Cape Town – Big business in South Africa have been on a “capital strike” in recent years, not investing back into the economy, the National Union of Metalworkers SA (Numsa) indicated in its secretariat report.
The trade union, which broke away from Cosatu two years ago after being expelled, is holding its 10th national congress at the Cape Town International Conference Centre.
According to Numsa’s report “real fixed capital formation” fell steadily since 2012, which can be attributed to a decline in private sector investment.
“Only government maintained the vital task of adding to fixed capital,” Numsa said.
The lack of investment, though, doesn’t mean private companies are not profitable. In two recent reports of the International Monetary Fund, analysing emerging market economies, South Africa’s corporations had higher profits than other comparable countries.
“Four years later, South Africa’s financiers were more profitable than any others, aside from Brazilian and Argentine banks, while for non-financial corporations, only Indonesia and India had more profitable firms,” Numsa says.
Money taken offshore
In its report the trade union alleges that instead of investing, private business is taking money to offshore financial centres “as quickly as possible”.
“The Panama Papers leaks about foreign accounts of important politicians and the HSBC Bank’s Swiss account leaks show how the least patriotic South Africans set up secret hideaways in offshore financial centres, such as Mauritius, the Bahamas and Bermuda.”
Numsa cites De Beers, MTN and Lonmin as some of the companies that are “under investigation from researchers”.
“These companies are all accused of offshoring their profits … and engaging in tax avoidance on behalf of their wealthy shareholders and leading executives. The scale of illicit flows is mindboggling,” Numsa said, “averaging $21bn per year from 2004 to 2013 according to the NGO Global Financial Integrity.”
Numsa further alleges that big business “holds on to R600bn in cash” instead of reinvesting the profits in a declining economy.
SA’s debt burden
Numsa in its report says it’s particularly concerned about the increasingly serious debt burden, especially foreign debt. “If South Africa continues to suffer a declining currency – the rand fell from R6.3/$ in 2011 to as low as R17.9/$ in early 2016 – an emergency loan will be needed from the International Monetary Fund or the closely related Brics Contingent Reserve Arrangement, followed by extreme austerity.
The trade union calls for a “genuine industrial policy” that builds up South Africa’s industries in a “planned way”.
“That ambitious plan will also require tightening exchange controls and much more rigorous attention to the kinds of corporate crimes that South African businesses are resorting to, as they avoid taking responsibility for the capitalist crisis.”Read Fin24's top stories trending on Twitter: Fin24’s top stories