Turnaround market watch South Africa

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Turnaround economic indicators

Business confidence decrease bottoming out?

Business confidence has declined from its highs 2004 - 2007, as evidenced by trends in both the SACOB Business Confidence Index and the RMB/BER Business Confidence Index (see graphs below).

Following the recession, the SACCI Business Confidence Index reached its lowest point in March 2010. It has increased slightly thereafter, but not pointing to a meaningful recovery in business confidence yet.

The RMB/BER Business Confidence Index reached a post-recession low in 2009, but shows slight signs of early recovery in 2010.

Interest rates

High interest rates is an important factor causing liquidations and a barrier to successful turnaround.

The prime overdraft rate reached its lowest point in 24 years before increasing by 5 percentage points from June 2006 to June 2008 in an attempt to curb inflation. After December 2008 it dropped rapidly by 5 percentage points to 10,5% by August 2009 in an effort to stimulate the economy. In March 2010 it reduced to 10%. A further reduction may be on the cards.

Liquidations receding?

Liquidations in 2010 are slightly lower than in 2009.

Read more about liquidations trends at liquidations statistics.

Turnaround in the private sector

As companies battle post-economic recession conditions, the increased demand for turnaround in 2010 is tempered by lack of credit and funding for turnarounds, exacerbated by more restrictive loan covenants, greater conditions to be met, and a lower ratio of loan to cash flow/profitability.

Interest rates that are at a low point and seemingly decreasing liquidations point to decreased future turnaround activity.

Enacting new business rescue legislation in late 2010, however, will in 2011 provide the turnaround industry with a substantial boost as it has in overseas countries where modern business rescue legislation has been introduced. For more information, see business rescue in South Africa.

Private sector promotion of turnaround

The Turnaround Management Association - Southern Africa (TMA-SA) is intent on engaging with government bodies to promote closer cooperation between government and the private sector.

During November 2006 it had fruitful discussions with dti and National Treasury on a wide range of topics including turnaround industry driving forces and constraints, and how government can help.

Also, from 2007 to 2010 it made a submissions to the dti on draft business rescue legislation and business rescue regulations, and participated in workshops in this regard.

Presently, it is launching the Certified Turnaround Professional programme in South Africa under license from TMA, its parent body, and in partnership with Services SETA for implementation in late 2011.

For a view from the CEO of TMA-SA, see Hlophe (2010).

Government assistance for turnaround

Government itself facilitates labour consultation based turnarounds through Productivity SA by subsidising the fees of private sector consultants.

Additionally, government has launched a programme for "turnaround strategies and bail-out for training and companies in distress":

"A R6.1 billion fund, administered by the Industrial Development Corporation (IDC) was created to assist companies in distress, while a R2.9 billion training layoff scheme was introduced to serve as an alternative to retrenchment. Support packages were developed to meet the needs of specific sectors of the economy. So far, 15 000 jobs had been saved or created at about 50 companies, at a total cost of R1.8 billion."(“Minister of Economic Development on Turnaround Strategies and Bail-Out for Training and Companies in Distress,” 2010)

Increased interest in turnaround from Development Fund Institutions

Turnaround Management Association - Southern Africa (TMA-SA) has since inception reflected a high percentage of members from the commercial banks.

The past two years have seen a dramatic increase in membership from the Industrial Development Corporation and the Development Bank of Southern Africa - including 3 board positions.

Institutions such as the National Empowerment Fund and the Industrial Development Corporation have started to farm out large turnaround projects out to private sector consultants, sometimes on tender.

Turnaround in the public sector

In contrast to the private sector, there is a proliferation of turnaround programmes in the public sector, albeit with qualified success.

Just about every state-owned enterprise and government structure are undergoing turnaround - SABC, Denel, Sentech, Land Bank, municipalities, etc. or has been subject to turnaround programmes in the past years - South African Post Office, Transnet, SAA, Department of Home Affairs, SARS, etc.

The decision to close the Pebble Bed Modular Reactor was based on the finding that turnaround is not viable.

Turnaround and transformation programmes are driven by government striving for increased service delivery by government structures, and improved financial performance of state-owned enterprises.

Public sector turnaround potential, however, is often constrained by lack of people capacity and capability, corruption, strikes, pay increases outpacing inflation and productivity increases, and lack of effective turnaround leadership. These constraints are often driven by political issues such as cadre deployment, poor B-BBEE application, disempowered boards of directors or directors with party-political connections, and political interference.

The market for turnaround in neighbouring countries

In Namibia, both the private and public sector has since 2006 undertaken formal turnaround projects assisted by SA consultants, with at least one going out on tender.

In August 2010, the Botswana National Productivity Centre held a turnaround seminar attended by many of the country's business leaders - the start of formal turnaround programmes in Botswana?

The global turnaround market

Please refer to the Turnaround Management Association for the market for its 7 000 members internationally.

References and readings

Minister of Economic Development on Turnaround Strategies and Bail-Out for Training and Companies in Distress. (2010, August 17). Parliamentary Monitoring Group.

Sandile Hlophe – CEO of Turnaround Management Association – Southern Africa. (2010). CEO Magazine.

The turnaround industry in South Africa

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Corporate Renewal Solutions blog

The Corporate Renewal Solutions Blog has news about and comments on the corporate renewal, business transformation, turnaround and business rescue industries in South Africa.