Published On: Tue, Apr 24th, 2018

Business confidence up but firms remain sinking

RAND Merchant Bank (RMB)JOHANNESBURG, (CAJ News) – THE South African economy has seen a new dawn in recent months with some changes in the political landscape but economic woes are far from over.

Political changes, with Cyril Ramaphosa succeededing Jacob Zuma as president of the ruling African National Congress (ANC) and the country- had a direct impact on the country’s businesses confidence.

The Rand Merchant Bank/ Bureau of Economic Research (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.

According to analysts, 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 percent gross domestic product (GDP) expansion.

Alastair Macduff, Chairman and Chief Executive Officer of Turnaround Management Association – Southern Africa (TMA-SA), said such marked positive change was 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 percent 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.”

In addition, the number of bankruptcies in South Africa increased to 167 companies in February from 101 companies in January 2018, Macduff said.

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.

Macduff said it was therefore evident that while business confidence was on the rise and the ability to pay back debt had increased, the toll that junk status and stagnant growth took on businesses over the last two years could be underestimated and the true impact was 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,” he concluded.
– CAJ News

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