50% spike in liquidated firms after lockdown: report

Read : 263 times

DURBAN - STATISTICS SA revealed a gloomy picture of a nearly 50% spike in the number of businesses that have been thrown into liquidation, a situation blamed squarely on the Covid-19 lockdown.

The total number of liquidations increased by 49.0% (71 more cases) in March this year, compared with March last year (before the lockdown), according to figures released this week.

While voluntary liquidations rocketed by 61 cases, compulsory liquidations spiked by 10. The total number of liquidations rose by 18.9% in this year’s first quarter, compared with the first quarter of 2020.

The hardest hit industries included manufacturing, construction, trade, catering, accommodation, financing, real estate, insurance, business services and social services. The agriculture, hunting, forestry and fishing sectors were reported as the least affected.

The estimated number of insolvencies was down by 60.2% in February 2021, compared with the same period last year, while a 26.9% decline was estimated in the three months ended February 2021, compared with the three months ended February last year.

Seasonally, adjusted insolvencies decreased by 43.4% in February this year, compared with January 2021, the report on Liquidations and Insolvencies revealed.

“This followed month-on-month changes of -40.2% in January 2021 and 10.4% in December 2020,” read the report, which also showed that 216 companies were liquidated in March this year, compared with 178 the month before.

The figures showed that, despite some economic improvements, the situation in the country remained precarious, said BeyondCOVID, a non-profit company founded and registered late last year as an initiative to help develop a supportive framework for businesses in the wake of the pandemic.

“It is not that more companies suddenly found themselves in trouble. Many of the businesses that have folded in March this year, in all likelihood mostly smaller and medium-sized businesses, have struggled for many months before having to close,” said BeyondCOVID co-founder Lings Naidoo.

About 26% of SMMEs that participated in the company’s Business Survey had closed shop during the lockdown, temporarily or permanently, he said, adding that 54% of respondents said they were working below their usual capacity, and a third expressed an urgent need for financial support.

Professor Irrshad Kaseeram, a senior lecturer at the University of Zululand, said the liquidation figures were alarming, but to be expected.

He said most of the companies affected were micro and small-to-medium-sized companies, which typically operated on the margins and depended on day-to-day activities for cash flows.

“Additionally, among these businesses might have been emerging black enterprises that have been assisted by government agencies, where sufficient mentorship and training is lacking. Such businesses that are under five to 10 years old will have found it difficult to sustain themselves,” Kaseeram said.

He added that the substantial decrease in insolvencies was promising, as it implied that most of the vulnerable businesses had toppled as a result and that, mostly, the resilient ones survived.

“These survivors are likely to grow into successful enterprises going forward,” he said.

Sign up for Free Daily Building and Construction News