impact of financial liberalisation on south africa seeraj mohamed ideas conference chennai, 25...
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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 socio-
economic 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 short-
term capital flows
Net Capital flows (percentage of GDP)
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Net FDI NetPortfolio Net Other
Credit extension and investment as percentages of GDP
0%10%20%30%40%50%60%70%80%90%
100%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Total fixed capital formationPrivate business enterprises Fixed capital formationTotal domestic credit extension percentage of GDPTotal credit extended to domestic private sector as percentage of GDP
Credit extension to Private sector increased about 22% from 2000-08 BUT Private business investment increased by only 5%
Growth in household consumptionComponents of GDP (real 2000 prices, Rmillions), Source SARB
-200000
0
200000
400000
600000
800000
1000000
Household consumption Government consumption
Gross capital formation (Investment) Exports less imports
Household debt to disposable income of households - Ratio
50
55
60
65
70
75
80
Net capital formation by sector
-20000
0
20000
40000
60000
80000
100000
120000
140000
Foreig
n
secto
r
Oth
er
moneta
ry
institu
tions
Pu
blic
Investm
ent
Corporation
Insurers a
nd
retirem
ent
funds
Oth
er
financia
l
institu
tions
General
govern
ment
Corporate
busin
ess
ente
rpris
es
Household
s
R m
illi
on
s
1993 1995 1997 1999 2001 2003 2005 2007
Net acquisition of financial assets by sector
-50000
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
Fore
ign
secto
r
Oth
er
mo
ne
tary
institu
tions
Pub
lic
Investm
en
t
Co
rpora
tion
Insure
rs a
nd
retire
ment
funds
Oth
er
financia
l
institu
tions
Gene
ral
govern
ment
Co
rpora
te
busin
ess
ente
rprises
Ho
useh
old
s
R m
illi
on
s
1993 1995 1997 1999 2001 2003 2005 2007
-50000
0
50000
100000
150000
200000
250000
300000
350000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sources and uses of capital in coporate business enterprises
Net savings
Gross capital formation
Net acquisition of financial assets
Net capital formation (gross capital formation - deprecaiation)
Derivative market - futures contracts : Underlying value (in R billions, current prices)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Increased use of derivatives: increase financial systemic risks in SA
Allocation of capital by private sector: - mostly for credit cards, car finance &mortgages; - mostly for short-term and collaterised debt
Investments
Bills discounted
Installment-sale credit
Leasing finance
Mortgage advances
Other loans and advances
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
% o
f To
tal c
red
it e
xte
nd
ed to
the
priva
te s
ecto
r
Private Sector Credit Extension by all Monetary Institutions
Other loans and advances
Mortgage advances
Leasing finance
Installment-sale credit
Bills discounted
Investments
And, even fixed investment is misallocated
General government services
20%
Business services14%
Finance and insurance
13%
Communication10%
Transport and storage
10%
Wholesale and retail trade10%
Electricity, gas and steam
9%
Other mining 8%
Agriculture, forestry and fishing
3%
Coal mining3%
2008 Top 10 Sectors by Investment (as a % of the total investment)
2006 Top 10 sectors by investment (as a % of total investment)
Wholesale& retail trade
7%
Communication8%
Transport &
storage 8%
Finance &
insurance11%
General government services 12%
Business services 14%Other
mining 4%
Electricity, gas&steam, 4%
Coke & refined petroleum products, 3%
Motor vehicles, parts & accessories, 3%
Change in capital stock from 2000 to 2006 for all economic sectors (Real 2000prices, Rmillions, Source: Quantec)
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
Services Employment
-
20,000
40,000
60,000
80,000
100,000
120,000
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Employment in Services
Wholesale And Retal Trade Catering and Accommodation Transport and Storage
Finance and Insurance Business service Communication (RHS)
Manufacturing EmploymentManufacturing employment 1990-2008
0
50000
100000
150000
200000
250000
300000
350000
400000A1210: Food, beverages and tobacco [301-306]
A1211: Textiles, clothing and leather [311-317]
A1212: Wood and paper; publishing andprinting [321-326]
A1213: Petroleum products, chemicals,rubber and plastic [331-338]
A1214: Other non-metallic mineral products[341-342]
A1215: Metals, metal products, machineryand equipment [351-359]
A1216: Electrical machinery and apparatus[361-366]
A1217: Radio, TV, instruments, watches andclocks [371-376]
A1218: Transport equipment [381-387]
A1219: Furniture and other manufacturing[391-392]
Dependence on MEC sectors intensifies from 1990s
Chart: Value added, 1970-2007 (Source: Quantec)