SITTING ON A PILE OF CASH
The truth behind the investment strike
The huge growth in corporate cash reserves, at the same time as private sector fixed investment has all but dried up, suggests to some we’re in an investment strike, to others a complete lack of confidence
SA’s corporate sector is sitting on more than R1 trillion in cash reserves. Yet fixed investment is barely growing and firms continue to shift their investments and operations abroad.
New research by the University of Johannesburg’s Centre for Competition Regulation & Economic Development (CCRED) shows the cash reserves of the JSE’s top 50 companies (excluding dual-or multilisted entities) rose to R1.4 trillion last year from R242bn in 2005.
This counters the belief that SA’s low savings rate is undermining investment. It also counters the claim that the Reserve Bank’s failure to lower interest rates is stifling investment. The cost of borrowing can’t be an inhibitor to investment if firms don’t need to borrow.
On average, CCRED finds that it was the banking sector that held on to most of the cash, investing just over R10bn in SA, while hoarding R25bn in cash over the 2005-2016 period. Regulatory capital requirements fail to explain why the banks have been hoarding cash. A separate study found that Capitec Bank, for example, exceeded its liquidity coverage ratio by over 1,000% between 2013 and 2015, the three years covered by the CCRED study. Investments measured in terms of mergers and acquisitions show the most valuable deals done by the top 50 companies took place outside SA; only 39% of these deals took place in SA, says CCRED. Last year, deals outside SA accounted for R71bn of M&A activity, while deals within SA accounted for just over R10bn. So is business on an investment strike? Cosatu’s Neil Coleman thinks so. Writing in the Daily Maverick, he accuses business of having stripped SA of capital since 1994 through the building-up of large cash reserves; by setting up dual or primary ...
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