Businesses in South Africa are starting to take on more debt as their confidence on business conditions has stabilised, fuelled by the suspension of rotational load shedding and a more optimistic economic outlook.
The Experian Business Debt Index (BDI), released yesterday, improved to a positive 0.28 in the second quarter of 2024, up from -0.10 in the first quarter, returning to levels signifying improving business conditions.
South Africa’s gross domestic product (GDP) growth was modest at 0.4% in the second quarter, higher than the 0.0% recorded in the first quarter.
However, the most significant contributor to the BDI improvement was the notable drop in debt age ratios. Businesses, no longer hampered by power outages, settled debts faster, reflecting renewed economic confidence.
Jaco van Jaarsveldt, head of commercial strategy and innovation at Experian Africa said the absence of load shedding enabled businesses to repay debts more efficiently.
“This, coupled with a more positive business sentiment and prospects of declining inflation and interest rates, drove the BDI upswing,” Van Jaarsveldt said.
A sharp decline was recorded in both the 30 to 60 days debt age ratio and the 60 to 90 days debt age ratio. The former fell from 26.0% to 21.6%, and the latter from 11.0% to 6.6% from the first quarter. This is indicative of a meaningful improvement of debt repayment behaviour within agreed payment terms.
The overall improvement in business debt conditions was reflected across most sectors as seven out of the nine sectors tracked by the BDI showed positive momentum, highlighting the broad-based nature of this recovery.
This positive trend was particularly evident in sectors like electricity (as expected-considering the absence of load shedding) and transport and communication.
However, the construction sector remained a cause for concern, continuing its downward trajectory as the weakest performer, with its BDI deteriorating further in the second quarter.
“The lack of infrastructural investment, exacerbated by the disruptive influence of criminal elements within the construction industry, continues to plague the sector,” Van Jaarsveldt said.
He said this highlighted the need for urgent government intervention and policy reforms to revive this vital sector.
Agriculture, another sector facing headwinds, experienced a setback during the period. Despite a brief recovery in the first quarter, the sector’s GDP growth was reversed due to challenges including foot-and-mouth disease and persistent drought conditions, impacting its ability to meet debt obligations.
Economic forecasts from International Monetary Fund (IMF) predict South Africa’s economic growth rate to reach around 1.5% next year and 2% in 2026. The elimination of load-shedding, a business-friendly political landscape, and potential interest rate cuts are expected to bolster the economy.
Van Jaarsveldt said if these positive trends persist, and the country further sees the continued strengthening of the rand and increased confidence in South Africa’s economic prospects, the country’s economic growth could exceed current expectations.
BUSINESS REPORT