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Profitability without Investment: How Financialization Undermines Structural Transformation in South Africa

Andreoni, A; Robb, N; van Huellen, S; (2021) Profitability without Investment: How Financialization Undermines Structural Transformation in South Africa. In: Structural Transformation in South Africa: The Challenges of Inclusive Industrial Development in a Middle-Income Country. (pp. 213-236). Oxford University Press: Oxford, UK. Green open access

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Abstract

Sustained investment in productive capabilities and fixed-capital formation is a key driver of inclusive and sustainable structural transformation. Both historically and compared to other middle-income countries, South Africa has performed poorly in terms of sustaining domestic-productive investments. This failing has coexisted with the development of a stock market with the second-highest level of capitalization over gross domestic product (GDP) in the world, and high levels of profitability across several economic sectors. This chapter provides new evidence on the specific ways in which financialization of non-financial corporations in South Africa has resulted in low investment performances, focusing on two large, publicly listed corporations operating across different economic sectors between 2000 and 2019. The analysis shows that, despite sector heterogeneities: (1) corporations have increasingly financed operations, capital expenditure, and distributions to shareholders with debt; (2) the US dollar-denominated share of this debt has grown rapidly, exposing corporations to increased exchange and interest rate risk; and (3) distributions to shareholders, driven by dividends rather than share repurchases, have risen markedly. These financialization dynamics are attributed to the distribution of power in the domestic political economy and the subordinate nature of South Africa’s integration with global finance. Driving financialization, these two mutually reinforcing factors have undermined the translation of profits into domestic investment, reducing its capacity to drive structural transformation.

Type: Book chapter
Title: Profitability without Investment: How Financialization Undermines Structural Transformation in South Africa
ISBN-13: 9780192894311
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/oso/9780192894311.003.0010
Publisher version: https://doi.org/10.1093/oso/9780192894311.003.0010
Language: English
Additional information: © Oxford University Press 2021. This is an open access publication, available online and distributed under the terms of a Creative Commons Attribution – Non Commercial – No Derivatives 4.0 International licence (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Keywords: financialization, non-financial corporations, profitability, productive investments, South Africa, structural transformation, global finance
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Inst for Innovation and Public Purpose
URI: https://discovery.ucl.ac.uk/id/eprint/10135284
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