South Africa sitting on a R1.4 trillion goldmine

South African non-financial corporates have R1.4 trillion in excess cash but are hesitant to deploy it in a stagnant economy plagued by uncertainty. 

This is feedback from Stanlib chief economist Kevin Lings, who outlined why South African companies are sitting on a record amount of cash rather than deploying it to grow. 

At the asset manager’s InPerspective Roadshow, Lings explained that South Africa is suffering from a crisis of confidence. 

The country has averaged an annual economic growth rate of 0.8% for the past decade, while its population is growing at 1.5% yearly. 

In the past decade, consumer spending has driven South Africa’s meagre economic growth, and the historic drivers of mining and manufacturing have stagnated. 

This is not necessarily a bad thing, Lings said, as many economies are reliant on consumer spending. 

The problem in South Africa is that a large chunk of this is supported by the government giving out social grants, with 28 million people relying on cheques from the state. 

With this being supported by only 7.9 million personal income taxpayers, the financial equation is unsustainable. 

For Lings, the answer lies in infrastructure investment, which can build economic confidence, drive growth, and make South Africa more efficient. 

Crucially, this would also solve significant constraints on the local economy, such as an unreliable power supply and logistical bottlenecks. 

However, the government does not have the balance sheet to afford this investment, which Lings estimated at R100 billion a year just to return the country’s infrastructure to adequate levels. 

The government’s debt has crossed 75% as a share of the GDP, forcing it to turn to the private sector to help fund these initiatives. 

Again, infrastructure is key as it can crowd in private-sector investment alongside the government. 

South African corporates sitting on cash

Unfortunately, South African corporates have been unwilling to invest in the local economy due to its poor economic growth and policy uncertainty. 

“The private sector is in very good shape. If you look at the cash in corporate balance sheets, this is cash in the bank. It sits at over R1.4 trillion. This is a record high,” Lings said. 

“We know that South African corporates have a good balance sheet and that there is money in pension funds. There is money waiting to invest in infrastructure.” 

The key issue for Lings is that getting this money off the sidelines requires the right approach from the government to ensure that private investors can get a return and that the money will be used correctly. 

“If the government embraced public-private partnerships, we will unlock that balance sheet. I am confident that the government understands this.” 

However, Lings said the government needs to understand what has made these partnerships work in the past and pointed to the electricity sector as the best example to follow. 

“The biggest success story of this is obviously if we look at our electricity development. When they deregulated the sector, the private sector stepped in and has built a huge amount of energy infrastructure.” 

“It demonstrates that if you deregulate, the private sector will step in and invest. The argument is to do that for all the infrastructure where we have a major backlog.” 

“The private sector has the balance sheet, and it wants to invest. If the government stepped away and deregulated sectors to allow the private sector in more, we are convinced that we will get the investment needed to lift the growth rate.” 

“Slowly, very slowly, the government is coming around to that idea, so we are very optimistic on a medium-term basis.” 

Lings explained that it would take two to three years for the country to see the benefit of the shift that has happened in the background.