This is how many businesses have closed in South Africa in 2023 so far
South Africa recorded 81 business liquidations in January 2023, down 32.5% from the 120 businesses that shut their doors in January 2022.
Recent data from Statistics South Africa (Stats SA) shows that the number of company liquidations decreased by 42 cases, while liquidations of closed corporations increased by three cases during this period.
According to economists at Absa, liquidations fell 32% month-to-month in January after adjusting for seasonal factors, reversing the 35% increase in closures seen over November and December 2022.
However, while the numbers appear like good news on paper, the group warned that the statistics are not as positive as they seem.
“The benign January liquidations data have surprised us, given widespread anecdotal reports that small and medium businesses are shutting down mainly due to the intense load shedding. We note, however, that these liquidations data are a lagging indicator and could rise anew in the coming months.”
Therefore, the February print will shed more light on whether businesses are more resilient than expected or whether January was a moderation from the recent upward trend, the bank said.
In addition to this, the total number of liquidations in the three months ended January 2023 increased by 1.2% compared with the three months ended January 2022.
The majority of liquidations occurred in the financing, insurance, real estate, and business services industries (30), the statistics agency reported.
The group’s unclassified sectors followed in second with 24 total liquidations, while trade, catering and accommodation companies saw 13.
Businesses under pressure
The S&P Global South Africa Purchasing Managers Index (PMI), which shows business activity in the country, contracted to 48.7 points in the first month of this year – the first time below 50 in three months.
Businesses – from large listed entities to small corner shops and informal traders – are all suffering through an intense power crisis in South Africa, with many smaller businesses being forced to shut their doors. While this is not yet reflected in the data tracked by Stats SA, it is an alarm sounding from many industry bodies and organisations.
Speaking on business activity on 1 February, Absa said that sustained improvement in demand and a move to less intense stages of load shedding would ensure activity growth among businesses.
The energy crisis, however, has shown no improvement. Businesses are forced to continually pay up high operational costs for diesel generators, service damaged infrastructure as a result of power outages and, at times, close doors due to being unable to conduct day-to-day business practices.
“Load shedding and the rise in energy costs have forced many businesses to close operations, thereby affecting sales and causing supply chain disruptions,” Yugen Pillay, the director of business consulting at SNG Grant Thorton, said.
Pillay said that load shedding had resulted in excessive downtime even when businesses sought alternative backup power generators, uninterrupted power supplies or solar solutions.
Although the government has recently announced that businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables, everything needed to take advantage of this comes at a high cost – especially generators that rely on diesel, which is experiencing yet another price hike from 1 March.
According to the South African Reseeve Bank, the ongoing electricity crisis is costing the economy as much as R899 million per day.
For example, the large-scale foods company Tiger Brands reported that stage 6 to stage 8 rolling blackouts would set it back R120 million for additional generating capacity to keep the business afloat.
The group said that during stage 6 load shedding, the incremental costs incurred in one day were approximately R1.5 million.
Pick n Pay also stated that load shedding has a significant impact on its business operations, resulting in a monthly cost of R60 million to run diesel generators. Shoprite, another retail group, has spent approximately R90 million per month on fuel for its generators, totalling R560 million.
Woolworths on Wednesday reported that load shedding is costing the group R15 million a month through additional costs and losses.
Absa provided the graph below that shows the percentage change in liquidations, with a sharp decline around the start of this year:
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