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Send  Share  RSS  Twitter  19 Sep 2014

INVESTMENT: Africa May Benefit As EMEA Companies Prepare to Spend €1tn Cash Pile, Deloitte Says

 





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Africa stands to benefit as listed companies in the Europe, Middle East and Africa (EMEA) region prepare to deploy their almost €1tn in cash reserves as they go in search of new growth opportunities, according to a report published by Deloitte.

The professional services firm analysed publicly available data from 1,200 listed companies across 14 countries in the EMEA region while also surveying 271 C-level executives in order to compile the report. The survey, titled EMEA Cash to Growth: Pivot Point, found that just 17% of the companies surveyed accounted for three quarters of the total €1tn cash pile. Moreover, 55% of these companies identified growth as their primary focus at present while six out of 10 firms indicated that investment was their main priority for the next 12 months.

“It is clear that companies in the EMEA region appear to have reached a turning point and are no longer content to simply sit on their cash – there’s a realisation that they need to go in search of growth opportunities if they want to transform their liquid assets into future business opportunities,” said Roy Campbell, Audit Partner at Deloitte. “As one of the world’s fastest growing regions, Africa has a real opportunity to capture a significant chunk of this coming investment windfall.”

Deloitte’s Cash to Growth report found that 35% of the surveyed companies were planning to invest their cash reserves within the European Union (EU) over the next twelve months. This was followed by North America (27%); China (21%); Asia Pacific (19%); Central and Latin America (15%); Brazil and non-EU Europe (13% each); Africa (12%); India (8%); as well as Russia and the Middle East (4% each).

“It’s very pleasing to see that Africa’s burgeoning economic growth is being recognized by the companies of the region,” said Campbell. “It certainly offers a very compelling investment case and with some strategic thinking on behalf of the continent’s decision makers it could garner an even greater share of this investment flow.”

Findings from the Cash to Growth report showed that the surveyed companies plan to use cash reserves to fund 31% of their planned investment with the rest expected to come from loans (29%), revenue (27%) and tax credits (13%). Reasons cited for the planned investment expenditure included market opportunities, competition, external demand, growing economic confidence and the availability of finance.

The biggest contributor to the €1tn cash pile in the EMEA region (which has grown from €714bn in 2007) was the manufacturing sector (€325bn) followed by energy and resources (€256bn); Consumer Business (€175bn); Technology, Media and Telecoms (€149bn); and Life Science and Healthcare (€59bn). Deloitte’s analysis showed that 77% of respondents reported a cash surplus in 2014, with 20% holding more than €250m.

While the bulk of the planned investment from companies in the EMEA region appears to be earmarked for investment within the Europe Union, the fact that this single customs territory is South Africa’s biggest trading partner could benefit export-oriented companies in Africa’s most advanced economy. Given estimates that South African corporates are sitting on a cumulative cash pile of between R580 billion and R1.3 trillion, any increase in spending from companies in the EU could act as a catalyst for similar expenditure by their domestic counterparts.

“The majority of South African corporates are looking to expand into the rest of Africa where economic growth rates are simply higher than those available domestically,” said Campbell. “With companies in the rest of the EMEA region also looking to deploy cash into Africa bodes well for investment activity across the continent in the foreseeable future.”

Apart from investment in the rest of Africa, the Cash to Growth report showed that South African firms are also looking to deploy cash in India and the EU over the next 12 months. Planned investment, as a percentage of South African corporates’ total cash surplus, amounts to 263% suggesting that domestic companies are also planning to use revenue, loans and other sources to fund their forays into higher growth markets.


 
 
 
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