South Africa has a solid history of engagement with traditional biotechnology. It has produced one of the largest brewing companies in the world; it makes wines that compare with the best; it has created many new animal breeds and plant varieties, some of which are used commercially all over the world and it has competitive industries in the manufacture of dairy products such as cheese, yoghurt and maas and baker’s yeast and other fermentation products.
However, South Africa has failed to extract value from the more recent advances in biotechnology, particularly over the last 25 years with the emergence of genetics and genomic sciences. Already many companies and public institutions elsewhere in the world are offering products and services that have arisen from the new biotechnology. In the USA alone, there are 300 public biotechnology companies with a market capitalisation of $353 billion and an annual turnover of $22 billion p.a. Moreover, the growth of biotechnology industries is not restricted to the developed countries. Developing countries such as Cuba, Brazil and China have been quick to identify the potential benefits of the technology and have established measures both to develop such industries and to extract value where possible and relevant.
File Size : 407 KB
No. of Page(s) : 53 pages
It is clear that in the period leading up to the global financial crisis of 2007-2009, credit and asset prices were growing at a ferocious pace. In the United States, for example, in the five-year period from 2002-2007, the ratio of debt to national income went up from 3.75 to one, to 4.75 to one. It had taken the prior full decade to accomplish this feat, and fifteen years prior to that. During this same period, house prices grew at an unprecedented rate of 11% per year. And, there was no evidence of appreciating borrower quality over this period either.
The credit growth was across board, in mortgages, especially sub-prime ones, in financing of leveraged buy-out transactions (LBOs), and through increasing issuance of low-rated bonds. This rapid rise in asset volume and prices met with a precipitous fall. Below are two salient examples.
With perfect capital markets a firm can always raise external funds to finance all the projects with a positive expected net present value. This is not possible if some imperfections are present in the financial markets. Under asymmetric information or contract incompleteness (imperfect enforceability) the moral hazard problem limits the availability of debt (Stiglitz and Weiss, 1981; Besanko and Thakor, 1986; Milde and Riley, 1988; Hart and Moore, 1998). In addition adverse selection increases equity financing costs so that they overcome expected profits of feasible investment projects (Myers and Majluf, 1984).
These theories predict that financing constraints should influence real activity both at individual and aggregate level. At the individual level, if external finance is limited, retained earnings become the main source of funds, and firm investment is a function of internal finance availability rather than of expected productivity of capital. At the aggregate level financing constraints can amplify and propagate the effects of initial real and monetary shocks, through three channels: the financial accelerator effect: constrained firms can only invest if internal finance is available. Hence at the beginning of a downturn the reduction in cash flow depresses investment (Bernanke Gertler and Gilchrist, 1996); the asset price effect: when the borrowing capacity of a firm depends on the collateral value of its assets, at the beginning of a downturn the drop in asset prices reduces borrowing and investment (Kiyotaki and Moore, 1997; Ortalo Magne’, 1997; Bernanke, Gertler and Gilchrist, 1998); the flight to quality effect: during a downturn banks increase collateral requirements, thereby reducing loans to borrowers facing financing constraints. All three effects have opposite direction during an upturn.
