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The Minerals-Energy Complex is Dead: Long Live the MEC?

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Ben Fine (2008). The Minerals-Energy Complex is Dead: Long Live the MEC?. Paper presented to Amandla Colloquium, 'Continuity and Discontinuity of Capitalism in the Post-Apartheid South Africa', Cape Town, 4-6 April.
Type conference paper
Scope Post-1994 South African economy
Method theoretical or conceptual
Period studied 1870s–2008
Regions South Africa
Themes business and state, macro fiscal finance debt, transition post apartheid, manufacturing industrial policy, mining migrant labour, comparative theory
Citation key fine2008

Argument

Fine restates the Minerals-Energy Complex (MEC) as a system of accumulation centred on mining and energy, with state and private capital intertwined. He traces how it shaped apartheid-era industrial failure to diversify, and he argues it still shapes the post-apartheid economy. After 1985 the MEC conglomerates were frustrated in globalising, so they became heavily financialised at home and pressed for the lifting of capital controls. On this reading, macroeconomic policy under GEAR and Manuel has in effect managed a gradual, favourable outflow of conglomerate capital, which is how the transition from apartheid might be dated from 1985. The paper contests World Bank and orthodox explanations of weak investment and the 'lack of institutional capacity' argument. It also warns that the shift from GEAR to AsgiSA may revive a state-led strategy around core MEC sectors. The argument is interpretive and illustrated with selective data and press-report examples.

Evidence and method

Secondary literature and official or institutional reports: Mohamed and Finnoff on capital flight, Wesso (SARB), Chabane et al. on conglomerates and outward FDI, EIU, World Bank investment climate and Eskom reports, and Steyn on Manuel and the rand. Also Africa Research Bulletin news items, statements by Trevor Manuel, and the author's own earlier MEC work with Rustomjee. The evidence is explicitly described as selective and illustrative.

Findings

  • The MEC is defined as a system of accumulation with its own evolving dynamic, running from the 1870s to the present. (p. 2)

    I came to the view, as mentioned, of the MEC as a system of accumulation, centred on core sectors that has a character and dynamic of its own that evolved and was far from pre-determined.

  • Afrikaner/mining capital divisions blocked industrial diversification and left the economy with weak intermediate and capital goods sectors. (p. 2)

    But the divisions between Afrikaner and mining capitals precluded a more general strategy of industrial diversification out of core MEC sectors, leading to a partial vacuum in intermediate and capital goods capability

  • The 1970s gold and oil price shocks led the state to expand gold and energy rather than diversify. (p. 2)

    the 1970s witnessed an extraordinary state-led expansion of gold and energy production.

  • Capital controls confined profits to the domestic economy, driving conglomeration and financial-sector growth. (p. 2)

    capital controls meant that profits generated internally that were not illegally transferred abroad, see below, were confined to accumulation within the South African economy itself.

  • The transition from apartheid is reinterpreted as the dismantling of capital controls beginning with the 1985 debt freeze. (p. 4)

    the economic transition from apartheid might be dated from 1985 and be seen as the process of eliminating capital controls from then until the present day.

  • Illegal capital flight rose as a share of GDP after 1994. (p. 4)

    Mohamed and Finnoff (2004, p. 2) estimate that illegal capital flight from South Africa rose as a percentage of GDP from 5.4% between 1980 to 1993 to 9.2% from 1994 to 2000.

  • Outward FDI by conglomerates grew sharply, rather than London listings funding domestic investment. (p. 5)

    total stock of outward FDI has grown from $8.7billion in 1995 to $28.8billion in 2004

  • The financial sector is portrayed as absorbing a large share of output while delivering little to productive investment. (p. 5)

    financial services take one quarter of what is produced by the rest of the economy in order to service itself

  • Easing of exchange controls released large pent-up institutional demand for offshore investment after 1995. (p. 7)

    from the introduction of the asset-swap mechanism in 1995 till its abolition in early 2002, institutional investors invested R100 billion abroad.

  • State-supported investment in core sectors is highly capital-intensive and poor at creating jobs. (p. 11)

    often creating jobs at a cost of between R5m and R8m in capital per worker, hardly conducive to employment creation.

  • Predicts a revived state-led MEC strategy, with financialisation and BEE as new features. (p. 11)

    there is the prospect of a renewal of the state-led expansion of the 1970s, with financialisation and BEE as two new features.