The South African economy has seen a new dawn in recent months with many changes in the political landscape which have had a direct impact on the country’s businesses confidence.
The RMB/BER Business Confidence Index (BCI) jumped by 11 points from 34 in the fourth quarter of 2017 to 45 in the first quarter of 2018.
An increase of such magnitude is rare and, if sustained, the first quarter rise implies a much-improved economic growth performance this year and next, relative to 2017’s 1,3% GDP expansion.
This is according to Alastair Macduff, chairman and CEO of The Turnaround Management Association – Southern Africa (TMA-SA), who says: “Such marked positive change is starting to be reflected in an improvement in business debt conditions – suggesting there is room for optimism to witness a gradual recovery in economic activity over the next few years.
“However, business conditions are still tough and while the 1% VAT increase shouldn’t have a major impact on business-to-business, the flow through on price increases on the consumer, could have a negative effect on demand and as a result, indirect impact on the entire chain, especially for small businesses.”
A positive business culture is also determined by companies’ ability to repay debt. The Experian Business Debt Index (BDI) improved strongly in Q4 2017 to a reading of 0.443, from 0.059 in Q3 2017 – a vital and unprecedented benchmark for the interpretation of the state of business’s debt-paying abilities.
“While this is promising news for businesses, the number of bankruptcies in South Africa increased to 167 companies in February from 101 companies in January 2018,” Macduff points out.
Bankruptcies in South Africa averaged 233,97 companies a month between 1980 and 2018, reaching an all-time high of 511 companies in August 2000 and a record low of 63 companies in May 1988.
“It is therefore evident that while business confidence is on the rise and the ability to pay back debt has increased, the toll that junk status and stagnant growth took on businesses over the last two years cannot be underestimated and the true impact is likely to only be felt this year, as the economy starts to recover.
“There are many South African businesses still in distress and we are likely to see more liquidations and business rescue entries over the next six to eight months – but hopefully more successful turnarounds,” Macduff adds.