• Is this the beginning of the end of the mining boom?

Is this the beginning of the end of the mining boom?

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  • SMB closures in WA point to resources slowdown 
  • Credit activity spikes 3 months before closure; call for better risk management tools to minimise potential exposure

Sydney, Australia, 31  August 2012 - Veda, Asia Pacific's leading provider of consumer and commercial data intelligence and insights, today released data that supports recent speculation that Western Australia's economic engine may be losing steam while the eastern states appear to have picked up some economic momentum via new business openings during the past 12 months.
Equifax's latest data intelligence comparing state business openings and closure performance shows that WA SMBs had a higher percentage of closures than other state averages over the past year (see Figure 1 below).  For the same period NSW, ACT and Queensland had more new businesses open, indicating that there could be some resurgence in eastern state economies or at least a boost in business confidence (see Figure 2 below).
Small & Medium Business Closures

Figure 1: Approximately 1.86 per cent of Australian businesses closed during the past 12 months. This graph compares the percentage of state vs. national averages, showing WA had a greater percentage of closures than the national average after indexing.
Small & Medium Business Openings

 Figure 2: Approximately 5.86 per cent of Australian businesses opened during the past 12 months. This graph compares the percentage of state vs. national averages, showing ACT, NSW and Queensland had a greater percentage of openings than the national average.
"Given the changing nature of the SMB market and with businesses opening and closing according to very complex market dynamics, it is even more critical for businesses to continually monitor their risk exposure," said Moses Samaha, head of commercial risk for Veda.
"Equifax Score allows you to more effectively manage this risk because it can identify and highlight certain credit behaviours that appear to lead to a business closing," Samaha said.  "For example, Equifax Score is able to advise new businesses that in general, commercial finance demand peaks one month after a business is established. Additionally, while all forms of finance are in high demand leading up to and in the 11 months after opening, we see a second spike in overdraft demand at about the eight month mark, possibly indicating cash-flow challenges.
Credit Behaviour of Businesses Entering External Administration

Figure 3: This graph illustrates the credit behaviour of SMBs prior to entering into external administration.  
"Equifax Score does this by uniquely linking both business and personal credit information to provide an overall picture of a small business risk, since many owners use both of these forms of finance to keep their operations ticking over.  Traditional risk scoring solutions only provide information of commercial credit - so they do not tell the entire story."
Equifax's analysis of the past 12 months of SMB activity across Australia shows that businesses are wise to ensure they have excellent intelligence and risk assessment tools like Equifax Score to minimise their exposure to potentially bad business debts.  That analysis seems to support the view of Federal Resources Minister the Hon. Martin Ferguson that the mining boom is starting to slow and that small business closures in WA are a leading indicator.
Of the new SMBs opening, the industries that showed the highest activity were:

  • Healthcare and social assistance;
  • Administrative and support services;
  • Rental, hiring and real estate services;
  • Construction.

While construction has been doing it tough during the past 12 months with the closure of companies like Kell & Rigby, St Hilliers, and CMC Cairns, it appears that there may now be an opportunity for new entrants to make up for recent attrition in the sector.
Equifax's access to both personal and commercial data, sourced from a broad spectrum of industries and credit providers, gives credit managers access to a depth of risk scoring data that is not available elsewhere.