To my mind
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?