Investment patterns need to shift control
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.
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.