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.