Experian Report: SA Businesses Resilient Despite Economic Challenges

Experian’s Business Debt Index (BDI) shows South African businesses’ resilience amid tough economic conditions. The latest report indicates a slight uptick in Q4, with the index rising from 0.148 to 0.364. This suggests both economic resilience and businesses’ ability to manage creditors despite a challenging growth environment.

“What has contributed towards improving business health is that interest rates remained stable for most of 2023 instead of rising continuously from quarter to quarter as they had in 2022,” says Jaco van Jaarsveldt, Experian’s Head of Commercial Strategy & Innovation.

Having increased by 4.75% from November 2021 to March 2022, the absence of further increases in debt servicing costs beyond the early part of last year prevented further erosion of business profitability.

Also contributing to the stability of business debt conditions was the fact that domestic economic growth, whilst weak, continued to be relatively stable. GDP growth increased to 0.1% on a quarter-on-quarter basis in Q4, from negative growth of -0.2% in Q3.

The reduction in the intensity of electricity load-shedding in Q4 and the improvement in logistical bottlenecks at South African ports, which had previously impeded the delivery of supplies to various parts of the country and hindered exports, were important contributors to this stabilisation of economic performance. More significantly, all of mining, manufacturing, and electricity production saw growth picking up meaningfully in Q4 from the slumps they experienced during Q3. Much of this can be attributed to the improved environment in respect of electricity production and supply bottlenecks at South African ports.

GDP growth a key driving force in the uptick of the BDI

Despite signs of consumer credit health deterioration, the resilience in employment may have indirectly supported consumer spending. In Q4, employment experienced a robust 4.9% year-on-year growth, surpassing the GDP growth of 1.2%.

Van Jaarsveldt notes, “Following the COVID-19 pandemic, businesses appear to be rebuilding their teams, emphasizing the importance of sustaining economic activity and fostering new job opportunities.”

The primary factor driving the BDI increase in Q4 was notably the improvement in GDP growth in South Africa. The impact of other macroeconomic variables on the BDI was relatively minor, highlighting the pivotal role of GDP growth in shaping business debt index trends.

SMEs display encouraging growth trend

In Q4, small businesses showed a notable improvement in their debt conditions compared to the broader sample of businesses. This trend aligns with the decrease in unemployment under the expanded definition, as observed in the same quarter and throughout 2023. It appears that the SME sector has achieved some stability following the significant challenges posed by the COVID-19 pandemic. This is evidenced by the decrease in the average number of outstanding debtors’ days amongst small businesses, which dropped to 52.1 in Q4 from 54.7 in Q3.

Optimistic outlook, despite challenges

Preliminary forecasts for the first quarter of 2024 indicate signs of economic improvement. Anticipated increased investment in renewable energy projects and grid transmission is expected to bolster overall economic growth, potentially reaching levels of 1% or higher for the year, compared to the modest 0.6% growth recorded in 2023. Additionally, improvements are forecasted at ports, with Transnet’s new leadership focused on enhancing cargo efficiency, thereby stimulating economic activity.