The Experian Business Debt Index (BDI) declined sharply to 0.996 in the fourth quarter of last year, following a reading of 1.591 in the third quarter, reflecting intense and more frequent loadshedding in the period and backlogs at South Africa’s ports.
The BDI reflects the relative ability of businesses to pay their outstanding suppliers or creditors, which indicates the overall health of businesses in the economy.
Data analytics and consumer credit reporting firm Experian Africa says the decline in the BDI recorded in the fourth quarter was worse than anticipated, with loadshedding having lingered mostly on stage 4 in the quarter, compared with predominantly stage 2 in the third quarter.
“This was disruptive to domestic economic activity across a broad front and manifested in the deterioration in quarter-on-quarter gross domestic product (GDP) growth from 1.8% in the third quarter to -1.3% in the fourth quarter,” Experian commercial strategy and innovation head Jaco van Jaarsveldt explains.
On a year-on-year basis, GDP growth diminished from 4% in the third quarter to 1.3% in the fourth quarter.
Another contributing factor to the lower BDI in the fourth quarter was a two-week strike at State-owned freight utility Transnet, in October. The strike negatively impacted on the entity’s ability to facilitate raw material exports.
Factors such as high interest rates, high inflation and supply chain disruption also continued to dampen GDP growth in the fourth quarter, as it has with the growth prospects of many countries globally.
Alarmingly, the agricultural sector saw a steep decline in growth, plunging from 30.5% in the third quarter to -3.3% in the fourth quarter. Experian attributed the decline to energy-related challenges, particularly as temperature regulation throughout the supply chain had become increasingly challenging amid continued loadshedding.
Deteriorating infrastructure also added further woes to the supply chain challenges faced by the agricultural sector.
The last quarter of 2022 overall showed a deterioration in businesses’ ability to pay off debts; however, debt-to-maturity ratios remain relatively low, by historical standards.
“This points to some element of resilience in the private sector that stands as a barrier against more serious deterioration of the entire economy, in the face of the energy shortage," Van Jaarsveldt says.
Experian expects further substantial decreases in the BDI in coming quarters as the private sector’s ability to buffer broader electricity supply challenges and failing infrastructure wanes.
The firm, therefore, encourages businesses to manage their debt effectively, particularly given that consumer distress is increasing, which means stress levels related to business debt will also increase.