Index aims to measure debt stress of business

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Johannesburg - Experian South Africa and Econometrix launched yesterday South Africa’s first business debt index, a benchmark for interpreting the debt-paying abilities of companies.

The index will be published quarterly, with the first issue showing that the debt stress of businesses continued to ease in the fourth quarter of last year, although the pace of amelioration remained modest. The rate of improvement in business stress remained more or less constant.

“In the midst of weaker-than-anticipated economic growth, weighed down by large scale industrial action in the third quarter and a loss of business confidence, coupled with indications that consumers are taking a lot of strain financially, the finding that business might be improving modestly from a financial point of view, might seem somewhat surprising,” the compilers said.

Experian and Econometrix said the contrast with the experience of consumers was conspicuous. In the case of consumers, rising inflation as a result of fuel price hikes, rising food prices due to drought in certain parts of the country, the introduction of electronic tolls in Gauteng and the general inflationary effects of rapid rand depreciation had been eroding growth in disposable income.

They said employment growth, if any, had been pedestrian. Some of this related to pressures on the government to constrain the growth of its wage bill in order to achieve its stated goal of reducing the budget deficit over the next three years, enabling it to curb the rising trend of state debt.

Nevertheless, the financial health of business seemed to be much more stable. This was reflected in the continuing decline in the average number of debtors’ days, while the debt ratio had also been declining significantly.

The compilers said business lacked confidence in the longer-term future of the South African economy.

“This has resulted in businesses refraining from undertaking substantial capital investment. Concerns related to heightening industrial action and economic policy uncertainty, resulting from perceived lack of leadership to implement some of the recommended policy measures needed to address weaknesses of the economy inhibiting its longer-term [potential], are making businesses reluctant to invest more actively.”

They said although growth in unsecured lending to households might be declining sharply, this was not the case in lending to corporates. - Business Report


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