Picture: 123RF/OLIVIER LE MOAL
Picture: 123RF/OLIVIER LE MOAL

Though the jury is still out on whether SA scraped by with any  growth in 2019, the year’s liquidation figures reflect just how tough conditions have become for businesses.

The latest liquidation figures released by Stats SA show that the number of businesses that had to wind up their operations in 2019 increased 10.7% from the year before. This is the first increase seen in a decade since the global financial crisis, when liquidations hit 25.2%, Stats SA said on Tuesday.

The figures show the mounting financial pressure on companies, Absa economist Peter Worthington said in a note.

Figures for insolvencies — which are delayed and are only available to November — suggest a similarly gloomy picture may be developing. On a year-to-date basis, insolvencies between January and November increased 23% on the same period the year before. According to the agency, the last time insolvency rates grew was in 2011, when they reached 2.1%. 

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The three largest contributors to the 2,042 liquidations recorded in 2019 were finance, insurance, real estate and business services, which accounted for 32.7% of liquidations; “unclassified” businesses, which accounted for 26.4%; and trade, catering and accommodation, which accounted for 22.4%. 

The liquidations outcomes reflect the low levels of profitability for firms exposed to SA’s battling economy, said Arthur Kamp, chief economist at Sanlam Investments.

According to the most recent Stats SA data, gross operating surpluses — a proxy for profits of firms in the economy — grew 4.3% in nominal terms in the third quarter of 2019. In real terms — or when accounting for inflation, which was 4.1% in 2019 — this is “very, very little”, said Kamp.

“So I think it’s a reflection of a generally weak economic environment and a strained profits environment for companies exposed to the SA economy,” he said.

“The economy is not doing particularly well, the potential growth rate is weak and we’ve seen how businesses have responded, and that is to contain costs. Unfortunately the flip side of that has been a rise in the unemployment rate.” 

SA’s unemployment rate hovers at just below 30%, while business confidence continues to languish at close to 20-year lows. Looking ahead, growth prospects for SA remain challenging. The World Bank and the IMF recently reduced their forecasts for SA’s growth to below 1% for 2020, citing ongoing policy constraints and the threat of load-shedding by power utility Eskom.

The government has made progress on some promised policy reforms, such as publishing an updated integrated resource plan, easing certain travel requirements and providing greater financial support to the National Prosecuting Authority and the SA Revenue Service, said Kamp. But these were overshadowed by other problems, particularly the “crowding out of the private sector by the state”, he said.

“The state has absorbed a very high share of our resources, so whatever savings are available, the state absorbs,” said Kamp. “Unless foreign investors give us more savings, the private sector has to save more and invest less.”

One company that has flirted with liquidation has been the country’s perennially cash-strapped national airline SAA, now under business rescue. The process, however, has been a fraught one as the government has battled to come up with the R2bn in postcommencement funding it was meant to secure to keep the airline operating.

On Thursday, however, the Development Bank of SA, a state-owned development finance agency, threw SAA a lifeline, providing the next tranche of funding of R3.5bn, “with an immediate drawdown of R2bn”.