Failure of businesses more likely and insolvencies will increase by +10%

Ludovic Subran, Chief Economist at Euler Hermes.

The failure of South African businesses is more likely and insolvencies will increase by +10% y/y in 2016 according to a study by global leader in trade credit insurance, Euler Hermes entitled “2016 – A tough year”. This will be the first outright deterioration since 2009 and the global financial crisis.

The South African business environment is troubled by ongoing structural rigidities, including uneasy labor relations and political instability resulting in violent protests. Currently, the business environment is stressed by at least four other factors which include weak international commodity prices, with commodities accounting for 14% of total GDP; China slowdown; drought conditions resulting in weakened agricultural output and increased import of maize and other foods; and uncertainties relating to U.S. monetary policy tightening.

Ludovic Subran, Chief Economist at Euler Hermes says, “Structural impediments have limited GDP growth. These constraints include a lack of skilled labor, limited job creation, high unemployment and underemployment, infrastructure bottlenecks and weak public sector delivery. Euler Hermes expects annual GDP growth is likely to be below the lower limit of this range in 2016 and 2017.

“With all the challenges businesses are faced with, it affirms that doing business in the current environment means taking certain risks, such as late payments, bad debts, bankruptcies, unpaid invoices: in the short-term, companies may partially recover from these events, but in the long-term the credit risk jeopardizes the future of the businesses”

From high inflation costs and drought, the South African economy is facing a series of challenges that are not only affecting consumers, but companies as well. Moreover, companies are unable to avoid or prevent the risks that lay ahead. The harsh reality is that these hurdles can result in business failures and insolvencies if they are not prepared for sufficiently.

Euler Hermes launched corporate advantage for South African companies, a solution recently, which addresses unique challenges faced by various companies, different sectors, and the goals they strive towards.