Anglo-American corporation and corporate restructuring in post-apartheid South Africa

ABSTRACT

The Anglo American Corporation was the largest, most powerful South African corporation during the Twentieth Century. This article focuses on the offshore listing and restructuring of Anglo in the post-apartheid period. The restructuring and offshore listings of the largest South African corporations were allowed as part of a neoliberal approach to economic policy adopted by the post-apartheid government. The resulting financialisation of the economy and pressure on the restructured and offshore listed corporations to maximise shareholder value combined with neoliberal economic policies further weakened South Africa’s already inadequate industrial structure, caused macroeconomic harm and is associated with poor growth and higher inequality.

KEYWORDS:

• Corporate restructuring
• financialisation
• Anglo American corporation

JEL:

• B5
• F30
• L10
• L16 N10
• N17
• O01

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Description of the periods until the end of the 1980 s draws heavily from the work of Innes (1984) and Fine and Rustomjee (1996) and also Pallister, Stewart, and Lepper (1987). Historical understanding of South African large corporations before the transition to democracy also benefited from Christie (1984), Clarke (1994), Terreblanche (2002), Freund (2019), Hart and Padayachee (2013) and Padayachee (2008), and more general historical accounts of South Africa, such as Feinstein (2005).

2. Bell at al. (2018) report that AAC’s share of the JSE’s market capitalisation dropped to 1.5% in 2015 and recovered to 3.3% in 2016.

3. While thisarticle will not deal with the oppressive black labour migrant system it is important to keep in mind that South African mining, and other sectors, brutally exploited generations of African workers over more than a century to secure cheap labour and high profits. Mining and related industries through their enforcement of the cheap labour system caused generations of workers and their communities to suffer from the physical and psychological damage associated with mine work and living in disgusting, militarised compounds isolated from neighbouring communities (Wolpe 1972). According to Crush and James (1991), during the early 1990 s, 97% of the 500 000 workers in the gold mines lived in regimented, single sex barracks. Unfortunately, migrant labour, particularly in the mining industry, persists. An estimated 2.5 million households in South Africa have at least one adult member absent (Posel 2017).

4. Terreblanche (2002, 74–75) says, ‘When, in 1978, P W Botha became prime minister, a close partnership was established between the government and its securocrats and the corporate sector. This partnership was jointly responsible for Botha’s reform initiatives and for putting the “total strategy” – intended to counteract the “total onslaught” – in place. In the “compact of power” forged between the Botha government and the corporate sector, the ideological differences between the NP [Nationalist Party] and Afrikaner-controlled corporations on the one hand and the English – controlled corporate sector on the other were removed and a broad-based agreement reached on the merits of a “free market” approach.’

5. For example, it required cooperation between the state and business to nationalise the electricity industry to develop a national grid based on coal power stations that provided low cost electricity to support mining and promote manufacturing (Christie 1984). Harry Oppenheimer and Anglo played an important role, including provision of finance, for the nationalisation of the assets of the privately owned Victoria Falls Power Corporation (Christie 1984).

6. These groups were formed by firms that had managed to dominate diamond mining in South Africa. They used the profits from their diamond operations and their international finance connections to fund major new underground goldmining operations.

7. These developments support Fine and Rustomjee's (1996) arguments about the growth of the MEC because much of the new developments were processing and counted towards manufacturing output when using the traditional standard industry methods of classification.

8. In 2000 it was renamed as Barlow World an international industrial company.

9. Perhaps Zalk’s (2017) finding that AAC found the best managerial leadership for its mining operations but appointed cronies of the Oppenheimers for senior roles in their industrial operations provides a clue for the failure of its efforts to adequately diversify manufacturing.

10. For example, in 1994 De Beers Consolidated owned 38.6% of Anglo and 10% of the Anglo American Investment Trust (AAIT), but De Beers was in turn controlled by Anglo through Anglo’s 29.4% stake in De Beers Centenary, while AAIT (52% owned by Anglo) owned a further 25.8% directly of De Beers Consolidated and 23.4% of De Beers Centenary. Further down the pyramid, 30% of Mondi Paper was owned by Anglo, together with a further 17% owned by De Beers and 53% by AMIC (itself 49.9% owned by Anglo and 26.7% by De Beers). (see Goldstein 2010, 557).

11. Sandile Zungu, ‘SA stripped of investment activity’ in IOL Business Report of 17 March 2013. Available at https://www.iol.co.za/search?q=sandile+zungu+SA+stripped+of+investment.

12. The lowering of corporate profit rates, and even the addition of tax incentives to support investment, during the post-apartheid period exacerbates the balance of payments constraint because it creates opportunities for higher levels of capital outflows.

13. Portfolio flows are mostly short-term investments into equity and bonds and most ‘other flows’ are related to short-term foreign bank lending (much of which to South Africa seems to be related to carry trade transactions).

14. See for example Gary Gereffi and Karina Fernandez-Stark (2011), for a discussion on the large role global value chains played in reorganizing global production. However, it is worth noting that the global financial crisis of 2008 had an impact on global trade patterns and has reduced the amount of global production occurring in global value chains.

15. For more on financialisation and increased power of the shareholder value movement over non-financial corporations (NFCs) see Epstein (2005b), Crotty (2002), Froud et al (2001), and Lazonick and O’Sullivan (2001). The impact of financialization of NFCs has been to align the interests of their executives with those of finance to focus on what Lazonick and O’Sullivan refer to as ‘value destruction’ through ‘downsize and distribute’ instead of ‘value creation’ through ‘retain and reinvest’. In short, the pressure from the shareholder value movement shifted the concern of executives toward short-term maximisation of shareholder value by downsizing the workforce of firms and distributing the profits to shareholders instead of investing in long-term development of firms through retaining workers and investing in theirworkers and capital goods.

16. According to Crotty (2002), there were several reasons for the increased power of finance over NFCs. Large NFCs in core industrial sectors became more reliant on raising finance in financial markets after the 1980 s because the option to invest using retained earnings from profits decreased. Increased levels of competition and lower levels of aggregate demand (due to widespread adoption of contractionary neoliberal macroeconomic policies from the 1980 s) directly reduced profit levels. There were also changes that disrupted oligopolistic competition and created conditions for increasingly cutthroat or coercive competition amongst core industries. Core industries are industries where economies of scale mean that larger firm size supports lower costs and increased competitiveness, for example sectors such as autos, microchips, steelmaking etc. The term coercive competition refers to a situation where firms would be forced to invest even in the face of declining profits to stay in business. They would keep competing until one of the other large competing firms in their sector was forced out of business. The market would then be divvied amongst the survivors. Coercive competition meant that these NFCs were required to invest when they did not have profits and they became more dependent on financial markets to raise capital. Another, aspect of coercive competition was that firms were forced to introduce new products into the market faster, which reduced their returns from innovation and introduction of new technology. In other words, the period over which they could extract technology rents on new products became shorter.

17. The source for information on Anglo’s restructuring is drawn from various Anglo Annual Reports from 1997 through to 2018 and a summary provided in Roberts et al. (2003).

18. See the Boart Longyear website for the history of the company https://www.boartlongyear.com/company/history/.

19. https://mg.co.za/article/2018-02-09-00-highveld-steel-ticks-over-gearing-up-to-rise-once-again.

20. https://www.miningmx.com/uncategorized/20523-anglo-s-disastrous-share-buyback/. See alsohttps://www.moneyweb.co.za/in-depth/moneyweb-investor/share-buybacks-in-whose-interest-are-they/.

21. Moneyweb 12Nov. 2019. https://www.moneyweb.co.za/news-fast-news/anglo-drops-another-hint-that-thermal-coal-isnt-forever/.

22. John Gapper, ‘A requiem for Anglo American, the octopus of South Africa’, Financial Times 16 February 2016, https://www.ft.com/content/5ba52f88-d55d-11e5-829b-8564e7528e54.

23. Anglo American 2017 Annual Report.

24. My own calculations using Quantec industry data.

25. My calculations used Quantec’s data.

26. Capital flight (not discussed in this article) has also been an important source of capital outflows from South Africa that reduces capital available for investment and employment in South Africa and also exacerbates the potential balance of payments problems (Mohamed and Finnoff 2005; Kar and Curcio 2011).

27. A 2017 The Guardian newspaper article noted that the Gini coefficient index for South Africa was 63.4 and the Palma Ratio 7.1 in 2015.https://www.theguardian.com/inequality/datablog/2017/apr/26/inequality-index-where-are-the-worlds-most-unequal-countries.

28. See for example Johnson (1982), Alice. (1989), and Chang (2002) for a discussion of the developmental state.

29. See for example chapters by Fine. (2010) and Mohamed (2010a) in the book Edigheji (2010). Constructing a Democratic Developmental State in South Africa. Cape Town: HSRC Press.