 2000 which turned sharply negative in 2001 (see figure 6). During this period, inflation increased sharply as a result of the weaker rand. The South African Reserve Bank, which follows an inflation targeting policy, increased interest rates by 4 per cent. Net portfolio capital flows began recovering in 2002 and turned positive in 2003. They grew over the next few years to peak at nearly 8 per cent of GDP. This recovery in portfolio flows was accompanied by rapid reductions in interest rates that contributed to the house price and financial asset bubble from 2003 to 2007.

Figure 6: Gross fixed capital formation and finance and insurance sector value added as percentages of GDP

Source: Quantec

In an examination of the period up to 2002, I argue that the surge in portfolio capital flows to South Africa and the related increased extension of credit to the private sector during the 1990s was not associated with increased levels of fixed investment but with increased household consumption, financial speculation and capital flight.

Figure 6 compares the trends of total fixed capital formation, private business fixed capital formation, total domestic credit extension and total credit extended to the private sector all as percentages of GDP for South Africa for the period 1990 to 2007. Figure 7 shows that credit extension to the private sector increased about 22 per cent from 2000 to 2008 but that private business investment increased by only 5 per cent during that period. What can also be inferred from Figure 7 is that a part of the increase in capital formation from 2006 may not be due to private business capital formation but to state investment in infrastructure. The increase in private capital formation from 2003 to 2008 is due to investments spurred on by increased financial speculation and debt-driven consumption, not long-term investment in productive investment. Long-term productive investments are required to redress the structural industrial weaknesses of the South African economy. I explain the process, which I describe as misallocation of finance, below.

Figure 7: Net capital flows to South Africa as percentages of GDP

Source: SARB

Figure 8 draws on data from the SARB’s flow of funds data to provide a trend of capital formation after depreciation by sector. We see that the foreign sector has very low levels of net fixed investment. Net investment by the South African financial institutions (the banks and insurers) in fixed capital formation turned negative from 2003. Figure 9 shows that there has been a huge increase in corporate business enterprise net investment, from about R30 billion in 1999 to almost R130 billion in 2007. There has also been large growth in government and household net capital formation over that period.

Figure 9 shows calculations for trends of net acquisitions of financial assets by sector calculated from the SARB flow of funds data. The first stark difference between figure 8 and figure 9 is the scale of the different charts. The Y-axis on figure 8 goes up to R140 billion and that of figure 9 to R450 billion. The next stark difference is that every sector in figure 9, except for general government, had large and increasing net acquisition of financial assets, whereas in figure 8 we noted that it was only government, household and corporate business enterprises that showed large increases in net capital stock. There was rapid growth in acquisition of financial assets in all the financial categories. The other monetary institutions category, which includes the commercial banks, had huge growth in acquisition of financial assets, which nearly tripled from just over R150 billion in 2003 to nearly R430 billion in 2007.

Figure 8: Credit extension and investment as percentages of GDP

Source: calculated using SARB data

Figure 9: Capital allocated to capital formation by sector, Rbillions

Source: calculated from SARB flow of funds data

Household net capital formation in 2007 at around R30 billion was a fraction of their net acquisitions of financial assets, which more or less doubled to R200 billion in 2007 from about R100 billion in 2005. The trend in acquisition of financial assets by corporate business enterprises increased until the financial crisis (and the dotcom crisis) in 2001 and then declined until 2005. However, it had a sudden surge and by 2007 had grown, from the 2001 peak of about R100 billion, to over R170 billion.

Figure 10 highlights an important fact about corporate business’ net acquisition of financial assets relative to net fixed capital formation for the period for which we have SARB flow of funds data (1993 to 2007): corporate business enterprise net capital formation (that is, gross capital formation less depreciation) was lower than net capital formation for all years between 1994 and 2007 except for 2004 and 2005. Corporate saving was low for the period and turned negative in 2006–7. Many of the studies of financialisation in the US economy focus on the increasing financialisation of nonfinancial corporations (NFCs). One aspect of this financialisation is the increased share of income and profits of NFCs from involvement in financial markets and investment in financial assets. The flow of funds data on use of capital by corporate business enterprises in South Africa seems to support the notion that there has been financialisation of NFCs in South Africa.

Figure 10: Capital allocated to financial assets, Rbillions

Source: calculated from SARB flow of funds data

A number of recent studies show that financialisation of nonfinancial corporations was associated with lower levels of investment by nonfinancial corporations. This literature focuses on developed countries, particularly the US. Aglietta and Breton (2001) argue that the greater influence of financial markets on nonfinancial corporations and their demands for higher returns influenced executives of nonfinancial corporations to increase their dividend payments and to use share buybacks to raise share prices. They were left with less capital for investment.

Figure 11: The main sources and uses of capital in corporate business enterprises, R millions

Source: calculated from SARB flow of funds data

As Crotty (2002) explains, nonfinancial corporations have increased the sizes of their financial subsidiaries and have become involved in more financial speculation. Duménil and Lévy (2004) show that interest and dividend payments from nonfinancial corporations to financial markets increased: nonfinancial corporations, therefore, had less capital to invest in their own activities. Stockhammer (2004) uses regression analysis to show that financialisation is associated with lower levels of capital accumulation. Froud et al (2000) show the extent to which executives of nonfinancial corporations have become focused on the concerns of the financial markets for short-term high returns, using case studies of global corporations to show how this sensitivity to financial markets has created dysfunctional behaviour in large corporations, and arguing that the narrative provided by CEOs of large corporations to financial markets is not supported by examination of the financial statements of those companies. Orhangazi (2007) uses firm level data in the US to show a negative relationship between real investment and financialisation. He argues that financialisation of nonfinancial corporations may have caused a change in the incentives of management that caused them to direct capital towards financial investments.

Much more research is required to understand the impact of financialisation of NFCs on the South African economy and on developing countries in general. Given the available evidence I argue that the largest South African corporations have become more sensitive to the demands of the financial sector, particularly the shareholder value movement. Recent corporate restructuring and the content of annual reports of these giant corporations are indications of this sensitivity. Lazonick and O’sullivan (2000) argue that the predominance of the shareholder value approach to corporate governance has been accompanied by a shift from patient to impatient capital – in other words, the increased influence of financiers and the shareholder value movement over corporate executives has caused a shift in management behaviour. Investors and management are less concerned with building and nurturing businesses over a long period of time, and have become focused on short-term returns. This behaviour is even more marked where big business has moved capital out of South Africa and increased its efforts to internationalise. Crotty (2002) says that this shift to impatient capital has led to management treating their subsidiaries not as long-term investments but as part of portfolios of assets. We have seen former South African giant corporations unload a huge number of South African businesses that they have decided are not part of their core businesses and increase their investments abroad. Froud et al (2007) argue that this increased focus on short-term financial returns in NFCs is bad for labour because decreasing employment is good for increasing profits in the short-run even if losing experienced workers may be detrimental to these NFCs in the longrun. South Africa requires capital that will make a long-term commitment to employment and building the skills of their workforces. Financialisation increases short-term motives, and therefore firms are less likely to invest in long-term skills development.