Economist sets record straight about corporate cash

The raging debate about the level of cash apparently hoarded by private corporations is largely driven by misinformation.

That is bottom line in statements made by Old Mutual Investment Group South Africa (OMIGSA) chief economist Rian le Roux.

He said despite stories of South African companies sitting o­n “piles of cash” and being reluctant to invest in the local economy, a closer look at the data reveals companies actually have far less cash o­n hand than is widely believed.

He said 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 R578 billion, or 43% of this total. O­ne had to exclude the remaining deposits of R762 billion, which were mainly deposits held with banks by fund managers and unit trusts (including money market unit trusts).

As such cash held by corporates was o­nly 18% of GDP, rather than the 41% of GDP commonly quoted (using the R1.34 trillion figure).

Le Roux said the R578 billion was held across all non-financial companies in South Africa and included the deposits not o­nly of large local companies, but also of literally tens of thousands of medium and small enterprises across South Africa, largely holding cash to run their businesses o­n a daily basis.

“This Reserve Bank data has been the source of much public debate and speculation,” said le Roux. “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.”

He also said 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 R370 billion in 2012.

“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.

Leave a Reply

Your email address will not be published. Required fields are marked *