Aug 24, 2012
‘Financialisation’ of SA undermines fixed investment, job creationBack
Agriculture|Africa|Aggregate|Industrial|Mining|Africa|South Africa|Bank Deposits|Equipment|Gross Domestic Product|Manufacturing|Infrastructure|Nimrod Zalk|Samantha Ashman|Susan Newman
© Reuse this
In a paper, entitled 'Finance, Financialisation and Accumulation', Dr Samantha Ashman and Dr Susan Newman argue that there has been rapid and disproportionate growth in South Africa’s financial sector, which currently represents about 20% of gross domestic product (GDP).
Their empirical analysis, which is based primarily on South African Reserve Bank data, asserts that “financialisation of nonfinancial corporations” has directly reduced the amount of funds available for “real investment”. In other words, instead of investing in new plant, equipment and people, companies have invested in high-return intangible assets, such as fixed-interest securities, shares, bank deposits and bonds.
“Fixed capital investments remain low and, while they are higher than during the period from 1985 to 1993, they are lower than levels of capital investment in the period from 1970 and 1974,” the authors argue.
Presenting their findings at a gathering organised by the Department of Trade and Industry (DTI), the authors urged government to consider a “joined up” approach to monetary, fiscal and industrial policy formulation and implementation that supported and encouraged investment into fixed capital rather than financial assets.
The material increase in investments into financial assets by nonfinancial corporations has served to entrench South Africa's structural unemployment problem and has been reinforced by policies aimed at liberalising the country’s trade and capital accounts and allowing South African companies to pursue off-shore listings.
South Africa has also sustained relatively high interest rates by international standards, which together with external factors, has also served to strengthen the rand, which had undermined the competitiveness of the productive sectors.
In its latest Staff Report for the 2012 Article IV consultation with South Africa, the International Monetary Fund (IMF) noted that the degree of rand overvaluation had moderated in 2012, with the unit having depreciated 7% in real effective terms by April. Nevertheless the IMF estimated that the rand was overvalued in real effective terms by between 5% and 15% in March 2012.
The DTI’s Nimrod Zalk says the paper indicates that there is a need to “go back to basics” with regards to the role that the financial sector plays in the economy. He argues that its role should be to aggregate savings and allocate these efficiently to productive investments.
Government is keen to see fixed investment levels increased well beyond the historical levels of around 15%, to above 25% – a level seen as critical to spurring higher, labour-absorbing growth rates.
Meanwhile, the newly released National Development Plan 2030 views infrastructure developments as key to lifting investment in agriculture, manufacturing and mining, but warns that lifting fixed investment to 30% of GDP will be a gradual process. It adds, though, that it will be critical for public infrastructure to be sustained at 10% of GDP and for this to be financed through tariffs, public-private partnerships, taxes and loans.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Economy News
International consulting engineering company Royal HaskoningDHV (RHDHV) has appointed Salani Sithole as South African MD, effective March 1. Sithole has been with the company for six years and, prior to joining RHDHV, held various positions in engineering consulting,...
Recent Research Reports
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
This Week's Magazine
National flag carrier South African Airways (SAA) is in an advanced stage of renegotiating its deal with European airliner manufacturer Airbus to acquire A320 single-aisle (or narrow body) aircraft. The aim is to replace ten of the aircraft still on order with five...
Worldwide, the main thrust in the ports industry over the past decade or more has been to increase efficiency. Traditionally, ports have been run by engineers and mariners and, in the past, increasing a port’s capacity was achieved by expanding the harbour. “That has...
What do you do when an elephant has a toothache? You call Dr Gerhard Steenkamp from the University of Pretoria’s (UP’s) faculty of veterinary science, Onderstepoort, one of only two elephant ‘dentists’ in the world.
The 2015 Sanlam/Business Partners Entrepreneur of the Year (EOY) competition was launched earlier this month in Johannesburg, with the main focus on creating and inspiring entrepreneurs to create jobs and boost the economy.
In a recent letter to the editor that I sent to Engineering News (Concerns regarding South African portion of Square Kilometre Array) and in a follow-up article elaborating further (We must start preparations to build our own synchrotron light source), I stated my...