South Africa business debt improving – but trend likely to reverse

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Credit bureau Experian has published new data showing a strong improvement in business debt conditions in Q1 but this trajectory is likely to decline in the coming quarters.

The Experian Business Debt Index increased in Q1 from Q4 2021, rising to 1.435 from an upwardly revised 0.970.

“Whilst positive overall, one should be cautious not to read too much into these numbers with the impact of the April floods in KwaZulu Natal, the significant increase in electricity disruptions and the ongoing war in Ukraine expected to reverse the improving trend in coming quarters.”Macroeconomics factors that contributed to the improvement in the Q1 BDI were a pickup in domestic and US economic growth during that quarter.

In the 30-60 day debt age ratio, the improving trend has been quite sharp, following the all-time highs observed in Q2 of 2020 of 36.1%. There were particularly impressive increases in the BDI in respect of manufacturing and, associated with this, electricity. These improvements reflect a return to normal conditions following the devastation of industrial activity caused in KwaZulu-Natal in Q3 2021 by the social and political unrest at the time.Outstanding average debtors’ days of SMEs declined to 61.4 in Q1 of 2022, from 64.3 in Q4 of 2021 and 72.4 in Q3 of 2021 at the height of the looting spree.

Domestically, data on mining and manufacturing activity for April reflects a significant decline compared with earlier months this year. An intensification of electricity load-shedding and strike activity in both sectors appear to have impacted negatively on output.

 

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