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 that, in fact, companies actually have far less cash on hand than reflected in the data, according to Rian le Roux, chief economist at Old Mutual Investment Group South Africa (OMIGSA). 
An examination of the South African Reserve Bank (SARB) deposit data by Le Roux shows 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.
The remaining deposits of R762-billion, which were mainly deposits held with banks by fund managers and unit trusts (including money market unit trusts), have to be excluded, he says.
This meant that cash held by corporates was only 18% of GDP, rather than the 41% of GDP commonly quoted (using the R1,34-trillion figure).
Importantly, Le Roux says, this R578-billion is 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,” says 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.”
At the same time, he pointed out, 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 R200-billion at the end of 2012, or only around 5,5% of GDP. Total private sector spending on fixed capital projects in South Africa amounted to R370-billion in 2012.
“It seems to me that the much-debated topic of ‘South Africa’s corporate cash pile’ says essentially very little – if anything – about large South African 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,” Le Roux says.
“Financial companies like banks, asset managers and others, 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.”