South African businesses are struggling to stay afloat
StatsSA has published its latest data on liquidations and insolvencies, showing that it is has become increasingly difficult to be a business owner in South Africa.
The data shows that the number of liquidations increased by 10.7% in 2019 compared with 2018. This followed annual changes of -1.2% in 2018 and -3.4% in 2017.
Company liquidations increased by 11% (from 972 to 1,079) and close corporation liquidations increased by 10.3% (from 873 to 963) between 2018 and 2019.
The total number of liquidations recorded in December 2019 decreased by 5% compared with December 2018.
The three largest contributors to the 2,042 liquidations recorded in 2019 related to businesses in the following industries:
- Financing, insurance, real estate and business services (668 liquidations or 32,7%);
- Unclassified (540 liquidations or 26,4%);
- Trade, catering and accommodation (457 liquidations or 22,4%).
While it remains to be seen if the country will meet its growth targets, economists have warned that the country’s economic data is likely to worsen – especially with a possible junk downgrade on the horizon.
“Apart from reluctant investors we believe load shedding, and the government’s expected cut in spending will put further pressure on economic growth and job creation in South Africa,” said Efficient Group economist Francois Stofberg.
“GDP should only grow around 0.8% and unemployment will most likely increase towards 31%. Debt to GDP is expected to reach 64%.”
While some analysts expect a downgrade to junk on 27 March, when Moody’s is next scheduled to assess South Africa, the rating agency said the date is tentative and the company is not obliged to stick to it.
“The outlook is negative, so what we are flagging is not a necessarily immediate downgrade,” a spokesperson said.
A downgrade will see South Africa without any investment-grade ranking for the first time in 25 years.
That would cause it to fall out of the FTSE World Government Bond Index, which could prompt a selloff and outflows of as much as $15 billion, according to Bank of New York Mellon Corp.
Read: It’s a tough time to own a pizza franchise in South Africa
Loading ...