Category: SA Economy

An extraordinary week has passed. When the government ordered and prepared for a shut-down of much (how much??) economic activity to deal with the health crisis. All, including the participants in capital markets, have tried to come to terms with the evolving realities at home and abroad. And it was a week when the SA Reserve Bank moved from conventional to unconventional monetary policy.

The Bank at its monetary policy proceedings on the 17^th March reported in an explicitly conventional way. It cut its key repo rate by an unusually large 100bp- on an improved inflation outlook. By the 25^th March it was practicing Quantitative Easing (QE) buying RSA bonds in the market to reduce “…excessive volatility in the prices of government bonds…”  and freely  providing loans to the banks of up to 12 months.

The Bank is therefore creating money of its own volition. Cash reserves, that is deposits of the private banks with the Reserve Bank, are created automatically when the Reserve Bank buys government bonds and shorter-term from the banks or its customers. These deposits serve as money – and are created without any cost to the issuer- the central bank- acting as the agent of the government. These additional cash reserves support the balance sheets of the banks. And could lead to extra lending by them, as is the intention

Had the Reserve Bank not acted as it did, the bond market would surely have remained volatile. But more importantly it might not have been able to absorb a deluge of bonds and bills that the government would be issuing to fund its emergency spending. Including coping with a draw-down of R30b of bonds sold by the Unemployment Insurance Fund to generate cash for the government to spend on income relief.

The yield on the 10 year RSA was about 9% p.a. in early March. By March 24^th it was over 12% p.a. and declined marginally in response to the Reserve Bank intervention. The derating of SA credit by Moody’s on the Friday evening, after the market had closed, seemed inevitable in the circumstances. On the Monday morning the yields on long dated RSA bonds jumped higher on the opening of the market and then receded and ended as they were at the close on Friday (see figures below)

RSA Five and Ten-Year Bond Yields Daily Data 2020 to March 27th

Source; Bloomberg and Investec Wealth and Investment

RSA 10 year Bond yield 26 -30 March Intra day movements

Central banks all over the world are also doing money creation – in very great quantities. Doing so as a predictable response to their own lock downs and collapse of economic activity and its threats to financial stability. But in the developed world they deal for bonds and other securities at much lower interest rates. Though no doubt the scale of their bond and other asset buying programmes (QE) is part of the explanation for very low yields – both short and long. Yet despite money creation on a vast scale more inflation is not expected in the developed world.

Not so in SA as we have indicated and in many other emerging markets. Issuing longer dated government bonds in their own currencies is a very expensive exercise. And has become more expensive post Corona.

Lenders to emerging market governments, in their own currencies, demand compensation for high rates of inflation expected, and receive compensation for the inflation risks There is always the chance that the purchasing power of interest income contracted for, and the real value of the debt when repaid, will be eroded by inflation of the local currency.

The danger is that fiscally strained governments will, sometime in the future, yield to the temptation to inflate their way out of the constraints imposed by bond investors.  By turning to their central banks, to fund their spending to a lesser or greater degree, rather than to an ever more demanding bond market.  Issuing money (creating deposits) at the central bank to finance spending carries no interest cost. It can be highly inflationary depending on how much money is created and how quickly the banks use the extra cash to extend loans to their customers.

The growing risk that SA would get itself into a debt trap and create money to get out of it has been the major force driving long-term RSA yields on RSA debt higher in recent years. Higher both absolutely and relative to interest rates in the developed world. Bond yields have risen for fear that SA would create money for the government to spend in response to ever growing budget deficits and borrowing requirements and a fast-growing interest bill. As the SA government has now done with the co-operation of the Reserve Bank- though in truly exceptional circumstances and justifiably so.

Avoiding the debt trap, controlling budget deficits and convincing investors and credit rating agencies that the country can fund its spending over the long term without resort to money creation, is the task of fiscal policy. For SA to regain a reputation for fiscal conservatism and an investment grade credit rating is now more unlikely than it was when a promising realistic Budget was presented in February.

The Reserve Bank may hope to control domestic spending and so inflation through its interest rate settings.  It does not however control inflation expected and so the interest rates established in the bond market. The more inflation expected the higher will be interest rates. Expected inflation over the long run is dependent in part on the expected fiscal trends and the likelihood of a resort to money creation. And these fiscal trends, thanks to Corona virus, have deteriorated as they have almost everywhere else.

How therefore should the government and the Reserve Bank react to current conditions in the bond market? Long term yields are unlikely to recede significantly; and the yield curve is likely to get steeper should the Reserve Bank reduce its repo rate further – as it is likely to do.

The government should therefore fund as much as it can at the cheapest, very short end of the capital market. To issue more short dated Treasury Bills to fund current spending and to replace long dated Bonds as they mature with shorter term obligations.  It will save much interest this way. The actions of the Reserve Bank by adding liquidity (cash) to the money market through QE will have made it much easier to borrow short from the banks and others.

And when the economic crisis is behind us it will remain essential to strictly control government spending to regain access to the long end of the bond market on more favourable terms.  Only the consistent practice of fiscal discipline will deserve and receive lower longer-term borrowing costs.

The 2020 Budget tax and expenditure proposals are steps in the right direction for the SA economy. Holding the line on real government spending and avoiding a growth defeating increase in tax rates, is part of the right mix of policies.

The SA economy is hostage to fortune as well as to its economic policy proposals. Market reaction to the Corona virus overtook the Budget proposals that were initially well received in the market place.  RSA 10 year bond yields were 8.76% p.a the day before the Budget on the 26^th February and 60bp lower immediately on the Budget news. They were up to 9.1% on the 2^nd March. They then declined to 8.76% on March 4^th after the Fed in a Corona pre-empt, cut its benchmark rate by 50bp and US 10y Treasury Bond yields went below 1%

RSA bonds are not a safe-haven asset for investors inside and outside the country as are US Treasuries and the dollar itself.  Yet were SA to be convincingly judged to be avoiding the debt trap and its money creation and inflationary dangers, taxpayers will gradually be rewarded with lower interest rates and interest expenses on their RSA debts. Global events that are now adversely affecting all EM borrowers and their currencies notwithstanding

The continued failures of the SA economy are elaborated upon in full grim even pious detail in the Budget Review.  Some Treasury mea-culpa would however be entirely appropriate for what has gone so badly wrong on the Treasury watch. Most egregious was the failure to recognize and contain operating costs at Eskom. And earlier to have permitted the explosion of public sector employment benefits in the boom years after 2005. We could have done with a Sovereign Wealth Fund then, reinforced by successful BEE partnerships with it.

The Budget Review contains a broad reform agenda. Including most helpfully bringing the employment benefits of government employees back in line with  “ .. the rest of the economy….” and promises legislation to “…eliminate excessive salaries and bonuses being awarded to executives and managers…” in the public sector that are indefensible. Eliminating the state’s “… complex and often ineffective procurement system. ….” is a reform long overdue.  And the intended reform of the exchange control system to best OECD practice is especially welcome for the wealth friendly signals it emits. Undertaking the “…urgent regulatory reforms of the Ports …”  would be a good step. But not only corporatizing the ports and cutting them loose from Transnet but allowing  them to compete with each other for custom would be much better for the economy.

Staying well out, as intended, of the “….exports of intellectual property..” will greatly encourage the creation of IP. To  “ Reduce the corporate tax rate”  in line with the competition and eliminating many of the complex tax allowances is essential. It is these complications that are responsible for “…South Africa’s tax incentive system…”  that “…favours incumbents and those able to afford specialist tax advice…”

Eliminating the extraordinarily large R600b liability for Third Party accidents of the Road Accident Fund (RAF) as was alluded to in the Budget Speech, would improve the State balance sheet. R2 per liter paid at the pump for the RAF could then be saved by households and businesses. Private insurance companies are more than capable of offering compulsory third-party cover at competitively determined rates. And capable of effectively contesting damage claims in court.

A debt for equity swap with Eskom debt holders is essential to the purpose of making it financially viable- otherwise a further R112b will  be coming its way, on top of the R62b provided to date. And with no guarantees that operating results will improve.

Debt swaps on agreed terms that introduced influential private shareholders to help govern the company will make Eskom economically viable. It would reward its managers conditional on improvements in return on capital. And pay them well enough – which is the usual private sector method for adding economic value.

Wallowing in despair at the highly unsatisfactory economic condition of SA is not helpful. Past failures can be seen as providing much scope for improvement. Hopefully the Budget proposals can provide an upside surprise for the SA economy.

The RSA is currently offering its bond holders a real 3.8% a year for 10 year money. It is the lowest risk investment that can be made in rands over the next 10 years. One made without the risk of inflation reducing the purchasing power of your interest income and without risk of default. If you wished to invest in a US Treasury inflation protected security (a ten year TIPS) you would have to (pay) Uncle Sam 13.3 cents per $100 invested for the opportunity.

Thus investors willing to accept RSA risk are currently being compensated with an extra 4% real rand income each year for the next ten years. This real risk spread was a mere 2.3 % p.a. a year ago. Other possible measures of RSA risk are as unflattering. The RSA borrowing dollars for five years has to pay an extra 2.2% p.a more than the US Treasury for five year money making RSA debt already well into junk status where it has languished for some time not withstanding its fragile investment grade status with Moody’s. Our rating compared to other EM borrowers has deteriorated and the ZAR is expected to weaken at a faster rate (See figures below)

The real risk spread for SA assets

Source; Bloomberg and Investec Wealth and Investment

Measures of SA risk

Source; Bloomberg and Investec Wealth and Investment

It all makes for very expensive national debt that taxpayers have to fund and higher costs of capital for SA business. These higher real rates also raise the returns that SA businesses have to hurdle to justify capital expenditure. Ever fewer such opportunities are seen to be on offer. And so the best many SA economy facing businesses can now do for their share owners is to opt out of the race in ways that are not good for growth. That is to use the cash they generate to buy back shares or pay dividends rather than attempt to grow their businesses.

The cause of this deteriorating credit rating and the higher discount rates applied to SA earnings is obvious enough. The RSA appears increasingly unlikely to manage its public finances with any degree of competence. The 2020-21 Budget has to cover an extra R50b to hold the fiscal line drawn as recently as last October. It is the result of less revenue than expected as growth has slowed and rapidly growing government expenditure on failed state-owned enterprises. A growing interest rate bill on ever more government debt is a further growing strain on the Budget .

There are however alternatives to raising taxes or borrowing more. That is to raid the SA pension and retirement funds. That is to compel them to hold more RSA debt of one kind or another on less favourable terms than have currently to be provided. Such forms of EWC have one major advantage for the politicians imposing them. Their full consequences will not become obvious for many years. That is in the form of lower than otherwise returns for pension funds and depleted pension payments. Including the bill ultimately to be presented to taxpayers for underfunded defined benefits owed to public sector employees- and largely incalculable today.

Swapping most of the debts and interest payments of SOE’s for equity without guaranteed returns has however one major potential upside. It could mean the effective transfer of ownership and rights of ownership from government to the private sector. This would bring greater efficiency and the avoidance of further losses for SA taxpayers and consumers of essential services.  Such a step would bring down real interest rates and encourage private sector investment.

It would moreover indicate something much more fundamental to investors in SA. That is when accompanied by credible controls on the size of the government payroll it would clearly signal something all important for investors. And that is the primary purpose of the SA government is not to provide a growing flow of real benefits for those employed by government. This is the essential question that the Budget, we must just hope, will answer in the affirmative.

The achievements of a few highly successful economies are highly admirable and conspicuous. Consistent growth in incomes and output over many decades has eliminated poverty. The growth has been accompanied by growing tax revenues that are easily collected, without much disturbing the engines of growth. And are then redistributed in cash and kind to provide a high measure of security for all its citizens against the accidents to which individuals and their families are always vulnerable.  Growth provides the means to fight crime, protect borders, provide roads, sewers and vaccinations, of equal value to all.  The caveat is that this historically unprecedented abundance is not better appreciated and more popular than it appears to be. Continued success can never be taken for granted.

Open access to the markets for all goods and services and for the resources, labour capital and natural resources with which to compete for custom, is a critical ingredient for success. Innovation threatens established interests and must be well recognised as a force for better. Rights that protect wealth and persons against fraudulent or violent assault and rule by predictable laws and transparent regulations are essential for success.

Competent and responsive government agencies are essential to the economic purpose. And a society, critical of government action, aware and unafraid of what a powerful government might arbitrarily do to them, makes for good government.

Harvard economists Acemoglu and Robison (A&R) have followed their influential “Why Nations Fail” with “The Narrow Corridor” [1]It explains in fascinating detail why it has been so difficult for nations to do what it so obviously takes to enter and stay in the narrow corridor that leads to economic success.

They explain the advantages of the “Shackled Leviathan” when the potential abuse of state power is effectively constrained by an empowered and critical civil society. A state very unlike the “Despotic Leviathan” that maintains essential order but does so at huge disadvantage for a cowered and vulnerable people. China, old and new, is cited as one such example. Another alternative may well be the “Paper Leviathan” an expensive and incompetent government, but only in name not in action. South America provides more than a few hapless cases of governments that serve only the people on their payrolls.

In all the many cases of national failure there is an elite who have a powerful interest in the stagnant status quo – and who resist the obvious reforms that would stimulate and sustain faster growth. Zimbabwe comes to obvious mind.

A&R also examine the potentially suffocating role of the “Cage of Norms” – well entrenched customs- that stultify access to markets and inhibit competitive forces. The caste system in India is still such an inhibitor of economic progress. Traditional land rights are a serious obstruction to producing more in SA.

South Africa, (A&R) argue, entered the narrow corridor that leads to success with the help of Nelson Mandela. They regard BEE as very helpful to economic success because it broadened the political interest in established enterprises and business practice enough to help protect them and the economy against destructive expropriation. That cutting a new elite into business success was necessary for stability and growth.

One wonders how A&R might now react to the revelations about state capture and corruption? And to the failures of the SA state to deliver satisfactory outcomes for the resources made available to it.

This raises an essential question. Will the highly transformed SA elite act in the general interest and encourage the invigorating forces of meritocratic competition for resources and customers? Or will they act to protect their gains and privileges against them?

The new elite should be aware that a failing economy will not be politically acceptable and any elite dependent on it will be highly vulnerable. They should be encouraged by our open and critical society to take the steps to get SA back into the narrow corridor that leads to economic success

[1] Daron Acemoglu and James A. Robinson, THE NARROW CORRIDOR, States, Societies and the Fate of Liberty, Penguin-Viking, 2019.

 Examining the state of the SA economy at the end of 2019 – and some suggestions for what the authorities can do to turn things around in 2020

South Africa is near the top of the global league – when it comes to the rewards for holding money, that is. You can earn about 3% after inflation on your cash, with only Mexico having higher real short-term interest rates.

However South Africa is close to the bottom of the global growth league (see below). This is no co-incidence, but the result of destructive fiscal and monetary policies.

Q3 GDP relative to the rest of the world

Source: Thompson-Reuters and Investec Wealth and Investment

Such an unnatural state of economic affairs, namely still very expensive money combined with highly depressed economic activity, has clearly not been at all good for SA business. The average real return on invested capital (cash in/cash out) has declined sharply, by about a quarter since 2012. Companies have responded by producing less, investing less, employing fewer workers and paying out more of the cash they generate in dividends.

GDP at current prices is now growing at its slowest rate since the pre-inflationary 1960s, at about 4% a year. This combination of low GDP and inflation below 4% (yet with high interest rates) automatically raises the ratio of national debt to GDP. And it makes it much harder to collect taxes (the collection rates are well explained by these nominal growth rates). Of further interest is that the actual growth in GDP is falling well below the forecasts provided in the Budget Survey (see figures below).

This leads to an economically lethal combination of low inflation and high borrowing costs (for the government and others).

Only actions by the government that clearly indicate it is heading away from a debt trap (ie printing money and so much more inflation in due course) can permanently reduce expectations of higher inflation and thus bring down long-term interest rates. Debt management is a task for the government, not the Reserve Bank.

The investors in those companies that depend on the health of the domestic economy have not been spared the economic damage. The value of these South African economy-facing interest rate plays (banks, retailers and investment trusts for example) have declined significantly and have lagged well behind the JSE All Share Index.  The JSE small cap index has lost 40% of its value of late 2016. Since January 2017, the JSE All Share Index is down by 7%. However an equally weighted index of SA economy plays is down by 22%.

Top 40 and Small Cap Indexes 2014=100

Source; Bloomberg, Investec Wealth and Investment

JSE All Share Index, Precious Metal Index and SA Plays (equally weighted) 2017=100

Source; Bloomberg, Investec Wealth and Investment

It’s against this worrying backdrop that I offer my New Year wish list for South African  business to be able to transform its prospects and with it the prospects of all who depend on the domestic economy. It is after business which is the most important contributor to the economic prospects of all South Africans.

My first wish is that those in government and its agencies should recognise that without a thriving business sector the economy is doomed to permanent stagnation. They should therefore show more respect for the opinions of business and the policy recommendations they make. Most important, they should interfere less in the freedoms of business to act as business sees fit.

Economic growth is transformational and inclusive. Stagnation is just that: nothing much happens, especially for the poor who are stuck in a state of deprivation from which it is difficult to escape. The opportunities that economic growth provides are a powerful spur to upward mobility – of which poor South Africans are so sorely lacking.

My second wish is that government turns over all wastefully managed SOEs to private control (there are no crown jewels) and in this way improve performance and generate cash and additional taxes with which to reduce national debt. Any sense from government that this might happen would bring long-term interest rates sharply lower and immediately reduce the returns required of SA business and in turn lead to more investment.

A third wish (linked to the second) for business success in 2020 is that government cuts its spending and raises revenues from privatisation, rather than raises tax rates next year. There is no scope for raising tax revenues unless there is faster growth. Higher tax rates will depress economic growth and growth in revenues from taxation still further. The wish is therefore that Treasury knows that only cutting government spending can avert the debt trap and has the authority to act accordingly.

Finally, a wish for monetary policy. South African business would benefit from lower short-term interest rates (notably mortgage rates) under Reserve Bank control. Lower interest expenses would help stimulate the spending of households, which could help get business going. It is my wish for business that the Reserve Bank will do what is most obvious and natural for it to do: to act decisively and urgently when both inflation and growth are pointing sharply lower.

Brian Kantor and Loane Sharp

Kantor is Professor Emeritus in Economics UCT and Head of Research Institute Investec Wealth and Investment. Sharp is Director at Prophet Analytics

The most important question in economics – why some countries remain poor while others grow rich – has been definitively answered. According to the United Nations, between 1990 and 2015 the poverty rate in the developing world dropped from 47% to 14%. More than a billion people escaped poverty over the period.

The unequivocal cause of declining poverty has been strong and sustained economic growth. According to the International Monetary Fund, economic growth in developing countries has averaged 4.9% per annum since 1990. At this rate, with population growth in developing countries now 1.2% per annum and steadily falling, real income per person will more than double over the next 20 years. Poverty, in other words, will be substantially eliminated within a generation.

The primary question having been answered, economists have increasingly directed their attention to a secondary question – why some people within a country remain (relatively, sometimes absolutely) poor while others do much better earning and spending their incomes. It is right and good to prefer that the benefits of economic growth be distributed widely rather than narrowly. But in highly competitive markets, this may not be possible – especially in labour markets, where incomes are driven up by competition between employers, held down by competition between workers for work and ultimately settle at a mutually agreed value for the expected productivity of the employee that differs widely according to skill experience and ability. Yet growth, even when unevenly distributed, generates revenues for government that can be used to provide the most vulnerable with extra spending power and valuable benefits in kind (education housing and medical care) that will add to their income generating capacity and mobility.

In contrast to the global experience, SA’s poverty rate has been stubbornly high and recently rising. According to Statistics SA, 55% of the population is defined as poor, living on less than R11,904 per annum. (current rands) Over the period that real per capita income growth in developing countries averaged 3.7% per annum, SA per capita income growth averaged a mere 0.7% per annum.

While poverty remains high, Statistics SA’s latest inequality report, authored by the Southern African Labour and Development Research Unit (SALDRU) at the University of Cape Town, despite its summary view that income distribution in SA is largely and unhappily as unequal as it has been since 1993, shows in fact, that inequality has declined. In 2006, the top 10% of income earners enjoyed 12.5 times the income of the bottom 40%. By 2015, this Palma inequality ratio had declined to 10.2 – significant progress over a short period of time. In 2006, the top 10% incurred 8.6 times the spending of the bottom 40%. By 2015, the ratio had fallen to 7.9 times – also significant progress over a short period of time.

This seems counterintuitive: how can poverty increase and inequality decline? As we explain below, the middle class, not the poor, have been the primary beneficiaries of government policies. We pretend to care for the poor but often act otherwise, no doubt because it makes political sense. Many of the economic policy interventions of the SA authorities would not pass the Rawlsian test.  That is would the intended policy  be helpful to the economic interests of the least well off 20% of the population?

The distribution of spending is significantly more equal than the distribution of income, thanks to taxes, welfare spending, government services and saving (i.e. spending foregone) largely undertaken by the top 10% of income earners. They who are responsible for almost all the wealth accumulated in SA, and without whom the economy would perform even less well and be even more dependent on foreign capital.

The inequality report rightly concludes that lack of economic growth and lack of job creation are the main causes of poverty and inequality. Unfortunately, the report contains much psychosocial nonsense. An example: “High levels of inequality mean that large segments of a society may be excluded from economic opportunities [since] people who receive the best opportunities are the ones who are the richest, and these are not necessarily the same as the ones who are the most talented or who would make the best use of such opportunities.” In other words, rich people cause poverty. Surely it is poverty not inequality that denies opportunity.

To give another example: “Adding a couple of thousand rand to the monthly pocketbooks of the poor could elevate them above the poverty line and set them on a better life trajectory […] but it doesn’t immediately result in greater equality between the outcomes of certain groups” (emphasis added). In other words, eliminating poverty is unacceptable because, in doing so, white people might get better off.

The global economic experience indicates that the self-interest and creative drive of a tiny group of people – a small number of extremely successful business owners and their high-skilled employees – have sharply reduced poverty and will soon eliminate it altogether. They are the crucial agents of economic growth. Respecting their achievements, tolerating their high incomes and protecting their gains becomes the essential social contract. Redistributing these exceptional gains through progressive income tax and well-directed government spending is a further part of the social contract. Successful economies manage to grow and redistribute – in that order.

It hardly seems worth the effort to conduct a comprehensive survey of inequality in SA every few years when the results are so self-evident as to be nearly worthless. The economy hasn’t grown, unemployment has risen and therefore poverty and inequality remain significant problems. No surprise in that. We should like to know, instead, how economic growth and job creation might be achieved or, indeed, is being frustrated.

We know, of course, what causes economic growth and the attendant benefits of investment, employment, innovation, competition and taxes: business profitability. We know what causes job creation and the attendant benefits of economic mobility, childcare, healthcare, retirement savings and workplace safety: economic growth and the profitable employment of labour.

On the economic growth front, it is therefore alarming that SA companies’ return on assets (gross operating surplus / gross fixed capital stock), having peaked at 17.9% in 2004, will this year likely drop below 10% for the first time in 30 years. If business profitability does not recover, economic growth cannot. Analysis of the financial statements of listed companies reveals a similar decline in the return on capital.

On the employment front, it is alarming that, whereas in the 25 years prior to 1994 an additional 1% of economic growth was associated with a 1.3% increase in employment, since 1994 an additional 1% of economic growth was associated with a 0.2% increase in employment. Even if economic growth occurs, job creation cannot occur if the link between economic growth and employment has been severed.

The causes of economic growth and job creation, and therefore the solutions to poverty and inequality, are well understood. Growth will follow business liberalisation, and jobs will follow labour market liberalisation. Yet the report unfathomably frames these as complex and intractable problems. It surely does help to promote an endless agenda for the favoured consultariat and their flow of proposals to tinker further with the economy.

The report usefully observes that inequality in SA is overwhelmingly related to labour market inequalities: inequality between those who have jobs and those who don’t; inequality between public sector and private sector employees; and, within the private sector, inequality between skilled and unskilled employees.

The labour market is clearly central: incomes from work account for three-quarters of all incomes earned and about two-thirds of overall inequality comes from inequality in earnings. Inequality and poverty and the inability of the economy to grow faster are largely attributable to the failure of the economy to provide more employment.

There are serious problems with the survey methodology that is the basis for the report. Some of the problems are true of all surveys. For instance, people are notoriously cagey about their true income and spending patterns, especially when an individual, completing the survey on behalf of others in the household, may fail to disclose the true picture to other individuals in the household, let alone government enumerators. Other problems are specific to this survey. For example, households are asked to report the spending they actually incurred rather than the value of the goods and services received. Heavily subsidised government school fees are a small fraction of the total cost of education, yet only the minimal out-of-pocket fee is reported as expenditure with no adjustment for the full value of the benefit. Likewise subsidies related to healthcare, housing, electricity, water, sanitation and many other government services are not reflected as de facto benefits at their costs of supply, and the costs of administering government programmes are nowhere accounted for in the estimates of expenditure.

As seen in Figure 4.1.4, income from the labour market is the main source of income, increasing from 73.5% in 2006 to 81.3% in 2009 ( after a brief period of strong GDP growth) before declining to 71.0% in 2011 and then remaining constant between 2011 and 2015. The proportion of social grants to overall household income has slightly fluctuated over the years: the proportion decreased from 6.0% in 2006 to 5.4% in 2015. The share of in-kind income gradually rose from 1.2% in 2006 to 2.4% in 2011 before dropping to 1.7% in 2015. Meanwhile, the share of remittances to overall income fluctuated over the years and reached its highest proportion in 2009 contributing 1.2% to overall income. Figures 4.1.5 and 4.1.6 show the distribution of labour market income and social grants, respectively, by income-decile. From these figures, we observe growing dependence on social grants and declining reliance on labour market income in the bottom deciles. By contrast, in the top deciles there was a much greater reliance on labour market income and less reliance on social grants. Therefore, social grants to some extent contributed to the improvement in income inequality.

Unfortunately, the report does not attempt to explain why these differences exist and persist. Except by extensive reference to race. Do richer SA whites (and the rich of other races) harm or serve the economic interest of SA?  Should the objective of economic policy be to retain their valuable services- or to do better without them in the interest of equality? One suspects that many of those who interest themselves in issues of inequality in SA and many others with influence over economic policy find it very difficult to give an unequivocal response to this question. In other words the economic growth that could lift the 33 million poor South Africans out of poverty would be unacceptable because a few white South African might benefit disproportionately from the process.

The truth is that the government has aggravated rather than alleviated inequality. Incomes of high-skilled people have been boosted by immigration restrictions and emigration. Incomes of low-skilled people have been diminished by uncontrolled immigration of low-skilled people from neighbouring countries. Social grants have raised the reservation wage of low-skilled people discouraging their participation in the labour force, particularly in the rural areas. Government education is so poor that a staggering proportion of enrolees drop out of school, eliminating what chances they might have had of finding work. Extensive protections against especially performance-related dismissals have reduced productivity and raised the risk of employing people who prove not worth their hire.

Given all the obstructions to hiring and firing labour – and all the unintended consequences of poverty relief in influencing the willingness to supply labour – it should be no surprise that the distribution of income in SA is what it is. It is well explained by the political interest in “good jobs” rather than in total employment – especially in the highly indulged public sector – and the support for unions and labour regulations that protect those with jobs at the expense of those seeking work. Slow growth in the number of people employed and the inability of the poor to find work should not be regarded as unintended. It is the predictable outcome of policy choices made by the SA government.

Two other important forces on the income distribution should be recognised. Firstly, the expenditure of households headed by men is significantly higher than spending by households headed by women. In 2015 the average expenditure of the households headed by men was twice as high as of those headed by women. (38180/18406) A very similar ratio (2.1) prevailed in 2006 (27058/12965) (2015 prices). This suggests that female-headed households have only one person working whereas male-headed households have two people working with very similar average incomes per worker. It appears that the important gender gap is related to the presence or absence of a working male in the household.

Secondly, average urban incomes are much higher than rural incomes. The urban/rural divide is even more dramatic. In 2015, on average, urban households spent R40,290 in 2015 and rural households R11,658 – a ratio of 3.5 times. In 2006, this ratio was very similar, 3.7. These expenditure gaps are attributable more to employment opportunities than wage differences. Of the total population, 65.3% are urban and 34.7% rural.

The policy implications of these facts of SA economic life seem obvious: more households headed by men, and more of them established in the urban areas. Social assistance and free housing and utilities that do not distinguish between urban and rural areas makes overcoming poverty through employment ever more difficult, because it encourages rural settlement and unemployment especially now that a national minimum wage is the rule.

In 2006, the top 10% spent 57.2% of all expenditure or 8.6 times that of the bottom 40% with a mere 6.6% share. By 2015, this ratio had declined from 8.6 to 7.9 – less inequality. Yet the share of the bottom 40% remained at 6.6%.  In 2006, the middle 50% had a 36.2% share of all expenditure. By 2015, the expenditure share of the top 10% was down to 52.6%, and that of the middle 50% up to 40.8%, of all spending. Thus, a decline in the ratio (top 10%/middle 50%) from 1.81 to 1.32 times, while the ratio of the spending of the middle 50% to that of the poorest 40% rose from 5.5 times to a less equal 6.2 times. The large gains in the share of expenditure have been realised by the 7^th, 8^th and 9^th deciles whose combined share improved by a full four percentage points.

The redistribution of spending power in SA has been to middle-income earners – not the poor. Perhaps especially to the new members of the upper middle class who are employed by government and its enterprises and institutions. If the economy is to grow faster and incomes and spending power are to be more equally spread, the interests of the poor and the rich will have to predominate in policy settings, much more than they have done to date.

Sources:

All charts and statistics are sourced from this study: Statistics South Africa (2019), Inequality Trends in South Africa  A multidimensional diagnostic of inequality, Risenga Maluleke, Statistician-General, Report No. 03-10-19

One of my pleasures is to listen in conference to the accounts of great business enterprises, as told by their CEO’s and CFO’s. They seldom fail to impress with their grasp of the essentials of business success in a complex world. One that always contains the threat of competition from close rivals and even more dangerous the disruption of their business models and their relationship with customers from quarters previously unknown.  They are in it for the long run – not the approval  of the stock market over the next few months. Short termism does not make for business success.

They sense the growing opportunity data collection and analysis offers to produce distribute and market their goods and services more efficiently. To scale the advantages of their intellectual property and culture, they must have global reach that inevitably includes managing successfully in China, with all its opportunities challenges and trade-offs. They are well aware of meeting the demands society and its governments may make on them for them to be able operate legitimately. They know they have to play by rules over which may have little influence.

And one senses from them a new urgency about a more  disciplined approach to the management of shareholders capital. Business success and the performance of managers is increasingly measured by (internal) returns on capital employed, properly calibrated, that adds value for investors by exceeding the returns they could expect from the capital market with similar risks.

The business corporation is the key agency of a modern economy. The success of the developed world in raising output and incomes – improving consistently the standard of living is surely  attributable in large part to the design that accords so much responsibility to businesses large and small. The improvement in the average standard of living, and of those of the least advantaged of the bottom quartile of the income distribution (helped by tax payer provided welfare benefits) in what we define as the developed world has been at a historically unprecedented rate over the last 70 years or so. While the rate of economic improvement may have slowed down in the past twenty or ten years it sustains an impressive clip. Over the past 20 years GDP per capita in constant purchasing power parity terms in the largest seven economies (G7) as calculated by the IMF has grown by a compound average 2.8% p.a. Over the past 10 years this growth rate has slowed only marginally to an average of 2.7% p.a.  A rate rapid enough to double average per capita incomes every 26 years or so.

One might have thought that the proven capabilities and potential of the modern business enterprise would enjoy wide appreciation and respect. That is for its ability to deliver a growing abundance of goods and services that their customers choose, many of which thanks to innovations and inventions sponsored and nurtured by business that were unavailable or inconceivable to earlier generations. In so doing to provide well rewarded employment opportunities to so many and to provide a good return to their providers of capital – both debt and share capital. A large majority of whom, directly and indirectly, are not rich plutocrats but are the many millions of beneficiaries of savings  plans, upon which they rely for a dignified retirement.

But this is not the case at all. Even for the commentators in the leading business publications who present a view of the modern economy and its dependence on the corporation as in deep crisis. A sense of  grave economic crisis that given the much improved state of the global economy and of the role corporations play in it that is very hard to share for the reasons advanced.

For example Martin Wolf in an op-ed in the Financial Times (September 18 2019) Why rigged capitalism is damaging liberal democracy Economies are not delivering for most citizens because of weak competition, feeble productivity growth and tax loopholes

To quote Wolf’s conclusion on the reformed role of the corporation

“……They must, not least, consider their activities in the public arena. What are they doing to ensure better laws governing the structure of the corporation, a fair and effective tax system, a safety net for those afflicted by economic forces beyond their control, a healthy local and global environment and a democracy responsive to the wishes of a broad majority? We need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits. What we increasingly seem to have instead is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy. Fixing this is a challenge for us all, but especially for those who run the world’s most important businesses. The way our economic and political systems work must change, or they will perish.”

However much you might or might not share this view of the corporation, a state of being that is not at all apparent in the accounts of the threats and opportunities provided by business leaders- or in their actions as suggested earlier. Particularly when they are seen as rentiers given some guaranteed source of income provided by a conspiracy of protection against competitive threats. You might agree that he would have the leaders of the large modern corporation accept much greater responsibilities for the (apparently) failing human condition – responsibilities that are surely the essential purview of government. It is to ask corporations to achieve much more than they are at all capable of achieving to the satisfaction of society at large. It is to set them up for failure and to threaten the essential role given to them by society

What inflation adds by way of higher prices, revenues or incomes, weaker exchange rates can be expected to reduce their value abroad. If the move in exchange rates was  equal to the difference in inflation rates between SA and its foreign trading partners, the different fields on which we work or play across the globe would be a level one.

Clearly economic life does not work that way. Our rands almost always have bought us more at home than they do abroad – when exchanged at the prevailing exchange rates. The difference between what our rands can buy at home or abroad can be calculated as the difference between the market rate of exchange and its purchasing power equivalent, as determined by the differences in inflation rates.

Since December 2010, when a US dollar cost R6.61, consumer prices in SA have increased on average by 58%. In the US average prices were up by a mere 16% over the same period. If the USD/ZAR had moved strictly in line with the changing ratio of consumer prices in the two economies (168/116 or 1.36) the dollar would have moved from 6.61 rands to 9 rands for a dollar in August 2019. (9/6.61 =136) A weaker exchange rate of 9 rands to the US dollar would have levelled the playing field. (see chart below)

2010 is a good starting point for such a calculation. The rand then was very close to its PPP equivalent were you to use 1995 as a starting point for the calculation. It was in 1995 that the rand became subject to largely unrestrained capital flows. Until then the (commercial) rand traded consistently close to its purchasing power value

The reality is that exchange rates are determined by forces that may have very little to do with actual price changes in the markets for goods and services. They move in response to global capital flows between economies that can dominate the flows of currency rather than to the flows of exports and imports that are price sensitive to a degree.

As a particular economy becomes more risky capital tends to flow away and exchange rates weaken and interest rates rise to balance supply and demand for the local currency. And if the shocks to the exchange rates are sustained, the inflation rate will respond as the prices paid for imported and exported goods in the local currency, increase or decrease- but with a time lag. This time lag determines the degree to which exchange rates diverge from PPP. The exchange rate leads and inflation follows – not the other way round – as theory might have had it. And convergence to purchasing power equivalent may take a long time.

Converting your SA wealth or incomes from rands into the equivalent purchasing power in the US at August month end would therefore have required the following adjustment. That is to reduce the 6.6 dollars received for R100 at market exchange rates by about 60%. This being the ratio 9/15.2 Having to pay only nine rand for a dollar would have been enough to net out the inflation impact. Rather than the R15.2 you actually had to give up for an extra dollar to spend in New York. (9/15.2*6.6 =3.9)

Thus any R100 of spending power in SA would have provided the equivalent of less than 4 dollars of roughly equivalent spending  power in the US. Or in other words what would be regarded as a substantial fortune of R100m in SA would have provided  a mere 4 million dollars of buying power in the US. Perhaps not enough to live well – or not nearly as well – as you could live in SA off your capital.

Consumer prices in SA and the USA and exchange rates (2010-2019)

Source; IMF World Economic Outlook Data Base.  StatsSA, Federal Reserve Bank of St.Louis and Investec Wealth and Investment

This purchasing power discount (((6.6-3.9))/6.6)*100= 40% at August month end) is a significant deterrent to the relocation of wealthy and skilled South Africans with only rands to support a life style in the developed world. Mobile younger South Africans, with a life of income earning and saving opportunities ahead of them, could undertake a similar calculation. That is multiply the prospective hard currency salaries they might be offered abroad, when measured in current exchange rates, by approximately 6/10’ths to account for their lesser purchasing power. Earning and saving rands at home (and perhaps investing abroad) might yield improved life-time consumption.

We should be relying more on better economic fundamentals than on an undervalued exchange rate to keep capital at home- especially our most valuable human capital. If South Africa would play the economic growth cards more effectively and reduce its risk premium it would retain and attract more capital on better terms.  The nominal rand could then again approach its PPP value and the cost of borrowing rands (and dollars) would come down with less inflation expected. SA Incomes after inflation could grow at a much faster rate – encouraging immigration rather than emigration of capital and skills.

We are well aware that slow economic growth depresses the growth in tax revenues. What is not widely recognised is the influence that tax rates and taxation have on economic growth. The burden of taxation on the SA economy, measured by the ratio of taxes collected to GDP, has been rising as GDP growth has slowed down, so adding to the forces that slow growth in incomes and taxes.

The GDP growth rate picked up in Q2 2019. But GDP is only up 1% on the year before while in current prices, it has increased by only 4.4%. That is slower nominal growth than at any time since the pre-inflationary 1960s, which is not at all helpful in reducing debt to GDP ratios (something of great concern to the credit rating agencies). This 4.4% growth is a mixture of the slow real growth and very low GDP inflation, now only about 3.5% a year.

GDP and CPI inflation

In the first four months of the SA fiscal year (2019-2020) personal income tax collected grew by an imposing 9.7% or an extra R14bn compared to the same period of the previous financial year. Higher revenues from individual taxpayers was the result of effectively higher income tax rates, so-called bracket creeps, on pre-tax incomes that rise with inflation.

Income tax collected from companies, however, stagnated, while very little extra revenue was collected from taxes on expenditure.  Lower disposable incomes resulted in less spending by households and the firms that supply them. The confidence of most households in their prospects for higher (after-tax) incomes in the future has been understandably impaired.

Treasury informs us that total tax revenue this fiscal year, despite higher income tax collected, is up by only 4.8%, compared to the same period a year ago, while government spending has grown up by 10.3%, or over R51bn. The much wider Budget deficit of R33bn (Spending of R156.6bn and revenue of R123.6bn) represents anything but fiscal austerity. It has added to total spending in the economy, up by a welcome over 3% in Q2 2019 – after inflation.

But deficits of this order of magnitude are not sustainable. Nor can they be closed by higher income and other tax rates that would continue to bear down on the growth prospects of the economy and the tax revenues it generates. A sharp slowdown in the growth of spending by government, combined with the sale of loss-making and cash-absorbing government enterprises is urgently called for if a debt trap is to be avoided. Given that the debts SA has issued are mostly repayable in rand, rands that we can print an infinite amount of, a trip to the IMF and the “Ts and Cs” they might impose on our profligacy is unlikely.

More likely is a trip to the printing press of the central bank rather than the capital markets to fund expenditure. Such inflationary prospects are fully reflected in the interest we have to pay to fund our deficits. These interest payments add significantly to government spending. The spread between what the SA government has to offer lenders and those offered by other sovereign borrowers has been widening.

The SA government now has to pay 8.7 percentage points a year more in rands than the average developed market borrower, ex the US (Germany and Japan included) and 7.6 percentage points a year more than the US has to offer for long-term loans. We also have to pay 3.1 percentage points a year more than the average emerging market borrower has to pay to borrow in their own currencies.

The difference between RSA interest rates and other sovereign borrowers. Ten-year bonds in local currencies

It has proved very possible for average incomes and spending power to improve consistently over long periods of time. In the West economic progress has now been sustained for centuries. Over the past 70 years the improvement in global per capita incomes has been especially impressive as the process of economic growth has been extended more widely.

Download PDF with full article here: Kantor – When countries choose freedom

The importance of recognising economic profit or EVA

Owners of businesses could set their managers a straight-forward task. That is to earn a return on their capital they will deploy to exceed the returns shareholders could realistically expect from another firm in the same (risky) line of business. If the managers succeed in this way, that is realise an internal rate of return on the projects they undertake that exceed these required or break even returns, they will be generating an economic profit for their owners. They will have created what is now widely known as Economic Value Added (EVA) in proportion to the amount of capital they put to work. EVA=I*(r-c) where r is the measure of the internal rate of return, c is the required return or as it is sometimes described as the cost of capital and I is the quantum of capital invested.

Continue reading the full paper here: Applying EVA to the holding company

Looking forward to the (paid) Easter holidays? Despite appearances to the contrary, you are paying for it.

The Easter holidays are upon us. Many will be enthusiastically taking time off, believing they will be enjoying a “paid holiday”, in other words, enjoying a holiday paid for by their ever-obliging employers. They are wrong about this – especially if they work in the private sector. They will in fact be sacrificing salary or wages for the time they spend not working.

This is based on the simple assumption that there is a consistent relationship between the value they add for their employers and the hours or days spent working – and that therefore they are paid according to the contribution they are expected to make to the output and profitability of the firm. Wages are not typically charitable contributions.

It makes no sense for some employer, the owner of a business, with a natural concern for the bottom line, to pay you for time spent on holiday, or on weekends off or when sleeping or traveling to or from work. They are unlikely to survive the competition if they did not take into account the accompanying loss of production, revenue and profits incurred when their employees are not working.
Those known costs must mean salaries, wages and employment benefits given up by the worker. There are no paid holidays, any more than there are free lunches in the company canteen.

Those paid on an hourly basis and at the end of every day or week will be under no illusions about having to sacrifice income when not working. Many of them might well be willing to work on the Easter weekend if given the opportunity to do so. They may well prefer to consume goods and services other than leisure.

It is those who are paid on a pre-determined monthly basis who may be inclined to believe that they are being paid to go on holiday. They should appreciate that the more time they are expected to take off, or the larger the contributions the employer may be making to medical insurance or pension contributions, training levies and the like, the less they will inevitably be taking home in their monthly paycheque. They are sacrificing salaries so that their employers can better stay in business and offer them employment.

The same bottom line and hence a sense of sacrificing pay may not apply in anything like the same force in the public sector, where the taxpayer picks up the salary, pension and medical aid bill, regardless of its size; where measuring the output of the public employees is not nearly as easy and where performance measures are often strenuously resisted.

European workers typically take many more days off than their US or South African counterparts. It is a widening trend that has evolved only over the past 30 or so years. We are often surprised at how little time the typical US worker takes off. Why is it so that the average US worker consumes significantly less leisure, takes less time off, therefore sacrifices less pay for holidays and consumes proportionately more other stuff that they prefer to pay for?

Is it a cultural difference, or are US workers naturally more hard working than their European or South African cousins? Maybe, but if that’s the case, why have these differences in working behaviour become so much more pronounced in recent decades? (Incidentally, the average number of hours worked per day in Europe and the US does not differ much). The striking difference is in the average number of days worked.

It may be because US workers and their employers enjoy more freedom to choose pay over leisure. Perhaps the regulations that determine compulsory time off for holidays or festivals are by now less onerous on US than European employers (and on formal South African businesses).

Were maximising output and money income and employment the primary objective of policy, South Africa would be wise to adopt the US rather than the European practice: allow the number of days off to evolve (mostly) out of competition for workers, rather than be regulated for them and their employers. And have fewer “paid holidays”.

The interview is available here: https://iono.fm/c/3504

The 2019-2020 Budget proposals have essentially only one objective.  They all take their cue from the disastrous financial and economic performance of Eskom over the past decade. Averting an Eskom default has required an injection of  equity capital of R23b a year for the next ten years- if necessary – by now even more hard pressed South African taxpayers.

The revenue collected by the central government budget is estimated to increase by 9.2%, having grown by 7.4% in 2018-19. Expenditure on a consolidated all government basis expenditure, including the extra spent on supporting Eskom’s balance sheet will be up by 9.6%

When compared to expected inflation of about 5% these represent large real increases and a growing burden on taxpayers, given that the economy is predicted to grow by a mere 1.5% in 2019.  Personal income tax collections are estimated to increase by R55b or 11% in the next financial year. This increase in collections occurs without an increase in explicit income tax rates but with bracket creep. Given inflation linked increases in employment benefits it is the many income tax payers in the lowest brackets who will be paying more. Presuming they also keep their jobs.

There are nearly 6.937 million registered income tax payers who are expected to earn between R79000 and R500,000 of taxable income in 2019-20 out of a total cohort of 7.643 m income tax payers altogether. These many income taxpayers in the lower brackets  will together be paying R100 billion more income tax this year than if full adjustment of tax rates for inflation of wages been made. Total income tax expected in 2019-20 is R554b. The very few 283,000 income tax payers who earn more than R1m, will be expected to deliver R225.6b of income tax or 41% of the total. But bracket creep is much less significant for them, especially for those already paying a marginal income tax rate of 45% – for incomes over R1.5m per annum.

Clearly the judgment must have been that the higher income earners are being squeezed about a far as is practically possible to do without reducing tax revenues collected from them. There are a further 6.369m individuals registered with SARS who fall below the threshold and pay no income tax. They will however pay more tax on the goods and services they can afford. Taxes collected on all goods and service (VAT, Excise taxes and customs duties) are expected to rise by an inflation beating 9.6% in 2019-20.

These are increases in taxes on a very large majority of the population that are surely unlikely to find favour with an electorate going to the polls in May 2019. But having to save Eskom required nothing less than a very austere budget.  Any thought that the investment programmes of the publicly owned enterprises can lead any revival in economic growth  has surely been disabused. These enterprises provide essential services to the economy must be able to provide them on globally competitive terms and be financially stable if the economy is to prosper.  Any continued failure to do so will demand ever higher and unpopular taxes on a slow growing economy. And higher taxes will impeded growth further – as they have done to date. The burdens of slow growth are widely shared as this Budget reveals.

The failure of the public enterprises and the inability of the highly paid SA income earner and taxpayer to compensate for such failures, must surely lead any government, subject to a popular will, to adopt the obvious solution. That is to privatise the operations of the public enterprises on the best possible financial terms consistently with a competitive economy. Private capital and privately business are more than up to this task. The question raised by the 2019-20 SA Budget is just when will such a fully embraced economic realism save the economy- and all who depend upon it

Exploration for oil or minerals is a very risky activity. And when a significant find is made there is the further risk that the terms allowed to the finder may turn out to be unexpectedly adverse. Indeed the larger the resource proved, the more adverse these terms are likely to be.

Any original successful risk taker is hostage to the government where the discovery was made. With any potentially valuable discovery under the ground or water, what was essentially unknown will have become much more of a valuable known. Accordingly the share of the value added allowed to the discoverer can easily become a matter of ex-post negotiation rather than a rule of previously agreed laws.

Exploring for oil or gas in deep turbulent South African waters is surely a particularly risky endeavour. Rules applying to exploration for oil or gas are still to be re-drafted and voted upon. Yet despite all this inherent uncertainty – all the known unknowns – Total and its partners went ahead and explored off our coast. And have discovered what is clearly a significant quantity of hydro-carbons in their concession area. They will be drilling further wells to determine the fuller potential of the gas and oil available for exploitation.

How then should South Africa respond to this fait accompli this new economic opportunity of great potential significance? Surely to maximise the output of oil and gas? Upon which taxes or royalties can and will be levied. But would have to be of an internationally comparable and competitive scale to fully encourage production and further exploration activity.

Given a natural concern for safety and the environment, the business of bring the oil and gas to market should best be governed by no other  consideration than that of maximising output at minimal cost.  What is in prospect, if all goes well, is construction activity on a very large scale undertaken over many years. Drills will be sunk from platforms to be built, served by helicopters and launches with bases and workers onshore. Pipelines will be laid to bring the oil and gas onshore and to extend the net-work to new refineries and their customers in the urban areas.  Much further capital expenditure in oil and gas intensive industry for export and the local market will become feasible off the newly established grids. The economy could take off.

To make the best of what has become possible, minimal consideration should be given to any other potential interests in the resource, other than the general interest in faster economic growth. Interests that might impose themselves on the project managers and the capital providers should be actively disallowed.

It is the case for letting construction companies and those that are free to hire them, to bid competitively for work. Work that they would be free to organise as best they saw fit.  Meaning they would be subject to minimal interference in the form of patronage, crony capitalism, corruption and extortion that has been so expensively and damagingly characteristic of construction activity in South Africa recently. Think of the huge overruns at Kusile and Medupi and the perils of constructing pipelines and roads in Kwa-Zulu where extortion has become commonplace. Or ask any construction company (a declining number) for details of how they have now to do business in SA

The genuine public interest in redistributing the benefits of the project would then be satisfied by the extra revenue generated for government- not by opportunistic rent seeking. And the extra revenue could be well spent for the benefit of the poor in better funded schools and hospitals or cash grants- maybe even lower tax rates. A case of growth and then redistribution- rather than erratic redistribution at the expense of growth. It would represent a true game changer for the SA economy.

This is a working paper and the final version will replace this after comments have been received. I welcome comment and corrections from readers.

The paper is available here: South African Foreign Investment