Vol.5 No.10, 16 May 2005
The Barclays Deal as Another Illusion
You would think, from the celebrations around Barclays buying a majority shareholding in Absa, that this will have a major beneficial effect on our economic lives: more employment, less poverty, spreading prosperity perhaps? Sorry: here comes Cassandra.
This is what happens. Some individuals who own Absa shares will sell them to Barclays shareholders. They will have 'earned' a big profit. Maybe the revenue service will gain a small proportion. The foreign exchange Barclays brings in will come to rest in the Reserve Bank: we ordinary folks will see none of it.
That's it - full and final benefits to us. Employment will, if anything, drop. It usually does following a merger, because the point of a merger is to cut costs and swell returns to shareholders. The banks' return on equity - already standing at just under 25% for Absa and nearly 19% for Barclays - will increase. The value of their combined assets will be somewhere around six and a quarter trillion rands. And probably rising, otherwise what is the point?
But what about the symbolic and pioneering effect - the suggestion that Barclays will be followed by other foreign direct investors? The 'floodgates' of FDI will be opened by this deal? There are a number of problems with this scenario. First, this is not 'direct' investment as opposed to portfolio investment. The former is usually conceived as employing people or building things on the ground. This will amount only to a change of ownership of shares.
Second, we do not need foreign investment, considering the billions now held in the financial sector awaiting profitable outlets. Why should foreigners create productive capacity and employ people in South Africa if our own institutions think it's not worth it? Why are we giving tax breaks to foreign investors -let alone portfolio investors - when our own capital is kept out of circulation by our own institutions? And where is the evidence the Barclays deal will lead to an avalanche of FDI?
It seems that half the point of the deal is to enable the new giant to buy up banks in Africa, where again, a few shareholders will get a windfall. Maybe a small temporary employment blip will result from their refurbishment? Apart from that, who will benefit apart from bank shareholders? Weaker African states will have lost control over their financial institutions, and it will have added fuel to the resentment of South Africa as 'American bully-boy'.
All this quite apart from Barclays' record in South Africa. That institution must be extremely grateful for the short memories of those who imply the bank honourably disinvested during apartheid: in fact it capitulated only after a tooth and nail battle against global protesters.
The misrepresentation of the Barclays deal as hopeful in terms of South Africa's growth and development is a part of that set of shibboleths that constantly fuels false hope about dealing with poverty under the present macroeconomic dispensation. Toyota's plans to invest around R2 billion will produce the grand total of 900 jobs. Reports of 'soaring growth;' at 'record high' levels turn out to be confidence measures on the part of business people, and dependent on a lower rand rate.
Similarly, it is assumed that increases in trade automatically result in more employment and less poverty. This is not true. Everyone now knows the effects on employment of trade with China. And while our exports to the US under the acclaimed AGOA deal probably created some jobs, most of the benefits went to shareholders. Labour's share in the national income dropped from 51% in 1994 to 46% in 2004.
So the sooner we disabuse ourselves of false hopes about solutions to poverty being just around the corner, as a product of investment decisions in the global arena, the better. During the past fortnight South Africa was host to a prophet for our times in the form of American resource scientist, Richard Heinberg, author of The Party's Over and Power Down. At a number of seminars and consultations Heinberg demonstrated that the issue is no longer around who gets what, rich versus poor, global greed and breeding terrorism. We can continue to argue about those values - at root what the 'globalisation' disputes are about - but they are beside the point.
The fact is that the global economy is doomed simply because by definition it gobbles oil. It conceives efficiency as global trade and global resource exploitation through replacing labour with capital-intensive methods that use oil. Trade increases annually at a rate two and a half times the growth in output. All that will come to a grinding halt without annual increases in the output of oil. And the production of oil has already peaked: it will be downhill from about 3 years hence.
Three years is not enough time to make alternative arrangements, even if we - including Bush - took our heads out of the sand. Even countries that have a lot of coal will have to make drastic changes to their life-style. So very rapidly we must start to think out of the box for local solutions - local energy, local food, local capital formation, local markets
And all that on a global scale. That will be the new globalisation.
© South African New Economics Network 2007. Page generated at 10:22; 03 August 2007