Local Treasurers expecting a volatile year ahead

The custodians of South Africa’s corporate balance sheets are bracing themselves for many challenges in the next few months. Extreme economic pressure, political and social uncertainty and no relief in sight for the near future means that business confidence is at a low and local Treasurers are once again holding on to large cash piles. 

This emerged at the annual Nedgroup Investments Treasurers’ Conference which was held in Johannesburg in August. Presenting on the state of the South African economy, Nicky Weimar, Chief Economist at Nedbank, said: “The next period is going to be extremely volatile as markets try to predict the peak of the rates hike cycle. There are so many disruptive forces at play, while locally, the burden of economic growth is sitting on the consumer. While we expect moderate growth going forward, it’s not going to be an easy road.” This was echoed by Reezwana Sumad, Senior Research Analyst at CIB, who expressed concern about South Africa’s fiscal predicament. 

“The mismatch between temporary revenue gains funding permanent expenditure is only going to lead to larger deficits. There is also a key concern about debt responsibilities becoming due. We could see a sharp increase in our debt to GDP ratio in the next couple of years.” 

Of course, one of the biggest issues facing the economy currently is the burden of SOEs, particularly Eskom. Chris Yellend, Managing Director of EE Business Intelligence, spoke to the audience about the likelihood of Eskom being able to deliver on South Africa’s future Power needs and surmised that: “2022 will almost certainly be the worst year of load-shedding to date. The availability of the Eskom fleet has got worse and will likely continue unless we do something about it. In the short term the only supply that will likely come on stream will be the private sector. Ending load-shedding is not going to be an easy task but it is achievable only if stakeholders are committed and determined.” The issue of South Africa being grey listed was also addressed. Ofentse Theledi, at Nedbank reported on the performance of South Africa at the assessment by FATF which surmised that South Africa is not performing adequately and is now under a period of review. “A decision will be made in February 2023 as to whether South Africa has made sufficient progress to mitigate the risk highlighted. We really do not have a lot of time to achieve this,” he said. 

The keynote address by Fundi Tshazibana, Deputy Governor at SARB highlighted the key issues that are concerning the Monetary Policy Committee (MPC) at the moment, primarily keeping inflation under control. However, she also noted that thanks to the SARB’s proactive efforts to contain price growth, the South African economy has a good foundation to carry through the worst effects to the global inflation shock.

Mike Brown, Executive Head of Nedbank closed the day with his thoughts. He concluded that while the rest of the year is likely to be characterised by volatile political and social forces, the banking industry has emerged from the Covid pandemic as a key strength of the South African economy. “Banks are well capitalised and liquid and looking for growth opportunities in a slow growth macro-economic environment,” he said. Against this backdrop, Sean Segar, Co-Head of Nedgroup Investments Cash Solutions and host for the day said the unanimous feeling of uncertainty amongst local Treasurer’s is indicative of the low confidence in corporate SA. He says it’s crucial at times like this to make sure that corporate cash is being most efficiently stored so that when the economic environment changes, businesses are in a position to take advantage of the growth and development opportunities. 

He explained that making better use of money market facilities is the key to this. “There is a huge amount of uncertainty around and company Treasurers have to weather the storm while trying to preserve company balance sheets. There is often a temptation to keep large amounts of cash in call accounts during these times – but many Treasurers are now realising the value in being more efficient with their cash reserves.” 

Segar shared his view that as more Treasurer’s become aware of the convenience and risk-mitigation benefits of Money Market funds for corporate cash, he expects the entire Money Market industry in South Africa to see material growth. “We are anticipating a widening of the local Money Market industry in the next few years. This will be driven by a general increase in awareness of the proposition of how cash funds can be used to park surplus cash,” he says.