Turnaround market watch South Africa

Click on the thumbnails below for enlarged diagrams and graphs.

Turnaround economic indicators

Business confidence is increasing from its 2009 low

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).

 

SACCI Business Confidence Index

 

Following the recession, the SACCI Business Confidence Index reached a low point in March 2010.  Thereafter it shows an increasing trend in business confidence, but still far off previous highs.

 

SACCI Business Confidence Index relative to last year

 

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

 

RMB/BER Business Confidence Index

Interest rates receding since 2009

High interest rates is an important factor causing financial distress and a primary barrier to successful turnaround.

 

Prime overdraft rate

 

The prime overdraft rate in April 2005 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%, in October 2010 to 9,5% and in November 2010 to 9% - its lowest level in 30 years.

 

Liquidations not showing a discernable monthly trend

 

Company plus close corporation liquidations per month.

 

Liquidations are steady 2009 - 2011

 

Monthly company plus close corporation liquidations per annum

 

 

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 2012 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 steady liquidations point to much the same turnaround activity as in the past two years.

New business rescue legislation

New business rescue legislation was implemented on 1 May 2011.  It is, however, not operative yet.  Once business rescue practitioners are registered, which is causing the current delay, the new legislation 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 promoting new business rescue legislation.

It is planning to launch the Certified Turnaround Professional programme in South Africa under license from TMA, its parent body, 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 drastic 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 or have been 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, SITA, SARS, etc.

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

Public sector turnaround and transformation programmes are driven by government striving for increased service delivery by government structures (“Time for Talk Is Over, Now Is the Time to Deliver,” 2010), and improved financial performance of state-owned enterprises.

Public sector turnaround potential, however, is often constrained by lack of people capacity and capability (“Skilled Workers Needed for Local Government Turnaround” (2010), inefficiency (Joffe (2010) ("Cosatu Should Rethink Its Views on Fiscal Policy"), corruption (Pressly, 2010) ("Cosatu Warns of the Dangers of 'a Predatory Elite'"), (Masondo, 2010) ("Officials Robbing Us Blind") and Taljaard (2010) ("War Against 'Cancer'"), strikes, pay increases outpacing inflation and productivity increases (Hazelhurst, 2010) ("SA Needs Labour Reforms - IMF"), poor governance (Yudelowitz, 2009a) ("SA Must Learn Its Lesson from Litany of State-Owned Disasters"), and lack of effective turnaround leadership (Yudelowitz, 2009b) ("Idealism of Cadres Does Not Deliver the Goods - Looking at Leadership").

These constraints are often driven and entrenched 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.

TMA has started its own blog at http://turnaround-tma.blogspot.com/.  See Turnaround Industry is in Transition During Uncertain Economic Times in which it paints a picture of an industry in transition during uncertain economic times.  It contains the Trend Watch Survey news release and charts showing the poll results.

References and readings

Hazelhurst, E. (2010, September). SA Needs Labour Reforms - IMF. Business Report.

Joffe, H. (2010, September 9). Cosatu Should Rethink Its Views on Fiscal Policy. BusinessDay.

Masondo, S. (2010, September 22). Officials Robbing Us Blind. Times LIVE.

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

Pressly, D. (2010, September 9). Cosatu Warns of the Dangers of 'a Predatory Elite'. Business Report.

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

Skilled Workers Needed for Local Government Turnaround. (2010, September 6). Times LIVE.

Smit, P. (2010, September 10). Formalisation of Business Rescue Rules Could Help Lower SA’s Liquidation Rate. Engineering News.

Taljaard, R. (2010, October 4). War Against 'Cancer'. Times LIVE.

Time for Talk Is Over, Now Is the Time to Deliver. (2010, September 26). Times LIVE.

Van der Walt, J. (2010). Business Rescue in South Africa. CRS Business Rescue.

Van der Walt, J. (2010). Business Rescue Legislation in South Africa. CRS Business Rescue.

Van der Walt, J. (2010). Business Rescue Regulations in South Africa. CRS Business Rescue.

Yudelowitz, J. (2009a, September 4). SA Must Learn Its Lesson from Litany of State-Owned Disasters. BusinessDay.

Yudelowitz, J. (2009b, November 26). Idealism of Cadres Does Not Deliver the Goods - Looking at Leadership. Business Report.


The turnaround industry in South Africa


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