Stuart Theobald and Orin Tambo disputed the conclusion of a report by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development that corporate SA is hoarding up to R1.4-trillion in cash (Leading JSE-listed groups ‘not hoarding’, September 18). They claimed that cash holdings by companies actually grew from R154bn in 2007 to R765bn, but their conclusions are wrong.
The writers revised the value of cash held by corporations significantly, from R1.4-trillion to R765bn, in part by not including holdings by financial services firms. I argue that cash held by the financial service sector must be included in the calculation. Doing so is not double accounting (as they reason) but reflects a financial asset management strategy of the firms in question. Financial services firms are electing to ration availability of investment capital in the market, thus denying opportunities for investment.
Their thesis rebases cash to the dollar. This is a misleading methodology: it fails to account for the rate of growth in dollar inflation, dollar-rebased company expenses, capital expenditure and debt repayments. Whatever their methodology, dollar inflation over the 10-year period averaged about 1.5% per annum. This implies a real growth in cash holdings of more than 2% per annum.
Theobald and Tambo noted that "dividends as a percentage of cash have been falling since 2012 … mostly mining companies coping with commodity prices". Indeed, a lot can be said about mining policy, but the reality is that dividends as a percentage of cash fell from about 80% in 2007 to 20% in 2017. This is a hoarding of cash.
Dr Rabelani DagadaJohannesburg mayoral committee member (finance)