Transcript Slide 1

Financialisation of the South
African economy: impact on
the economic growth path and
employment
Sam Ashman, Seeraj Mohamed,
Susan Newman
Corporate Strategy and Industrial Development Research Programme
School of Economic and Business Sciences
University of the Witwatersrand
Background
4 Periods of global financial systems
– 1873 - 1914 (gold standard and global trade
stability);
– 1918 - 1939 (interwar period, including Great
Depression)
– 1945 - late-1970s (Bretton-Woods and Golden
Age – embedded liberalism, capital controls and
tight financial regulation, global trade stability);
– Late-1970s to present (liberalisation, neoliberalism and global financialization – instability
in trade and financial markets, global financial
crises)
A short history of financial markets
• There have been different forms of global financial
architecture and regulation over time
• The history of financial markets is not an evolution towards
free markets
• The globalisation of financial markets did not occur because
of improvements in information technology
• The role of the state in financial markets during the neoliberal era has not decreased it has changed from
regulation to stop crises to bail outs after crises
• There is a close relationship between financialisation, the
increasing power and growth of finance, and the
development of neo-liberalism/Washington Consensus
• Shift from industrial capitalism to finance capitalism
Financialisation in South Africa:
Implications
• Financialisation reshaped the South African economic growth
path over the past two decades
• Finance was directed to finance and consumption and the
sectors with strong linkages to these activities
• This economic growth path is not sustainable
• Limits are the size of bubbles in real estate and financial
asset markets and debt for consumption
• The global financial crisis provided these constraints resulting
in huge job losses
• Large-scale legal and illicit capital outflows created more
reliance on short-term volatile inflows
SA’s financial sector in global context
Financial depth: Liquid liabilities as a ratio of GDP
Deposit money bank assets as a percentage of GDP
Ratio of stock market capitalisation to GDP
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
Median for upper middle income countries
South Africa
Median for high income countries
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1960
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Other financial institution assets as a ratio of GDP
120%
3.5
100%
3
80%
2.5
60%
2
40%
1.5
20%
1
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
0%
0.5
0
1977
1982
1987
1992
1997
2002
2007
(Based on data from Beck and Demirgüç-Kunt 2009)
Financialisation: Impact on Households
• Households on average saving for the future
through the acquisition of financial assets
• BUT without forgoing current consumption which is
financed by debt.
• However, the aggregate story on shifting savings
and investment behaviour of households with
financialisation is a story of a wealthy minority
– Increasing incomes from dividends and interest
payments to richest has driven worsening income
inequality since 1994
– The financialisation leaves the majority of the population
facing more precarious lives
Credit extended by all monetary
institutions to the domestic private sector
100%
90%
OTHER LOANS AND
ADVANCES
80%
70%
60%
50%
MORTGAGE
ADVANCES
40%
30%
LEASING FINANCE
20%
INSTALMENT SALE
CREDIT
BILLS DISCOUNTED
10%
INVESTMENTS
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
0%
ABSA House Price Index
450
400
350
300
250
200
150
100
50
0
Large
Medium
Small
Household savings to disposable income
14
12
10
8
6
4
2
0
197019721974197619781980198219841986198819901992199419961998200020022004200620082010
-2
Ratio of household savings to disposible income
Distribution of Household Assets
100%
Non-financial assets: other
90%
Non-financial assets:
Residential buildings
70%
Financial assets: other
financial assets
60%
50%
40%
Financial assets: Interest in
pension funds and long-term
insurers
30%
20%
10%
Financial assets: bank
deposits
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
0%
1975
Percentage of total household assets
80%
Distribution of household assets by wealth
percentile
100%
3%
2%
6%
2%
90%
2%
8%
8%
1%
3%
16%
22%
80%
5%
70%
41%
25%
2%
11%
7%
61%
60%
Livestock
19%
Pension/Retirement Annuity
81%
31%
50%
Financial
46%
40%
Business
21%
Real Estate
29%
30%
12%
20%
10%
35%
4%
29%
20%
19%
20%
P75
P95
10%
0%
P10
P25
P50
Vehicles
Mean
(Based on data from Daniels, Finn and Musundwa 2012)
Implications: NFCs
• Since 1994 the composition of financial acquisitions shifts
from lending to other sectors and money assets to
greater diversification across a variety of financial assets,
notably the acquisition of ordinary shares, fixed interest
securities and other assets
• The asset side of the non-financial corporate balance
sheet has shifted towards increasingly short-term assets
• This increased acquisition of financial assets has been
financed through the expansion of credit
• The maturity mismatch between assets and liabilities is
not conducive to long-term productive investments which
drive capital accumulation
• Consequently, we have seen the financing of the
acquisition of (largely short-term) financial assets rather
than fixed capital
Financial assets as a percentage of fixed capital stock for
non-financial corporations in South Africa: 1970-2010
300%
250%
200%
150%
100%
50%
Authors’ calculations based on flow-of-funds tables compiled by SARB 2011
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
0%
Amounts receivable as a percentage of internal funds for
non-financial corporations in South Africa: 1970-2010
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
Authors’ calculations based on flow-of-funds tables compiled by SARB 2011
Annual financing gap, external financing and the difference
between the two for the non-financial corporate businesses
300000
250000
R millions (2005 prices)
200000
150000
100000
50000
0
-50000
-100000
Financing Gap
External financing
Difference between external finance and financing gap
Flow-of-funds tables, SARB 2011
Acquisition of financial assets by non-financial
corporations by asset type
200000
R millions (2005 prices)
150000
100000
50000
0
-50000
-100000
Cash/money
Fixed interest securities
Other assets
Lending to other sectors
Ordinary shares
Net acquisition of financial assets
Flow-of-funds tables, SARB 2011
Sources of external financing by non-financial corporations
250000
200000
R millions (2005 prices)
150000
100000
50000
0
-50000
-100000
-150000
Credit
Fixed interest securities
Ordinary shares
Flow-of-funds tables, SARB 2011
Other liabilities
Implications: Saving & Investment
• Contrary to the view that South Africans do not save
enough we show that gross domestic savings has
stagnated since 2002 with an increase in gross savings
being driven by capital inflows from the rest of the
world attracted by high interest rates, healthy returns
on South African capital markets
• Low domestic savings is due to poverty and inequality
• The financial sector attracts short-term and speculative
rather than long-term productive capital
• These short-term inflows finance a large current
account deficit and maintain the overall balance of
payments, but this is at the expense of productive
investment and employment creation
Restructuring of NFCs
• Most powerful corporations have used their corporate power
to maintain their dominance over the South African economy
while internationalising their operations.
• Their global context is one where competition is much harder
• Harsh competition has driven a process of increased global
• Concentration across most economic sectors and global value
chains
• Within this new context, the lines of authority within global
value chains and between the shareholder value movement
and corporate management are stricter
• As a result, the large South African corporations that have
internationalised have used their power in South Africa to
maintain high levels of economic rents to support their
operations in more cut throat international markets and
unfriendly value chains
Financialisation of commodities markets
• Financialisation of commodities markets mean that
fundamentals in real economy are increasingly
delinked from price formation and market
conditions for minerals products
• SA increased dependence on the mining and
minerals industry in the era of financialisation
• There is strong risk of negative consequences
associated with financial crises and contagion and
the possibility of even more destabilising bubbles
and crashes.
• The environment leads to increased uncertainty and
more difficulty for planning investment and
increasing employment in mining
Labour markets and productivity
• Impact of corporate restructuring and financialisation
on employment has been negative
• The changes have led to increasingly precarious
employment in non-productive services
• We have to challenge mainstream economists wrt the
direction of causation of low skills and productivity
– De-industrialisation causes lower productivity
– There has been lower productivity as a result not of poor
training and skills but because of
– Poor pay, casualisation and outsourcing, less training and
increasing unemployment have a negative impact on
productivity
200
0
-50
A1343: General government services [99]
A1321: Transport and storage [71-74]
A1221: Electricity, gas and steam [41]
A1332: Business services [83-88]
A1331: Finance and insurance [81-82]
A1322: Communication [75]
A1222: Water supply [42]
A1311: Wholesale and retail trade [61-63]
A13411: Medical, dental and veterinary services…
A12132: Basic chemicals [334]
A13412: Excluding medical, dental and veterinary…
A1232: Civil engineering and other construction…
A12142: Non-metallic minerals [342]
A12133: Other chemicals and man-made fibers…
A12131: Coke and refined petroleum products…
A1231: Building construction [51]
A12154: Machinery and equipment [356-359]
A12101: Food [301-304]
A12181: Motor vehicles, parts and accessories…
A12123: Printing, publishing and recorded media…
A1312: Catering and accommodation services [64]
A12193: Other manufacturing [392-393]
A12141: Glass and glass products [341]
A1342: Other producers [98]
A12122: Paper and paper products [323]
A12102: Beverages [305]
A12134: Rubber products [337]
A12121: Wood and wood products [321-322]
A12191: Furniture [391]
A12172: Professional and scientific equipment…
A12114: Footwear [317]
A12113: Leather and leather products [316]
A12135: Plastic products [338]
A12171: Television, radio and communication…
A12103: Tobacco [306]
A12112: Wearing apparel [313-315]
A1216: Electrical machinery and apparatus [361-…
A12182: Other transport equipment [384-387]
A12153: Metal products excluding machinery…
A12111: Textiles [311-312]
A12152: Basic non-ferrous metals [352]
A12151: Basic iron and steel [351]
250
Change in Capital stock from 2002 to 2012 for all economic sectors
(Real 2005 prices, Rbillion, source: Quantec)
150
100
50
0
-20000
-40000
-60000
-80000
-100000
A12101: Food [301-304]
A12142: Non-metallic minerals [342]
A12112: Wearing apparel [313-315]
A12111: Textiles [311-312]
A12151: Basic iron and steel [351]
A12114: Footwear [317]
A1216: Electrical machinery and apparatus…
A12153: Metal products excluding machinery…
A12102: Beverages [305]
A12193: Other manufacturing [392-393]
A12134: Rubber products [337]
A12132: Basic chemicals [334]
A12135: Plastic products [338]
A12191: Furniture [391]
A12133: Other chemicals and man-made fibers…
A12171: Television, radio and communication…
A12182: Other transport equipment [384-387]
A12113: Leather and leather products [316]
A12141: Glass and glass products [341]
A12152: Basic non-ferrous metals [352]
A12121: Wood and wood products [321-322]
A12103: Tobacco [306]
A12172: Professional and scientific equipment…
A12122: Paper and paper products [323]
A12131: Coke and refined petroleum products…
A12123: Printing, publishing and recorded…
A12181: Motor vehicles, parts and accessories…
A12154: Machinery and equipment [356-359]
Change in manufacturing employment from 2000-2012
40000
20000
Manufacturing employment (Source: Quantec)
400000
Food, beverages and
tobacco
350000
Textiles, clothing and
leather
300000
Wood, paper, publishing
and printing
Petroleum products,
chemicals, rubber and
plastic
Other non-metallic
mineral products
250000
200000
Metals, metal products,
machinery and equipment
150000
Electrical machinery and
apparatus
100000
Radio, Tv, instruments,
watches and clocks
50000
Transport equipment
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Furniture and other
manufacturing
Services employment (Source: Quantec)
3500000
Wholesale
and retail
trade
3000000
2500000
Catering and
accommodat
ion services
2000000
Transport
and storage
Communicati
on
1500000
1000000
Finance and
insurance
500000
Business
services
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0