M&A IS TAKEOVER OF FIRMS IN NORTH, ECONOMIES IN SOUTH
Geneva, 21 June 2000 (TWN) -- Any student of economics, whether of the old Keynesian economic discourse or current monetarist free-market dominant orthodoxy, learns that macro-economic generalizations about a national economy cannot be derived from micro-economic analysis at the enterprise level.
The behaviour of the firm has its own dynamics and is of course affected by macro-economic policies, and so it is the other way around. But one cannot derive conclusions about the one from the other. One cannot derive postulates about how the national economy functions from an analysis of the behaviour the firm. The dynamics are different.
And yet at the UNCTAD Expert Meeting on Mergers and Acquisitions (M&As) one constantly heard generalizations, based on an analysis of cross-border M&As at the enterprise level, such as that M&As are good for the developing countries, or that FDIs are necessary for development, and so on so forth.
This is a serious methodological fallacy.
It is necessary to assess M&As from a national perspective, using quite a different set of criteria from those applied at the enterprise level. Especially at the national level, political considerations are as important, indeed even more important, than economic.
Therefore when one looks at the issue of “fire sales”—M&As occurring during an economic financial crisis or privatization programmes—it looks different from an enterprise level than when looked at from the national level.
Take the example of Thailand and the firms and businesses taken over by foreign corporations after the financial crisis that hit the country in 1997. At one level it is a question of pricing of assets and bargaining between buyers and sellers of the equity. But at the national level, as was explained by the Thai expert, it is the surrender of practically the whole banking sector to foreign control at virtually 25 to 30 per cent of the book price of these assets.
Thus it is NOT simply an acquisition in the “normal” sense of the term as used in M&A literature. It is a wholesale surrender of a significant sector of the economy to foreigners.
The concept of “fire sale” is an enterprise-driven concept at the micro-level. It is the takeover of a company in distress. But in the countries of the South it is the entire economies that are permanently in distress. What then takes place, as has happened not only in Thailand but also in South Korea, is an acquisition, if that is still the right word to use, of entire sections of economies by companies from the developed world.
Here the scale and nature of the takeover makes an impact on the economy, not just in quantity but of a different order. In this situation, the state loses control over the making of policy over economic matters. There is a serious erosion of sovereignty here.
The experience of Thailand or of South Korea cannot be compared to that of takeover of a European telecom company by an American company.
This leads to the second methodological problem.
Sometimes the discussion has taken place as if all M&As can be clustered and put into one bag. Statistics are then derived on the volume of M&As without making sectoral and geographical differences. Oranges and pineapples are put in the same basket and aggregate data on M&As derived from this jumble. This cannot be done.
Take the cases from Southern Africa. Since the liberation of South Africa, the major transnationals based in that country, such as Anglo-American, De Beers and South African Breweries, have shifted their primary listing to London. As a result, they are now able to move capital out of South Africa which they could not do before. These companies have gone out to purchase, for example, mining interests in Zambia and Breweries in Tanzania and Uganda. There is thus a massive flight of capital out of South Africa instead of a net inflow of FDIs.
It is a different kind of experience from the inflows and outflows of capital as between say Europe and America, or between USA and Japan. Movements of capital as between developed countries have altogether a different kind of impact on their respective economies than that of movements of capital between developing countries on the one hand and the developed economies. It is an issue that needs to be examined.
In South Africa what has taken place is the de-capitalization of the economy as a result of acquisitions by South-African based companies. Whether these companies are genuinely South African is also a question that needs to be looked into. In fact M&As in the Southern African context has led to a drastic fall in the capitalization of the Johannesburg Stock Exchange.
So one has to look at the matter of M&As and even that of FDI a bit more critically. They have been presented in much of the discussions (under UNCTAD’s division on Investment, Technology and Enterprises) as if they are good phenomena from developing countries’ point of view. But are they? The experience of at least Africa does not seem to bear this out.
Another issue is about the implications of M&A for social and developmental values. Take an example from the developed part of the world. The takeover of the German company Mannesmann by the British company Vodafone is not just about M&A. It is also a victory of the shareholder concept that is dominant in the Anglo-American corporate culture over the stakeholder concept closer to the European experience.
What we are witnessing these days in all this M&A activity is the globalisation of the Anglo-American shareholder corporatism. Here we are not just talking economics; we are talking about social and cultural values.
There is, similarly, concern by social and environmental groups on the effects of M&As over issues of concern to them. For example, consumer groups are concerned about the possible invasion of GMO-based enterprises into Europe which is somewhat more sensitive than America on issues related to health safety and environmental protection.
If Europeans are concerned about the erosion of their stakeholder culture by a profit-seeking shareholder culture, the South is equally concerned about the developmental implications of M&As. As the presentation at the meeting by the Thai expert showed, what is happening is that the countries of the South are losing out on territorial control over their own development.
So this M&A phenomenon cannot be looked at from a purely economistic angle, or from the micro-analytical level of the enterprise. There are important social, cultural and developmental issues at stake, and for the South there is the whole issue of sovereignty that is at stake.
In the World Investment Report of 1999, there is a last chapter that talks about corporate social responsibility. In other words, UNCTAD is conscious about the social and environmental implications of FDIs and M&As.
But is the surrendering of responsibility for protecting social, developmental and environmental values to transnational corporations an adequate safeguard for the protection of these values? Indeed is it wise to do so? Can corporations designed to maximize profits be trusted to look after social and developmental interests? My own feeling is that one cannot do this. Our experience in Africa is that FDIs have brought us not development, but mal-development, even underdevelopment. We need to examine this issue more seriously and at deeper level than we have been doing.
We in the South, especially those coming from the NGO and the public interest groups, are concerned at the manner in which UNCTAD lends credence to the value of FDIs for our countries. Whether FDI brings development to us is at best an open-ended question. FDI has brought not only under-development but also the erosion of national sovereignties. But it is a matter of concern that UNCTAD (at least a division of it) plays an advocacy role on behalf of FDI and Transnational corporations.
Even the statistics put out in the WIRs are derived from concepts that are seriously flawed as they appear to have been borrowed either from the IMF or from the practice of TNCs. The TNCS may have their own interpretations of what constitutes inflows and outflows, but are they the right concepts from a national point of view? These concepts applied in WIRs need to be put to serious question by those coming from the developing countries.
In any event, should UNCTAD be playing an advocacy role on behalf of TNCs and FDIs, and on behalf of M&As? UNCTAD should give the objective facts, but leave it to the countries of the South to make our own judgments on whether these are good for us or not. - SUNS 4693
(*Yash Tandon, a native of Uganda, is Director of the Harare-based International South Group Network (ISGN) and the Southern and Eastern Africa Trade Information and Negotiations Initiative (SEATINI). An alumni of the London School of Economics, he taught economics at Makarere University in Uganda and the University of Dar-es-Salaam in Tanzania. The above is based on his presentation on 21 June at the UNCTAD Expert Meeting on Mergers & Acquisitions)
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