DIE Invloed van inflasie op kapitaalienvestering in die chemiese nywerheid.

Abstract

This dissertation is concerned with the evaluation of capital investment projects in an inflationary environment. To start effects of inflation on the evaluation _methods were determined and the methods adopted to ensure their validity in a highly inflationary environment. It was found during the past 10 years that a large number of potential projects were borderline or not viable in the Republic of South Africa. However, it seemed that these projects were viable elsewhere. There could be numerous contributing factors to this phenomenon and economies of scale could have a major impact. The political changes in South Africa have resulted in an opening up of trade with the rest of the world. Differences in inflation in the RSA compared with its major trading partners will cause a future margin squeeze. It is therefore ncessary that companies are able to compete in an open market and that new chemical projects take both imports and exports into account to be compettitive domestically and internationally. Xll The cash margin generated by projects is normally utilised to fund an increase in working capital and payment of tax while the remainder is capital reward. This reward is thus dependent on inflation and the fiscal policy. The combined effects of inflation and taxation on the economic viability of a project were then analysed. The information generated by the analysis can be used to compare the viabilities of projects in different inflation and tax regimes. It is clear from the results produced that any increase of either inflation or taxation will reduce the economic viability of a project. The current high inflation and tax rate have the effect that projects are uncompetitive as investments in South Africa compared with most Western European and Pacific Rim countries.