South Africa reported a sharp rise in liquidations in Q3 2020 as the coronavirus lockdown continues to have an impact on businesses, new StatsSA data shows.
The total number of liquidations increased by 27.4% in the third quarter of 2020 compared with the third quarter of 2019. A year-on-year increase of 54% was recorded in September 2020.
A total of 1,395 liquidations have been recorded from 1 January – September, with the financing, insurance, real estate, business services industry reporting the most cases (428).
It was followed by unclassified businesses (416 cases) and the trade, catering and accommodation industry (272 cases).
Voluntary liquidations increased by 65 cases and compulsory liquidations increased by nine cases. The total number of liquidations decreased by 7.7% in the first nine months of 2020 compared with the first nine months of 2019.
Liquidation refers to the ‘winding-up of the affairs’ of a company when liabilities exceed assets and it can be resolved by voluntary action or by an order of the court.
A voluntary liquidation takes place when a company, by its own choice, resolves to wind-up its affairs.
The estimated number of insolvencies decreased by 61.3% in the three months ended August 2020, compared with the three months ended August 2019.
Insolvency refers to an individual or partnership which is unable to pay its debt and is placed under final sequestration.
The number of insolvencies does not refer to the number of persons involved, as a partnership which is unable to pay its debt is regarded as one insolvency, irrespective of the number of partners.
The business closures come at a time when South Africa faces a severe unemployment crisis with over two million South Africans losing their jobs during the height of the lockdown.
The latest Quarterly Labour Force Survey for the three months to June 2020, revealed that the number of employed persons decreased by 2.2 million to 14.1 million in Q2: 2020 compared to Q1: 2020.
This unprecedented change is the largest quarter one to quarter two decline since the survey began in 2008.
The largest employment decreases were observed in the formal sector (1.2 million), followed by the informal sector (640,000), private households (311,000) and the agricultural sector (66,000).
Compared to a year ago, total employment decreased by 2.2 million, the number of unemployed persons decreased by 35.5% (2.4 million) and the number of persons who were not economically active increased by 33.1% (5.1 million).
Because of the removal of the 5 million-plus people from the workforce, Stats SA said the ‘official’ unemployment rate actually decreased to 23.3%. However, the broader definition of unemployment puts the rate higher at 42%.
The data also marks the point where the economically inactive (20.6 million) outweigh the labour force (18.4 million).