Economic storm hits South Africa

The Deloitte Restructuring Survey showed that 81% of executives and lenders are pessimistic about growth in South Africa and that business rescue is facing an identity crisis.

The Deloitte Restructuring Survey showed that 81% of executives and lenders are pessimistic about growth in South Africa and that business rescue is facing an identity crisis.

The survey was conducted in January and February among 150 lawyers, C-suite executives, lenders and business rescue practitioners in South Africa, Kenya, and Nigeria.

The results revealed that 84% of South African lenders are pessimistic about growth, up from 69% last year.

Among executives, 75% expressed pessimism, dramatically up from 33% last year. Load-shedding has been cited as a key factor hampering growth.

Business Rescue

Business rescue was introduced into South African legislation with the 2008 amendment of the Companies Act, and in the period since opinion remains divided on whether it has been a success.

Survey participants believe that the success rate of business rescue, whether through returning the company to normal trading or giving creditors a better outcome than in liquidation, is less than 50%.

• Only 3% of lenders believed that business rescue was successful in more than half their portfolio if returning the company to normal trading was used as a yardstick.

• 39% of lender respondents experience business rescue success in more than half of their portfolios if a better return than liquidation is considered instead.

It raises the question of whether business rescue is suffering an identity crisis because winding down the business is more successful than returning it to normal trading.

As one restructuring lender at a development finance institution noted that “business rescue is step one towards liquidation”.

Arrival of the storm

South Africa and much of the world are now firmly in a rising interest rate cycle – inflation is biting, and exchange rates are tumbling.

“South Africa is battling through the greatest threat to economic growth the country has experienced in its young democracy – load-shedding,” Deloitte’s Jo Mitchell-Marais said.

Furthermore, the recent greylisting and the magnitude of the implications and consequences – while yet unknown – could not have come at a worse time.

“Everything does feel more turbulent and volatile, which raises the question, has the storm arrived?” Mitchell-Marais asked.