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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 prepared for ACDC 2007 (conference).
Type conference paper
Scope Post-1994 South African economy
Method mixed
Period studied 1985–2006
Regions South Africa
Themes transition post apartheid, business and state, macro fiscal finance debt, manufacturing industrial policy, comparative theory, inequality poverty unemployment
Citation key mohamed2007a

Argument

Mohamed argues that post-apartheid South African policymakers have conflated economic governance with the Anglo-Saxon, shareholder-value model of corporate governance. They pursue 'credibility' with financial markets, which he says is antithetical to development. He claims this has hurt development in two ways. Neoliberal policies (tariff liberalisation, inflation targeting, low deficits) entrenched a resource-intensive structure and deindustrialisation. The government also allowed the largest apartheid-era conglomerates, such as Anglo American, to list offshore, disinvest and escape developmental obligations. The case rests on a broad review of neoliberalism and governance literature, then on sectoral capital-stock data, share-ownership tables and company examples.

Evidence and method

Secondary literature on neoliberalism, financialisation and corporate governance; World Bank, IMF, OECD and NEPAD/APRM documents; Quantec sectoral capital stock and employment data; SARB series on GDP components, household debt and savings; World Bank GDF profit remittances; Roberts and Machaka (2004) on JSE market capitalisation control; Anglo American annual reports; 2006 shareholder registers of AngloGold Ashanti and Harmony.

Findings

  • The ANC government adopted neoliberal policies despite rhetorical rejection, in order to keep credit ratings and attract investment. (p. 14)

    the African National Congress government has adopted neo-liberal economic policies because of their wish to maintain good credit ratings and to attract foreign investment.

  • Policies such as tariff liberalisation and deficit reduction contributed to manufacturing decline rather than diversification. (p. 16)

    tariff liberalization, procyclical monetary policies, ignoring an overvalued exchange rate and reducing the government’s budget deficit have contributed to a decline in the manufacturing sector.

  • Between 2000 and 2005 more manufacturing sectors lost capital stock than gained it, and the decliners were the labour-intensive ones. (p. 17)

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

  • Growth is driven by household debt-fuelled consumption that widens the trade deficit, which is financed by short-term capital flows. (p. 18)

    Recent economic growth has been driven by increased household consumption off the back of growing levels of household debt

  • Job creation in services is concentrated in low-skill, insecure work, often outsourced 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.

  • The top five JSE-controlling groups' share of market capitalisation fell sharply between 1985 and 2001-03, with Anglo American's share dropping from 53.6% to 23.3%. (p. 21)

    Top 5 gps collectively 82.3 83.9 85.9 70.6 53.6

  • Anglo American unbundled its South African manufacturing, becoming a global mining company no longer part of domestic industrial deepening. (p. 23)

    The unbundling of its South African manufacturing companies meant that a company with the huge wealth and resources of Anglo American, a giant of the South African economy, was no longer involved in South African manufacturing

  • Offshore-listed corporations took capital out of South Africa and reinvested little, and the state lost influence over them. (p. 22)

    these companies have taken capital from South Africa but reinvested relatively little back into South Africa (Roberts and Machaka, 2004).

  • Government did not require big business to account for complicity in apartheid or compensate its victims. (p. 24)

  • Foreign institutional investors dominate ownership of the main gold miners. (p. 26)

    Institutional investors own more than half of Anglogold Ashanti’s shares. About three-quarter of these institutional investors are not South African.

  • Profit remittances on FDI rose strongly after offshore listings began, while domestic corporate savings were volatile with a negative trend. (p. 25)

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