Abstract
In this thesis I discuss the main arguments on the changes to the South African finance system since 1994 and how they impact on industrial financing. These include the institutional changes in banking, the unbundling of the conglomerates, and the role of the state in industrial finance. In distinguishing between the Anglo-Saxon and continental approach to banking it is my purpose to highlight that, despite South Africa having an Anglo-Saxon banking system, it had strong elements of the continental approach to banking from the 1960s to the early 1990s. I do so by considering the banking approach of two of the four major banks. I also discuss the emergence of a conglomerate structure that included firms from varied sectors across the economy, including banks, insurance, mining, logistics, real estate, retail and manufacturing firms. This historical perspective brings into sharp focus the changes that occurred after 1994 with liberalisation and financialisation of the South African financial system.
From 1994 the liberalisation of the South African economy and the internationalisation of the banking sector has seen it align with a financialised Anglo-Saxon approach, as a result the main Anglo-Saxon market institutions, the stock exchange and equity market, I argue are inadequate in financing industrial firms in South Africa and a finance gap exists. Financialisation and the data on bank lending points to a growing trend of banks providing finance to households and consumers, and firms in the finance, insurance, and real estate sectors rather than the manufacturing sector. The unbundling of the conglomerates, a further feature of financialisation in South Africa, results in firms being unable to use these internal capital markets to finance new investments and expansion and have not been replaced by credit markets for firms. In addition to mapping the development of the South African banking sector and the implications of the unbundling of the conglomerates, I assess the extent to which these structural changes since 1994 affect manufacturing firms. I do so through an analysis of a firm survey conducted for this thesis and analysing statistics on borrowing by firms. This analysis lays the groundwork to show that there is a deficit in industrial finance. I then assess if the state has been able to overcome the deficit in the provision of industrial finance through its incentives to firms and the finance provided by the Industrial Development Corporation (IDC). I do so by analysing the lending by the IDC and comparisons with other countries.
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The thesis is structured as follows. After giving an overview of the literature on the banking sector archetypes, conglomerate financing, and the role of the state, I review the literature on financialisation, convergence between the Anglo-Saxon and continental approaches, and concentration in the banking sector. This is followed by a review of the evolution of the South African banking system. The methodology used to undertake the research of this thesis is then discussed. I then provide an analysis of the banking sector, the changes that have taken place and the extent of lending. Next, I consider the finance market institutions, the Johannesburg Stock Exchange (JSE) and private equity, and the finance they provide to manufacturing firms. I then consider the declining performance of the manufacturing sector since 1994 by using different metrics. After this I consider the unbundling of the conglomerates, which has resulted in globalisation of the lead firms and the removal of the internal capital markets available to firms that were formerly part of the conglomerate structure. This is followed by an analysis of the responses to the firm survey, which points to the importance of bank finance and the use of own funds for short-term finance needs. Thereafter, I explore the role of the state and IDC in providing industrial finance. I argue that because of the deficit in bank lending, the inadequacy of the finance market, and the implications of the unbundling of the conglomerates, finance by the IDC is not sufficient.
Finally, I consider the policy implications that derive from the structural changes that have taken place in industrial financing in South Africa. I argue that there is an industrial finance gap that points to a disjuncture between the current finance system and economic development imperatives.
The methodology for this thesis followed a mixed method approach that combines qualitative research, document analysis, and use of data. This approach included a review of academic and policy documents, the examination of corporate and shareholder information including bank annual reports, data analysis, a survey of manufacturing firms, and interviews with bankers and financiers on their views on finance to firms. The aim of the survey was to gain insights on access to finance and uses of finance from a firm perspective.
This thesis adds to the financialisation literature by providing new insights into the spectrum of Anglo-Saxon and continental banking approaches through an examination of the changing relationship between banks’ shareholders, banks’ investment patterns and industrial finance in South Africa. It considers the creation of an industrial finance gap through the combined
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effects of financialisation and liberalisation - a decline in bank lending to the manufacturing sector, inadequate financial markets, and the unbundling of the conglomerates. This industrial finance gap is compounded by insufficient lending by state institutions. It is a contribution to building knowledge about financialisation, industrial policy and the role of the state in industrial finance.