Economist trashes cash pile claims

Cape Town - Suggestions that South African companies are sitting on piles of cash they are unwilling to invest in the economy are not true, according to Old Mutual Investment Group South Africa's (Omigsa's) chief economist Rian le Roux.

Le Roux said in a media statement that a closer look at data shows that companies in fact have far less cash on hand than would seem to be the case.

An examination of the SA Reserve Bank (Sarb) deposit data showed that, rather than the total R1.34 trillion held as bank deposits by non-financial companies as at the end of November 2012, “true” non-financial corporate deposits were only R578bn or 43% of this total.

“One had to exclude the remaining deposits of R762bn, which were mainly deposits held with banks by fund managers and unit trusts (including money market unit trusts),” Le Roux said.

“Financial companies are excluded from this category of the Sarb’s data since much of the cash they hold is used for reserve requirements or invested on behalf of clients, for example.”

This meant that cash held by corporates was only 18% of gross domestic product (GDP), rather than the 41% of GDP commonly quoted (using the R1.34 trillion figure).

Significantly, he said, this R578bn was held across all non-financial companies in South Africa.

It therefore included the deposits not only of large local companies, but also of literally tens of thousands of medium and small enterprises nationwide which largely hold cash to run their businesses on a daily basis.

Le Roux also pointed out that data from company results as of the end of 2012 showed that cash on corporate balance sheets of the 40 or so largest non-financial, non-dual listed companies on the JSE totalled less than R200bn at the end of 2012, or only around 5.5% of GDP.

Total private sector spending on fixed capital projects in SA amounted to R370bn in 2012.

Le Roux said the Reserve Bank data has been the source of much public debate and speculation.

“It has been used to support a wide variety of claims from many different sources.

"The most common interpretation is that this ‘cash pile’ is evidence of the private sector’s ‘unwillingness to invest in the economy’, but other arguments have also been forwarded in the past, including that money was being hoarded in anticipation of offshore (rather than local) investments, or for large-scale investment once the business climate improves, or even for special dividend pay-outs.”

During his 2013 Budget Speech Finance Minister Pravin Gordhan said that in recent times the world has become a more uncertain place for businesses, causing some to build cash reserves rather than invest in new or expanding operations.

He encouraged businesses to keep investing in the economy, and seize the opportunities around them.

Gordhan reiterated at a post-budget breakfast that investing in innovation will help South Africa grow faster.

"Invest in the real economy... and innovation as opposed to investing in speculative activity," he said at a televised New Age business breakfast the day after he delivered his budget speech.

"In the South African context, we need more of the money that is in circulation or in savings... that will enable us to grow much faster."

 “It seems to me that the much-debated topic of ‘SA’s corporate cash pile’ says essentially very little, if anything, about large SA companies’ willingness to invest or not, planned investment, planned exporting of capital or planned special dividend payments.

"Clearly, the topic needs more research, and careful interpretation of the data is required.

“For private sector investment to rise meaningfully, contributing to faster economic growth, a much-improved improved local business climate remains a key prerequisite,” said Le Roux.