The general view is that industrial production activities as compared to commercial activities have greater capacity to create demand for long-term capital (Pontecorvo 1958:561), which in turn facilitates participation in the stock market. In keeping with this precept, this thesis uses the manufacturing value added (MVA) as a proxy for the scale of industrial output and the level of industrial development. A manufacturing value added contribution per person indicates the level of industrial production. An increase in the production activities increases the demand for capital, which in turn enhances participation in the stock market. A manufacturing sector contribution to GDP indicates the degree of industrial development in a country and hence the level of demand for capital. The higher manufacturing sector contribution to GDP is indicative of the higher demand for financial capital and signals a relatively high participation in the stock market. In this thesis, a combination of the manufacturing sector percentage contribution to GDP and the manufacturing value added per capita indicates the industrial capacity of a country to enhance participation in the stock market through the
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http://devdata.worldbank.org/wdi2006/contents/index2.htm accessed on 15/05/2008.
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production of goods. Thus a higher percentage of manufacturing sector contribution to GDP and higher manufacturing sector contribution per capita indicates high capacity of the economy to enhance participation in the stock market.
Table 6.4 presents the overall GDP contribution per sector over the 20 year period staggered in 10 years. This table shows the structure of the economy for each SADC country. In general, SADC countries are increasingly highly reliant on the services sector and the primary sectors of agriculture or mining. In all, except Swaziland and Tanzania, the service sector contribution to GDP is on the increase, while the manufacturing sector either has stagnated or is declining. The economies of Malawi and Tanzania in particular, are equally heavily reliant on agriculture, while Botswana‘s economic output is dominated by the mining sector. These economic structures are likely to undermine the capacity of regional economies to sustain viable stock markets, in particularly those SADC countries that are extremely small, namely Botswana, Namibia, Swaziland, and Mauritius.
The trend and patterns of the manufacturing value added to GDP and manufacturing value added per capita are presented in Table 6.5, panels A and B, which shows the manufacturing value added per capita. Panel A of Table 6.5 reports the 20-year manufacturing sector contribution to GDP in percentage terms in five year intervals to show growth pattern. Panel B of Table 6.5 shows the per-capita manufacturing value added to GDP expressed in US dollars.
This thesis uses the criterion set by the United Nations Industrial Development Organisation (UNIDO) to benchmark a country‘s levels of industrial development. According to UNIDO, a country with at least 20 per cent of GDP coming from the manufacturing sector has a ―fairly well developed industrial structure‖. Those with the manufacturing sector contribution ranging from 10 to 20 per cent of GDP are categorised as in an intermediate stage of industrial development and those with manufacturing contributing below 10 per cent of GDP are categorised as in an early stage of industrial development.40 This thesis adopts the 20 per cent UNIDO benchmark of a fairly developed industrial structure as the minimum level of industrial
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development required to generate at least the minimum required production activities essential to create minimum demand for capital. The phrase ―fairly well developed…‖ suggest that countries have achieved a certain degree of industrial development but are not that well developed industrially.
Based on UNIDO classification, only Mauritius, South Africa and Swaziland have a ―fairly well developed industrial structure‖. This outcome is consistent with each country‘s relatively high manufacturing sector contribution per person (Table 6.5). However, while the production capacity for Mauritius and South Africa is consistent with that of a fairly developed industrial sector as described by UNIDO, for Swaziland the level is low and does not necessarily tally with its seemingly relatively developed industrial sector. This finding is consistent with the institutional path dependence for these countries and in line with property rights theory prediction with regard to the effect of the structure of property rights ownership. For instance, the institutional development path dependence for South Africa and Mauritius suggests much greater private ownership influence on economic organisations. For this type of property ownership structure, property rights theory predicts greater incentives for effective utilisation of economic resources towards industrial development and increased production.
With regard to Swaziland, the seemingly more developed industrial sector (Table 6.5 panel A) is not consistent with its relatively low levels of the manufacturing value added per capita (Table 6.5 panel B). It is also seemingly not consistent with its institutional development path, which suggests a low colonial influence and subsequently low incentives towards industrial development. This institutional inconsistency with regard to Swaziland is more likely to be explained by its institutional peculiarities. The issue is examined in detail later in this chapter.
The degree of industrial development for Namibia, which ranks fourth after Mauritius, South Africa and Swaziland in terms of the manufacturing value added per capita, is also seemingly inconsistent with its institutional development path dependence. Namibia, which remained part of South Africa until independence in 1990 was assumed to have had relatively high settler private ownership and therefore should have relatively high industrial development. This aspect is also examined in detail later in the chapter.
While the level of industrialisation in other SADC countries is generally low, Zimbabwe and Zambia and to some extent Malawi, which inherited a relatively developed industrial sector from the colonial powers (Chapter 5), are in fact deindustrialising. The manufacturing sector contribution in these countries is constantly declining over the 20-year period under review. This economic outcome could be explained partly by the legacy of colonial institutional conflicts prevalent in these countries (Chapter 5). Institutional conflicts create uncertainties that discourage long- term investment, innovation and creativity towards industrial development and have implications for the demand for capital and in turn participation in the stock market. In addition to the legacy of political conflicts, this study finds high communal ownership of land and low credit offered to the private sector, suggesting relatively high communal ownership influence. This has implications for incentives towards effective utilisation of resources to increase production.
The level of industrial development for Botswana and Tanzania is lowest among SADC countries (Table 6.4; 6.5). The low manufacturing value added for these countries remains relatively constant for the entire 20 years under review (Table 6.5 panel A). A common institutional feature between Botswana and Tanzania is the comparatively low influence of the colonial economic activities on the traditional institutions. The level of urbanisation a year before independence from the colonial powers, in 1960 for Tanzania and 1965 for Botswana, were the lowest of all SADC countries, with Tanzania slightly higher than Botswana at 4.7 per cent of people living in urban areas, against Botswana‘s 3.9 per cent. Urbanisation is usually associated with an increase in the level of economic activity (Laidlaw and Stockwell 1979:689) which pulls individuals who have been pushed out of the rural areas into the cities by their immediate economic needs.
This relatively low settler economic activities, suggests a dominant communal ownership culture underpinning the ownership of economic assets in Botswana and Tanzania. Consistent with this proposition, the level of private sector involvement in these countries as measured by the credit offered to the private sector (Table 6.6) is relatively low. While the data on land ownership structure in Tanzania is not available, Table 4.2 shows high communal ownership of land for Botswana, which is about 70 per
relatively low industrial development and the consequent low industrial output in Botswana and Tanzania (Table 6.4; 6.5) is a consequence of the dominant communal ownership that impedes efficiency in the use of economic resources. In addition, as discussed in Chapter 5, Tanzania also has a dominant prevalence of institutional conflicts.
Table 6.4: Contribution to GDP per sector
Agriculture Manufacturing Construction Services
Mining and Utilities 1987- 1996 1997- 2006 1987- 1996 1997- 2006 1987- 1996 1997- 2006 1987- 1996 1997- 2006 1987- 1996 1997- 2006 Botswana 5.0 2.8 5.2 4.8 6.6 5.8 38.5 47.2 44.6 39.4 Malawi 36.1 37.5 17.7 12.3 3.7 3.1 40.0 45.0 2.5 2.1 Mauritius 11.3 6.6 24.5 21.2 6.1 5.4 55.9 64.8 2.2 2.0 Namibia 11.9 11.3 12.7 12.1 2.8 2.8 53.7 56.9 18.9 16.9 South Africa 4.7 4.1 22.1 20.6 3.2 2.9 57.6 61.2 12.5 11.3 Swaziland 14.7 14.1 34.2 37.5 3.5 6.0 43.4 39.9 4.1 2.4 Tanzania 45.4 44.0 7.4 7.0 4.3 5.2 40.5 40.4 2.4 3.4 Zambia 19.5 21.1 26.7 11.3 3.4 7.1 36.3 52.6 14.1 8.0 Zimbabwe 15.4 19.0 22.9 14.6 2.9 1.5 52.1 59.7 6.7 5.2
Source: United Nations Conference on Trade and Development handbook of statistics 2006- 2007.41 The contribution to GDP per sector is expressed as a percentage of the total contribution to GDP in US dollars.
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Table 6.5: [panel A] Manufacturing value added 1987-1991 1992-1996 1997-2001 2002-2006 Mean Botswana 5.4 5.1 5.2 4.3 5.0 Malawi 18.5 16.9 13.0 11.6 15.0 Mauritius 26.5 22.5 22.6 19.8 22.8 Mozambique 13.4 8.9 11.5 12.7 11.6 Namibia 12.6 12.7 11.1 12.0 12.1 South Africa 23.1 21.1 19.2 19.1 20.6 Swaziland 33.7 34.7 36.5 38.5 35.9 Tanzania 7.6 7.2 7.1 6.9 7.2 Zambia 33.7 19.8 11.5 11.1 19.0 Zimbabwe 23.4 22.3 13.5 15.8 18.7
Table 6.5: [panel B] Manufacturing value added per capita (USD)
1987-1991 1992-1996 1997-2001 2002-2006 Mean Botswana 100.7 124.0 138.5 177.9 135.3 Malawi 28.4 24.4 18.6 16.1 21.9 Mauritius 520.4 679.9 770.4 867.3 709.5 Mozambique 23.5 13.1 25.0 38.1 24.9 Namibia 190.6 225.3 185.1 307.8 227.2 South Africa 590.6 653.7 518.6 713.6 619.1 Swaziland 250.0 350.3 354.7 477.6 358.1 Tanzania 13.1 11.9 17.5 20.2 15.7 Zambia 130.1 66.6 35.4 59.3 72.8 Zimbabwe 167.7 126.0 67.3 30.5 97.9
Source: The source of both the manufacturing value added and population data is United Nations Conference on Trade and Development handbook of statistics 2006- 2007.42 Manufacturing valued added [panel A] is the percentage contribution of the manufacturing sector to GDP. Manufacturing value added per capita [panel B] is the value of the contribution of the manufacturing sector to GDP in US dollars divided by the population size in a country.