Show me the money

Johannesburg - There is little to no evidence of massive cash stockpiling by South African companies, but that does not mean there is no “investment strike” or ongoing financialisation (increase in size of the financial sector) in the economy.

Claims that local companies are holding on to cash at the expense of investment miss the real transformations that have been going on since the 1990s – the rise of household debt, the increasingly multinational nature of companies and their tendency to grow by buying other companies, and investment in financial assets other than cash.

Business Leadership SA this week released research it commissioned from financial consultancy Intellidex to disprove the “cash hoarding myth” that often resurfaces in South Africa.

The allegation is so entrenched, it often gets thrown into speeches or articles as an aside, like Deputy Minister in the Presidency Buti Manamela’s assertion in Parliament last year that “some white and monopolistic capital are hoarding billions of rands and are actively on an investment strike”.

The Intellidex research makes some simple observations about JSE-listed mining and industrial companies’ cash holdings.

This cash has nominally increased 400% since 2007, from R154 billion to R775 billion last year.

A lot of that is dollars held by multinationals, so the weakening rand automatically makes the number grow, said Intellidex.

You also have to factor in a decade’s worth of inflation.

Ultimately, companies also grow and their cash holdings should at least keep up.

Taken together, the current level of cash held by listed companies is not high by historical standards.

On the contrary, judged by some international standards, South African companies actually do the opposite of cash hoarding, said Intellidex chair Stuart Theobald.

“In South Africa, the cash ratio is about 7.2%. In Europe, it is 15% and in the US, it is 20%, so actually South African companies keep relatively little cash,” he told City Press.

The cash ratio is the amount of cash a company has, expressed as a percentage of its assets.

“I can speculate that the high level of cash in the US reflects companies keeping war chests for taking over other companies. That is a form of cash hoarding that reflects a positive economic outlook,” said Theobald.

“In South Africa, companies do not hold war chests, which is an indication of a lack of business confidence.”

Intellidex’s report is not the first to debunk the cash hoarding allegations.

In 2015, an MBA student at the Gordon Institute of Business Science, Frankline Nyamgero, did a similar exercise to show JSE-listed companies’ cash levels in 2013 were actually lower than in any year since 1997, if all the other aspects were taken into account.


The SA Reserve Bank provides numbers on companies’ deposits in the banking system, which counts only residents’ deposits and includes unlisted companies.

The cash hoarding story is also hard to see in these figures, at least in the past decade.

Corporate bank deposits rose dramatically up to 2007, during the boom, and have stagnated since.

City Press adjusted these numbers for inflation, after which the level of cash held in banks by companies is clearly not escalating.

Instead, it is following more or less the same trend as household bank deposits.


Debunking the claim that companies are hoarding cash “misses the point”, according to Ewa Karwowski, a former national Treasury economist who is now teaching at Kingston University in the UK.

In July, she published new research on “corporate financialisation in South Africa” highlighting longer-term changes in the financial system and how the country’s companies slot into it.

One stark development is the relative decline in household bank deposits, which used to be the major source of the banking sector’s money.

Since the 1990s, corporations took over this role.

“The switching of roles between households and corporations is a symptom of financialisation, with corporations becoming major creditors, while households run down savings and accumulate debt,” Karwowksi said in her paper.

Corporate cash balances “might be on the fall in relative terms”, but, according to Karwowski, they have always been large and they fuel the overall banking system, which is largely concerned with mortgages.

When corporate cash rises like it did up to 2007, massive credit extension does too, causing housing bubbles, she said.

Hoarding: What about the R1.4tn?

Accusations of “cash hoarding” recently surged following new research from the University of Johannesburg’s Centre for Competition, Regulation and Economic Development (CCRED) released in July.

Major JSE-listed companies had amassed R1.4 trillion in retained earnings, according to the centre’s report into their investment patterns.

The centre’s work does not say that this R1.4 trillion is actually sitting around waiting to be used.

It isn’t.

If a company makes a R1 million profit and does not pay it out as a dividend, it becomes retained earnings, even if all of it is spent on building a factory.

The media got it very wrong and conflated this figure with cash.

Trade union federation Cosatu then came out swinging with an angry statement about how the “contemptuous cash hoarding by South African companies poses a threat to labour peace and social stability”.

CCRED senior researcher Thando Vilakazi told City Press that their report was making a “general point about the patterns of investment” of big, listed companies.

The retained earnings may very well not be piling up as cash, but they are also not being used to build things in South Africa.

That was really the point of the centre’s exercise – it didn’t show cash hoarding, but rather indicated that JSE-listed companies were deploying a lot of their profits to mergers, often overseas, as well as replacing their existing assets rather than expanding.


Do you feel there has been a level of underinvestment by companies in SA?

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