Business debt stress down - index

2014-05-30 07:05
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undefined Sacci said business confidence fell from 91.9 in December 2013 to 90.5 in January. (Shutterstock) ~ Shutterstock

Cape Town - Debt stress among businesses fell for the third consecutive quarter, reveals the Experian Business Debt Index (BDI) released on Thursday.

The fall in the first quarter of this year was despite the lengthy platinum strike's severe blow to the economy, the index found.

The BDI measures the relative ability for businesses to pay outstanding creditors on time and tracks macro-economic indicators that could affect the ability of companies to pay their creditors.

A deterioration in business debt conditions had been expected in the wake of a 0.6% shrinkage of the economy in the first quarter, said Experian SA managing director Michelle Beetar.

However, the index had improved for a number of reasons.

Beetar said exports had not been as negatively affected as expected and businesses abroad had built up inventories to accommodate a latent upswing in demand.

"Though the mining strike negatively impacted both the mining and manufacturing sectors, the remainder of the economy was nowhere near as severely affected with some sectors posting modest improvements," she said.

The construction sector improved by 4.9%, agriculture by 2.5%, trade by 2.1% and finance by 2%.

Beetar said producers in the domestic environment especially benefited because they were finally able to achieve revenue increases from price hikes at levels well in excess of the Consumer Price Inflation rate.

"They were able to enjoy for the first time in many years a modest increase in the interest rate earned on their cash balances."

The BDI was boosted by a continuous decline in outstanding debtor days over much of the first quarter.

The duration of outstanding debts shortened considerably in February and March this year.

Beetar said these trends seemed counterintuitive in tough economic conditions but suggested business owners were becoming more pessimistic about the economic outlook.

Owners seemed to be "battening down the hatches" by strengthening their balance sheets to withstand the onset of adverse economic conditions.

Beetar said that the resolution of the mining strike, and its potential impact on improving economic growth, were essential to sustain the momentum of balance sheet consolidation in the business sector.

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