South Africa has a R1.2 trillion goldmine 

South African corporates are sitting on R1.2 trillion worth of cash, as many are hesitant to deploy capital into the local economy without policy certainty and improved economic growth. 

While this is good news for South African companies, as it means they have a significant buffer against external shocks, it is also a sign of low confidence in the local economy. 

Furthermore, this cash is effectively sitting on the sidelines rather than being used to stimulate economic growth and development. 

The Reserve Bank’s latest Quarterly Bulletin revealed that corporate savings as a percentage of GDP rose to 15.2% in the second quarter. 

This was driven by the seasonally adjusted operating surplus and lower tax payments. Companies adopting a wait-and-see approach to investing during the country’s national elections also played a role. 

Corporate savings have remained relatively stable as a share of GDP, hovering above 10% for the past five years as companies hesitate to invest in the local economy. 

Political uncertainty and low economic growth are the two largest hurdles preventing this cash pile from being deployed. 

Standard Bank chief economist Goolam Ballim refers to this as ‘subsistence investing,’ in which companies allocate capital to keep their businesses functioning rather than grow. 

As a result, this investment, typically used to acquire alternative energy or water systems sources, does not grow the economy or increase employment. 

It is also effectively a vote of no confidence by corporates in the local economy as they do not see the opportunity to earn a suitable return on investment. 

Old Mutual’s Ian Ferguson said many companies are adopting a wait-and-see approach to investing despite the optimism surrounding the Government of National Unity (GNU). 

“Instead of investing their capital for organic growth, corporates are opting to keep cash in bank accounts as they await a clear economic development plan from the new GNU,” Ferguson said.

Research from Old Mutual Wealth’s Cash and Liquidity unit shows that SA non-financial corporate deposits have grown by more than 9% this year to over R1.2 trillion in 2024.

This cash pile is only likely to grow in the near future, with the Reserve Bank’s data showing that companies increased their savings dramatically in the first half of 2024. 

This can be seen in the graphs below, courtesy of the Reserve Bank. 

While this cash is sitting idle on the balance sheets of companies, it does not mean that it is completely unused, as it is a source of deposits that banks can use as a basis for lending. 

Furthermore, asset managers are increasingly eyeing it as a way to boost their assets under management relatively easily and are trying to attract companies to their institutional money market funds. 

For example, Old Mutual has touted the ability of its funds to offer companies liquidity in savings accounts with higher yields of fixed-income assets. 

It expects companies to increasingly use these funds as a way to ensure the returns on their cash is not eroded by declining interest rates. 

Companies have grown their cash reserves while waiting for a clear direction from the GNU. This strategy results in companies having more capital to invest when the government communicates its much-awaited economic growth policy. 

If this cash were to be injected into the economy, it would make a big difference to GDP growth as the multiplier effect in South Africa is powerful.

Ferguson explained that companies can park their cash reserves in a money market or enhanced money market solution offering better yields than traditional bank deposit rates.

The yield on money market funds lags the call rate during a rate-cutting cycle, resulting in higher returns than those offered by traditional savings accounts as their yields fall immediately following a rate cut.

Money market fund yields take longer to reset, meaning they stay higher for longer.

Late last year, Stanlib launched a fund specifically aimed at corporate treasuries sitting on piles of cash and seeking higher yields.

Old Mutual estimated that these kinds of products generate an extra R4 billion per annum in yield for large corporates and other institutional clients.