Business debt conditions in SA improved in the first quarter of 2022, credit bureau Experian said.
Experian published its latest business debt index (BDI) survey, which showed a declining trend of outstanding debtors and an improvement in the time it takes for them to settle their debts.
The BDI is an indication of how businesses in SA are settling their credit arrangements with suppliers. It is a reflection of the overall position of debt settlement between businesses and provides meaningful insight into the SA economic climate supporting them.
Principal contributors to the improvement were a pickup in domestic and US economic growth during the first quarter.
“The reintroduction of hard lockdowns in several Chinese cities extended supply disruptions, especially concerning fossil fuels and food commodities, as well as domestic interest rates, which continued at levels well below those that prevailed before the onset of Covid-19 ... well, this gave support to retail sales, as did the increased health of personal balance sheets,” said Jaco van Jaarsveldt, head of commercial strategy and innovation at Experian Africa.
Other factors that contributed to an improvement in the index include data on outstanding debtors’ days.
Van Jaarsveldt said borrowers’ ability to benefit from the reduced debt-servicing costs following reductions in domestic interest rates in the first half of 2020 contributed to this improvement.
The data also shows that the improvement was transmitted to most sectors of the economy. Sectors reported on include agriculture, mining, manufacturing, electricity, construction, trade, transport, finance and services.
Every one of the nine sectors recorded a positive quarter, reflecting improved financial health.
“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 quarter three 2021 by the social and political unrest at the time,” Van Jaarsveldt said.
The survey found that small and medium enterprises (SME) were still reflecting a lot more strain than larger companies. It also showed that the number of outstanding debtors’ days of SMEs had fallen to its lowest level in three years.
Van Jaarsveldt warned that the improvements in business debt conditions identified in the first quarter were likely to be conclusively reversed in the second quarter and in subsequent quarters.
“It is also likely that interest rates will increase further over the remainder of the year in the wake of rising inflation, especially in food and fuel prices,” he said.
He added that the adverse impact on business debt conditions is unlikely to be confined to domestic factors alone.
“Internationally, the continuation of the Ukrainian war without any apparent signs of an end threatens to sustain shortages of vital industrial materials and food commodities. The continued global price pressure is set to drive leading central banks worldwide to continue raising interest rates more steeply than had been imagined.”
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