Battling to weather the storm in the current economic environment, many South African companies are in deep distress, says the Turnaround Management Association.
Recessionary conditions and the downgrade to junk status is being felt across all industries, the industry body says. In fact, it adds, business confidence is at an all-time low as a result of political uncertainty, poor economic performance, policy confusion and a general lack of leadership.
“Businesses are feeling the impact of low investor confidence, weakening exchange rates and high fiscal uncertainty,” says Alastair Macduff, chairman & CEO of the TMA – Southern Africa (TMA-SA). “Restoring investor, business and consumer confidence will require a concerted effort to address these pressing issues — and address them in the best interests of the country as a whole.”
Efforts need to focus on the existing unemployment problem which must be seen as a priority locally. Investor-friendly policy amendments and structures to mitigate confusion around the Mining Charter, energy policy and dealing with state-owned enterprise debt are also major challenges that require urgent attention.
“The good news, however, is that South Africa has a relatively open economy — and a resilient business resolve,” adds Macduff. “To survive the current landscape, improved productivity and efficiency, as well as diversified skills and flexibility will be paramount. Businesses will also need to find ways to decrease infrastructure and reduce financial risk in their environments. And while growth will come from areas such as inbound investments, exports, investment in Africa and foreign acquisitions, for example, the restructuring and rescue industry will have a critical role to play in helping business transition to new and more effective business models in a turbulent setting.”
Business rescue legislation has opened many new avenues for underperforming or distressed businesses in South Africa — providing an alternative to liquidation. “When a company is in financial distress and cash flow dries up, panic can set in affecting creditors, employees and management. A business rescue practitioner can bring a sense of calm to a seemingly chaotic and uncertain process — providing a breather for companies to stabilise and investigate their options to turn the business around.”
A recent survey by Deloittes identified the following high risk sectors – retail, agriculture, construction and resources and, according to the CIPC, 2 499 businesses have entered into business rescue proceedings over the past 5 years — with the majority coming from the wholesale and retail industry, ICT and construction sectors respectively. Of the 1 358 business rescue proceedings that have been concluded, 29% reached substantial implementation to the satisfaction of creditors.
“South African businesses need to understand the options that are available to them and that business rescue could be a viable possibility,” says Macduff. “We are trying to professionalise the turnaround and corporate recovery industry in South Africa and the TMA-SA has applied to SAQA for registration as a professional body. This will enable TMA-SA to issue accreditation certificates to its members which will then enable them to apply for a business rescue licence from the regulator, the CIPC.”
TMA-SA will be hosting their inaugural National Turnaround Conference in Sandton on 5 October, to ignite a conversation around the role of turnarounds, corporate renewal, distressed funding and corporate governance. Gregory Fine, CEO of TMA Global based in Chicago, will be the keynote speaker at the event discussing the current global turnaround scene as well as suggesting best practices for the turnaround industry in South Africa.
“We need a new perspective of doing business in Africa. Looking at the economic trajectory both locally and internationally for the next 6 — 12 months more businesses are likely to become distressed. Now’s the time to act,” says Macduff.