Dividend payments to offshore headquarters are draining funds from the local economy
Howard Barrell
South Africa is experiencing a huge net outflow running into billions of rands as a result of the decision by several of the country’s biggest companies to list offshore.
Growth and job creation are being undermined by the steady drain of funds that might otherwise have been invested locally, in the view of some economists.
Latest Reserve Bank figures give the first authoritative glimpse of the extent of the outflows that can be expected from the foreign listings.
The figures have rekindled the debate which raged at the time the government granted the companies permission to move their headquarters abroad.
The Reserve Bank’s September Quarterly Bulletin suggests the three companies that listed offshore last year Anglo American, Old Mutual and South African Breweries accounted for a net dividend outflow from South Africa of about R5-billion in the quarter to June.
The overseas holding companies of the three all report in June, as well as in December. This suggests that a roughly similar net dividend outflow from South Africa might be expected in the second and fourth quarters of each year which will rapidly nullify the once-off benefit that accrued to South Africa when the companies originally listed offshore last year.
South Africa’s financial (or capital) account of the balance of payments received three once-off boosts which together totalled between R24-billion and R34-billion. The uncertainty over this total stems from some overseas investors’ use of asset swaps, instead of cash, to buy shares.
Some economists responded this week by calling on the Department of Finance to require local companies first to satisfy a set of targets for domestic investment before being allowed to list offshore.
Ravi Naidoo, director of the National Labour and Economic Development Institute, said: “The Department of Finance must put in place measures to ensure the level of domestic investment by companies is increased.”
He said the rush by South African companies to list and invest abroad sent the wrong signal to foreign investors.
Azar Jammine, chief economist at Econometrix, said: “If there are these massive outflows, then I would really question the validity of the arguments for these offshore listings.”
Iraj Abedian, chief economist at Standard Bank, said that, when the government was approached by the companies for permission to list offshore, it had faced the dilemma that confronted any small country. “What was the alternative? The government was damned if it said yes, and damned if it said no.”
The answer to the small countries’ dilemma was to “change the global architecture for the capital market”.
Nico Czypionka, chief economist at Socite Gnrale, said bulges in balance of payment flows merely indicated “the normalisation of South Africa’s financial relationships”.
The first of the big South African companies to take a primary listing abroad was Billiton in 1997. The latest is Dimension Data (Didata), which listed this year.
The Quarterly Bulletin shows an unprecedented R12,8-billion left the country as dividend payments in the second quarter of this year. This is an increase of R8,6-billion on the previous quarter and of R10,2-billion on the second quarter of 1999.
But dividend inflows into South Africa in September were also markedly higher than before. They totalled R5,2-billion, about R5-billion more than both the previous quarter and the second quarter of 1999. A senior bank official said the dividend figures for the second quarter of this year described a circle of payments attributable largely to the emigr companies. South African-based operating companies made dividend payments to their parent holding companies in London or New York; and these parents in turn paid dividends to minority shareholders, many of whom were based in South Africa.
But subtracting the R2,5-billion net dividend outflow for the second quarter of 1999 from the R7,6-billion net dividend outflow this year shows a difference of about R5-billion.