Impact of financial liberalisation on South Africa Seeraj Mohamed IDEAS Conference
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Impact of financial liberalisation on South Africa Seeraj Mohamed IDEAS Conference Chennai, 25 January 2010 Introduction • Democracy provided opportunity for addressing legacy of apartheid & weak industrial structure dominated by mining and minerals industry • Inadequate regulation of finance has – Obstructed government’s attempts to redress socioeconomic problems inherited from apartheid past – Led to massive misallocation of capital – Supported deindustrialisation and made the economy more dependent on mining & minerals – Supported the ‘wrong’ type of growth based on speculation and debt-driven consumption – Increased financial fragility and dependence on shortterm capital flows Net Capital flows (percentage of GDP) 10% 8% 6% 4% 2% -4% -6% -8% Net FDI NetPortfolio Net Other 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 -2% 1990 0% Credit extension to Private sector increased about 22% from 2000-08 BUT Private business investment increased by only 5% Credit extension and investment as percentages of GDP Total fixed capital formation Private business enterprises Fixed capital formation Total domestic credit extension percentage of GDP Total credit extended to domestic private sector as percentage of GDP 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Growth in household consumption Components of GDP (real 2000 prices, Rmillions), Source SARB 1000000 800000 600000 400000 200000 -200000 Household consumption Government consumption Gross capital formation (Investment) Exports less imports 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 0 2Q2009 1Q2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 80 Household debt to disposable income of households - Ratio 75 70 65 60 55 50 -50000 1993 1995 1997 1999 2001 2003 2003 2005 2005 2007 Households 2001 Corporate business enterprises 1999 General government 1997 Other financial institutions 1995 Insurers and retirement funds 1993 Public Investment Corporation Other monetary institutions Households Corporate business enterprises General government Other financial institutions Insurers and retirement funds Public Investment Corporation Other monetary institutions Foreign sector -20000 Foreign sector R millions R millions 140000 Net capital formation by sector 120000 100000 80000 60000 40000 20000 0 2007 Net acquisition of financial assets by sector 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 Sources and uses of capital in coporate business enterprises 350000 300000 Net savings 250000 Gross capital formation 200000 Net acquisition of financial assets 150000 100000 Net capital formation (gross capital formation - deprecaiation) 50000 -50000 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 0 Increased use of derivatives: increase financial systemic risks in SA Derivative market - futures contracts : Underlying value (in R billions, current prices) 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 0 Allocation of capital by private sector: - mostly for credit cards, car finance &mortgages; - mostly for short-term and collaterised debt Private Sector Credit Extension by all Monetary Institutions 100% Other loans and advances 80% Other loans and advances Mortgage advances 70% 60% Leasing finance 50% 40% Mortgage advances Installmentsale credit 30% Bills discounted Leasing finance 20% Installment-sale credit 10% Bills discounted Investments 2008 2007 2006 2005 2004 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 2003 Investments 0% 1990 % of Total credit extended to the private sector 90% And, even fixed investment is misallocated 2006 Top 10 sectors by investment (as a % of total investment) Coke & refined petroleum products, 3% Motor vehicles, parts & accessories, 3% 2008 Top 10 Sectors by Investment (as a % of the total investment) Agriculture, forestry and fishing 3% Coal mining 3% Electricity, gas&steam, 4% Business services 14% Other mining 4% Wholesale & retail trade 7% Electricity, gas and steam 9% General government services 12% Finance & insurance 11% Communication 8% Transport & storage 8% Other mining 8% General government services 20% Wholesale and retail trade 10% Transport and storage 10% Communication 10% Business services 14% Finance and insurance 13% -10000 -20000 -30000 Co al minin g Basic iron and steel Gold and uranium ore minin g Beverages Food Ag ricult ure, forest ry and fishin g Textiles Co ke an d ref ined pet roleum pro du cts Printing , pu blishin g an d record ed media Wearing ap parel Basic non-ferrous me tals Other transpo rt equ ipm ent Furnitur e Ru bb er pro du cts Electrical mach inery an d app aratus Footwear Tobacco No n-metallic min erals sio n, radio an d co mm un ication equ ipm ent Leather an d leather pro du cts Metal products exclud ing mach inery Plastic pro du cts Other pro du cers Glass and glass produ cts Professio nal and sci en tific equipmen t Wo od and wo od pro du cts Water sup ply Paper and pap er pro ducts Machiner y an d equ ipm ent Basic ch em icals Motor veh icles, par ts an d accessories Medical, dental an d vet erinary services Other manu factur ing g medical, den tal and vet erinary ser vices Bu ilding con str uct ion Civil en gin eer ing and other constructio n Electricity, gas and ste am Other ch em icals and man-m ade fib ers Cater ing and accommo dat ion services Co mm un ication Wh olesale and ret ail trade Transp ort an d storag e Other minin g Bu sin ess services Gener al governmen t services Fin ance and insurance Change in capital stock from 2000 to 2006 for all economic sectors (Real 2000prices, Rmillions, Source: Quantec) 50000 40000 30000 20000 10000 0 Services Employment Employment in Services 3,000,000 120,000 2,500,000 100,000 2,000,000 80,000 1,500,000 60,000 1,000,000 40,000 500,000 20,000 Wholesale And Retal Trade Finance and Insurance Catering and Accommodation Business service 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 - 1991 - Transport and Storage Communication (RHS) Manufacturing Employment Manufacturing employment 1990-2008 400000 A1210: Food, beverages and tobacco [301306] 350000 A1211: Textiles, clothing and leather [311317] 300000 A1212: Wood and paper; publishing and printing [321-326] A1213: Petroleum products, chemicals, rubber and plastic [331-338] 250000 A1214: Other non-metallic mineral products [341-342] 200000 A1215: Metals, metal products, machinery and equipment [351-359] 150000 A1216: Electrical machinery and apparatus [361-366] A1217: Radio, TV, instruments, watches and clocks [371-376] 100000 A1218: Transport equipment [381-387] 50000 A1219: Furniture and other manufacturing [391-392] 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 0 Dependence on MEC sectors intensifies from 1990s Chart: Value added, 1970-2007 (Source: Quantec)
