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 Q3 2023 BDI Report for a more detailed view of the overall health of South African businesses.
Download the BDI ReportListen to the Podcast
No time to read the article below? Listen to our podcast.
Experian Data Insights Check-In – Q3 2023 BDI Key Insights
8-minute read
The Experian Business Debt Index (BDI) combines Macro-economic metrics (like GDP) 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_Q3 BDI showed a Q-o-Q decline, moving down from the downwardly revised 0.41 to 0.14. The downward revision for Q2 was mainly the result of the downward adjusted GDP figure for Q2. The Q-o-Q drop in BDI means that business conditions are still improving, but at a slower rate. In fact, the BDI has been on a monotone decreasing trend for the last 4 consecutive quarters. This main reason for the drop in BDI was the slowdown in GDP. Y-o-Y GDP grown declined from 1.5% in Q2 to -0.5% in Q3.
The deterioration was, however, less severe than expected, as it is still in positive territory. The key drivers behind the deterioration in the GDP includes the prevailing high interest rates and continued load shedding. In addition, the logistic challenges at South African ports and the arson of trucks have put local production under pressure. This negative drive was somewhat dampened by the positive impact of the US GDP and the Experian debt age ratio’s, but not enough to counter the Q-o-Q deterioration in BDI.
From a sectoral perspective, 6 of the 9 sectors saw a deterioration in BDI.
The sectors with the highest BDI (and thus most quickly improving business conditions associated with them), are the services sectors – i.e. community, social and personal services as well as financial services. These are also sectors that saw increased employment figures in Q3.
The lowest BDI was observed for Electricity and Agriculture – the most significant of all deterioration being seen in the Agriculture sector. This was significant deterioration (down from Q2’s 0.68 to -0.79 in Q3) was brought on by the steep decline in the GDP for this sector.
The Agri Y-o-Y GDP dropped from -1.1% in Q2 to -16.5% in Q3. There is no doubt that this as a result of the higher levels of load-shedding and the logistical problems impacting on exports in particular. Note that although we do usually see a drop in Agri GDP round this time of the year, this drop is worse than expected.
In spite of the relaxation in electricity load shedding towards the end of Q2, the overall level of loadshedding implemented by the national electricity provider, have been significantly more intense in 2023, than in the preceding 9 years. Towards the end of Q3 we saw return to higher levels of load shedding, which did not do the SA economy any favours in terms of growth or the improvement of business conditions in the country.
In fact, by 8 December 2023 South Africa had already had a total of 286 days with loadshedding – 80% more than 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 44 – 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.
As mentioned earlier, the prevailing high interest rate continues to put pressure on SA’s GDP.
The prime lending rate in South Africa has continued along the same rapidly increasing trajectory since December 2021 and saw yet another increase in Q2 of 2023. The main driver behind the prime lending rate upcycle has been the CPI. At the current 11.75%, this is the highest that the Prime lending rate has been since 2009. Interest rate increases have been used quite aggressively by the SARB to curb the Consumer Price Inflation. This seems to have been successful to some extent – considering that CPI continues to be (only just) below the 6% mark.
The rate at which interest rates have been increasing over the last 2 years, has been staggering – increasing by 475 bp’s over the course of 20 months vs. the previous upcycle of 200 bp’s over the span of 24 months.
To unpack what we observe regarding Small and Medium Enterprises, we need to consider the Debt Age Ratio’s.
These ratio’s are the component of the BDI that is based on the payment profile data we hold and maintain on the bureau.
There are two such ratio’s calculated and incorporated into the BDI:
- 30-60 day debt age ratio and
- 60-90 day debt age ratio
These ratio’s are in fact metrics of the degree to which businesses are overdue owed amounts relative to the ‘within terms’ amount and can be indicative of the distress that businesses are facing in general, when it comes to honoring the payment terms that were committed to.
Improvement was seen both ratio’s, with the 30-60 debt age ratio decreasing from 23.9% to 19.9% and the 60-90 day ratio decreasing from 8.6% to 6.9% this quarter. This was probably driven by the lower take-up of new credit by businesses – particularly considering the high interest rates.
When comparing the Debt Age Ratio’s of SME’s with that of the total market, we have seen SME’s continue to be in a more favourable debt age ratio situation than total business is (with regard to the 30-60 day ratio). For the 60-90 day ratio, SME’s are only just worse off than the bigger business counterparts.
This is probably indicative of SME’s being particularly prudent when in comes to incurring new debt – especially considering the prevailing high interest rate currently at play – thinking twice before signing up for further financial commitments. It could also be indicative of the fact that the ease of load shedding levels seen in May and June had an almost immediate positive effect on SME’s ability to honour existing debt commitments.
Looking forward to the fourth quarter of 2023, one might be tempted to expect to see a continuation of the decline in the BDI. There is, however, still much uncertainty around what will transpire in the SA context over the next few months. Decisions around alleviation of the logistical and energy problems might be delayed as the upcoming national elections overshadow much of the attention on the governance front.
On the positive side, institutions like the Reserve Bank, National Treasury and SARS continue to operate relatively efficiently and responsibly, and continued engagement between government and leaders in the private sector are hoped to alleviate some of the pressure in areas such as energy, logistics and crime.
For updates on the BDI and the general business conditions in South Africa, be sure to keep an eye out for our next instalment of the Experian BDI. If you are interested in our Business offerings in the Credit market, please reach out to us via our website: www.experian.co.za.
Get the Q3 2023 BDI Report for a more detailed view of the overall health of South African businesses.
Download the BDI Report
Watch the Video
Watch our video in which Ans takes you through the various graphs that bring these data insights to life.