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For South African enterprises, ominous skies are gathering.

Reference: Published by Luke Fraser, 13 April 2023

https://businesstech.co.za/news/business/679573/dark-clouds-gather-for-businesses-in-south-africa/

According to the most recent Deloitte Restructuring Study, businesses in South Africa are pessimistic, with 81% of executives, leaders, and professionals having a bleak prognosis for South African growth and company resources.

Around 150 lawyers, C-suite executives, lenders, and business rescue professionals from South Africa, Kenya, and Nigeria participated in the poll, which was conducted in January and February.

“Last year’s survey was conducted at a time of rising optimism across the globe: we were finally free of draconian lockdowns, the commodity prices on which so many of our economies depend were booming, and the prospect of war in Ukraine seemed remote,” said Jo Mitchell-Marais, Deloitte Africa’s Turnaround & Restructuring Leader. What a year can do for you.

Lenders in South Africa are less optimistic about growth now than they were a year ago, at 84%.

In addition, from 33% the year before to 75% today, executives are more pessimistic.

Predictably, load shedding has been identified as a major problem inhibiting growth. In 2022, 150 days of load shedding were recorded, and the remainder of 2023 looks dismal.

Bleak outlook

According to Deloitte, with inflation hitting and exchange rates declining, South Africa, like most of the rest of the world, is currently locked in a rising interest rate cycle.

“Load shedding is the biggest threat to South Africa’s economic expansion during its brief history as a democracy. The timing of the latest grey listing, as well as its scale and potential effects, could not have been worse, according to Mitchell-Marais.

The poll results indicated that the retail and consumer products sectors are most at danger as a result of customers having less money, and the research underlined the cost of living crisis.

Crisis of identity

According to Deloitte, the 2008 change to the Companies Act included business rescue; however, opinions on whether it has been successful are still varied.

According to 80% of respondents, the primary goal of business rescue is to “do what it says on the box” or simply get the company back to normal operations (Part A) or to provide creditors and liquidators with a better return (Part B).

According to survey respondents, less than half of business rescue efforts under Part A or B are successful.

If Part A was used as the benchmark, only 3% of lender respondents claimed that business rescue was successful in more than 50% of their portfolios.

Yet, when Part B was employed instead, 39% of lenders who responded indicated that they had success with company rescue in more than 50% of their portfolios.

Business rescue, according to Deloitte, may be going through a “identity crisis” since it is more successful at closing down businesses than it is at restarting them.

Business rescue is the first step toward liquidation, according to a restructuring lender at a development finance organization.

Informal reorganization

According to respondents, informal restructuring techniques are most likely to save a company, according to Deloitte, who also noted that formal restructuring procedures are being employed in South Africa in circumstances for which they are not intended.

Yet, for informal restructuring procedures to be effective, they need both time and stakeholder support.

According to the paper, for intervention to be successful, signs of financial trouble need to be monitored months or years in advance.

“Our survey participants identified competence and dependable, high-quality financial information as two essential success elements. These two ideas support one another. Lenders’ perception of the management team’s competency increases when numbers and a compelling story are presented to them, Mitchell-Marais continued.