Businesses in South Africa are in the “zombie zone”

 ·2 Feb 2024

Although fewer South African businesses closed their doors in 2023, many exist in a space where one shock can push them over the edge.

According to Stats SA, 1,657 businesses were liquidated in 2023 – 200 on a compulsory basis and 1,457 on a voluntary basis.

That said, this was a 13.1% in the number of liquidations compared to 2022.

More specifically, the liquidations of companies decreased by 15.6% (from 1,091 to 921), while the liquidations of closed corporations decreased by 9.8% (from 816 to 736).

Source: Stats SA

Reading the numbers

Despite the drop in liquidations, speaking at a roundtable ahead of the 2024 budget, Deloitte’s Jo Mitchel-Marias said that many businesses are in a “zombie zone.”

This means that they are paying operating expenses and servicing debt, but there is no capital expenditure. Businesses are thus just “hanging on” instead of expanding their operations.

Mitchel-Marias said that one major shock can push these businesses over the edge.

For example, she noted electronics manufacturer and distributor Ellie’s announcement yesterday, 31 January, that it is going into business rescue.

This came after Ellies failed to receive debt funding from its bankers to acquire Magetz Electrical Proprietary Limited and Power on Wheels Proprietary Limited (collectively, Bundu Power).

The group also failed to publish its interim results for the six months ended 31 October 2023, which, as per regulations, are required to be released within three months of the period’s end (31 January 2024). The group said that is experiencing delays in furthering these results.

With these two issues, the group board of directors of Ellies has resolved that it would be in Ellies’ best interest to commence with voluntary business rescue proceedings.

Despite highlighting the resilience of South Africans, Mitchel-Marias warned that 2024 is set to be a turbulent year in South Africa; with the national elections around the corner, the continuation load shedding and Transnet’s port struggles, which could see further businesses go into liquidation.

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