Durban - Businesses are struggling to survive as rising energy costs and drought take effect and cash-strapped consumers cut back on spending.
The tourism accommodation trade is also feeling the squeeze from the online marketplace.
Economists have painted a grim picture of local business conditions, warning that the economy could slip into a recession if the country is downgraded to junk status when Standard and Poor’s delivers its rating review decision on December 2.
Statistics South Africa reported on Monday that company liquidations rose 15.4% last month compared with the previous year.
A total of 172 businesses were liquidated nationally last month compared with 149 in the same month last year, with many falling in the financing, insurance, real estate and business services sectors.
About 1 467 businesses have been liquidated so far this year.
And according to the National Small Business Chamber’s (NSBC) 2016 survey released recently, 77% of 17 950 entrepreneurs canvassed countrywide said they closed their businesses before hitting the five-year mark.
Of the 23% who survived, only 9% remained in business for more than 10 years.
Businesses surveyed were mainly micro enterprises, with one to five people (52%), those with six to ten people (29%), businesses with 11 to 25 people (3%) and firms employing 26 to 50 people (2%). But the survey also found that those which had survived had planned to expand and increase sales over the next 12 months.
Economist Mike Schussler said the KwaZulu-Natal economy, and Durban and Richards Bay in particular, were suffering because imports and exports were slowing.
“As Durban is by far South Africa’s biggest harbour by the value of goods imported and exported it is clear the slowdown is having a ripple effect in the transport industry, freight forwarders, importers and others.
“Rail traffic has had the worst year that I can remember as has break bulk via South African harbours,” he said.
“Like much of the rest of the country, all durable sales are under pressure from consumers. We still see weak house sales; weak and declining car sales and weak furniture sales.
“When people do not buy new houses, then not only do estate agents suffer, but so too do industries such as the textile industry as fewer curtains, furniture and electrical equipment such as stoves are sold,” he said.
Schussler said secondhand car sales had been doing well, but new car sales were down by more than 10% year on year.
“Local tourism is also under pressure in certain categories as poorer working class and middle class people cut back on local holidays. Air BnB is also taking share from BnBs and hotels,” he said.
Schussler said wealthy South Africans might spend more time holidaying locally because of the weaker rand, but they tended to go to upmarket places.
“The middle ground and lower price/better value places are not seeing many rich people and their market is struggling this year.
“The sugar industry is just starting to recover but may be hit with the sugar tax,” he said.
Schussler added that business confidence looking ahead to next year remained “overall very weak”, although there were “green shoots” in international tourist arrivals in the food and beverage sector and interest rates could start to drop in the middle of next year.
“If we just have a normal rainfall year then many rural communities will be much better off and that will help all.
“KwaZulu-Natal has the right people to make a recovery work well,” he said.
“Coal prices have recently also jumped 46% although perhaps this is not sustainable but that would help the coal line and areas such as Newcastle,” he said.
But Schussler added that a ratings downgrade would result in a weaker rand and lessen any drop in interest rates.
Schussler said the findings of the small business research were not surprising.
“Fewer than 1 000 businesses today were in operation in 1960. I do not think that any of the top 40 of the JSE in 1975 are around today. Even from 20 years ago there are I think two top 40 companies still in the top 40 of the JSE. Business is more fragile than we think and South Africa has too few rich people,” he said.
Regent Business School economist and academic Aarifah Razak said businesses were experiencing lower sales volumes due to low consumer demand as households faced pressure from high food and fuel inflation.
“Higher fuel prices are also impacting businesses directly as they are faced with a higher cost base. Import businesses in particular are vulnerable to currency fluctuations. Higher lending rates over the past two years have combined with these other factors and make it difficult for businesses to remain solvent,” she said.
Domestic demand was expected to remain under pressure into next year with the IMF projecting growth for 2017 at 0.75%. The possibility of a recession was not ruled out, Razak added.
KPMG economist Christie Viljoen said Standard & Poor's could decide to downgrade the country to junk status if it reduces its economic growth projections, provides a weaker assessment of the quality and independence of institutions like National Treasury or increases its government debt forecasts. “At present, political factors are undermining the perceived independence and effectiveness of institutions like the national Treasury, Public Protector, National and Prosecuting Authority (NPA).
Durban Chamber of Commerce and Industry president Zeph Ndlovu said the fluctuating currency due to political tension with Treasury, violent student protests, drought and water shortages had impacted businesses.
“Many businesses have raised the challenge of water shedding and others of flow being throttled,” he said.
Ndlovu said it was necessary to tap into alternative water sources, while the government needed to play a role to address the challenges in the economy.