Cape Town - Company liquidations increased by 10.7% in 2019 compared with 2018 and the figures have got employers, business analysts and economists worried and pointing the finger of blame at the government.
The latest statistics on insolvency and liquidations released by Stats SA on Monday have been described as “disappointing”, and the December data on liquidations and insolvencies, show mounting financial pressure on companies.
Peter Worthington, an economist at Absa Bank, said: “Although the data typically does not receive much market attention, it reveals trends that we believe investors should pay attention to. Specifically, the data shows that company liquidations increased by 10.7percent in 2019 relative to the preceding year.”
Worthington said: “This was the first annual increase in company liquidations since 2009, at the height of the global financial crisis when liquidations soared by 25.2percent. Since then, liquidations had recorded steady annual declines.”
Meanwhile, data on insolvencies on individuals and partnerships, which are only available to November, also showed an increase, of 13.3percent relative to the first 11 months of 2018.”
Stats SA said: “The three largest contributors to the 2042 liquidations recorded in 2019 related to businesses in the following industries: financing, insurance, real estate and business services (668 liquidations or 32.7percent); unclassified (540 liquidations or 26.4percent); and trade, catering and accommodation (457 liquidations or 22.4percent).”
Confederation of Employers of South Africa (Cofesa) director Hein van der Walt said: “A study by the Small Enterprise Development Agency, a subsidiary of the DTI, has reported a failure rate of 75percent for SMMEs, with five out of seven new small businesses started in South Africa failing in the first year.”
Guy Hosking, CFO of Retail Capital, a leading SME funder in South Africa, said: “With the IMF cutting South Africa’s GDP growth rate to 0.8percent for 2020, it looks like businesses are in for another tough year.
“Finding the right funding partner in these times is a key survival strategy, given that bank finance is difficult to raise in these times.”
Databuild chief executive Morag Evans said the government’s failure to pay building contractors on time or even not at all is one of the major causes of job losses in the construction industry.
National Treasury regulations stipulate that contractors should be paid no later than 30 days after invoicing, yet a report issued by the Construction Industry Development Board states that 60percent of payments are made late.
Evans said: “This is unacceptable. Most contractors and suppliers in the construction industry are entrepreneurs, operating as an SMME.
“The government cannot claim to support entrepreneurship, but then fail to pay the very business owners who play a crucial role in stimulating economic growth and job creation.”
To make ends meet, SMEs often self-sacrifice, taking a salary cut before implementing short-time or retrenching.
Arifa Parkar of the Western Cape Business Opportunities Forum said: “Relationships with staff are often more intimate and they are aware that when they retrench an employee, they retrench an entire family.”
@MwangiGithahu