The Experian Business Debt Index (BDI) for the third quarter 2024 indicates a sharp downturn from the previous quarter's modest gains. The BDI slipped to -0.20 from a positive 0.18 in Q2 2024. This quarter's results underscore the pressing impact of unforeseen agricultural setbacks and persistent logistical hurdles on the nation's financial health.
A key driver of the BDI decline was the substantial contraction in agricultural gross domestic product (-29% quarter-on-quarter), attributed to a combination of drought, floods, and livestock diseases.
The business index follows Statistics South Africa’s calculation that agricultural performance decreased by 28.8% in the third quarter of 2024. The Bureau for Food and Agricultural Policy (BFAP) has also conducted its own report on agricultural performance and said the contraction of the agriculture sector for the first three quarters of 2024 averaged between 5-6%.
Experian, which released the data on Friday, said this contraction had a ripple effect across the economy, exacerbating business debt conditions. “Furthermore, a sharp decline in producer price inflation, which outpaced consumer price inflation, eroded profit margins, adding to the financial stress faced by businesses. Additionally, persistent logistical challenges in rail transport and port operations strained the transport sector, contributing to the overall economic slowdown.”
Jaco van Jaarsveldt, the head of Commercial Strategy & Innovation at Experian, said that the third quarter (3Q) decline comes despite several positive factors such as the end of loadshedding, the new Government of National Unity (GNU), declining inflation, and the anticipation of lower interest rates, which were initially expected to bolster the BDI. “While the Q2 improvements offered a glimmer of hope, the sharp reversal in Q3 highlights the fragility of the current economic recovery.”
The unforeseen challenges faced by the agricultural sector, coupled with persistent logistical bottlenecks, have significantly impacted businesses' ability to manage their debt obligations effectively.
“The resulting cautious stance among businesses is evident in the significant rise in outstanding debtor days, especially for SMEs, which are now facing their highest debt stress levels since 2022,” he said.
Van Jaarsveldt said a key driver of the BDI decline was the substantial contraction in agricultural GDP (-29% quarter-on-quarter), attributed to a combination of drought, floods, and livestock diseases. “This contraction had a ripple effect across the economy, exacerbating business debt conditions. Persistent logistical challenges in rail transport and port operations strained the transport sector, contributing to the overall economic slowdown.”
These factors appear to have fostered a more cautious approach among businesses, leading to a decline in timely debt repayments. “In contrast, the electricity and construction sectors recorded improvements, largely due to a rebound from previously depressed levels caused by load-shedding and a lack of investment.”
Van Jaarsveldt said despite the Q3 setback, there are reasons for cautious optimism in the fourth quarter and beyond. “The current absence of load-shedding, ongoing government efforts to address economic challenges, and the potential for further interest rate cuts could contribute to improved business conditions. However, persistent agricultural challenges, delays in port infrastructure improvements, and global economic uncertainties temper the outlook.”
South Africa's long-term prospects depend on addressing these challenges through strategic structural reforms. “Key areas for reform include improving logistical efficiency in rail transport and ports, which are vital for boosting trade and productivity, and addressing water scarcity through better infrastructure management to sustain agricultural output and support industrial activities,” Van Jaarsveldt said.
BUSINESS REPORT