Actual vs Optimal Size of the Public Sector in South Africa

The optimal size of government or the public sector, in general, has been the topic of many studies and debates all over the world. There are some who state that the public sector should play a much greater role in the economy, while others proclaim the private economy is a much better placed to generate the desired economic outcomes. This article investigates this issue and applies it to South Africa as there is no consensus on the optimal size of the South African government. The reporting formats of the National Treasury and South African Reserve Bank (SARB) were used to define the public sector, and estimate its actual size and contribution to the country’s economy. The research period ranges from 1992 to 2017. In theory, the BARS or Armey curve suggests that there exists an inverted U shape association between the size of government and optimal economic growth, and that was tested. Various regression equations were assessed using the fully modified OLS (FMOLS) estimation technique. The optimum level of the public sector size is estimated to be between 18 and 24% of the economy, which compares to the current level of between 30 and 50%, while optimal levels experienced between 2005 and 2007. The results suggest that the size of the South African public sector is significantly larger than optimal.&nbsp

An Assessment Of Instruments Utilised By Export Promotion Agencies In Eastern Africa

This study identifies the export promotion instruments that are applied by public export promotion organisations situated within the East African Community (EAC) countries to stimulate exports and encourage economic growth. The East African region is the fastest developing region in Africa. EAC member countries are, therefore, used as a case study. How export promotion instruments are bundled by export promotion organisations depends on the socioeconomic, political and trade environment of a country as well as the structure of the country’s export promotion agencies. By utilising primary and secondary data, public export promotion organisations of Burundi, Kenya, Rwanda, Tanzania and Uganda were studied. These general and country-specific instruments were identified through onsite interviews in the respective countries under investigation. The results suggest that the most important export promotion instruments applied include advertising, promotional events, advocacy and legal assistance. It also includes capacity building concerning packaging, pricing and quality requirements within foreign markets as well as assistance concerning planning and preparation for export market engagement. Foreign trade missions, trade fairs, expos, and additional services offered by trade offices and representatives abroad are also general export promotion instruments, as is the provision of information and export financing. Country-specific export promotion instruments identified during onsite interviews in the various countries include unique promotional events and product branding, use of cell phone WhatsApp groups and embassies as a channel for information, trade assistance and trade clinics. Our contribution to the field is that this study is foundational and represents the first comprehensive effort to write up these activities of the EPO’s to establish viable research in the EPOs in the East Africa Region

Analysing industrial growth in various cities in KwaZulu-Natal, South Africa

This article investigates the industrial success of various cities in KwaZulu-Natal, South Africa. It assesses the hypothesis that knowledge spillovers are supportive of industrial growth at the city level. Theories of economic city growth suggest that cities are engines of knowledge spillovers, which are essential to generate growth. This study utilised data on the growth of industries in cities in KwaZulu-Natal between 1996 and 2015. The study initially found that industries develop better in environments characterised by less concentration and more city diversity, which gave evidence of Jacobs’ externalities. However, after controlling for industry-specific and city-specific characteristics, the results changed significantly. No evidence was found for concentration effects (Marshall/Arrow/Romer-externalities) and less diversity supports city-industry growth (evidence against Jacobs’ externalities)

The global value chain dimension of foreign direct investment flows in the agro-industrial sector of South Africa, 2003–2014

Orientation: African countries offer many investment opportunities and also urgently need global investment finance. Along the value chains of the agro-industrial sector there are many global challenges for African countries to attract foreign direct investment. This article investigates the investment flows in agro-industries and products to and from South Africa. Research purpose: This study evaluates the nature and dimensions of the agro-industrial sector that receive investment inflows in South Africa, as well as investigating South African investment patterns into Africa. Motivation for the study: Of particular interest is the relationship between foreign direct investment (FDI) flows, their integration into global value chains and sustainable investment options. Research design, approach and method: Qualitative data and visual techniques using available data for the period 2003–2014 disambiguate the linkages in FDI patterns with regard to regions, industries and specific companies. Flows between regions and the specific companies are identified and studied. Main findings: The results indicate that the United States, the United Kingdom and the Netherlands are the largest investors in South Africa, with a strong focus on agricultural input production and subsequent agro-processing industries. South African investment into Africa follows a similar, albeit narrower and more focused, pattern. The study concludes that foreign multinational enterprises are actively involved in global value chain expansion and South African firms are following suit. Practical/managerial implications: The lack of FDI in actual agricultural crop production in Africa offers future investment opportunities. Contribution/value-add: This study creates a better understanding of how FDI in agriculture is linked to the development of regional value chains in the Southern African region. The methodology applies a novel approach to an important field of study, of which little knowledge exists, and may contribute to the creation of wealth in the countries of the region and the welfare of its population

Manipulation of transfer prices by multi-national companies in Nigeria

Background: Transfer pricing manipulation diminishes revenue generation by the host countries. The results of the investigations in the literature show divergence to the extent of the impact of transfer pricing on economic growth in both the low- and high-tax countries, especially as this type of investigation is still scanty in the literature. Aim: The study examines the effect of transfer pricing manipulation on economic growth in Nigeria. Setting: Multi-national companies in Nigeria. Methods: The auto-regressive distributed lag (ARDL) approach was applied to data from Nigeria between 1986 and 2019. Results: The findings reveal an insignificant relationship between economic growth and explanatory variables such as transfer pricing manipulation, unemployment rate, government revenue and trade openness. The result also shows a significant negative relationship between the exchange rate and economic growth. Conclusion: The study recommends that the government should implement proper monitoring of multinational companies to check their day-to-day transaction activities. This may help the government to generate more revenue, and serves as an avenue to create more employment opportunities. Contribution: In this study an important aspect is indicated in that multinational companies often misuse revenue to gain undeserved profits, rendering unnecessary costs to market and rendering other companies less competitive, as well as exploiting buyers and consumers. This is an important loophole that law- and policymakers as well as governments should pay attention to and act against

Assessment of Financial Conditions of South African Municipalities: A Unique Model for KwaZulu-Natal

Most South African municipalities experience significant financial problems. This study investigates the financial conditions of municipalities in the province of KwaZulu-Natal (KZN). It was found that the most important factors which influence their financial position are unobservable municipally unique factors. The ratio of people of non-working age to the total population is also significant in influencing the financial position of municipalities. This article designed a unique financial conditions measurement framework to evaluate the financial status of local governments. Two independent instruments were developed, first to measure the financial quality of a municipality, and secondly, to identify and examine a number of socio-economic factors possibly affecting the financial condition of these municipalities. The study developed a composite financial condition index (CFCI) and a financial conditions management index (FCMI), and then tested the framework on 51 municipalities in the KZN province from 2009 to 2015. The study used a panel data approach with two financial condition indices as indicators. The findings suggest that, in the absence of individual effects, most of the selected socio-economic variables are relevant in terms of explaining some of the variations in municipal financial conditions. Cross-section fixed-effects do, however, significantly improve the overall performance of the model, suggesting that it is rather the unobservable municipally unique factors affecting municipal financial conditions.Â

A university in a small city: Discovering which sectors benefit

Orientation: A university, and equally so a university campus, has the ability to influence the economy through its sectoral links. This raises the question as to what sectors benefit as a result of expenditure made by a university campus that is situated within a small city in South Africa. Research purpose: This paper identified the university-sector links by applying a bill-of-goods approach to identify which sectors benefit as a result of an operational university campus. Motivation for the study: The findings of this study will be used in refining provincial or local social accounting matrix (SAM) models to improve the measurement of an economic impact assessment for the university campus, especially as SAM models are not readily available on such a micro-level within South Africa. Research design, approach and method: The bill-of-goods is a detailed representation of the purchases of goods and services for the campus. The goods and services are grouped into the corresponding sector according to the Standard Industrial Classification to identify and quantify university-sector linkages. Main findings: The results indicated a significant benefit for tertiary sectors of the economy, which receive approximately 85% of university expenditure. On a sectoral level, there is an increased benefit to the utility, retail and personal services sectors, whereas manufacturing and construction turn out to be less significant. Growth prospects for sectors within the tertiary sectors are higher compared to sectors in the primary and secondary sectors. Practical and managerial implications: Understanding this link enables strategic spatial planning on the part of local government and will enable proactive land-use planning, based on the strength and growth prospects of each individual sector that benefits from university expenditure. Contribution or value-add: This approach provided exceptional value in identifying the sectors that benefit and provide important trend analyses that will be combined with input–output models to improve the accuracy of measuring university impact assessment on a local level

Political independence of the South African Reserve Bank: Managing interest rates

Purpose: The purpose of this article is to determine whether the South African Reserve Bank (SARB) is politically independent and able to operate without undue external influence. Problem investigated: The SARB is under increasing pressure to shift its monetary policy stance in order to boost the country’s competitiveness. Whether external demands have compromised its independence at times has been the subject of debate. Methodology: The study comprised a literature review and econometric analysis of the Bank’s independence. Movements in interest rates were used as an indicator of dependence. The analysis was between actual interest rates in South Africa over the past two decades, and a model of what interest rates should have been during this period, with reference to Taylor’s Rule. Differences between the two were assumed to expose shortcomings in the direction of South Africa’s monetary policy and therefore some degree of dependence. Findings and implications: Movement of the two sets of rates correlated, which suggests SARB independence. The findings did not reveal harmony between the levels of the two sets of rates. However, the latter correlation was not the focus of this study. Originality and value of the research: This study makes an important contribution, as few authors researched the relationship between interest rates and the SARB’s independence scientifically. The study is well timed as the SARB’s independence debate has reached concerning levels. Conclusion: The results suggest almost no level of dependence – which does not necessarily imply that the SARB is entitled to reject all external input, but rather that it can prioritise its objective of price stability over other concerns

Effect of Black Economic Empowerment on profit and competitiveness of firms in South Africa

Orientation: The key obstacle hindering optimal profitability levels and competitiveness in firms in South Africa is the application of labour legislation policies and tools aimed at narrowing the income gap between different racial groups and resolving inequality amongst a diverse workforce. Research purpose: This article determined whether the implementation of a Black Economic Empowerment (BEE) policy by companies has a positive effect on their growth in terms of profits and competitiveness. Motivation for the study: This study determined whether the implementation of BEE could be profitable for companies. Research design, approach and method: A quantitative study was undertaken in order to find empirical evidence supporting the relation between high BEE Scores, profitability and competitiveness. The empirical investigation utilised regression analysis, correlations and other methods, based on data between January 2009 and December 2011. The BEE Scorecard was used to obtain BEE scores of the top 50 BEE companies. Thereafter, the top 50 companies’ financial information was gathered from the Johannesburg Securities Exchange. Main findings: The implementation of BEE within companies has a positive effect on profitability, turnover and investment. Numerous factors have, however, been hindering,while other factors enhanced the success of BEE. Practical/managerial implications: The findings encourage mangers to engage in BEE as it may facilitate higher profits and indicates where labour legislation could be improved. Contribution/value-add: Value was added through new research determining the effects of BEE and labour legislation on profitability and competitiveness of firms on a micro-level