Picture: THINKSTOCK
Picture: THINKSTOCK

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COMPANY liquidations continued unabated last month as weak demand and rising operating costs, mostly for labour and electricity, put businesses under financial pressure.

Liquidations and insolvencies data are used by the private and public sectors to measure economic performance and are an important indicator of the extent of unpaid debt in the country.

According to Statistics SA data, 195 liquidations were reported in October compared to 168 in the same month last year, representing a 16% increase.

Fewer companies are being liquidated annually. A total of 2,064 companies were liquidated last year compared to 4,133 at the height of the economic recession in 2009.

The positive trend seems to be continuing, with 1,705 companies having been liquidated in the first 10 months of this year compared with 1,772 in the first 10 months of last year.

Bowman Gilfillan director Adam Harris attributed the improving trend to policy measures such as the government’s business rescue packages and lenders being more willing to work with clients to sort out financial challenges rather than going the liquidation route.

Liquidations were mainly in the wholesale and retail trade, catering and accommodation; community, social and personal services; financing, insurance, real estate and business services; and manufacturing.

Manufacturing is among sectors negatively affected by lower commodity prices while the community, social and personal services sector, which includes the public service, is feeling the effects of a slowdown in government spending.

The estimated number of insolvencies fell 22% to 203 in September this year compared with the same month last year. Insolvency refers to an individual or partnership that is placed under final sequestration.

The number of insolvencies fell 14.4% to 2,021 in the first nine months of this year compared with the first nine months of last year.

Insolvencies in SA are expected to rise 10% next year, credit insurance company Euler Hermes said.

The forecasted increase reflected the local business environment’s challenges including "uneasy" labour relations and power supply disruptions, Euler Hermes chief economist Ludovic Subran said. These factors were made worse by weak international commodity prices, a slowdown in Chinese economic growth, the local drought that weakened agricultural output, uncertainties over the timing of a US rate hike, and investor wariness of emerging markets as an asset class, he said.

"Days sales outstanding continue to increase in SA which is resulting in further pressure on the cash-flow of businesses. We do not expect a significant change in the short-term outlook," Mr Subran said.