Aug 24, 2012
‘Financialisation’ of SA undermines fixed investment, job creationBack
Agriculture|Africa|Aggregate|Finance|Industrial|Mining|Paper|Africa|South Africa|Bank Deposits|Equipment|Gross Domestic Product|Manufacturing|Infrastructure|Nimrod Zalk|Samantha Ashman|Susan Newman
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
To subscribe email firstname.lastname@example.org or click here
To advertise email email@example.com or click here
Other Construction News
Investment holding company RMB Holdings (RMH) plans to create a property investment business and is acquiring a 25.01% interest in property group Atterbury. The only remaining outstanding condition to the acquisition was approval by the competition authorities.
Updated 4 hours ago A new World Bank report warns that some regions of the world, including parts of Africa, could see their growth rates decline by as much as 6% by 2050 as a result of water-related losses, with water scarcity also exacerbated by climate change. Titled ‘High and Dry:...
Recent Research Reports
Automotive 2016: A review of South Africa's automotive sector (PDF Report)
Creamer Media’s Automotive 2016 Report provides an overview of South Africa’s automotive industry over the past 12 months. The report provides insight into local demand and production, vehicle imports and exports, investment and competitiveness in the sector, as well...
Energy Roundup – April 2016 (PDF Report)
The April 2016 roundup covers activities across South Africa for March 2016 and includes details of a North Gauteng High Court Judge’s dismissal of a court application to postpone the 9.4% electricity tariff increase, which the National Energy Regulator of South...
Electricity 2016: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2016 report provides an overview of South Africa’s electricity sector, focusing on State-owned power utility Eskom and independent power producers, electricity planning, transmission, distribution and the theft thereof, besides other issues.
Energy Roundup – March 2016 (PDF Report)
The March 2016 roundup covers activities across South Africa for February 2016 and includes details of the Department of Energy’s plans to announce the preferred bidders for the first tranche of the coal independent power producer procurement programme; the Council...
Steel 2016: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2016 Report examines South Africa’s steel industry over the past 12 months. The report provides insight into the global steel market and and particularly into South South Africa’s steel sector, including production and consumption, main...
Construction 2016: A review of South Africa's construction industry (PDF Report)
Creamer Media’s Construction 2016 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; key participants; local demand; geographic diversification; corporate activity; black economic...
This Week's Magazine
The two spent-fuel pools at Eskom’s 1 800 MW Koeberg nuclear power station, in the Western Cape, will be full by 2018, increasing the urgency on the State-owned utility to begin pursuing alternative storage options. Koeberg has, over the past 32 years, accumulated a...
South Africa lacks the skills necessary to implement the government’s plan to build 9.6 GWe of new nuclear energy capacity, warns nuclear-qualified Quality Strategies International CEO David Crawford. “Apart from the concern about the affordability of the programme,...
Cybersecurity multinational Check Point has released its latest 700-series cybersecurity systems for small businesses, which draw on its international threat intelligence to provide up-to-date cybersecurity, says Check Point South Africa country manager Doros...
Daimler Trucks and Buses Southern Africa (DTBSA) saw a marked slip in new-vehicle sales in 2015 compared with 2014, with sales dropping from 5 897 units to 5 300 units. The decline came as the South African new truck and bus market declined from 31 558 units in 2014...
Group of 20 (G-20) economies threatened to penalise havens that don’t share information on their banking clients after the leak of the Panama Papers provoked a global uproar over tax evasion. The G-20 will consider “defensive measures” against financial centers and...