Data

Thanks to years of intensive data entry and elaboration efforts starting in 1999, the Studiecentrum voor Onderneming en Beurs (SCOB) of Antwerp University, has constructed a database of official monthly price lists of the Brussels Stock Exchange (BSE hereafter) going back to 1832. The SCOB database contains hand collected end-of-month prices, numbers of shares and bonds, dividends and interest rates as well as ex-dividend day and all information on capital operations (stock splits, reverse splits etc.). All the data were obtained from the official quotation lists and checked in secondary sources, primarily the so-called Recueil Financier.Footnote 9 This dataset is unique in terms of its coverage (all traded stocks), its detail (monthly prices) and its accuracy (cross-checking with secondary sources). In fact, digitized official price lists of stock exchanges, including, unfortunately, the Amsterdam stock exchange (AEX), are virtually non-existent.

From the SCOB database we have derived 17 international companies that had concentrated their investments primarily or exclusively in the production of tropical agricultural commodities in the Netherlands Indies (see “Appendix” for the companies included). Brussels was a major centre for international stock trading in the late 19th and early 20th century, mediating an impressive amount of FDI in all corners of the world, from China to Argentina and from Brazil to Egypt. Stocks of foreign companies based in the Netherlands Indies became listed at the BSE from 1913 onwards. The Soengei Lipoet Cultuur Maatschappij was the first, but in due time several others were listed.

Although the 17 companies in our sample vary in size and in type of plantation production and commercial activity, we cannot take full ‘representativeness’ for granted. The sample is likely to be sufficiently large and diverse to offer a proxy of the foreign business performance in Indonesian tropical agriculture, but the sample is small compared to the 138 companies listed at the Amsterdam stock exchange in 1938, and they are just a fraction of the ca. 2850 companies that were active in the Netherlands Indies in 1930 (Lindblad 1993, 703). Our sample includes companies that invested in tropical agricultural commodities such as rubber, palm oil, coffee, cocoa and tea. The majority of companies had a portfolio dominated by palm oil and even more so by rubber. In a way this is good news, because these two crops were by far the two most important products of the plantation sector. We have excluded FDI in tin (e.g. Billiton) and oil (Royal Dutch) because these companies were not listed at the BSE (Royal Dutch only from 1928 onwards) and operated on a global scale. A considerable part of the companies in our sample were linked to a few Belgian-French investment groups, most notably Bunge and Hallet/Rivaud,Footnote 10 who also invested part of their capital in plantation agriculture in the Belgian Congo, but via different subsidiaries.Footnote 11

Due to their domestic reputation in Belgium these firms were able to tap into the Belgian capital market. They had direct links with the Belgian royal family and were regarded as first class investors, with great ‘expertise’ in colonial enterprise. For example, Adrien Hallet [1867–1925] was an agronomical engineer of the University of Gembloux (Belgium), who realized numerous investments in the Netherlands Indies, the Belgian Congo, Malaysia and French Indochina. His knowledge of tropical products made him a much demanded person on many boards of directors. He also participated in the establishment of a colonial bank in 1919 (Banque des Colonies). When he suddenly died in 1925, his son, Robert Hallet [1900–1947] took over. Edouard Bunge [1851–1927] was one of the directors of Abir and Anversoise, two rubber companies which were both founded in 1892, and exploited the wild rubber royal domains of Leopold II. Bunge was rooted in the Antwerp business community and also diversified his activities to many other countries such as Argentina and Malaysia. At present, Bunge is one of the biggest agro-business companies in the world quoted at the New York stock exchange. If these stock-quoted companies have been more efficient in setting up colonial enterprises and/or managing complex investment portfolios, there may be reason to believe that our sample offers an upper-bound estimate of the rate of return to colonial FDI.

We can also compare our sample to the colonial companies listed at the AEX, by using the lists provided by van der Zwaag (1991, 304–310). This shows that 85.5 % of the companies was engaged in tropical agriculture, 7.1 % in trade and 4.6 % in oil and other types of mining. Unfortunately, van der Zwaag’s lists do not allow us to sub-divide tropical agriculture, since many companies entered under the general name of “cultuurmaatschappij”. Using only the companies that had a clearly specified name, suggests that Dutch firms were active in a wider range of products, including rubber, coffee, forestry, sugar, tea, kina, rice, tobacco and palm oil. That said, rubber and palm oil were by far the biggest cash-crops in Indonesian exports and have arguably driven profits of Dutch colonial companies to a very large extent, as they did with the profits of the companies in our sample.

Since the BSE was closed during the German occupation of Belgium in 1914–1918, complete and consistent price lists for our sample are only available from 1919 onwards. This motivates the starting year of our analysis. During the German occupation of Belgium in the Second World War, Netherlands Indies stocks were not listed from the 10th of May 1940 to the end of August 1942. Thereafter only part of the sample was listed again and we use this reduced sample to extend our estimates into the war years and the post-colonial era up to 1958, but for consistency purposes we focus our interpretation on the period 1919–1938.Footnote 12

Method

The advantage of using consistent series of monthly price observations is that it allows us to compute real rates of return to foreign investment in tropical agriculture in the Netherlands Indies with a much greater degree of precision than previous studies have done. Following the Dimson–Marsh–Staunton (DMS) method, which is the current standard for international comparisons of investment returns (Caporin et al. 2013, 1–26), we calculated the geometric annual average rate of return on colonial company stocks. We deflated these estimates using the official Belgian CPI-index of the Ministry of Economics to obtain real rates of return. The core assumption is that share prices absorb all relevant market information available, including profits set aside for re-investment (i.e. capital gains).

Of course, in a world with imperfect market information, stock prices will never reflect the real value of invested capital at any particular moment in time, but by using monthly data of capital gains and dividend yields over a 20-year time period we ensure the inclusion of sufficient points of comparison to make reliable calculations of investment performances, evening out short-run market volatility. Although we report figures for the whole period of 1919–1938, we also show shorter sub-periods to indicate how sensitive results can be to yearly fluctuations (another factor that has burdened previous studies). For the sake of comparison we will present geometric and arithmetic average returns, but given the volatility of the price data we use the geometric mean (GM) for our historical interpretation.

We calculated Laspeyres’ market-capitalisation weighted price and return indices by linking monthly returns in a chain index. This index reflects the value of an investment of BEF 100 in all stocks at the beginning of the indicated period and is adjusted on a monthly basis through reinvestment in all stocks available during the next period. The total return index at the end of the period reflects the end value of an investment made in stocks. As dividends were partly paid in Dutch guilders we converted dividends into BEF (as stock prices were quoted in BEF only), using the exchange rates published in the official lists. Based upon these indices, periodic rates of return can be calculated for any desired period. In mathematical terms the indices are constructed as follows:

$$ I_{t} = I_{t - 1} \cdot \left( {1 + \sum\limits_{i = 1}^{{L_{t - 1} }} {w_{it - 1} r_{it} } } \right) $$

where I t denotes the value of the index at the end of period t where w it−1 is the weight attached to stock i, L t−1 the number of stocks at the end of period (month) t − 1, and r it the return of stock i, including paid dividends (if there were any). We set I equal to 100 at the beginning of each period. Our weights refer to relative market capitalisations:

$$ w_{jt - 1} = \frac{{P_{jt - 1} N_{jt - 1} }}{{\sum

olimits_{j = 1}^{{L_{t - 1} }} {P_{jt - 1} N_{jt - 1} } }} $$

where P jt−1 is the price of stock j at t − 1 and N jt−1 is the number of stocks for stock j at t − 1.

The DMS method includes some other widely accepted principles in finance. First, total returns are calculated under the assumption that investors reinvest dividends at ex-dividend day. Second, all necessary adjustments for capital operations are made (stock splits, bonus shares, reverse splits, attribution and inscription rights). Third, we include common stocks only, excluding ‘special’ types of stocks granting exclusive voting rights and dividend privileges to an elite group of shareholders. We get back to this latter point in Sect. 7.