Trade solution company Coface South Africa says that, while the 2010 FIFA World Cup construction boom has inspired a quick increase in the uptake of property, the change in economical con- ditions in South Africa has slowed private-sector growth.
Marketing manager Natasha Hardy says that although commercial development driven by government investment is steadily growing, the hike in interest rates and inflation have reduced the demand for housing and private investments in the construction sector.
The company believes that developers are also being negatively affected by increased interest rates, combined with the increased cost of building materials and problems experienced with service providers and government departments.
Hardy points out that small suppliers in the construction sector do not always have the financial backing required to ride out the economic dip, contributing to some instability in the sector, and thus resulting in an increase in debt default and liquidation.
“Companies also make the mistake of pricing projects without taking increasing commodity prices into consideration. Since these companies cannot increase prices owing to competition in the industry, initial project quotes cannot cover overhead costs, forcing these companies to sell out to their bigger construction counterparts,” she adds.
Hardy states that although the global economic market has suffered as a result of the subprime crisis earlier this year, Coface is now observing a spin-off of this crisis into other markets.
“Markets such as Spain and Portugal, as well as other previously stable European markets, have started to show serious debt ratios,” she says.
She believes that these unstable markets have a negative effect on the South African trade environment, since information on companies have become unreliable. Coface can solve this problem by providing inform-ation to its clients through its international network, which enables the company to request reports directly for companies that need accurate trade information.
Hardy adds that where South African exporters struggle to collect international debt, Coface also uses its international network to deal with debtors directly and overcome legal challenges, business practice, and language barriers in order to collect debt effectively.
She points out that, contrary to expect-ations, the lucrative Brazil, Russia, India, and China (Bric) market has not really been affected by the subprime crisis. She believes that these countries’ ability to turn raw materials into finished products, as well as their vast labour force, have enabled them to progress at a rapid pace.
But, even though the US’s and the UK’s demand for Bric products have declined, the steady demand in other markets is creating more opportunities for South African trade transactions, she says.
She adds that Coface prides itself in being ethical followers of any country’s laws, especially when dealing with international trade transactions.
National Credit Act
Meanwhile, the National Credit Act (NCA), which came into effect in June last year, is influencing the way in which companies deal with debt collection. Hardy states that the NCA was meant to protect smaller consumer-based, and debt-orientated companies, but, because of the lack of case law, companies are now using the NCA to stall the debt collection process by up to three months.
Since the stalling of payments is putting massive pressure on South African com- panies, Coface is assisting companies who are struggling to collect debt, and Hardy states that the company uses effective and professional communication to make sure that debtors adhere to the process properly.
“Until the case law of the NCA is finalised, Coface believes that, in addition to knowing the legislation around debt collection, it is important to maintain good business relationships between trading companies,” she concludes.
Coface South Africa provides full risk credit solutions to a variety of industry sectors, and specialises in credit insurance, including trading transactions between companies, trade information, receivables management, including local and international debt collection, and trade finance.
The company is the first international credit insurer to enter the South African market, and its South African division has been serving the sub-Saharan region since 2005.
Coface has been involved in the engineering industry, specifically in infrastructure development in the construction sector and the steel industry.