Forgotten handbrake on South Africa’s economy

South African corporates are sitting on over R1.8 trillion in cash deposits as they are hesitant to invest heavily in the local economy. 

While much of this is due to low business confidence, there is also a clear conservative mindset in the management teams of South African businesses. 

Many of these corporates are holding onto this cash in the belief that better opportunities will come when they can invest cash into expanding their business. 

However, this may take a substantial period of time and may never even happen, with companies increasingly looking to take matters into their own hands. 

This mindset shift is crucial to increasing investment in the local economy and driving sustained growth, Stanlib chief economist Kevin Lings said. 

Lings explained that South African businesses have historically been run conservatively, preserving cash as a buffer against external shocks and as a potential stockpile to invest heavily when the time is right. 

This is financially prudent, with large South African corporates being some of the best run in the world and being resilient to any external shocks. 

“South Africa’s corporate sector sits on a mountain of cash. Yet, despite robust balance sheets, relatively low debt levels and global investment opportunities, many of the country’s biggest businesses are standing still,” Lings said. 

“This conservative financial posture is both a strength and a symptom of something deeper – a hesitancy that has shaped corporate culture over decades.” 

Unlocking corporate investment is critical for sustained economic growth in South Africa, which can begin to make inroads in tackling the country’s unemployment crisis. 

“There’s this view that corporations are hoarding cash, being overly cautious and not investing in growth,” Lings said. 

“But the reasons behind it are complex. Each business is unique, and its cash flow aligns with its cash objectives, but it also makes sense for businesses to maximise their returns.” 

One thing that is common across the board is a conservative approach to money management, which has become entrenched in South Africa’s corporate DNA. 

Lings pointed out that South Africa’s corporate debt is around 31% as a share of GDP. If state-owned enterprises are stripped out, this drops to around 20%. 

This makes it among the lowest levels in the world, with growth in corporate cash consistently outpacing inflation for years. 

“That tells you something about behaviour, it’s not just about the amount of cash, but how quickly it’s accumulating in an economy growing at one per cent,” Lings said. 

The mindset shift

Lings has long pointed to low business confidence as the main reason for the lack of substantial corporate investment in South Africa. 

This is largely a function of uncertainty. “When you don’t know if you’ll have electricity, water, or social stability tomorrow, risk-taking becomes harder to justify,” Lings said. 

However, there is room for investment in South Africa, with businesses increasingly being pushed to take matters into their own hands and not wait for the government to implement reforms before investing. 

“Many CFOs tell me they’re simply trying to stay in business. I understand that. But even within that reality, there’s room to be more creative, more entrepreneurial,” Lings explained. 

Lings said that waiting for the government to fix everything is not a strategy, with companies at risk of falling into a trap of waiting and waiting for policies and for certainty. 

“That can take forever. More and more, companies are realising that they have to take matters into their own hands,” he said. 

Sun International is an example of such a company, with it suffering from unreliable electricity and water supply at many of its hotels. 

Instead of waiting for the government to implement fixes, the company invested heavily in its own electricity generation capacity and water storage. 

“It was expensive and risky, but now they’re far better positioned. Sometimes you just have to get on with it,” Lings said. 

That shift, from waiting to acting, could be the key to unlocking South Africa’s next phase of corporate growth. “Lift your head. Look around. Go to international trade fairs. Talk to peers in other emerging markets. Learn how they’ve innovated under similar pressures.”

For all the enthusiasm to encourage investment to drive economic growth, Lings made it clear that South Africa’s corporate conservatism is not inherently bad. 

“You wouldn’t want the opposite, weak balance sheets and failing companies. Our corporations are strong, financially disciplined and well-managed. That’s a foundation to build on,” he said.

“These balance sheets are powerful. If they start to move, if that capital is mobilised, it can change this country.”

“But to do that, we need a mindset shift. From caution to creativity. From waiting to acting. From managing risk to managing opportunity.”