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Systematised Capital Flight in South Africa

Systematised Capital Flight in South Africa. Presentation at the 3 rd IIPPE International Workshop, Ankara Susan Newman CSID, University of the Witwatersrand. Presentation Outline. Definitions and causes of capital flight Overview of the MEC as the prevailing system of accumulation

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Systematised Capital Flight in South Africa

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  1. Systematised Capital Flight in South Africa Presentation at the 3rd IIPPE International Workshop, Ankara Susan Newman CSID, University of the Witwatersrand

  2. Presentation Outline • Definitions and causes of capital flight • Overview of the MEC as the prevailing system of accumulation • Calculations of capital flight • The evolution of the MEC and changes in the modes of capital flight • Conclusions

  3. Defining capital flight • 2 broad approaches • To differentiate capital flight from capital outflows • No distinction between capital flight and capital outflow • Capital flight distinguished on the basis of volume, motive and the direction of capital flows • We employ a broad definition of capital flight as net unrecorded capital outflows

  4. Capital flight in the context of the MEC in SA • Emergence of the MEC in 1870s and lead role of English mining capital • Formation of the nationalist government in 194? And the subsequent integration of English and Afrikaaner capitals by the 1970s • Economic sanctions of the 1980s and the development of the private financial sector • Repatriation of wealth under apartheid took the form of: • 1980-1980: capital flight following the trend in debt • 1986-1993: capital flight lower than the period before the debt crisis as SA was forced to run a trade surplus. Resurgence of capital flight in 1988 and 1989 with an increase in the levels of misinvoicing. • Since 1994, macro policies have been steered towards the management of a smooth export of capital on favourable terms by avoiding a sudden flight of capital • Liberalised capital account and high interest rate has increased short-term capital inflows through the private financial sector

  5. Political events, net capital flows and capital flight as a percentage of GDP – taken from Mohamed and Finnoff 2005

  6. Alternative measures and determinants of capital flight from South Africa –taken from Mohamed and Finnoff 2005

  7. Calculations for capital flight in South Africa • Following Mohamed and Finnoff 2005, we employ the residual method ADJKFt= ΔDEBTt + NFIt – (CAt + ΔRESt) + MISINVt Where: ΔDEBT is the change in South Africa’s stock of external debt NFIis net foreign investment CAis the current account deficit ΔRESis the change in the net stock of foreign reserves MISINVis net trade misinvoicing.

  8. Results – Adjusted Capital Flight 1980 - 2008

  9. Capital flight in the context of the evolving MEC –capital flows

  10. Capital flight in the context of the evolving MEC -misinvoicing

  11. Sectoralmisinvoicing

  12. SectoralMisinvoicing

  13. conclusions • Capital flight through systematic misinvoicing concentrated in mining sectors. • Macro-policies have supported short-term capital flows that bolster the private financial sector allowing it systematically misallocate finance towards speculative and short-term projects and away from longer term productive investments • Can there be a break from the system of accumulation characterised by the evolving MEC?

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