Licentia Franchise SA

This represents how many companies have shut their doors in South Africa so far in 2023.

Reference: Published by Staff Writer, 1 March 2023

In January 2023, there were 81 business liquidations in South Africa, which is a decrease of 32.5% from the 120 enterprises that closed their doors in January 2022.

According to recent statistics from Statistics South Africa (Stats SA), during this time, there were 42 fewer business liquidations than there were closed corporation liquidations.

After accounting for seasonal considerations, Absa economists report that liquidations decreased 32% month over month in January, reversing the 35% rise in closures observed between November and December 2022.

On paper, the data look like excellent news, but the group cautioned that they are not always true.

Given numerous anecdotal reports that small and medium-sized firms are closing mostly as a result of the extreme load shedding, the mild January liquidations numbers have shocked us. However, we point out that this data on liquidations is a lagging signal and can increase once again in the upcoming months.

The February print will therefore reveal additional information about whether businesses are more resilient than anticipated or whether January was a deceleration from the previous increasing trend, according to the bank.

In addition, compared to the three months ending January 2022, the overall number of liquidations rose by 1.2% in the three months ending January 2023.

According to the statistics agency, the majority of liquidations took place in the financial, insurance, real estate, and business services sectors (30). With 24 total liquidations, the group’s unclassified sectors came in second, while trade, catering, and lodging businesses saw 13.

Companies are under pressure.

For the first time in three months, the S&P Global South Africa Purchasing Managers Index (PMI), which measures business activity in the nation, declined to 48.7 points in January of this year.

Companies in South Africa are experiencing a severe power crisis, with many smaller firms being forced to close their doors. Businesses range in size from huge listed entities to small corner stores and informal merchants. Although Stats SA’s data does not yet reflect this, numerous industry associations and organizations are raising the alarm about it.

On February 1, when discussing business activity, Absa stated that a move to less severe load shedding phases and continuous increase in demand will ensure business activity growth.

Yet, there has been no progress in the energy issue. Companies are frequently compelled to pay high operational costs for diesel generators, repair equipment that has been harmed by power outages, and occasionally close their doors because they are unable to carry out routine business operations.

Yugen Pillay, the director of business consulting at SNG Grant Thorton, said that load shedding and the increase in energy costs had pushed many businesses to shut down, which had an impact on sales and disrupted the supply chain.

Even when firms sought alternate backup power generators, uninterrupted power sources, or solar alternatives, according to Pillay, load shedding has led to significant downtime.

Although the government recently announced that businesses will be able to deduct 125% of the cost of an investment in renewables from their taxable income, everything necessary to take advantage of this comes at a high cost, especially generators that depend on diesel, which is experiencing yet another price hike as of 1 March.

The current electricity crisis is costing the country R899 million every day, according to the South African Reseeve Bank.

For instance, the large-scale food producer Tiger Brands estimated that additional generating capacity needed to maintain operations during stage 6 to stage 8 rolling blackouts would cost R120 million.

According to the firm, the extra expenses spent on one day as a result of stage 6 load shedding was almost R1.5 million.

Load shedding, according to Pick n Pay, has a substantial impact on its business operations and costs R60 million per month to power diesel generators. Another retail organization, Shoprite, has spent a total of R560 million on gasoline for its generators, or around R90 million per month.

The group is losing R15 million a month due to load shedding, according to a report released by Woolworths on Wednesday. The graph below, which was given by Absa, displays the percentage change in liquidations and shows a substantial reduction at the beginning of this year: