In January 2023, South Africa had 81 business liquidations, a 32.5% decrease from the 120 enterprises that closed their doors in January 2022.
According to Statistics South Africa (Stats SA), the number of corporate liquidations declined by 42 instances over this time, while liquidations of closed companies climbed by three cases.
According to Absa economists, after controlling for seasonal considerations, liquidations declined 32% month on month in January, reversing a 35% spike in closures witnessed in November and December 2022.
Nevertheless, while the figures appear to be excellent news on paper, the organisation cautioned that they are not as encouraging as they look.
“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.”
As a result, the February print will give more information on whether firms are more resilient than predicted or whether January represented a pause in the recent rising trend, according to the bank.
Also, the overall number of liquidations grew by 1.2% in the three months ended January 2023 compared to the three months concluded January 2022.
According to the statistics agency, the bulk of liquidations (30) happened in the financial, insurance, real estate, and business services industries.
The group’s unclassified sectors came in second with 24 total liquidations, followed by commerce, catering, and lodging enterprises with 13.
Companies under pressure
The S&P Global South Africa Purchasing Managers Index (PMI), which measures business activity in the nation, fell to 48.7 points in January, the lowest level in three months.
Companies in South Africa are suffering from an extreme power crisis, with many smaller firms forced to close their doors, ranging from huge publicly traded companies to little corner stores and informal merchants. While this is not yet represented in Stats SA statistics, it is a cause for concern among several sector associations and organisations.
Absa stated on 1 February that continued increase in demand and a shift to less extreme stages of load shedding would assure business activity development.
Nonetheless, the energy problem has not improved. Companies are obliged to pay high operational expenses for diesel generators, service damaged equipment owing to power outages, and, in some cases, close doors due to inability to perform day-to-day commercial operations.
“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.
According to Pillay, load shedding caused considerable downtime even when firms sought backup power generators, uninterrupted power supply, or solar options.
Although the government recently announced that businesses will be able to reduce their taxable income by 125% of the cost of a renewables investment, everything required to take advantage of this comes at a high cost – especially generators that rely on diesel, which will see yet another price increase on March 1.
The prolonged electricity crisis is costing the economy up to R899 million per day, according to the South African Reseeve Bank.
Tiger Brands, for example, stated that stage 6 to stage 8 rolling blackouts will cost R120 million in additional generating capacity to keep the firm running.
According to the group, the extra expenditures incurred in one day during stage 6 load shedding were about R1.5 million.
Pick n Pay further indicated that load shedding has a substantial impact on its business operations, costing R60 million per month to operate diesel generators. Another retail firm, Shoprite, has spent around R90 million each month on fuel for its generators, for a total of R560 million.
Woolworths stated on Wednesday that load shedding costs the company R15 million per month in additional expenditures and losses.
The graph below, given by Absa, illustrates the percentage change in liquidations, with a steep reduction around the start of this year:
