Founder: Turnaround Talk
South Africa is lagging far behind the rest of the world when it comes to its recovery from the Covid-19 Pandemic. Recent media articles and statistics provided by Staistics South Africa (StatsSA) point to a highly volatile market where more than one turnaround professional has pointed to the fact that companies are no longer going into business rescue, liquidations are increasing at an alarming rate.
What does this mean for South Africa which was once a beacon of hope for the African continent?
An alarming increase
According to statistics released by StatsSA on 25 September 2022, the total number of liquidations increased by 44,8% in August 2022 compared with August 2021.
The report points out that Liquidations of close corporations increased by 62 cases and liquidations of companies increased by 12 cases during this period. The total number of liquidations increased by 18,8% in the three months ended August 2022 compared with the three months ended August 2021.
The biggest change came in the Financing, insurance, real estate, and business services sector which recorded 83 liquidations in August 2022 (voluntary and compulsory) compared to the 52 recorded in August 2021.
The manufacturing sector also saw a lot of volatility. The sector recorded 12 liquidations in August 2022 compared to the five in August 2021.
The trade, catering and accommodation saw a significant increase with 47 liquidations taking place in August 2022 compared to the 35 in August 2021.
Upward trend
A key indicator as to whether South Africa is doing enough to address the challenges imposed by a volatile market is looking at the monthly trend of liquidations. Again, the stats provided by StatsSA makes for grim reading.
There were 120 liquidations recorded in January 2022. This increased to 160 in February and 182 in March. Economic activity in South Africa is traditionally slow over April as the country celebrates Easter and the other Public Holidays that surround it which is a possible explanation for the decrease of 44 liquidations (to 138). The trend picked up again in May which saw 188 liquidations. There was a noticeable decrease in June and July (145 liquidations and 165 liquidations) but a significant increase in August which recorded 239 liquidations.
By contrast, below were the monthly liquidation figures for 2021:
January – 122
February – 178
March – 216
April – 158
May – 191
June – 132
July – 165
August – 165
September – 152
October – 172
November – 159
December – 122
The total number of liquidations for 2021 was 1 932. We are currently 595 liquidations away from reaching (or surpassing) that benchmark. This means that there would have to be 148 liquidations per month between now and December for this to become a reality.
We are also comparing 2022 with 2021. Many turnaround professionals have noted that 2021 was a perfect storm for liquidations as many companies could not address the challenges that the Government imposed lockdown had on their companies. So if we have to compare 2022 with a previous year, it would to be with a year where the economy had no lockdown measures imposed on it. In 2019 there were 2 042 liquidations, this means that South Africa is 698 liquidations off the 2019 figure which is an average of 174 liquidations per month for the rest of the year. Smart money says that this is very easily achievable.
Jobs and livelihoods are at stake
The volatility that South Africa is currently experiencing is not just evident in the StatsSA numbers. Recent articles by News24 makes for frightening reading.
A recent News24 article points out that around 200 employees at Naledi Foundry in Gauteng, which was placed into business rescue in April, are fearing for their futures after the group’s assets were put up for auction.
The foundry, which falls under the Naledi Inhlanganiso Group, is 46% owned by the Industrial Development Corporation (IDC), which has invested R557 million into the venture.
The article adds that When Naledi was placed into business rescue following unsustainable financial losses, it had 211 employees. Until production halted, it manufactured components for the mining, automotive and railway industries.
Picture By: Getty Images
Staff, who have been asked to stay at home, are now anxiously waiting to see what they will get from the auction.
The article points out that An employee, who asked that his name not be used, said workers were questioning how the group’s finances could have deteriorated to the point the foundry needed to be sold off.
Speaking to News24, Naledi’s business rescue practitioner, Lebogang Mpakati of Indalo Business Restructuring, confirmed that all the group’s assets were up for sale.
Final bids for the items on auction, which include multiple furnaces, workshops and 10ha of land, need to be submitted by 28 October.
Mpakati said creditors, stakeholders and business rescue practitioners would next meet on 30 November once the auction has been concluded.
At this meeting, the business rescue plan will be updated and adopted, and the retrenchment processes for workers will officially commence.
This is not the first time we are hearing about volatility in the beneficiation space. In July 2021, Turnaround Talk published an article showing that Government was threatening jobs by not insisting on the local beneficiation of ferrochrome. And in June this year, Turnaround Talk published an article showing Government’s actions in delaying the sale of Hulamin which again threatened jobs.
Upgrading the storm
Are we in a position where we have to upgrade the perfect storm that is being experienced in the South African economy to a full blown hurricane?
It is clear that going into the Covid-19 Pandemic, South Africa was facing an economic crisis and a growing unemployment crisis. While the number of liquidations did not increase significantly during 2020 and 2021 (which were the years of the lockdown to address the Covid Pandemic), some may argue that this was because companies had enough cash reserves to try and ride out the Covid storm. With these reserves depleting, and no answer to the challenges that they face, companies are currently left with little choice but to raise the white flag of surrender.
Some say that 2020 saw the dawn of the Golden Age of business rescue. Has this come to an abrupt end in favour of liquidations?
