ANC Parliamentary Caucus
ANC Debate
Hon Sekaoti SC
06 September 2024
Introduction
We bring this debate to this house after the statistician general informed the nation that our unemployment statistics have increased by 0.6 percentage points to 33.50 per cent of the official definition and 42.60 of the expanded definition.
Since our democratic breakthrough we have struggled with structural unemployment and stagnant economic growth from the period 2010 to 2023 economic growth has averaged 1.2 percent. This can mainly be attributed to the lack of structural transformation of the economy and the process of deindustrialization that our country undertook post-1994.
The productive sectors of our economy such as manufacturing contribution to GDP declined from 20 percent in 1994 to the current figure of about 12 percent, in the same breath we have witnessed the financilisation of the South African economy. According to Gerald Epstein’s classical definition, financialization entails “The increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of domestic and international economies”.
Extensive financialisation occurred as an integral part of neo-liberal globalisation. It is partially reflected in the sharp increase in the share of financial services in the GDPs of many countries, for example, in South Africa it increased from 6 percent of the South African GDP in 1994 to nearly 25 per cent today. It has also entailed the emergence of extensive trading and speculation in new financial products, securities and derivatives, with this kind of activity becoming the core business of much of the sector. It has seen concepts like shareholder value coming to trump all other considerations in shaping investment, innovation, product development, health and safety among other decisions by capital in all sectors. It has also seen increasing demands and assertions that profit seeking opportunities are created in an ever-increasing range of programmes for financial institutions to participate in.
In South Africa and other developing countries, financialisation has seen a fundamental shift by financial institutions away from the provision of risk capital to support industrial activity or small business development.
In the growth of China, their development involved what some analysts have called financial suppression. Its banks were never allowed to become the speculators and traders in paper, that its western counterparts had become. Instead, the China Development Bank became the apex of a number of institutions focusing on providing resources to support enterprises in the productive sectors.
Similarly, we have to make use of state banks to promote economic development, therefore the Postbank should be registered as a bank as a matter of urgency.
Our DFIs are further important development institutions that should be fully capitalized and orientated towards supporting diversified industrial sectors that will drive growth.
On the conduct of finance capital
Honorable house chair, and honourable members
We would be doing an injustice to this debate if we do not demonstrate the extent to which the financial sector has at times undermined our attempts at driving transformation and economic growth.
It is firstly imperative to highlight that the dominance of the sector is reinforced by the increasing financialisation of other sectors of the economy, like mining and retail. The penetration of financialisation into other sectors includes the major shift in corporate practice to enhancing shareholder value above all else, incentivising CEOs and CFOs with grotesque rewards, not for productive outcomes or productive investment in mines, or factories, but for short-term, manipulative increases in share- value. The strategic interests and economic perspectives of monopoly-finance capital also dominate much of the media,
dramatically The lack of reciprocation by the sector in rescuing small business illustrated in 2020/2021 when government attempted to assist businesses in distress as a consequence of the Covid lock-down recession. In response to the lock-down recession, the SA Reserve Bank had already injected money into the financial sector through the purchase of bonds on the secondary market that is, the SARB, which prints money in any case – further expanded the liquidity of the private banks by purchasing the government bonds that they held. At the same time government made available a potential R200 billion to the same banks in terms of a Covid-19 Loan Guarantee Scheme to assist businesses in distress.
The national guarantee scheme was designed in such a way that 94 percent of the risk was to be absorbed by the National Treasury and the South African Reserve Bank. But the banks didn’t come to the party. Only R18.4 billion of a potential R200 billion was dispensed by the banks to businesses in distress. Particularly badly impacted were small and medium enterprises, especially black women-owned, with the banks insisting on applicants for the loans placing at risk as collateral their entire businesses even though the government was carrying the burden of the risk.
It is a graphic example that illustrates that the profit maximising conduct of the private banking oligopoly is not even in the interests of society at large. The heavily skewed financialisation of our economy and the ideological hegemony of the finance sector place a massive constraint on the entirety of programmes and policies required for serious structural transformation. The dominant macro-economic ideologies suffocate policies and programmes, even where there is an understanding of the need to drive state-led industrialisation, a major infrastructure build programme, or a massive expansion of public employment programmes as envisaged in the National Development Plan, or for a just green transition, or for the transformation of gender relations in the economy. None of these ever get off the ground, or, if they do, they are throttled in their infant cradles. By being seriously underfunded, and therefore become unable to achieve an effective scale to meaningfully contribute to job-creating, sustainable economic growth.
As much as we require the financial sector to contribute towards government priorities of transformation, we need to work on strengthening the capabilities and efficiencies of the state, particularly at the local government level which is where investments in industrial parks, SEZs, and other infrastructure projects are located. This requires greater coordination, cooperation, and collaboration.
Achieving structural transformation will largely depend, on taming financialization, and ensuring that we use the balance sheet of the financial sector to drive development in the productive capabilities of the state which will ensure the structural transformation is realised.
This can be achieved through among other things the use of prescribed assets and the amendments to regulation 28 as well as the reserve bank using its regulatory authority of the financial sector to compel their hand at supporting the productive capabilities of the state to drive industrialization.
Closing the debate
We need to strengthen our resolve and commitment to changing the lives of our people.
We need to take heed of international experiences and contextualise this to our lived reality in South Africa. Another important factor in the struggle against hyper-financialization is the contrasting example of China,. A key factor has been the use of China’s extensive, state-owned banking system, against the growth of speculative capital—what the Chinese refer to as the war against the “disorderly expansion of capital”, meaning speculative capital.
Many important lessons can be derived from international experience and debates. The financial sector and to an extent national treasury should not be tone-deaf to the socio-economic reality and the structural problems that inhibit growth faced by our economy.
There a various options available such as using our public sector balance sheet that includes the PIC, GEFP, and UIF. The Government employees pension fund for instance has accumulated surpluses of R470 billion between 2012/ 2013 and 2020/ 2021. This was equivalent to an annual average surplus of R52.2 billion during the period. There is no reason for it to have such surpluses. The surpluses do not benefit workers. We must be able to direct these surpluses in the productive capabilities of the state to support industrialization
Using the private sector balance sheet. The financial sector alone has total total assets of about R21.3 trillion. This comprised bank assets of R6.7 trillion and non-bank financial assets of R14.6 trillion. A social compact with a 10% target for impact or developmental investments could raise more than R1 trillion within the next five years, this could make a huge difference to the transformational agenda of government. We appreciate that this requires the building of sufficient state capabilities and ensuring efficiencies in the administration of government.
The people of South Africa are growing impatient with the lack of growth, and opportunities which has enabled criminal networks to be entrenched in our society scavenging for opportunities. Without addressing the transformation of the structure of the economy we will not be able to confront the socio-economic challenges brought about by the lack of growth.