These businesses are being hardest hit by liquidations in South Africa right now

 ·26 Jul 2022

The total number of liquidations in South Africa increased by 9.8% in June 2022 compared with June 2021, new data from Statistics South Africa (Stats SA) shows.

There was a decrease of 2.1% in the second quarter of 2022 compared with the second quarter of 2021, the stats body said.

The total number of liquidations decreased by 6.4% in the first six months of 2022 compared with the first six months of 2021.

Stats SA’s data pointed to 145 liquidations in June 2022  – up from 132 in June 2021, and 135 in the same month in 2020.

Total liquidations to date amount to 933, which is down from 997 in 2021.

Liquidations are hardest felt in the financing, insurance, real estate and business service sectors, while the trade, catering, and accommodation sectors continue to suffer.

The StatsSA release of May 2022 preliminary monthly tourism statistics show the hotel sector is still slowly on the recovery path, but some way from a full recovery. John Loos, property sector strategist at FNB noted that total hotel industry income in May 2022 was still 19.15% below the income for May 2019.

In real inflation-adjusted terms – using a Hotel and Restaurants CPI –  this income level was still 25.8% below the May 2019 level.

Loos said that more recent economic headwinds may prevent real hotel income levels from reaching 2019 levels during the course of this year. “These headwinds include the recent sharp rise in fuel prices, making tourism-related transport far more expensive of late.

“This, along with signs of a weakening global and domestic economy, which has implications for aspirant tourists’ disposable incomes, could constrain the pace of further recovery in the hotel property sector,” he said.

These recent economic headwinds are on top of a number of other factors that may continue to constrain the industry, slowing its full recovery, the strategist said.

“We have long argued for a while that business travel not only battles from similar financial constraints following the 2020 recession impact on businesses, but the Business Sector has also successfully ‘zoomified’ much of its interaction during forced lockdowns.

“This modern communication likely pushes it partially away from less efficient physical travel. A portion of that costly physical business travel may therefore never return. Many hotels may have to be less dependent on domestic business travel on a more permanent basis,” he said.

Total liquidations according to industry

As interest rates increase to curb rising inflation, coupled with fuel and load shedding, among other challenges – is putting pressure on the profit margins of small businesses in South Africa, said Andiswa Bata, co-head of SME at FNB.

“The past few months haven’t been easy for small businesses as fuel increases have significantly increased the cost of transporting goods. Moreover, load shedding has resulted in some businesses losing revenue due to non-operation while having to spend more on diesel for backup generators,” she said.

Bata said SMEs have shown resilience by absorbing costs in the short term, but the rising pace of inflation may lead to unstable operating models, leaving some businesses with no choice but to pass on some of these costs to consumers – who are regrettably also struggling to make ends meet.

“At the same time, we are likely going to see employees pleading for higher wages as their household budgets struggle to keep up with rising food prices,” she said.

Data from StatsSA earlier in July, showed consumer inflation accelerated to the highest rate in over a decade. Headline inflation was 7.4% y/y in June, up from 6.5% in May, and was at its highest since 2009.

South Africa’s Reserve Bank has tightened policy five times in a row, with a magnitude of rate hikes not seen in two decades, Bloomberg reported. Last week, the bank hiked rates by 75 basis points to 5.5%, which will put additional pressure on businesses to pay the rent, and conduct operations.

In addition, one must add the rising inflation impact on the economy, especially in fuel price, and the entire potential impact becomes still more significant, said Bata.

Read: The ‘real’ value of the rand right now, according to the Big Mac Index

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