The amount of cash held by SA non-financial companies has surged by R700bn over the past six years, approaching R2-trillion at the end of July as a wave of corporate caution, persistent low growth and high inflation holds back investment.
The Reserve Bank’s September quarterly bulletin shows cash held by companies in their bank accounts amounted to a record R1.8-trillion at the end of July, up from the R1.1-trillion reported in 2019.
The enormous safety net piles pressure on President Cyril Ramaphosa to convert latent liquidity into productive capital, reversing a decade-long trend of weak growth and capital flight. Staking his political legacy on private sector-led economic recovery, he has unleashed structural reforms in energy, water and logistics.
The Bank said companies are holding excess cash because they are responding to economic conditions and balancing risk with readiness to invest when confidence returns.
The uptick accelerated when the economy came to a standstill during the Covid-19 pandemic, which triggered a frenzied scramble for cash to navigate the health emergency that morphed into an economic crisis.
“Cash holding thus increased significantly during the pandemic and the subsequent high-inflation period and again when economic growth moderated from 2023 amid increased global and domestic uncertainty,” the Bank said.
“But since mid-2022, deposit growth has outpaced GDP growth, a sign that businesses are still keeping extra cash as a safety measure amid heightened uncertainty and limited investment opportunities in the low-growth environment.
“From late 2023, the gap between deposits and investment widened due to heightened uncertainty, subdued business confidence and SA’s low economic growth.”
Cash as a buffer
Business Day reported in June that SA corporates are holding excess cash as a cushion to bridge the timing mismatch between cash generation and sudden cash needs, as business sentiment wanes in a low-growth economy and geopolitical uncertainty delays investment decisions.
Absa CFO Deon Raju said in June: “There is a lot of excess cash out there, particularly among corporate clients. It talks a little bit about a lack of confidence. Surplus cash is certainly a trend in SA.”
Corporations hold cash as pragmatic insurance against policy and market shocks, avoiding ill-timed investments that would decimate shareholder value, and preserving the option to pounce on disciplined mergers and acquisitions when the macro picture brightens.
Business confidence subdued
The RMB/BER second-quarter business confidence index slipped by one point to 39, implying that about 60% of respondents are dissatisfied with prevailing business conditions.
“The underlying results point to an economy that is muddling through, with many activity and demand indicators in line with 20-year average levels. That said, the current level of confidence is insufficient to drive an acceleration of much-needed investment to improve SA’s potential economic and employment growth rate,” the results of the index released last month noted.
“Respondents struggle amid rising electricity costs, an onerous administrative burden and competition from imports, which do not always face the same hurdles in getting their product to market as local businesses. While corruption, red tape, sluggish logistics and other structural issues in the South African economy continue to feature.”
Government reforms
To shore up business confidence, the government has embarked on major reforms across the network industries, with private sector participants expected to play a prominent role in the logistics, rail and energy sectors.
Still, gross fixed capital formation, a core macroeconomic indicator of investment and future capacity, has suffered fluctuations and even declines in recent years. Domestic capital spending has barely changed since the late 1980s, languishing at less than 20% of GDP.
In comparison, emerging Asian countries have seen a steady increase in investment over the same period, from 25% to almost 40%, helping them rack up decades of growth, which propelled some of them into the ranks of the advanced economies.
Service delivery challenges
Eskom has made progress in keeping the lights on, accelerated from 2024. Irregular and erratic power supply and logistics bottlenecks have hurt the economy and business sentiment over the past few years.
But the price of electricity, as regulated by energy regulator Nersa, has made SA industry uncompetitive. The poor state of local government and dismal service delivery, while municipal rates surge, have weighed on business sentiment. Water shortages have emerged as a key socioeconomic threat.
A key focus of phase two of Operation Vulindlela is to achieve water infrastructure reform, which aims to tackle the root causes of service delivery failures, among other issues.
A lost decade for growth and investment
SA’s economy has struggled to grow over the past decade, a period some have described as a “lost decade”. Foreign investors have withdrawn about R1-trillion from SA’s equity and bond markets over the past 10 years.
Shoprite chair Wendy Lucas-Bull, in her annual letter to shareholders, reflected on SA’s investment case and challenges with municipal services.
“The state of local government remains a concern, with many municipalities falling short in terms of service delivery. Critical infrastructure, particularly roads, rail, ports, water delivery and waste water management, are in need of significant reinvestment and improved administration,” Lucas-Bull wrote.
“This environment continues, unfortunately, to hamper multinational investment, affecting production capability and product availability.
“While the group maintains high levels of capital investment, underscoring our long-term commitment to our operations in SA, we face ongoing challenges across the supply chain and in the local agricultural sector, with many local suppliers struggling to consistently meet demand.”
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