Mergers and Acquisitions – Are M&As in the South of the same kind as those in the North?

Yash Tandon

I wish to first thank the UNCTAD Secretariat for inviting me to this experts’ meeting on M&A.  I am myself no expert, and as an economist I may even be outdated.  When I did my economics at the London School of Economics, Keynesian economics was the dominant discourse, and now it is monetarist and free market economics that is the dominant orthodoxy.  So I may well be out of date.

But one thing I learnt as an undergraduate was that you cannot derive macro-economic generalizations about a national economy 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 the other way around, but you cannot derive conclusions about the one from the other.  You cannot derive postulates about how the national economy functions from an analysis of the behaviour the firm.  The dynamics are different.  And yet this is what I have been hearing over the last two days.  From an analysis of Mergers & Acquisitions (M&A) at the enterprise level, I have been hearing generalizations 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 here.  This particular session is about “Economic sovereignty and other broader concerns,” and I’ll confine my remarks on that, but I must emphasize that mergers and acquisitions from a national perspective must be assessed from quite a different set of criteria from those that you apply at the enterprise level.  Especially at the national level, political considerations are as important, indeed even more important, than economic.  The presentations by both the Chinese and the Japanese experts brought this out very well.

Therefore when you look at the issue of “fire sales” as we have been doing this morning, it looks different from an enterprise level from how it looks from the national level.  Take the example of Thailand as presented to us by the Thai expert. 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 the Thai expert told us, 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.  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 our countries in the South it is our entire economies that are permanently in distress. What then takes place, as it 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 our 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 telcom company by an American company.

This leads to the second methodological point I wish to make.  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 pineaaples are put in the same basket and aggregate data on M&As derived from this jumble. Well, you can’t do that.   Let me illustrate this with an example from my part of the world. Since the liberation of South Africa, the major transnationals that are based in the 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 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-capitalisation 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.  Companies. In fact M&As in the Southern African context has led to a drastic fall in the capitalization of the Johannesburg Stock Exchange.

So I think let us look at the matter of M&As and even that of FDIs a bit more critically.  They have been presented in much of the discussion here 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 I want to bring out is about the implications of M&A for social and developmental values.  Let me give 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, we in the South are equally concerned about the developmental implications of M&As.  As the Thai expert showed us what is happening is that our countries are losing out on territorial control over their own development.  So let us not look at this M&A phenomenon 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 us in the South there is the whole issue of our sovereignty that is at stake.

Let me take this opportunity to make a comment on the World Investment Report of 1999.  In it 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 I have a question here.  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 you 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, I’m afraid, in the last two days.

I wish to point out in concluding that 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 FDIs bring development to us is at best an open-ended question, and as I argued earlier, to some of us FDIs have brought not only underdevelopment but also the erosion of our national sovereignties.  But it is a matter of concern that UNCTAD (at least a division of it) plays an advocacy role on behalf of FDIs and Transnational corporations.  Even the statistics they put out in the WIRs are derived, in my view, 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 of us who come from the developing countries.  But above all, UNCTAD should not be playing an advocacy role on behalf of TNCs and FDIs, and, as it appears from this meeting, in behalf of M&As.  UNCTAD should give us the objective facts, but leave it to us to make our own judgments on whether these are good for us or not.   I am pleased I come from an NGO and can say all these things that even our governments often feel but cannot say aloud.

[Yash Tandon, Director of the International South Group Network, was invited to attend the “Expert Meeting on Mergers and Acquisitions,” UNCTAD, Geneva, 21 June, 2000. This is the presentation he made at the meeting.] Ì

COPENHAGEN +5: An achievement or disappointment?

Rosalina Muroyi

In 1995, the United Nations (UN) organised the first World Summit for Social Development (WSSD) in Copenhagen. 117 heads of state and government met and committed themselves to the following:

v      Eradicate absolute poverty by a target date to be set by each country

v      Support full employment as a basic policy goal

v      Promote social integration based on the enhancement and protection of all human rights

v      Achieve equality and equity between women and men

v      Accelerate the development of Africa and the least developed countries

v      Ensure that structural adjustment programs include social development goals

v      Increase resources allocated to social development

v      Create "an economic, political, social cultural and legal environment that will enable people to achieve social development."

v      Attain universal and equitable access to education and primary health care

v      Strengthen cooperation for social development through the United Nations

Five years later, in June 2000, the UN organised a Special Session of the General Assembly (UNGASS) in Geneva to assess and review the social targets set at Copenhagen. Delegates at the week-long conference finally agreed on a set of actions and initiatives regarding implementation, for the next “several” years. However, the document has been subject to criticism by most developing countries and non-governmental organisations (NGOs). As outlined by The Earth Times of 08 July 2000: “If you think the uproar of the World Trade Organisation (WTO) meeting in Seattle was just a hotheaded bark at globalisation, think again.” - Voices of protest from the civil society could once more, for the third time within six months, not be ignored.

As the UNGASS drew to an end, the Senior UN officials hailed the outcome as having “significant achievements” while on the other hand, more that 60 NGOs present at the Special Session issued a final joint statement expressing “profound disappointment.” Martin Khor, in the SUNS of 03 July 2000, outlines the point of views of each of these two groups. The NGOs’ profound disappointment was the low priority accorded to the conference by governments. Only nineteen heads of State or Government were present, and only two were from the North. Most countries sent Ministers or persons of equal ranks, but not foreign ministers and such carrying political weight either.

The UN itself had its Secretary-General for the opening and launching of the controversial “Better World for All” report, only. The UN Under-Secretary General, Nitin Desai gave the final press conference. Hailing the UNGASS, Nitin Desai listed achievements as follows:

q       Poverty eradication has been accepted as a major theme. “We wanted more precision and we got it,” he said. There was no time-bound in Copenhagen, now it is agreed to halve poverty by 2015. Also there is an instruction to see how a global campaign for poverty eradication can be done.”

q       To an extent the UNGASS succeeded in connecting the forces of globalisation and the social impact

q       Strengthened features on demographic side, especially HIV-AIDS.

q       Stronger commitments to human rights.

q       Explicit agreement on a rigorous analysis of new sources of funding.

Even though Desai says that UNGASS has strengthened the response to HIV more than in Copenhagen, developing countries learned to their chagrin that they could not get essential medicines exempted from agreements protecting the intellectual property rights – even if the disease in question is HIV/AIDS.

NGOs listed down the following demoralizing aspects of UNGASS:

q       The weakening of a proposal for a currency transaction tax (CTT).  The CTT is a broader version of the Tobin Tax which was a tax proposed to be levied to all short term financial transactions, as a way of both discouraging the volatile movement of capital and as a contribution to a fund for development

q       The setting of 2015 as the timeframe to halve poverty levels. This was viewed as depriving an entire generation of essential social services.

q       Failure to tackle the differential impact of poverty on women, men, children and young people and on indegenous people and other marginalised groups; inadequate representation of women in the political and economic spheres. Particularly striking in the context of women, as pointed by the Swiss Coalition News of 23 June 2000, are difficulties in reconciling the demands of career and family as well as continuing wage disparities.

q       The failure to recognise the links between globalisation and increased insecurity and social inequalities at local, national and global levels.

q       Failure to build upon progress made in human rights, and to recognise inter-institutional co-operation on workers’ rights. The biggest fight is about the extent to which core labour standards and trade should be linked, as well as what monitoring role the International Labour Organisation (ILO) should play.

q       The disappearance from the final text in the portion of education of some of the main gains of the Dakar Framework for Action.

In addition to these disheartening aspects, NGOs underscored the lack of set targets for the attainment of social goals as one of the shortcomings of the document. To this point, Roberto Bissio (Co-ordinator of the global NGO coalition, the Social Watch, that has been monitoring the implementation of the Copenhagen and Beijing UN Conferences) added that no new high level meeting or summit for, say, 2005 or 2007, has been planned. He believes that even though meetings could be boring, a high level political process is essential to make countries accountable for the targets they commit themselves to implement.

In the final “political declaration” of the Summit, Globalisation is still presented as offering both an “opportunity” as well as risks.

Globalization and continuing rapid technological advances offer unprecedented opportunities for social and economic development.  At the same time, they continue to present serious challenges, including widespread financial crises, insecurity, poverty, exclusion and inequality within and among societies.

In the experience of most developing countries, especially those in Africa, Globalization so far has presented only “challenges”.   Ì

Director's Comment:

Did Governments Fail To Reach Social Targets Set At Copenhagen For Lack Of Will Or Lack Of Power?

On the very first day of the World Summit on Social Development (WSSD) in Geneva (26-30 June 2000), the NGO community trashed the Report of the Secretary-General of the United Nations in a trashcan as rubbish.  Was this one of those anarchistic acts of an irresponsible “mob”, or did the act symbolize something deeper that divides Governments of the world from their people?

One of the issues that separated the NGO community from Governments and the United Nations is the question of what agency is most appropriate to take care of social issues.  After all, the World Summit was about social welfare, and central to the debate on social welfare is who is to provide for it.

Hitherto it was assumed that social policy is the preserve of governments answerable to the people, that matters such as health, education, social infrastructure and the protection of the vulnerable and the marginalized are areas that require state intervention; that markets are not a suitable agency to provide for welfare.  To the state its own, to the market its own.  That was the rough and ready division of labour between the state and the corporate world.  Superficially that still remains the case.  At the Social Summit the Governments of the World adopted a “final outcome” of their deliberations in which they placed themselves as the principal custodians of the welfare of their populations.  The “Outcome document”, as it is called, starts with the phrase “Governments should adopt an integrated focus in order to ensure that social development objectives are incorporated in all areas of government decision-making.”

But what is the reality on the ground? How much will and power do Governments have to ensure that social development objectives are incorporated in their decision-making?  Are they not deceiving themselves in assuming this responsibility when many of them know (or should know) that since the days of Ronald Reagan and Margaret Thatcher they have more or less surrendered this function to the market?  Is this not one of the principal reasons why the targets for the ten commitments that they set themselves at Copenhagen five years ago have not been fulfilled?  Is it a case of lack of will or lack of power?  It is argued in this article that Governments have disempowered themselves. In a fit of “madness” that brought the triple transgressions of privatization, liberalisation and deregulation in the 1980s and the 1990s, they have abdicated their welfare responsibility to their peoples to “the market”.  And now they find that the market has failed to deliver social goods.

Take Health, for instance. There was a time when health-care in most countries of the world, outside of the United States, was regarded as a matter of public responsibility.  The United Kingdom, for example, boasted of an excellent health-care system that provided for the basic health counseling and medical needs of the population.  With Thatcher came the era of privatization of the health system, and the closing down of hospitals and publicly provided medical services. A whole legion of “management gurus” from the Universities in the US argued that public utilities were “not competitive”.  They were applying management theories taken out of their context of corporate practice into the public sphere, thus showing that public utilities were "uncompetitive".  Britain, followed by continental Europe, began to shift responsibility for health from public to private sector.  Privatisation did not just weaken the state; it redefined its role.  From now on, to the market everything, to the state the role of creating “enabling” environment for the private sector to deliver social, as well as material, goods.

In Africa, beset by Structural Adjustment Programmes (SAP), the situation was even worse.  During the 1980s and 90s, Governments were forced under SAPs to reduce their budgetary allocation to health and education in order to maximize resources available to the so-called “productive” sectors.  Zimbabwe, for example, boasted a vastly improved health and educational system in the first ten years after independence when Government took effective measures to correct the historical injustices of the past in these areas.  But once it adopted the SAP in 1990, deregulated the economy and, forced by the IMF conditionalities,  introduced the concept of “cost recovery” from poor people for their health and education, the condition of the people took a precipitous downward trend.  The UNDP’s National Human Development Report for Zimbabwe for 1999 has amply documented this. 

This is the reason for asking the question in the title of this article: Did Governments fail to reach social targets set at Copenhagen for lack of will or lack of power?  The answer is that Governments of the World had surrendered both their will and power over to the private corporations in the mistaken belief that the private sector, given correct pricing, will deliver social as well as material goods. The results in the West are bad enough, but in developing countries, especially those that have followed the conditionalities set by the IMF and the World Bank, the consequences have been, to be honest, disastrous.

The Geneva Social Summit, in appraising the condition of Africa since the Copenhagen Summit says: “Social indicators in Africa show that the continent falls dramatically short of the targets set at the Summit five years ago. About 90 per cent of countries in sub-Saharan Africa will not meet the year 2000 goals on child mortality. Life expectancy remained lower than 60 years in 41 of the 53 countries during the period 1995-2000. The HIV/AIDS pandemic is having severe social, economic, political and security impacts in some of the hardest hit countries.”  Why should this surprise anybody, given that African countries have been forced to transfer their resources from the “soft” health and education sectors to the so-called “productive” sectors, and when the burden of adjustment has been pushed on to the poor by the “cost recovery” concept of the IMF?

In the light of this the tears shed at Geneva by Government officials at the plight of the poor in Africa were simply crocodile tears.  The Governments are themselves responsible for creating this situation, and for abdicating their responsibility to the people. They must now reverse the situation and begin to take their responsibilities seriously.  Matters of health, education, transport, energy, water, housing cannot be left over to the market.  The market does not have a soul; it functions on the basis of profit, not charity or goodwill.

In the light of this, it is disappointing, to say the least, that the Secretary-General of the United Nations should have so much faith in the market as the solution to the world’s social problems.  At the Social Summit, he unveiled a programme based on his initiative at negotiating a “Social Compact” with Transnational Corporations to deliver socially and environmentally sensitive “development” to the world.  If this is not naïve, what is?  A banker as an individual human being may have a soul and feeling for other human beings, but as manager of bank he has to leave his soul at home, and make profits for the bank he works for or lose his job.  Social activities cannot yield profits to the market, and therefore matters such as health and education, must not be left in the hands of corporations. If they cannot deliver social goods, it is not them that are fault (for they must do what they are best at); it is Governments that are at fault for their lack of understanding of the true nature of capital.

The real tragedy of the Geneva Social Summit was its failure to grasp this fundamental fact about society and about the respective roles of the state and corporations. The Governments at the Copenhagen Summit had put too much faith in the market even as they made the ten commitments.  In the last five years they failed to meet the targets that they had set themselves, for they had neither the will nor the power to do anything about those targets.  The moment they had stepped out of Copenhagen, they had abdicated their responsibility to do anything about those targets, leaving these to be fulfilled by the market.  The tragedy will repeat itself after WSSD 2000.  Governments have not woken up to the fact that the market cannot deliver social goods.  In five years from now, they might assemble once again to shed some more crocodile tears.  History, sadly, does repeat itself. Ì

Produced by the International South Group Network (ISGN) Director and Editor: Y. Tandon; Advisor on SEATINI: B. L. Das

For more information and subscriptions, contact SEATINI, UNDP, Takura House, 67-69 Union Avenue, Harare, Zimbabwe, Tel: +263 4 792681, Ext. 255 & 276, Fax: +263 4 251648/ 728695, email: seatini.zw@undp.org

Material from this bulletin may be freely cited, subject to proper attributio