Business figures ‘debunk myth of investment strike’
• Private enterprises’ percentage share of GDP is within the normal realms for a weak economy, economist says
As the silent war between business and the government continues to be waged under the dark cloud of a severe trust deficit, business is crunching the numbers to move on without the government.
Underhanded campaigning between the two has included accusations of the president trying to capture the Treasury and business waging an “investment strike”. However, Nedbank chief economist Dennis Dykes says “investment strike” is not an accurate description.
“It’s not a deliberate campaign on the part of business to withhold large sums of money and not invest in SA.”
He explains that while it’s a perception that has been put forward, it is a misnomer. The percentage share of GDP occupied by business in SA is within the normal realms for a weak economy, he says.
Business Leadership SA (BLSA) released a report last week aimed at debunking perceptions there is an investment strike in the country.
The report points out that 57 BLSA members have contributed more than R1.9-trillion to the country’s GDP.
“There is a sense of distrust, which comes down to the unfortunate tendency politicians have of talking like business is the enemy instead of the biggest driver of economic growth and job creation,” Dykes says.
The report measured the economic footprint of 57 of BLSA’s 77 member companies. The research was undertaken by Quantech.
BLSA CEO Bonang Mohale says: “We are puncturing the inflated fallacy that business is on an investment strike.
“We are quantifying our members’ activities and their contribution to the GDP. Business is the most significant contributor to the economy.”
While Transnet, Eskom and KPMG have been suspended by BLSA due to their alleged role in state capture, the report boasts numbers from big names such as Alexander Forbes, Sanlam and MTN. The BLSA aims to have a consolidated report by 2018, including feedback from all its members.
The gloves came off as Mohale rattled off businesses’ stats compared with the government’s. The contribution of the 57 members is 1.2 times the value of total budgeted expenditure by the government in 2016 and, as Mohale emphasises, “only represents a portion of the total impact of business”.
On average, each member’s output value was about R18.6bn. Adding indirect effects to the direct impact, the footprint of BLSA members amounts to R3-trillion, while the economywide impact amounts to R4-trillion, or about 36% of the total South African domestic economy’s output.
Moreover, in 2016, when the economy was hit hard and businesses struggled to adapt to difficult economic conditions, the direct and indirect impact of members of the BLSA was up 4.8% on the 2015 value.
BNP Paribas economist Jeff Schultz concedes that many domestic corporates are hesitant to invest given the political uncertainty and weak economic environment. He explains that foreign direct investment outflows are large.
Trends in the past five years show that South African companies are investing, they’re just not investing in SA, he says.
“It’s not that they aren’t investing, it’s that the pace isn’t keeping up.
“The terms of trade are the most favourable since 2013 but no one really knows what the future holds,” Schultz explains.
Research by the University of Johannesburg’s Centre for Competition Regulation and Economic Development in August showed that the cash reserves of the JSE’s top 50 companies rose to R1.4-trillion in 2016 from R242bn in 2005.
According to the research, SA’s corporate sector is sitting on more than R1-trillion in cash reserves and fixed investment is barely growing as corporates shift their investments and operations abroad.
With business confidence at record lows, there is debate over whether South African companies will resume investing once confidence picks up and the tension between business and the government is quelled.
While Finance Minister Malusi Gigaba’s confidenceboosting measures were introduced in July to assuage fears that the trust deficit between business and the government is widening, it remains to be seen how this will foster confidence and persuade SA’s corporates to invest in uncertain times.
Until the government acts to restore confidence, hesitancy from business will continue to be palpable.
Despite evidence to the contrary, this is not BLSA’s first attempt at dispelling the investment strike myth that South African companies are hoarding cash. In September, a report compiled by research and consulting firm Intellidex looked at the balance sheets of the largest industrial and mining companies listed on the JSE and found that over the past 10 years, cash balances have fluctuated between 6.4% and 10.2% of total assets and in the most recent year were at 7.8%.
The sample group in the report held R765bn in cash, up from R154bn a decade ago.
Many of the companies in the study have operations around the world, so they hold cash balances in hard currency. In 2007, the rand was R7.29 to the dollar; by 2016, it had depreciated to R16/$. This means every $100 of hard currency holding would have increased from R729 to R1,600 over the period, an annual growth rate of 8.18%.
Intellidex executive chairman Stuart Theobald said at the launch: “While it suits some to talk of cash hoarding and investment
THE TERMS OF TRADE ARE THE MOST FAVOURABLE SINCE 2013 BUT NO ONE KNOWS WHAT THE FUTURE HOLDS
strikes, the evidence simply doesn’t support this. Companies are generally holding no more cash than they always have when seen in the context of their overall balance sheets.”
Mohale says: “The findings of this research have effectively busted the dual myths of ‘investment strikes’ and ‘corporate cash hoarding’.
“It is clear that South African businesses continue to invest in SA and hold cash reserves at appropriate levels.”
Backed by two reports and mounting evidence, business has a convincing argument, but with persistently weak economic growth, it remains to be seen whether the current level of investment is enough to support the economy.