Businesses across the globe are bracing for a sharp increase in insolvencies, projected to climb by 11% in 2024, the Allianz Group’s latest Global Insolvency Report showed yesterday.
This marks a steeper rise than previously forecast, amid persistent concerns over sluggish demand, geopolitical tensions, and erratic financing conditions.
However, amid this daunting global outlook, South Africa emerges as a beacon of hope, reflecting substantial economic progress driven by strategic reforms and the revitalisation of its energy sector.
Allianz Trade, Allianz Group’s trade credit insurer, highlighted yesterday that the improvements to the country’s energy supply have brought a significant 14% increase in energy supply over the past four months compared to the previous year. This enhancement is seen as a crucial pivot for local businesses, enhancing productivity and reducing disruptions in operations.
The Government of National Unity (GNU) has also played a vital role in this recovery, implementing a series of pro-business reforms aimed at stimulating economic growth.
Notable measures include allowing private sector participation in areas such as energy generation, ports, and freight rail, coupled with plans for infrastructure investments are expected to further invigorate business activity and positively influence the nation's economic landscape.
In terms of currency dynamics, the rand has notably performed well, emerging as one of the top currencies among emerging markets. After a recent 25 basis point interest rate cut, the rand initially strengthened, although there has been a slight moderation since then. As of Wednesday, the rand was trading at R17.61 to the US dollar, demonstrating stability amidst global financial uncertainties.
Reezwana Sumad, a research analyst at Nedbank Corporate and Investment Banking, said while trading activity remained somewhat subdued, the rand-dollar exchange rate fluctuated within a narrow range, reflecting cautious sentiment among market participants.
Sumad said the broader global focus now shifts to the upcoming US elections in November, which could play a pivotal role in influencing market conditions.
Allianz Trade pointed to growing investor confidence as another positive indicator for South Africa’s economic health.
It said the cost of insuring the country’s sovereign debt has fallen to its lowest level since June 2021, suggesting enhanced perceptions of fiscal stability. Consequently, South Africa’s stock market has surged by 10% over the past three months, highlighting a broader optimism about the country’s economic trajectory.
When looking ahead, Allianz Trade forecasts a 5% downturn in insolvencies for South Africa in 2024 (approximately 1 500 cases), with this trend expected to remain stable into 2025 and 2026.
Contrastingly, the global insolvency landscape shows a concerning picture, with predictions of increases in various regions, including 12% in the US by 2025 and a troubling 5% uptick in China.
Aylin Somersan Coqui, CEO of Allianz Trade, elaborated on the challenges facing businesses globally, pointing to subdued demand and geopolitical uncertainties as key factors driving this trend.
As companies begin to emerge from pandemic-era support measures, the backlog of overdue insolvencies is anticipated to exacerbate the situation in coming years, especially in sectors such as construction and retail, which have already been disproportionately affected.
“This global rollercoaster ride in business insolvencies is partly due to still-subdued global demand, persistent geopolitical uncertainty, and uneven financing conditions. It can also be explained by the ‘backlog’ of insolvencies, as companies are no longer shielded by the support measures put in place during the pandemic and the energy crisis,” Coqui said.
“That’s why countries accounting for more than half of global GDP will be hit by double-digit insolvencies increases in 2024, and two-thirds may surpass their pre-pandemic numbers this year. Construction, retail, and services have been hit the hardest, both in terms of frequency and severity.”
BUSINESS REPORT