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State of SA businesses navigating the ‘Zombie Zone’

Authored by Jo Mitchell-Marais, Director: Restructuring and Turnaround, Financial Advisory 

Although GDP growth in South Africa is forecast to double in 2024, it is coming off a very low base from the 0.5% anticipated for 2023 year-on-year growth. We may even find ourselves in a technical recession when the Q4 2023 GDP growth is released. However, the doubling of our growth rate does not necessarily translate into improved trading conditions for South African businesses, as 1% growth is still woefully inadequate to address our socioeconomic challenges.

As we prepare for our annual Deloitte Restructuring Survey, the overwhelming sentiment of respondents is that our home-grown issues are likely to continue to constrain us during 2024 – the crisis at our ports, ailing and failing infrastructure, and continued load-shedding to mention a few.

In addition, the effects that a challenging global macro environment may throw at us are unforeseeable – geopolitical tensions, supply chain issues and a year fraught with political uncertainty. Furthermore, in what is being dubbed as a ‘super election year’, more than 60 nations have their elections this year– marking the biggest election year in history. As a result, 2024 looks set to be another year where grit and resilience are core attributes required of business owners who will need to navigate through both local and global headwinds that will blow our way.

Despite these challenges, we are anticipating the commencement of a falling interest rate cycle as inflation continues to decline – falling to 5.5% in November 2023 from 5.9% in October 2023. However, Governor of the South African Reserve Bank, Lesetja Kganyago earlier this year said that an interest rate cut from the current 14-year high is not expected until inflation is keenly controlled and closer to the 4.5% sustainable inflation requirement. Therefore, a fall in the interest rates is more likely towards the second half of 2024.

With this little bit of good news as a backdrop, how do we expect South African businesses to fare during 2024?

Our expectation is that tough trading conditions will persist as the past few years continue to take their toll. The average consumer in South Africa is worse off entering into 2024 due to the fall in the average real monthly salary, which is experiencing a declining trend, having been R16,124 in February 2021 and averaging R13,942 in October 20231. This decline translates into lower discretionary income and likely lower GDP growth. Lower disposable income impacts businesses with discretionary products and so retail businesses are expected to face further challenges into 2024.

Real estate took a beating during the COVID-19 pandemic with a perfect storm of factors affecting vacancy rates, rental receipts, and interest charges. Although trends are positive as we enter 2024, there is still a way to go before this sector hails a full recovery.

Tourism and hospitality is arguably faring better than pre-pandemic levels, with the latest data from NightsBridge2 revealing an upwards trend with total bookings from January to October 2023 exceeding the same period in 2019 by 7.4%. In Cape Town, more than 317,000 overseas travelers arrived in December 20233, representing an increase on pre-pandemic levels of 290,000 in January 2020 as well.

Major logistical challenges at our country’s ports, together with load-shedding as well as the cost-of-living continue to impact discretionary income and will likely put a damper on any new vehicle market sales growth in 2024. This is supported by a year-on-year decline of 3.3% in December 2023, the fifth consecutive month of year-on-year decline4. As a result, the Automotive sector is expecting a tough 2024.

South Africa, when assessed on the expanded unemployment rate, has the highest level of unemployment in the world at 41.2% in Q3:20235,6. Further job losses have been announced into 2024, specifically in the mining sector. Job creation is surely required (and growth rates of 1% do not provide much hope), but equally the importance of job preservation cannot be over-emphasised.

What are the options available to businesses struggling to make ends meet and entering the realm of financial distress?

Business rescue, in South Africa, has had some reputational challenges; with media reports focusing on the cost and length of the process. Many ‘successful’ business rescues are those where the business and assets are sold to a third party – hardly compelling for a business owner seeking to rehabilitate their business and continue as a going concern.

This negative perception of business rescue leaves many businesses in the ‘zombie zone’ – i.e., limping along, with no growth and worsening working capital cycles. These businesses are called ‘zombies’ because they are merely treading water and not making any progress towards growth due to a lack of capital to invest. They generate enough money to cover operating expenses and service their debt but cannot repay it. Generally, they are one event away from insolvency and in the South African context; an ‘event’ may be worsening load shedding, inaccessibility at our ports, or a quarter of poor financial performance. In these circumstances, the business owners cannot afford the cost of expert intervention – either an advisor-led turnaround, business rescue or liquidation. Creditors also choose not to spend money making a court application for the termination of the business when they know there is little chance of recovering of any monies outstanding to them.

There is anecdotal evidence of a rise in companies in the Zombie Zone. The liquidation statistics provided by StatsSA highlight a fall in liquidations year-on-year, with 1,520 companies having filed for liquidation in the year to 30 November 2023 - a decline of 13% for the same period in 20227. We have not seen a commensurate increase in business rescues in 2023 (although data from CIPC is not as reliable and consistent as StatsSA) and trading conditions during 2023 were some of the toughest experienced since the global financial crisis in 2008. Perhaps this lack of filing for insolvency is indicative of businesses taking no decisive action and merely treading water, as is expected of a Zombie company.

The early recognition of financial distress provides more options for business owners to save their businesses and avoid the zombie zone. This has been confirmed in our Deloitte Restructuring Survey 2021 where 94% of our respondents agreed that seeking restructuring advice early is seen to have a higher probability of achieving a turnaround. In fact, 91% of respondents in the same survey said that early identification of financial distress was a very important factor to improve within our local market.

Oftentimes, it is the ‘ego-effect’ that prevents a business owner putting up their hand to ask for help. Executive teams do not want to admit to their boards that they may have erred or that the problem is too complex for them to solve. While we may have a pool of highly experienced executives who run profitable companies, a different set of skills is required when needing to steer a struggling company through choppy waters.

Knowing when to call in turnaround and restructuring experts, having tough conversations with key creditors (including lenders) while outlining a recovery plan as well as a tight and decisive management style, are all very necessary components for businesses that will survive into 2025. 


1 Latest in the SA Economy | Investec Focus
5 South Africa’s unemployment rate remains highest in world (
6 Statistics South Africa on Quarterly Labour Force Survey quarter three 2023 | South African Government (    

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