Businesses in South Africa are struggling with the ‘new normal’

 ·22 Apr 2024

Pessimism may be dropping amongst businesses in South Africa; however, this is not because of a turnaround in the economy but rather an acceptance of the serious challenges in the nation.

According to Stats SA, liquidations in January rose by 34.6% year-on-year (109 businesses) in January.

The industries severely impacted included the financing, insurance, real estate, and hospitality sectors.

Source: Stats SA

Speaking at a pre-budget media roundtable, Jo Mitchell-Marais, Africa Turnaround & Restructuring Leader for Deloitte Africa, said liquidations could rise in 2024, with many businesses in the “zombie zone“.

Businesses in the zombie zone only have enough to pay off their operating expenses and service debt, but have no capital for expanding their operations. One major shock could have the potential to push these businesses over the edge.

This was the case with JSE-listed electronics manufacturer and distributor Ellies, which failed to acquire Bundu Power and is now going into liquidation after its business rescue practitioners saw no possible avenue for the company’s rescue.

According to the new Deloitte Africa Restructuring Survey, respondents believed the local economy could take up to three years to reach pre-pandemic levels.

However, the survey showed that ‘pessimism’ has fallen from 81% in 2023 to 75% in 2024.

Mitchell-Marais said that the new rating doesn’t necessarily mean that respondents feel optimistic but that they have accepted the current economic situation and are demonstrating resilience in the face of uncertainty.

Source: Deloitte

The “new normal” is seen as elevated load shedding, soaring interest rates, ineffective ports, and ongoing political uncertainty due to the May election.

“Companies are trying to operate in spite of these challenges, but we are far from being ‘optimistic’ given the Fitch Ratings forecast of real GDP growth only increasing by 0,9% in 2024 and 1.3% in 2025,” said Mitchell-Marais.

With this new normal, South African organisations are expected to face real challenges and further business distress can be expected.

The survey showed that informal operational restructuring will take centre stage with business rescue seen as a last resort.

Moreover, the primary internal factor triggering distress flagged by respondents was weak board governance, followed by a lack of cash management and weak financial controls.

“The development of skilled and qualified directors will go a long way in assisting to improve the board’s ability to both identify early warning signs of distress and take appropriate, timely, and corrective action.”

“It is crucial that they have their finger on the pulse of the business and broader socio-political and economic activity.”

Source: Deloitte

Read: The cities in South Africa with the most millionaires – and a new king emerging

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