D.Com. (Economics) / The objective in writing this thesis was to investigate the capital structure of South African manufacturing industry and the implications of this structure for policy formation relating to industry. The capital stock of the 27 branches of the manufacturing industry were calculated by means of the perpetual inventory method based on the following assumptions: capital formation excludes transactions relating to inventory, durable consumer goods and financial assets; transactions in land and other fixed assets were taken into consideration; leasing was regarded as investment and capitalised at ten times the annual base payment in respect of land and buildings and five times in respect of machinery and transport equipment; and transfer costs on property and existing buildings were treated as part of fixed investment. Cencuses compiled by the Department of Statistics were the main source of information in the calculation of investment. Depreciation was based on the straight-line-method. Price indices from various sources, including those compiled by the Reserve Bank, were used. The economic life of fixed assets for the various branches of the manufacturing industry was chosen after consultation with experts in the various industries and an analysis of information obtained by questionnaire. It was found that the real capital stock of manufacturing industry increased by 1 247 per cent during the period 1945-1975, i.e. at an average annual rate of 8,8 per cent. The basic iron and steel industry with a capital stock (valued at 1975 replacement values) or R2 478,4 million in 1975 was the largest absolute consumer of capital followed by the food industry ...

M.Comm. / Stock Exchange as an instrument for the financing of South African industry. The Johannesburg Stock Exchange, like all stock exchanges in the world, has as main functions, firstly, the raising of capital for industry and secondly, the provision of a market for the trading of financial paper. As such, the Johannesburg Stock Exchange is of vital relevance for the national economy. It has implications for the formation and flow of capital and therefore the functioning of savings and investment industry of the country. The channelling of savings into industry, green field projects, the provision of housing, education and health care, as well as the development of the infrastructure, are all affected by the workings of the Johannesburg Stock Exchange. The Johannesburg Stock Exchange is the largest stock exchange on the African continent, having a market capitalisation of R919 803 million in 1994. This, however, does not mean that the Stock Exchange performs its function as an instrument for the financing of South African industry effectively. The Stock Exchange is known for its high level of illiquidity with only six percent of the shares listed on it being traded on an annual basis. The shares that are traded regularly are restricted to the 30 - 50 prime shares which are held mainly by the large institutional investors and the mining houses. A study of the owners of shares listed on the Stock Exchange shows a large concentration of control and ownership in the hands of only three institutions, namely, the Anglo-American group of companies and the two large insurance companies Old Mutual and Sanlam. Research has shown that as many as 65 percent of the shares on the Johannesburg Stock Exchange are owned by only 1 200 shareholders and that there are not more than 750 000 South Africans who are shareholders, representing less than four percent of the South African population. Participation in the activities of the Johannesburg Stock Exchange by the small investor has declined continuously over the last two to three decades. The decline in small investor presence in the market deprives the Development Capital Market and the Venture Capital Market of financing. New capital raised on the Stock Exchange amounts to an average of around R12 billion per year. The funds raised are mainly attributed to the selling of the paper of gilt-edged companies. The so-called second rated companies, which comprise 80 percent of the market, do not enjoy the share turnover rates that the gilt-edged companies do. The shares of the second raters comprise less than 10 percent of the turnover on the market. The shares of the second raters are not only traded in relatively small volumes but they are also traded rather sporadically. This poor performance of the Stock Exchange as a primary capital market compel the smaller companies to seek financing elsewhere. Such financing is almost always more expensive than equity financing. The high costs involved in obtaining a listing on the Stock Exchange is another factor that may encourage smaller businesses to obtain their financing from financial institutions rather then from the Stock Exchange. South Africa has now entered a new phase of socio-economic development on account of the revised political dispensation and becoming a full member of the international community once again. These changes have once again placed South Africa on the world map as a venue for investment. The Johannesburg Stock Exchange could play a very important role in this respect. It will, however, have to become a more active market. The financing of South Africa's industry cannot rely mainly on foreign investment, it must generate more domestic financial support. The Johannesburg Stock Exchange is an ideal institution to perform such a function. The Stock Exchange will, however, have to create a more liquid market by increasing turnover to a level more in line with those of stock exchanges elsewhere in the world. Such an achievement will add significantly to the pool of funds available for the financing of the South African industry.

This study analyses whether historically defensive sectors on the JSE have – with respect to the market – proven to be defensive during the recent global financial crisis. By withstanding the shocks of market volatility, defensive industries (such as pharmaceuticals and consumer staples) are renowned for their consistent performance throughout the business cycle. Using daily data for the period 2000–2009, the study compares the descriptive statistics of sector returns before and during the crisis. The volatility of each sector relative to the market index is calculated using the CAPM beta and a simplified volatility ratio. The same comparison is extended to the conditional volatilities of each of the sectors, which is estimated using the GARCH model and two of its extensions: the EGARCH and GJR GARCH models. While no sector experienced a positive mean return during the financial crisis, Healthcare, Consumer Goods, Consumer Services and Industrials all proved less volatile than the market. Surprisingly, Telecommunications proved more volatile than the market and experienced leverage effects during the financial crisis. Since the timing of a recession is difficult to predict, defensive securities were found to be a useful investment tool for protection against adverse movements in the stock market.

Assignment (MComm)--University of Stellenbosch, 2001. / ENGLISH ABSTRACT: A definite need exists for a measure which can be used to determine the degree of capital intensity of an enterprise. One of the main reasons why it is important to determine if an enterprise is capital or labour intensive is that the two types of enterprises react to changes in the economic environment in different ways. Some changes in the economic factors will have a totally different effect on a capital intensive enterprise than they would have on a labour intensive one. The degree of capital intensity of an enterprise can therefore be used to predict how it will react to economic changes, and it is therefore a valuable source of information for financial decision-making. The measurement of capital intensity, however, presents a major problem. A large number of different measures have been developed and used in the literature. These measures include the measures of total assets to revenue; property, plant and equipment to revenue; property, plant and equipment to total assets; depreciation as a percentage of revenue; as well as property, plant and equipment per employee. A number of measures are also based on value added figures, and these include salaries to revenue; value added per employee; property, plant and equipment to value added; and salaries to value added. In the literature most researchers provide no or little justification for their preferred measure of capital intensity. The main objective of the study is to determine an appropriate method to measure capital intensity. For this purpose the above-mentioned measures, which are generally used to determine capital intensity, are considered critically and evaluated by classifying enterprises listed in the Industrial Sector of the Johannesburg Stock Exchange during the period 1989 to 1996. During this period the South African economy experienced a decline, followed by an upswing in the economic cycle. Principal component analyses (PCA) are used to analyse the data. These analyses are carried out for each year separately as well as for the period as a whole. Biplots are used to provide a multidimensional graphic representation of the results. The results indicate that the five traditional measures of capital intensity which are not based on value added figures are all suitable to use as measures of capital intensity. Only one of the measures based on value added figures, however, are able to indicate capital intensity. The five traditional measures of capital intensity which are not based on value added figures, as well as the measure property, plant and equipment to value added, are therefore included in the principal component analyses. The principal component scores obtained from the first principal component are proposed as a composite measure of capital intensity. These principal component scores represent a linear combination of the six measures of capital intensity. The relative contributions of the various measures to this composite measure are also investigated, and it is found that all six the measures provide an important contribution. The results indicate that a number of enterprises listed in the Stores and Food sectors are relatively less capital intensive, while enterprises listed in the Building and Construction, Engineering, Steel and Allied, and Electronics sectors are relatively capital intensive. A visual evaluation of the results indicates that the proposed method IS able to distinguish between capital and less capital intensive enterprises. The results of the study provide researchers with a more efficient way of measuring capital intensity, and can be used to provide more information about the effect of changes in the economic cycle on the expected financial performance of enterprises. / AFRIKAANSE OPSOMMING: 'n Duidelike behoefte bestaan VIr 'n maatstaf wat gebruik kan word om die kapitaalintensiteit van 'n onderneming te bepaal. Een van die vernaamste redes waarom dit belangrik is om te bepaal of 'n onderneming kapitaal- of arbeidsintensief is, is die verskillende wyses waarop die twee tipes ondernemings gedurende 'n verandering in die ekonomiese siklus reageer. Sommige veranderinge in die ekonomiese faktore sal die teenoorgestelde effek op 'n kapitaalintensiewe onderneming hê as wat dit op 'n arbeidsintensiewe onderneming mag hê. 'n Onderneming se graad van kapitaalintensiteit kan dus gebruik word om te voorspel hoe die onderneming op ekonomiese veranderinge sal reageer, en is dus 'n belangrike bron van inligting by finansiële besluitneming. Die meting van kapitaalintensiteit is egter 'n belangrike probleem. 'n Groot aantal verskillende maatstawwe van kapitaalintensiteit is ontwikkel en word algemeen in die literatuur gebruik. Hierdie maatstawwe sluit totale bates tot inkomste; eiendom, aanleg en toerusting tot inkomste; eiendom, aanleg en toerusting tot totale bates; depresiasie as 'n persentasie van inkomste; asook eiendom, aanleg en toerusting tot aantal werknemers in. 'n Aantal maatstawwe wat op waarde toegevoeg gebaseer is, is ook ontwikkel, en sluit die maatstawwe salarisse tot inkomste; waarde toegevoeg per werknemer; eiendom, aanleg en toerusting tot waarde toegevoeg; asook salarisse tot waarde toegevoeg in. In die literatuur verskaf die meeste navorsers min of geen motivering vir die spesifieke maatstaf wat hul voorkeur geniet nie. Die primêre doelstelling van die studie is om 'n geskikte metode te vind om kapitaalintensiteit te meet. Ten einde hierdie doelstelling te bereik, word die bogenoemde maatstawwe, wat algemeen gebruik word as maatstawwe van kapitaalintensiteit, krities ondersoek en geëvalueer deur ondernemings wat genoteer is in die Industriële Sektor van die Johannesburgse Aandelebeurs gedurende die periode 1989 tot 1996 te klassifiseer. Gedurende hierdie periode het die Suid-Afrikaanse ekonomie 'n afname, gevolg deur 'n opswaai in die ekonomiese siklus beleef. Hoofkomponent analises word gebruik om die verskillende maatstawwe te evalueer. Die analises word individueel uitgevoer vir elke jaar, sowel as vir die periode as 'n geheel. Bi-stippings word gebruik om 'n meerdimensionele grafiese voorstelling van die resultate te verskaf. Die resultate toon dat die vyf tradisionele maatstawwe van kapitaalintensiteit wat nie op waarde toegevoeg gebaseer is nie almal geskik is om as maatstawwe van kapitaalintensiteit gebruik te word. Slegs een van die maatstawwe wat op waarde toegevoeg gebaseer is, is egter in staat om kapitaalintensiteit aan te toon. Die vyf tradisionele maatstawwe van kapitaalintensiteit, sowel as die maatstaf eiendom, aanleg en toerusting tot waarde toegevoeg, word derhalwe ingesluit in die hoofkomponent analises, en die hoofkomponenttellings wat verkry word uit die eerste hoofkomponent word as 'n saamgestelde maatstaf van kapitaalintensiteit voorgestel. Hierdie hoofkomponenttellings verteenwoordig 'n liniëre kombinasie van die ses maatstawwe van kapitaalintensiteit. Die relatiewe bydraes van die verskillende maatstawwe tot die saamgestelde maatstaf word ook ondersoek. Die resultate dui aan dat 'n aantalondernemings wat in die Winkels en Voedsel sektore genoteer is relatief minder kapitaalintensief is, terwyl ondernemings wat in die Boubedryf, Ingenieurswese, Staal en Bedrywe, asook die Elektronika sektore genoteer is, relatief kapitaalintensief is. 'n Visuele evaluasie van die resultate toon aan dat die voorgestelde maatstaf in staat is om tussen kapitaalintensiewe en minder kapitaalintensiewe ondernemings te onderskei. Die resultate van die studie stel navorsers in staat om 'n meer effektiewe meting van kapitaalintensiteit te verkry, en kan ook meer inligting verskaf oor die invloed van veranderinge in die ekonomiese siklus op die verwagte finansiële prestasie van ondernemings.

In the literature there are mixed results on the link between credit and agricultural output growth. Some authors argue that credit leads to growth in agricultural output. Others view growth as one of the factors that influence credit supply, thus growth leads and credit follows. By and large, studies have not endeavoured to establish the short-run impact of agricultural credit on output. They are generally limited in establishing the long-run relationship between credit and agricultural output and thus present a research gap in this respect. This study contributes to the existing body of literature by focusing on the finance-growth nexus at sectoral level as a departure from extant literature that has focused on the macroeconomic level. Using South African data, the study investigated the causal relationship between the supply of credit and agricultural output as well as whether the two are cointegrated and have a short-run relationship. The study found that bank credit and agricultural output are cointegrated. Using the error correction model (ECM), the results showed that, in the short-run, bank credit has a negative impact on agricultural output, reflecting the uncertainties of institutional credit in South Africa. However, the ECM coefficient shows that the supply of agricultural credit rapidly adjusts to short-term disturbances, indicating that there is no room for tardiness in the agricultural sector. The absence of institutional credit will immediately be replaced by availability of other credit facilities from non-institutional sources. Conventional Granger causality tests show unidirectional causality from (1) bank credit to agricultural output growth, (2) agricultural output to capital formation, (3) agricultural output to labour, (4) capital formation to credit, and (5) capital formation to labour, and a bi-directional causality between credit and labour. Noteworthy and significant for South Africa is that for the agricultural sector, the direction of causality is from finance to growth, in other words supply-leading, whereas at the macroeconomic level, the direction of causality is from economic growth to finance, in other words, demand-leading. Applying a structural equation modelling approach to survey data of smallholder farmers, the positive relationship between bank credit and agricultural output observed from analysis of secondary data was confirmed. / Business Management / DCOM (Business Management)

In the literature there are mixed results on the link between credit and agricultural output growth. Some authors argue that credit leads to growth in agricultural output. Others view growth as one of the factors that influence credit supply, thus growth leads and credit follows. By and large, studies have not endeavoured to establish the short-run impact of agricultural credit on output. They are generally limited in establishing the long-run relationship between credit and agricultural output and thus present a research gap in this respect. This study contributes to the existing body of literature by focusing on the finance-growth nexus at sectoral level as a departure from extant literature that has focused on the macroeconomic level. Using South African data, the study investigated the causal relationship between the supply of credit and agricultural output as well as whether the two are cointegrated and have a short-run relationship. The study found that bank credit and agricultural output are cointegrated. Using the error correction model (ECM), the results showed that, in the short-run, bank credit has a negative impact on agricultural output, reflecting the uncertainties of institutional credit in South Africa. However, the ECM coefficient shows that the supply of agricultural credit rapidly adjusts to short-term disturbances, indicating that there is no room for tardiness in the agricultural sector. The absence of institutional credit will immediately be replaced by availability of other credit facilities from non-institutional sources. Conventional Granger causality tests show unidirectional causality from (1) bank credit to agricultural output growth, (2) agricultural output to capital formation, (3) agricultural output to labour, (4) capital formation to credit, and (5) capital formation to labour, and a bi-directional causality between credit and labour. Noteworthy and significant for South Africa is that for the agricultural sector, the direction of causality is from finance to growth, in other words supply-leading, whereas at the macroeconomic level, the direction of causality is from economic growth to finance, in other words, demand-leading. Applying a structural equation modelling approach to survey data of smallholder farmers, the positive relationship between bank credit and agricultural output observed from analysis of secondary data was confirmed. / Business Management / D. Com. (Business Management)

Investments in productive assets by broad-based black economic empowerment (BEE) enterprises in South Africa (SA) during the 1990s have been constrained, in part, by a lack of access to capital. Even if capital can be sourced, BEE businesses often face a liquidity problem, as conventional, equally amortized loan repayment plans do not take into account the size and timing of investment returns, or there are lags in the adjustment of management to such new investments. The aim of this dissertation, therefore, is to compare five alternative loan products to the conventional fixed repayment (equally amortized) loan (FRL) that lenders could offer to finance BEE investments in productive assets that are faced with liquidity stress, namely: the single payment non-amortized loan (SPL); the decreasing payment loan (DP); the partial payment loan (PPL); the graduated payment loan (GPL); and the deferred payment loan (DEFPLO-2). This is done firstly by comparing loan repayment schedules for the six loans using a loan principal of R200 000, repaid over 20 years at a nominal contractual annual interest rate of 10%. Secondly, data from five actual BEE loan applications to ABSA Bank and Ithala in KwaZulu-Natal (KZN) during 2003 are used to compare how the FRL, SPL, DP, GPL, and DEFPLO-l, affect investment profitability, and both the borrower's and the lender's cash-flows, assuming that the lender sources funds from a development finance wholesaler. Results for the first part of the study show that the SPL has smaller initial annual repayments than the FRL (R20 000 versus R23 492) that ease liquidity stress in the early years after asset purchase, but requires a nominal balloon repayment of both interest and principal in year 20 of R220 000. The SPL is also the most costly loan, with total nominal and real repayments that are R130 162 and R43 821, respectively, more than the FRL. The PPL has the lowest total nominal and real repayments assuming that the borrower can make the nominal balloon repayment in year 5 of R202 173. If not, the ending balance of the loan in year 4 would have to be refinanced at current market interest rates. In this situation, the PPL uses very similar financing terms to that of the variable rate long-term loans already used in SA, and thus may not be a useful option to consider for BEE investments facing a liquidity problem. Interest rates may have risen over the last four years of the loan, encouraging lenders to add a premium into the interest rate for the refinanced loan, which could worsen the liquidity position of the BEE enterprise. The DP requires higher initial nominal annual loan repayments (R6 508 more than the FRL) that do not ease the liquidity problem in the early years of operation. The DP loan, however, has total nominal and real repayments that are R59 838 and R23 118, respectively, less than the FRL. A GPL with diminishing, finite interest-rate subsidy seems to have the most potential to ease the BEE investment's liquidity stress. The 17YRGPL used to buy land had total nominal and real repayments that were R84 634 and R67 726 (after subsidy), respectively, less than the FRL. If the GPL was used to purchase machinery-type assets, then the 6YRGPL would have required total nominal and real repayments of R13 957 and R12 596, respectively, less than the FRL. Finally, the DEFPLO-2 loan required a total nominal repayment of R531 128 (R61 290 more than the FRL) and a total real repayment of R345 358 (R26 095 more than the FRL). Clearly, the GPL and DEFPLO-2 loan repayment schedules can partly resolve the liquidity problem in the early years (assuming no major income shocks), although the DEFPLO-2 plan requires higher total repayments than the FRL. The question remains whether lenders would be prepared to implement these two financing plans for BEE investments in productive assets, where the funds to finance the diminishing, finite interest-rate subsidy or the deferment would be sourced, and how the interest-rate subsidy would affect asset values. In the second part of the study, the profitability of the five proposed BEE investments in KZN during 2003 was compared for the five loan products using the Net Present Value (NPV) and the Internal Rateof- return (lRR) capital budgeting procedures. The loan terms, interest rates, principal and characteristics of each BEE firm are different with current rates of return on equity varying by business type. Companies A (five-year loan) and C (10-year loan) are agribusinesses with a higher expected current rate of return of 8% on machinery investments, while companies B (eight-year loan), D (15-year loan), and E (20-year loan) invest in farmland with a lower expected current annual rate of return of 5%. The five business plans may not be representative in a statistical sense of all BEE firms in KZN, but were used because they were readily available. Initially it was assumed that donor/grant funds from a development finance wholesaler were lent to an intermediary (like a commercial bank), which in turn, could finance the five investments using any of the five alternative loans, with the lender's repayment to the wholesaler being via a FRL. It was then assumed that the lender could repay its borrowed funds using the same loans, or combinations of them, that it had granted to these companies. Results show that GPLs and DEFPLs can resolve the liquidity problem associated with investments like land in the early years after purchase provided that projected business performance is adequate, while the SPL and GPL are preferred for BEE projects with stronger initial cash-flows like machinery investments. The study also shows that the loan product that best improves the borrower's liquidity is not always best suited to the lender. In most cases, the GPL suited the borrower, but in four of the five cases, the lender would prefer the SPL and to repay the wholesaler using the SPL. The SPL, however, is unlikely to be used, given the large negative real net cash-flows that it generates when the final payments are due. Recent SA experience with the GPLs (interest rate subsidies funded by private sector sugar millers via Ithala) and the DEFPLs (via the Land Reform Empowerment Facility (LREF) which is a wholesaler of funds in SA) suggests that there is scope to alleviate the liquidity problem if a wholesaler of funds can offer such terms to private banks and venture capital investors who then on-lend to finance BEE asset investments that are otherwise considered relatively high credit risks. This would shift the liquidity problem away from the client to the wholesaler of the funds, but requires access to capital at favourable interest rates. Such capital could be sourced from dedicated empowerment funds earmarked by the private sector, donors and the SA government. The lesson for policymakers is that broad-based BEE could be promoted in other farm and non-farm sectors in SA using similar innovative loan products to complement cash grant funds via financial intermediaries, bearing in mind the limitations of the GPL and DEFPL - such as how to finance the subsidy or deferment, and the impact of income shocks. Donor and National Empowerment Fund capital could be used to allocate grants to provide previously disadvantaged individuals with own equity and also to fund finite, diminishing interest-rate subsidies via GPLs, or to fund DEFPLs (many LREF loans have been leveraged by a cash grant component). This could create an incentive for public/private partnerships, as public/donor funds could be then used to attract private sector funds to finance broadbased BEE investments in SA that satisfy empowerment criteria. The five case studies did not show how the GPLs and DEFPLs could make all profitable (positive net present value) but financially infeasible (returns do not match the size and timing of the lender's financing plan) BEE investments in productive assets under the FRL feasible, except for Company E that showed a positive NPV and IRR when the 19YRGPL was used. They did, however, show how the alternative loans could improve liquidity for investments with either strong or poor cash-flows. The financiers consulted to source case studies in KZN in 2003 at the time of the study could not provide the researcher with any profitable, but financially infeasible, BEE business plans. This raises some concern about how effective these empowerment loan products could be in the future as there is uncertainty over how many potential BEE investments in productive assets in SA are likely to be profitable but financially infeasible. Further research is thus needed to assess the impact of these alternative loans on a wider range of broad-based BEE investments, particularly non-farm projects, than considered in this dissertation. / Thesis (M.Agric.Mgt.)-University of KwaZulu-Natal, Pietermaritzburg, 2005.