Deloitte Africa Restructuring Survey reports declining pessimism

The latest Deloitte Africa Restructuring Survey has unveiled some surprising findings about the state of business distress on the continent. Weak governance at the board level, poor cash management, and weak financial controls continue to be major contributors to business distress, triggering concerns about the rising number of liquidations and restructurings in various sectors. Jo Mitchell-Marais, Africa Turnaround & Restructuring Leader at Deloitte, shed light on the report's key findings in a recent interview with CNBC Africa. Last year, there was a record level of pessimism among South African respondents regarding the economy's growth prospects over the next 12 months. However, this year's survey showed a decline in pessimism, indicating a sense of resilience and acceptance of the challenging economic conditions. The survey, conducted in January and February, revealed that 75% of businesses were pessimistic, down from 81% the previous year, showing a slight improvement in sentiment. Despite the overall decline in pessimism, the number of liquidations has seen a worrying increase, up by a third in recent months. Factors such as load shedding, high interest rates, and inflation have made it increasingly difficult for businesses to survive, leading to a rise in 'zombie companies' teetering on the brink of insolvency. While business rescue is available as a precursor to liquidation, many companies are skipping this step and heading straight to insolvency, highlighting the severity of the situation. The survey covered several industries, with retail, real estate, hospitality, tourism, and automotive sectors being identified as particularly vulnerable to distress. Retail companies have issued cautionary announcements on the JSE, indicating ongoing challenges in the sector. Real estate continues to face difficulties, especially with high interest rates and remote work impacting commercial property demand. The hospitality and tourism sectors are showing some signs of recovery, with positive statistics following the December period. However, the automotive industry is experiencing a decline in new vehicle sales, exacerbated by the crisis at the country's ports. The report also highlighted the role of technology in influencing businesses' relevance and survival in the current landscape. Companies embracing technological advancements, such as artificial intelligence, are better positioned to adapt and thrive, while 'sunset industries' risk becoming obsolete. The need for agile and forward-thinking boards is emphasized, with the report underscoring the importance of strong governance in detecting and addressing distress early on. Weak board governance was identified as a key factor in triggering distress, as boards lacking restructuring experience may struggle to navigate financial challenges effectively. The report calls for a greater focus on board diversity and expertise to ensure proactive decision-making and risk management. Overall, the Deloitte Africa Restructuring Survey provides critical insights into the evolving business landscape and the need for strategic resilience in the face of ongoing challenges.