Presentation by Yash Tandon, Director of the International South Group Network, Zimbabwe, AT THE "Expert Meeting on Mergers and Acquisitions," UNCTAD, Geneva, 21 June, 2000.

I wish first to 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Secretariat for inviting me to this experts meeting on M&A. I am myself no expert, and as an economist I may even be outdated.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, Keynsian 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 So I may well be out of date.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 macro­economic 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, often implied but quite ubiquitous, such as that M&As are good for the developing countries, or that FDIs are necessary for development, and so on so forth. That may be so, but these conclusions do not follow from the experience of M &As. There 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 emphasise 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 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, content, and nature of the takeover is such that its impact on the economy is of a different order from a company-focused M&A in the developed world. 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, for example, a European telcom company by ~ an American company.

This leads me 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 pineapples 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 IDIs. 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 c6untries have altogether a different kind of impact on their respective economies than that 6f movements of capital between developing countries on the one hand and the developed economies. It is an issue that needs to be examined. You can't put them together in one basket. In South Africa what has taken place is the de-capitalisation of the economy as a result of acquisitions by South-African based transnational companies. whether these companies are genuinely South African (I don't think they are, although they may be registered in South Africa) 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 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 dQ 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. The authors of WIRs may show passages in the Reports that are critical of TNCs, but this is done in an eclectic and inconsistent manner, for the overall thrust of the WIRs is that they are good for the developing countries.

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 balance of payments accounts (that do not take into account, for example, exit of capital through transfer pricing) 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 developing country's 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, on behalf of M&As, especially as almost all of these takeovers are of Southern enterprises by Northern corporations, with the rare exception of Tata's takeover of Tetley, and that too only because Tata could not develop its own brand name and had to buy one in order to stay in the market. 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, especially in an intergovernmental meeting of this kind

Thank you Mr. Chairman