For as long as SA battles sustained policy uncertainty, companies will sit on large piles of cash and refrain from investing, Reserve Bank governor Lesetja Kganyago says.
Speaking at a webinar hosted by the hosted by the Centre for Development and Enterprise on Wednesday, Kganyago flagged the large cash deposits corporate SA has accumulated in an environment where business confidence has been low and policy uncertainty remains elevated — problems which have been amplified by the Covid-19 shock.
Bank data show that SA’s non-financial corporates are sitting on about R1-trillion in cash, even as the country battles to revive fixed investment which fell to 13.7% of GDP in 2020, its lowest level since the mid-1990s. This is well below the 23% level in peer emerging economies, and deemed insufficient to support sustainable growth and create jobs.
Policy uncertainty has been linked to souring business confidence and declining investment, with the latest policy uncertainty index released by the North West University Business School showing that uncertainty rose sharply in the third quarter in the wake of civil unrest, tougher lockdown restrictions and conflicting policy messages.
The index is a gauge of perceptions of policy uncertainty, published each quarter. An increase beyond 50 points reflects heightened policy uncertainty and a decline below this level means reduced uncertainty. The last time the index was in positive terrain was during the first quarter of 2018 — during the first blush of president Cyril Ramaphosa’s administration, dubbed “Ramaphoria”.
Though much of the cash accumulation appears to sit with SA’s mining companies, which are benefiting from the commodities price boom, Kganyago pointed to the index and the problem of business confidence.
“For as long as you have that [heightened policy uncertainty] you will have companies sitting on cash and not investing,” he said.
The Bank has repeatedly highlighted the need for structural reforms to eliminate the constraints on economic growth and that would boost confidence and investment — including among other things providing sufficient energy for growth and lowering the effects of government-set administered prices on overall inflation.
Kganyago emphasised that making these decisions requires government leaders to confront difficult trade-offs, in an environment where the resources to meet the needs of society are limited. “There is no free lunch,” he said.
He underscored the decline in the number of South African taxpayers, notably the decline in the number of high-income taxpayers, or those earning more than the R750,000 threshold.
“As it stands the number of taxpayers in this country has shrunk,” he said. “What we can’t do as policymakers is to give an impression to society that society can have everything it needs and wants, when we know that the resources to meet the needs of society are limited.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.