The Experian Data Insights Check-In brings you key insights based on the Q1 2023 Business Debt Index.
The Experian Business Debt Index or BDI report is an indicator of the overall health of South African businesses as it measures the relative ability of businesses to pay their outstanding creditors on time.
This index incorporates bureau-sourced debtors’ payment profiles as well as a range of macroeconomic variables.
Our analytics experts have extracted key highlights to give you a good understanding of the current trends we’re seeing in the market.
Short and to the point, these key trends help you better understand the overall health of South African businesses.
Get the Q1 2023 BDI Report for a more detailed view of the overall health of South African businesses.
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Experian Data Insights Check-In – Q1 2023 BDI Key Insights
8-minute read
The Experian Data Insights Check-in brings you key insights based on the Q1 2023 Business Debt Index.
The Experian Business Debt Index (BDI) combines Macro-economic metrics (incl. GDP, interest rates, inflation; considering both local and US measures) with Bureau metrics (in the form of Debt Age ratio’s) to provide a view on the prevalent business conditions in South Africa.
The metric is demeaned and standardized, so that the BDI value is distributed around zero: A positive BDI signifies ‘Improving business conditions’, whilst a negative BDI indicates that business conditions are deteriorating.
The Bureau metrics provide a view on the degree to which debtors are overdue agreed payment terms for invoiced amounts and are referred to as ‘Debt Age Ratio’s’. This data is provided by subscribers to the ‘Portfolio’ product here at Experian.
As expected, the 2023_Q1 BDI showed a Q-o-Q decline, moving down from the revised 1.09 to 0.72. This means that business conditions are still improving, albeit at a slower rate. This drop in BDI is less severe than what one might have expected – considering the severe levels of load shedding the South African economy had to deal with in the first quarter of this year. Indeed, the GDP for Q1 was only-just positive at 0.4% Q-o-Q, which was a good improvement on the -1.1% contraction of Q4 2022. This means that the SA economy only just missed a technical recession (represented by two consecutive quarters of negative growth).
We also saw a sharp reduction in the differential between domestic PPI and CPI, from 7.9% to 4.8% Q-o-Q, which contributed to the downward movement of the BDI. This metric is reflective of the profit margins that businesses can extract.
From a sectoral perspective, 7 of the 9 sectors saw a deterioration in BDI.
Most significant of these, was the deterioration seen for the Agriculture sector. This decline can be explained by the persistent episodes of loadshedding, higher input costs, rising interest rates and ongoing weaknesses in municipal service delivery. These events all contributed to the weakening in Agri GDP seen in Q1.
The Electricity, Gas and Water sector saw an increase in GDP, which together with this sector’s debtors’ days drove the BDI into positive territory – up from -0.8 to 0.42. It important to note, however that electricity production went down on a Y-o-Y basis by 7.7 % because of Eskom’s inability to generate sufficient electricity. Electricity production will only improve with significant private supply and in fact, South Africa has been starting to see a growth in alternate electricity production.
The only other sector that showed an improvement in BDI this quarter, was Mining. This was only the slightest of improvements – moving up from 0.49 to 0.54 – mostly because of higher domestic commodity prices considering the weakness of Rand.
As mentioned earlier, the Agri BDI saw a significant deterioration – driven downwards by a weakening in GDP. We saw the Y-o-Y % change in Agri GDP (based on current prices) move down from 30.3% to -9.6%. The deterioration was further exacerbated by the increase in debt age metrics. Load shedding has been one of the key drivers of this weakened situation for the Agriculture sector.
Despite the electricity woes, the outlook for this sector includes an expected increase in maize, soya, groundnuts, and sorghum production. This large harvest means that South Africa is poised to fulfil its domestic demand and will probably have a surplus of over 300 000 tons of soybeans for the export markets.
Still, interrupted power supply negatively impacts on the sector as this results in inadequate irrigation, interrupted cool-chains and the like.
The level of loadshedding implemented by the national electricity provider, has been the more intense in 2023 than it has been in the last 10 years.
In fact, by 22 June 2023 South Africa had already had a total of 157 days with loadshedding – equal to the number for entire preceding year. Furthermore, the number of days thus far this year, that South Africa has been exposed to level 6 loadshedding, was 33 – compared to the 8 Stage-6-days we saw in 2022. This has put significant strain on the South African business environment and, particularly so, on small businesses.
To unpack what we observe regarding small and medium enterprises, we need to look at the Debt Age Ratios.
Debt Age Ratios are the component of the BDI that is based on the payment profile data we hold and maintain on the bureau (I referred to these Ratios earlier in my description of how the BDI is calculated).
There are two such ratios computed and incorporated in the BDI:
- 30–60-day debt age ratio and
- 60–90-day debt age ratio
These debt age ratios show us the percentage (%) of the overdue owed amount relative to the ‘within terms’ amount, lagged by the relevant period.
Thus, these ratios represent a metric of the distress businesses are facing in general, when it comes to honoring the payment terms they committed to.
This quarter, we saw a bit of a mixed bag of results for the total bureau base, with the 30-60 debt age ratio improving from 25.8% to 22.4% and the 60–90-day ratio increasing (i.e. deteriorating) from 7.1% to 8.3% in the last quarter. This could have been driven by the cost pressures businesses are experiencing due to rising interest rates as well as the income-pressures brought on by the loadshedding – especially when it comes to the ‘older’ debt represented in the 60–90-day ratio.
If we then compare the Debt Age Ratios of SMEs with that of the total market, there are 2 key observations to highlight.
Firstly, in both ratios, SMEs have been worse off than their bigger counterparts for more than a year now.
Secondly, SMEs have seen this gap worsening significantly over the last 2 quarters. This means that SMEs position relative to that of bigger businesses, is worsening at a rapid rate, where in the most recent results for the 30-60 days ratio, the total bureau reflected 22%, and SMEs stood at 34%. Similarly, for the 60–90-day metric SMEs stood at 15% relative to 8% for the total base.
This is probably due to SMEs not being so ready and able to put alternative energy solutions in place to keep their lights on – compared to the capital and resources available to bigger businesses.
Looking forward to the second quarter of 2023, we expect to see a further decline in the BDI. Although South Africans are showing resilience in their adaptation to the loadshedding, and although GDP for Q2 might see a slight boost on account of the low Q2 growth in 2022 due to the KwaZulu-Natal floods, the combination of loadshedding and interest rate hikes will likely erode the level of economic growth over the remainder of the year.
A further reduction in the differential between PPI and CPI inflation is also expected – reflecting a growing squeeze on business’ profit margins.
For these reasons, we expect further deterioration in the BDI in Q2.
Get the Q1 2023 BDI Report for a more detailed view of the overall health of South African businesses.
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