To my mind

Finweek English Edition - - Front page - BY RIKUS DEL­PORT rikusd@fin­week.co.za

COM­PA­NIES AND GOV­ERN­MENT de­part­ments cur­rently find them­selves in the same in­vid­i­ous po­si­tion. Both have more than suf­fi­cient fi­nan­cial re­sources to do their jobs – a prob­lem most of us wouldn’t mind hav­ing.

But a lack of good man­age­ment, of sys­tems and es­pe­cially of well- trained em­ploy­ees in Gov­ern­ment de­part­ments makes the op­ti­mal util­i­sa­tion of funds, nigh im­pos­si­ble. Their in­abil­ity to ap­pro­pri­ate bud­geted funds, to­gether with the higher rev­enue the State earns from taxes, has even al­lowed the Min­is­ter of Fi­nance to bud­get for a sur­plus in the new fi­nan­cial year – a most un­usual oc­cur­rence in a de­vel­op­ing econ­omy like ours.

On the other hand, com­pa­nies are hold­ing on more tightly to their money and aren’t spend­ing as freely as they did in the past.

This is chiefly be­cause in­vestors and the au­thor­i­ties are look­ing more care­fully at com­pa­nies’ earn­ings – mainly as a re­sult of the re­cent high-profile cor­po­rate scan­dals – and be­cause cash­flow is play­ing an in­creas­ingly im­por­tant role as it’s more dif­fi­cult to mis­rep­re­sent cash than it is earn­ings.

Be­cause it’s viewed more favourably, com­pa­nies are car­ry­ing healthy cash sur­pluses on their bal­ance sheets. This is of course also due to a grow­ing econ­omy.

For some, th­ese sur­pluses have be­come an em­bar­rass­ment. If they don’t put the money to use, they’re crit­i­cised by the share­hold­ers and told to hand it back. If they dis­trib­ute the sur­plus in the form of div­i­dends, they’re at­tacked by the trade unions, and even Gov­ern­ment, for not ex­ploit­ing new op­por­tu­ni­ties and cre­at­ing jobs.

No won­der some of the com­pa­nies pre­fer to buy back their own shares, even though this isn’t al­ways a wel­come prac­tice, and is some­times frowned upon by fund man­agers and in­vestors as hav­ing no real ben­e­fit.

So com­pa­nies are stuck be­tween a rock and a hard place. That’s why some of them opt to ex­pand in­ter­na­tion­ally.

Op­po­nents of this route will have to ad­mit that SA is a small econ­omy with lim­ited ex­pan­sion pos­si­bil­i­ties. On the other hand, mov­ing to for­eign shores could also be seen as tak­ing the path of least re­sis­tance as com­pa­nies don’t want to be bur­dened by bu­reau­cratic red tape and other ob­sta­cles.

It’s cer­tainly not un­pa­tri­otic to ex­pand in­ter­na­tion­ally, as some trade union­ists would have us be­lieve, but in fact op­por­tu­ni­ties in SA are of­ten far more promis­ing than those in other de­vel­op­ing economies – higher risk has the ad­van­tage of higher re­turns.

Many com­pa­nies have re­cently in­vested sub­stan­tially in the econ­omy and con­tinue to do so. And that’s de­spite the ob­sta­cles.

Gov­ern­ment could per­haps do more to cre­ate an in­vest­ment-friendly en­vi­ron­ment. The re­cent tax con­ces­sions were a move in the right di­rec­tion, but fur­ther steps are nec­es­sary.

This ac­tion would no doubt be wel­comed by the private sec­tor. Our cover story bears out the fact that com­pa­nies cur­rently have large cash piles, that some buy back shares and oth­ers pay gen­er­ous div­i­dends, but most of them use the ex­tra cash to fi­nance ex­pan­sions and ac­qui­si­tions.

We’d see more of this if the re­main­ing ob­sta­cles were re­moved. Af­ter all, who’s ever heard of a re­spectable busi­ness turn­ing its back on a good money-mak­ing op­por­tu­nity?

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