In­vest­ment pat­terns need to shift con­trol

The Star Early Edition - - OPINION & ANALYSIS - Thando Vi­lakazi

THE COUN­TRY’S main­stream de­bate has cen­tred on monopoly cap­i­tal and rad­i­cal eco­nomic trans­for­ma­tion as a way to ad­dress skewed own­er­ship and con­trol of the South African econ­omy. Yet be­yond the rhetoric, we need to un­der­stand the own­er­ship and con­trol struc­tures of some of South Africa’s big­gest com­pa­nies and whether their de­ci­sions and in­vest­ment pat­terns are able to shift the development path of the coun­try.

When look­ing at the Top 50 JSE listed firms in our lat­est research, it be­comes ev­i­dent that key sec­tors of the econ­omy re­main highly con­cen­trated, and in fact, con­tinue to con­sol­i­date.

Com­pa­nies such as Rem­gro, for ex­am­ple, show that the di­ver­si­fied in­vest­ment group con­trols at least R1.3 tril­lion worth of as­sets in South Africa. There has also been lit­tle change in the make-up of the Top 20 listed firms – with 12 still re­main­ing in the top 20 ranks by mar­ket cap­i­tal­i­sa­tion since 2000. Dur­ing the pe­riod 2011-2016, the Top 50 listed com­pa­nies were not in­vest­ing lo­cally as much as they could be.

The Cen­tre for Com­pe­ti­tion, Reg­u­la­tion and Eco­nomic Development research also showed that 61 per­cent of the to­tal value of merger and ac­qui­si­tions took place out­side of South Africa be­tween 2005 and 2016. And those com­pa­nies that are in­vest­ing are choos­ing to in­vest in cap­i­tal re­place­ment and main­te­nance, rather than ex­pan­sion.

SA’s gross fixed cap­i­tal for­ma­tion, a mea­sure of in­vest­ment in pro­duc­tive ca­pac­ity, is sit­ting at about 10 per­cent of gross do­mes­tic prod­uct – com­pared to 15 to 20 per­cent in coun­tries such as Thai­land, Brazil, Rus­sia and Malaysia. Of course, there are var­i­ous rea­sons for this – in­clud­ing po­lit­i­cal un­cer­tainty and low re­turns rel­a­tive to other coun­tries. But it is ev­i­dent that the gov­ern­ment needs to de­sign an in­dus­trial pol­icy that will en­cour­age firms to in­vest in lo­cal pro­duc­tive ca­pac­ity if sus­tain­able growth is to be the out­come.

Busi­ness also needs to ac­knowl­edge its roles and re­spon­si­bil­i­ties more hon­estly. There have, for ex­am­ple, been nu­mer­ous car­tel in­ves­ti­ga­tions into a num­ber of sec­tors among food pro­duc­ers, show­ing that dom­i­nant firms con­tinue to use their in­flu­ence to keep bar­ri­ers high for new en­trants.

Black in­dus­tri­al­ists

To ad­dress this and ef­fect struc­tural trans­for­ma­tion of the econ­omy, the Depart­ment of Trade and In­dus­try needs to be cre­ative about iden­ti­fy­ing and sup­port­ing pock­ets of ex­cel­lence. This also im­plies more in­ten­sive ef­forts in de­vel­op­ing new black in­dus­tri­al­ists that can grow to com­pete ef­fec­tively in the econ­omy. Cre­at­ing a level play­ing field through prac­ti­cal pol­icy mak­ing is one way to get new sup­pli­ers into the sys­tem.

In the food re­tail sec­tor, for ex­am­ple, the gov­ern­ment could in­tro­duce lo­cal sup­ply chain reg­u­la­tions that re­quire su­per­mar­kets to in­clude a cer­tain per­cent­age of lo­cally pro­duced goods on their shelves. Also in re­tail, ex­clu­sive agree­ments in malls have served to keep out en­trepreneurs in favour of estab­lished listed re­tailer groups.

In­ter­est­ing to note is that 23 of the Top 50 listed firms are cross-listed on other bourses. While this is a vote of con­fi­dence in the fi­nan­cial sta­bil­ity of a mar­ket such as SA, many of the listed prop­erty groups in the Top 50, for ex­am­ple, do not have sig­nif­i­cant op­er­a­tions in the coun­try and do not ar­tic­u­late any fu­ture in­vest­ment plans in South Africa. As such, fi­nan­cial mar­kets in South Africa are used as a source of cap­i­tal to fi­nance in­vest­ment in other coun­tries. Many of the largest firms are also highly in­ter­na­tion­alised, with lim­ited do­mes­tic op­er­a­tions.

The de­bate should there­fore be that black South Africans should own and op­er­ate en­ter­prises which con­trib­ute to in­vest­ment, in­dus­trial development and em­ploy­ment do­mes­ti­cally.

De­pend­ing on the data used, up to 23 per­cent of the JSE is owned by black South Africans, but it is not just about trans­form­ing the own­er­ship of JSE listed com­pa­nies where trans­for­ma­tion mat­ters. It is about new en­trants on to the JSE – black owned com­pa­nies that should be em­pow­ered to grow and ri­val firms al­ready in the Top 50.

It also means iden­ti­fy­ing po­ten­tial black in­dus­tri­al­ists and help­ing them to over­come the very high bar­ri­ers to en­try in cer­tain in­dus­tries. Thando Vi­lakazi is a lead re­searcher at the Cen­tre for Com­pe­ti­tion, Reg­u­la­tion and Eco­nomic Development at the Univer­sity of Jo­han­nes­burg.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.