South Africa’s businesses posted a significant decline in debts during the third quarter of 2014, dropping to a level of 0.31 from levels of 0.64 and 0.46 in the first two quarters respectively.
This is according to the latest Experian Business Debt Index (BDI) published this week.
Readings greater than zero signal improving business conditions while anything less than zero shows a deteriorating business climate.
However, the significant decline in the third quarter of 0.31 index points, still does not mean a deterioration in the financial health of businesses. Any reading in positive territory implies an improvement in financial conditions.
According to the index, the third quarter findings reflects a marked decline in the rate at which financial conditions in businesses is improving, but does still not reflect a deterioration in the general financial experience of businesses.
“The reduction in the BDI in the third quarter was anticipated because of the lagged impact of the disruption to business activity and overall economic growth brought about by heavy strikes in the platinum mining and metal industries in the first seven months of 2014.
“However, despite the adverse impact of the strikes, the BDI still remained in positive territory, reflecting a number of conflicting trends influencing the measurement of debt strain among businesses,” Michelle Beetar, managing director of Experian SA said.
According to the index, there were a number of other factors which could be interpreted as resulting in a deterioration in financial conditions among businesses, such as the rate at which producer prices rose relative to consumer prices, contracted significantly in the quarter.
According to Beetar this suggests that businesses are finding it increasingly more difficult to pass on cost increases as a means of recouping profitability in a difficult economic and trading environment.
“From a negative perspective, the adverse effect of the strikes earlier this year did indeed begin impacting negatively on the ability of businesses to cope financially.
“This is reflected in the fact that the average debtor days of businesses increased once again in the third quarter, after having fallen fairly consistently for the better part of five years after reaching a peak of 64 days in July 2008 until the early part of this year,” she said.
According to Experian, it reached a low point of 45.5 days in the third quarter of 2013, rose to 50.2 in the first quarter of 2014, but after a small interruption in the rising trend down to 49.4 in the second quarter, it rose back to a 27-month high of 51.3 days in the third quarter of this year.
“Growing uncertainty over the domestic and global economic outlooks is a major concern and the electricity supply crisis could escalate and damage economic activity further,” she said.