SA going out of business

The majority of companies going under were reported to be in:

• The financing sector
  
  
• Insurance
  
  
• Real estate, and
  
  
• Business services
  

THE bleak economic situation is the main culprit behind the high company liquidation numbers recorded by Statistics SA in June.

According to Stats S A , the total number of liquidations recorded for June increased by 28.7 percent — from 181 to 233 — when compared with June 2007.

The most liquidations in the period between January to June were in the financing, insurance, real estate business services with 500 voluntary closures and 42 compulsory liquidations. The wholesale and retail trade, catering and accommodation sectors came in a close second with 444 voluntary liquidations and 55 compulsory liquidations.

Bill Lacey, an economist from the SA Chamber of Commerce and Industry, said: “The business community is going through a tough time economically, and this is as a result of many issues such as the limited access to credit and the challenge businesses have to meeting demand. Most companies will find it difficult to satisfy consumers’ needs as a result of escalating prices.”

The increase of 10.2 percent in the total number of liquidations for the six months ended June 2008 was due to increases of 61.3 percent in compulsory liquidations (from 93 to 150) and 6.3 percent in voluntary liquidations (from 1206 to 1282).

“Given the current negative economic climate of high interest rates, escalating fuel and food prices as well as the impact of electricity crisis on businesses, the high rate of company liquidations can’t be avoided,” said Cas Coovadia, the managing director of the Banking Association .

“This is unfortunate for the real- estate sector because of the decreasing housing market value experienced in recent months.”

According to Kevin Lings, Stanlib economist, it is difficult for smaller and mid-size companies to survive because there is less economic activity and high cost base.

“The increase in general production costs and wage increases also make survival difficult for companies with low balance sheets,” Lings said. He said the future does not look good for many local businesses: “Smaller companies stand a higher risk of getting out of business and ... things will get worse in the next 12 months.”

Out of the 40000 job losses that might occur in the next year, 10 percent will be as a result of companies going out of business, Lings said.

John Loos, FNB Property strategist, said: “Real estate is only a part and not the only or mainly affected industry. We will see a rise in liquidations in the residential property sector .

“The most contributing factors are the negative sentiments driving the immigration rate, causing a lot of home selling, and the overall decline in property returns.”