Trouble for businesses in South Africa as liquidations climb

 ·26 Jun 2023

Businesses in South Africa are struggling amidst a disastrous economy, with the number of liquidations continuing to tick up in 2023.

According to Stats SA, 151 businesses were liquidated in May, with 134 volunteering to do so and 17 on a compulsory basis.

This takes the total number of liquidations to 674, adding to the 112 businesses that were liquidated in April.

Liquidations are significantly higher than in April 2023, but year on year the rate is lower at -20%. On year-to-date measure, total liquidations are also down from 2022 (-14.5%) as well as over a three-month rolling period (-15%).

According to the data, the worst hit industry was trade, catering and accommodation, with 36 liquidations.

This was followed closely by the financing, insurance, real estate and business services sector with 33 – a decline from 45 in April.

However, the unclassified industry category saw the largest number of liquidations, with 59.

Like April, the electricity, gas and water and the agriculture, hunting and forestry industries saw no liquidations in May.

Source: Stats SA

In the midst of South Africa’s unemployment crisis, Stephen de Blanche, Chief Revenue Officer for TransUnion Africa, said that small businesses are crucial for creating jobs in the country.

However, de Blanche noted that small businesses face many headwinds limiting their ability to grow.

Research by the University of the Western Cape said that only 1% of micro-enterprises that start with fewer than five employees grow to employ ten or more people. Moreover, approximately 70%-80% of small businesses fail within five years.

“There are many reasons for this; Covid-19, spiralling inflation and interest rates, and soaring fuel prices are creating a perfect storm of chaos. A storm that’s making it really hard for existing small businesses to survive and new ones to start up,” de Blanche said.

“The other challenge is that many small business owners lack the core skills you need to run a successful business. This includes basic financial acumen, like how to manage cash flow and debt, along with business and project management skills that are critical in helping small businesses operate efficiently.”

He said that to improve the current situation, entrepreneurial skills are clearly needed, with large corporate players key to helping small businesses in South Africa.

However, many small businesses lack a credit history, making them practically invisible to the economic mainstream.

De Blanche said that there are ways that large players can help their smaller counterparts.

“The answer may lie in using alternative data to qualify more SMMEs. In this space, business owners are inextricably linked to their businesses. If you lend money to a business, you effectively lend money to the person. So, by evaluating their personal risks, you may be able to get a picture of their ability to repay loans,” he said.

“Beyond that, corporates have a major role to play in getting more SMMEs to become accredited vendors. Apart from giving them the skills and support they need to do the onboarding needed to become a supplier, they can ensure those SMMEs are paid as quickly as possible.”

Read: Big visa change could make it easier for South Africans to get work in Germany

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