Corporate Renewal Solutions Blog

View of and news about the topics and industries of corporate renewal, business transformation, turnaround and business rescue in South Africa.

Friday, June 30, 2006

South African turnaround industry market watch - June 2006

Turnaround in the private sector

The South African private sector turnaround market has been very quiet in 2006, but there are signs of increased activity.

Robust economy

South Africa has been experiencing unprecedented growth, with interest rates the lowest in 24 years.  While the robust economy is good for the country, it leaves little work for turnaround practitioners and turnaround professionals of other disciplines compared to the busy days of the 1990's.

Low liquidation activity

The low turnaround activity is reflected by compulsory company liquidations being at a low point - 20% of what it used to be during the 90s as illustrated by the graph below.

Compulsory liquidations of companies past 24 months

Interest in turnaround education waning

The annual turnaround management conference at Wits Business School seems to draw less delegates each year.  What is encouraging though, is the increased number of government and black delegates at the May 2006 conference.

Turnaround market to pick up

Turnaround industry participants, however, expect that the market will pick up in 2007.

BEE transactions

A number of past BEE transactions have run into trouble, and pressure from financiers may lead to turnaround advisory work or intervention.

Slowdown

With consumer debt at a high point, there are signs that some industries such as the retail industry are starting to slow down.

Rising interest rates

In June 2006, the prime rate increased by 0,5% after reaching its lowest point in 24 years.  The SA Reserve Bank's monetary policy committee may hike rates by at least another 50 basis points at their next meeting on August 2-3.  Forward rate agreements are discounting another 150 basis point increase in rates by the end of the year.

Weakening Rand

With the account deficit coming in at 6.4% of GDP, the exchange rate weakened to a 2½-year low of R7.5275/$ in June 2005.  Although it has recovered somewhat, it spells trouble for importers.

Rising inflation

Higher factory gate prices will have a knock-on effect on inflation.  The monetary authorities feel thatthe inflation target could break the upper end of its designated range, rising to 6.2% in the first quarter 2007.

New business rescue legislation  

In the medium term, South Africa will see new business rescue legislation incorporated in the new companies act. 

This will provide the turnaround industry with a substantial boost as it has in overseas countries where modern business rescue legislation has been introduced.

Turnaround in the public sector

In contrast to the private sector, turnaround in the public sector is buoyant. 

Turnaround and transformation programmes are driven by government striving for increased service delivery and increased financial performance.

Parastatals undergoing turnaround action are Transnet (Maria Ramos), South African Airways (Khaya Ngqula) and Denel (Shaun Liebenberg).  The turnaround at the South African Post Office by Maanda Manyetse, who has since left for MTN, seems to have run its course, and very successfully so.  Turnaround and transformation programmes are being run at the South African Revenue Services (Pravin Govender) and Department of Home Affairs.  Initiatives are under way at local government level to place municipalities on a sound financial footing and improve their service delivery.

The public sector prefer the international management consultancies or local BEE consultancies to help improve results.  With the exception of some parastatals, the approach is more that of business transformation rather than conventional turnaround.  Accordingly, there is little demand for the services of the established turnaround practitioners from the private sector.

Government itself facilitates labour consultation based turnarounds through the NPI by subsidising the fees of private sector consultants who bring in projects and follow the NPI's turnaround and labour consultation methodology.  There is a distinct bias towards BEE consultants.  It was encouraging to note employees of NPI attending the Wits Business School turnaround management conference.

The dti's SEDA is also looking at formally supporting turnaround.

The Turnaround Management Association - Southern Africa is intent on engaging with government bodies such as NPI and dti to promote closer cooperation between government and the private sector.

This turnaround news flash was brought to you by Turnaround Solutions - turnaround management consulting firm rescuing distressed companies and improving results of underperforming companies in South Africa.

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