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Send  Share  RSS  Twitter  29 Sep 2008

Business: Business must Exercise Caution

 





Recent Gauteng Business News

Once again the variability in the figures following the impact of the civil service strike in skewing the 2007 situation is evident, with August 2008 closures of companies and closed corporations (CCs) declining 26.4% year-on-year, although the figures for the first eight months of this year are still 4% higher than the same period in 2007. Personal sequestrations continued their upward trajectory, with the level for July 2008 being 18.9% higher year-on-year and the January-July 2008 period being 40.1% higher than the first seven months of 2007.

“Industry-wise, there were no mining failures in August 2008 compared to 20 in August 2007 although manufacturing liquidations climbed from 11 to 20 year-on-year,” comments Luke Doig, Senior Economist at Credit Guarantee Insurance Corporation.

According to Doig, construction company closures were 36% lower (25 vs 39) while the wholesale and retail sector appears to have weathered the storm with 65 liquidations against 96 a year earlier. The logistics sector (transport, storage and communication) continues to suffer from rapid input cost pressures, with 34 failures compared to 10 in August 2007.

“The most significant improvement came in the services sector where financing, real estate, insurance and business services shed 120 firms, compared to 176 a year ago,” he says.

The skewed 2007 figures will also affect the next release, what with 507 liquidations being recorded in September 2007 – a 113% escalation.

“Our overdue advised accounts (non-payment of contractual amount on due date) reflect a 28% rise in numbers in the first nine months of this year, involving amounts some 74% higher than in January-September 2007. Certainly, not all of these advices will turn into claims but our actual claims experience saw 22.4% more claims processed in September with the year-to-date figure showing a 21.1% rise in number terms and 26.7% in values,” continues Doig.

Despite there being a consensus of opinion that inflation has peaked and that with a sharp fall in early 2008, interest rates will be cut soon thereafter, there is still a 30% chance of a rate hike at the next Monetary Policy Committee meeting in October 2008.

Whether that occurs or not, Doig says that his company’s experience suggests no let up in the ongoing trend of payment defaults and ultimate demise of corporate entities.

“Looking ahead, the prospects for employment will thus be impaired and businesses looking to ensure payment are advised to procure guarantees, trade debtors insurance being one such avenue,” cautions Doig.


 
 
 
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