The effect of a mainstream approach to economic and corporate governance on development in South Africa

Literature › Works

Seeraj Mohamed (2007). The effect of a mainstream approach to economic and corporate governance on development in South Africa. Paper for ACDC 2007 (African Development and Poverty Reduction / ACDC conference).

Type	conference paper
Scope	Post-1994 South African economy
Method	mixed
Period studied	1985–2006
Regions	South Africa, Africa (NEPAD/APRM)
Themes	transition post apartheid, business and state, macro fiscal finance debt, manufacturing industrial policy, comparative theory, inequality poverty unemployment
Citation key	mohamed2007

Argument

Mohamed argues that governments have conflated economic governance with Anglo-Saxon, shareholder-value corporate governance, which makes policymakers over-sensitive to financial markets and policy 'credibility'. For South Africa, he claims this has had a double negative effect on development. First, neoliberal policies (tariff liberalization, inflation targeting, low deficits) entrenched a capital- and resource-intensive economic structure and drove manufacturing decline. Second, the state allowed the largest apartheid-era conglomerates (above all Anglo American) to list abroad, disinvest and escape developmental obligations, while falling under the sway of 'impatient' institutional capital. The case rests on a conceptual survey of neoliberalism and governance, supported by Quantec and SARB descriptive data and ownership figures.

Evidence and method

Secondary literature on neoliberalism, governance and corporate governance; World Bank, IMF, OECD, NEPAD and APRM documents; Quantec sectoral capital stock and employment data (2000-05); SARB national accounts and household debt data; Roberts and Machaka (2004) on JSE market capitalization control; Anglo American annual reports; 2006 shareholder registers of AngloGold Ashanti and Harmony Gold.

Findings

• Acceptance of mainstream governance entrenched industrial structural problems. (p. 2)

  First, it has caused government to adopt neoliberal economic policies that have entrenched the industrial structural problems of the economy.

• Government allowed large corporations to move listings abroad and did not oppose a merger wave. (p. 15)

  They have allowed some of the largest South African corporations to move their primary listings abroad, have not opposed a huge increase in mergers and acquisition activities in the economy

• Capital stock fell in most manufacturing sectors in 2000-05, concentrated in labour-intensive, value-added sectors. (p. 17)

  Figure 1 shows that from 2000 to 2005, 10 manufacturing sectors experienced increases in capital stock but 15 manufacturing sectors experienced declining capital stock.

• Recent growth rests on household debt-financed consumption. (p. 18)

  Recent economic growth has been driven by increased household consumption off the back of growing levels of household debt (see figure 2).

• Services job growth is low-skill and linked to outsourcing from mining and manufacturing. (p. 18)

  Growth in business services jobs has been mostly in low skilled jobs in the private security industry and labour broking due to outsourcing of certain services by the mining and manufacturing sector.

• Apartheid-era conglomerates were allowed to internationalize without obligations to post-apartheid development. (p. 20)

  allowed the largely uncontrolled internationalization of large South African corporations that benefited from apartheid without a plan for ensuring that those corporations use part of the wealth

• The JSE market share of the big conglomerates was very high in the early 1990s (Anglo 39%, Old Mutual 11%, Liberty 6%). (p. 21)

  Large South African corporations such as Anglo American, Old Mutual and Liberty Life, which respectively controlled 39%, 11% and 6% of the capitalization of the Johannesburg Securities Exchange (JSE) during 1991-95

• Anglo's JSE weight fell sharply as it became a global mining company listed in the UK. (p. 23)

  capitalization on the JSE decreased from 39% during 1991-96 to 23% during 2001-3.

• Profit remittances on FDI rose while domestic corporate saving trended down after offshore listings took off. (p. 25)

  profit remittances on FDI grew enormously while domestic corporate savings was volatile with an overall negative trend.

• Trade deficit exceeded 7% of GDP, financed by short-term flows. (p. 26)

  the economic policies of the South African government have allowed the trade deficit to grow to more than 7% of GDP.

• Foreign institutional investors dominate ownership of the gold majors. (p. 27)

  Across the globe, institutional investors owned 73.06% of the shares of Harmony.