Luke Doig: Cheer up, liquidations show worst is yet to come for SA economy

Just when you thought there might be light at the end of SA’s economic tunnel, along comes news of another express train. Evidence is growing that SA political leadership’s insistence on flying in the face of economic reality is going to make an already bad situation worse.

Credit Guarantee’s Luke Doig, veteran of the “tell it straight” school of punditry, comes to this conclusion after referring us to data his business watches closer than any other. It predicts an extended and very cold economic winter for SA.

After falling for eight years, bankruptcies are on the rise again – and the economy’s leading indicator shows SA’s economic cycle is now on a long, slow slide. Batten down the hatches. – Alec Hogg

By Luke Doig*

Almost a year ago we used the words of Philander Chase Johnson in 1920 to warn “cheer up, the worst is yet to come”. Unfortunately, we did not fully comprehend the potential longevity of this development.

Now we sit atop the abyss: climbing numbers of unemployed, recessionary conditions in many sectors and potential ratings downgrades, all of which serve to highlight the harsh trading conditions afflicting many businesses. Add to this, global doom and one has the ingredients of an extended downturn.

One of the somewhat surprising developments has been that total numbers of company liquidations and personal sequestrations have trended down, whereas the overall performance of the economy has been lacklustre to say the least, as evidenced by the continual slippage in the business cycle’s leading indicator.

This is contrary to what one would have expected to see, notwithstanding some of the divergence being explained by the increasing numbers of firms seeking business rescue.

Read also: Lings: SA economy under pressure – How to avoid a Dec downgrade.

As the economy contracts, businesses are coming under increasing pressure to be able to adhere to their contractual obligations and requests for payment extensions are becoming commonplace.

Our adverse indicator for the first 23 weeks of the year is almost 21% higher than in the corresponding 2015 period while our overdue payment indicator is 16.3% and 28% higher in number and value respectively to the end of May. The entire environment points to an ongoing deterioration in payment defaults and firms are going to have to be fleet of foot to avoid being on the wrong side of non-payment.

• Luke Doig is the long-serving chief economist of Credit Guarantee whose major business is the insurance of domestic and export payment risks where its client companies sell to other companies on credit.

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