Who Actually Controls the Economy?
WHO ACTUALLY CONTROLS THE ECONOMY?
Dave Steward, Executive Director of the FW de Klerk Foundation
In his speech at the opening of the ANC’s Policy Conference on 26 June, President Zuma said that “the economic power relations of the apartheid era have in the main remained intact. The ownership of the economy is still primarily in the hands of white males as it has always been.”
But is this so? I am not an economist - but have made the following rough estimates of who actually controls the economy.
Firstly, ownership of shares on the JSE is often - and quite incorrectly - conflated with ownership and control of the entire economy. In fact, the JSE probably represents only about 20% of total economic activity. According to a study by Trevor Chandler and Associates in October 2011, only 54% of the shares on the JSE are available to South African investors. Of the remainder, 33% are foreign-owned, 11% are cross-held shares and 2% are owned by the government. Of the 54% of shares available to South Africans, 28% (3.4 % of GDP) are owned directly or indirectly by black South Africans and the remaining 72% (7.5% of GDP) by whites.
It is estimated that Small and Medium Enterprises (SME) and the informal sector contribute 35% of GDP and include between 1.5 and 2 million enterprises, almost 80% of which are owned by previously disadvantaged individuals in the informal sector. The informal sector is generally estimated to contribute between 5% and 10% to GDP. Black ownership or part ownership of larger firms has probably increased as a result of BBBEE. It would thus not be unreasonable to assume that black ownership of the SME and informal sector at a minimum of 10% of GDP.
A sizeable segment of the economy is also owned and controlled by foreign multi-national companies - apart from their 33% ownership of shares on the JSE (6.6% of GDP). If one considers only the 6% - 7% contribution to GDP of the foreign-owned automobile industry and the contribution of at least 3.5% of GDP by foreign-owned oil companies, foreign-owned interests probably own or control at least 17% of the economy.
Then there is the contribution of government to economic activity. According to this year’s budget, government expenditure will account for29.4% of GDP. This includes provision for a deficit of 5,2% of our GDP of R3,3 trillion rand. This total amount - with the possible exception of about 1% of GDP that is transferred to the multiracial government of the Western Cape - is controlled by black South Africans. To this figure we must add the 8% of GDP represented by State Owned Enterprises - which are also under black control.
If we then tot up the figures the following picture emerges:
- White South Africans own or control 7.5% of GDP through the JSE and another 25% through their ownership of SMEs - giving them more or less 32.5% ownership/control of the economy.
- Foreign interests own/control 6.6% of economic activity through the JSE and at least another 10% through the activities of multinational companies that are not listed on the JSE - giving a total of about 17% of GDP.
- Black South Africans control 29.4% of economic activity through their control of government; 8% through their control of SOEs; 3.4% through the JSE and 10% through the informal and SME sectors - giving a total of 50 - 51%.
President Zuma suggested in his statement that although political power had shifted since 1994, the ownership of the economy was still where it had always been - in the hands of white males. In fact, prior to 1994 black South Africans would probably have controlled no more than 12% of the economy - 10% through the informal and SME sectors and possibly 1 - 2% through indirect investments on the JSE. At that time whites probably controlled 65% - 70% of the economy (32% through control of government and SOEs; 25% - 35% of the SME sector and 8% - 9% through the JSE).
If my estimates above are only approximately correct (someone should commission proper research) it is clear that the President has been very badly misinformed. Black ownership/control of the economy has become dominant - while white ownership/control of the economy has declined significantly. Quite apart from the portion of the economy that black South Africans own or control, they are - as we are now observing at Gallagher Estate - in sole control of political and economic policy.
President Zuma evidently intends to use this control of economic policy “to democratise and de-racialise the ownership and control of the economy by empowering Africans and the working class in particular to play a leading role.” He says that this will require the government to “take the difficult decisions that we could not take in 1994 with regards to the economy.” It is difficult to see this as anything but a threat to diminish the property rights of white South Africans on the basis of their race.
It would seem that the President intends to achieve this objective inter alia by increasing government intervention in the economy through the establishment of a developmental state; by accelerating the implementation of BBBEE and by dropping the ‘willing seller, willing buyer’ approach to land reform. He explains that the government could not take such measures in 1994 because of the need “to make certain compromises in the national interest”. As the President explains, “we had to be cautious about restructuring the economy, in order to maintain economic stability and confidence at the time.”
What makes the President think that the actions being contemplated at the Policy Conference would not have catastrophic consequences for economic stability and confidence if they are taken now? Everyone agrees with the need to address the triple problems of unemployment, poverty and inequality. However, the policies that the ANC is considering would have just the opposite effect. They would put an end to any hope for meaningful foreign investment; they would chase away our best and brightest entrepreneurs; they would seriously erode the government’s tax base; and they would undo all President Mandela’s excellent work in promoting reconciliation and national unity.
Published in: FW de Klerk Foundation