A South African Success Story: Excellence in the Corporate Use of Capital and Its Social Benefits

Abstract

South African companies have made great progress in improving corporate profitability since the nation became a full democracy in 1994. Using the �Cash Flow Return on Investment� (CFROI) method, the authors demonstrate that South African listed companies have been generating world-beating levels of inflation-adjusted return on capital over the past decade. But not all parts of the South African economy have benefited from this corporate success. Despite the impressive corporate returns, economic growth remains lackluster, constrained by confused labor and government policies. The authors recommend that South African policy makers aim to minimize uncertainty for the private sector by refraining from interventions with agendas that have little to do with expanding output or employment growth. Using terminology borrowed from Thomas Piketty's recent book, the two authors argue that what South Africa needs is not some way to limit investors' return on capital (r) but rather sound economic approaches to liberate growth (g). The authors would like to see the country's companies continue to generate high �r� while reinvesting their profits to produce more wealth-creating �g.�