Johannesburg – South Africa’s job prospects are worsening, with more companies closing their doors due to tough economic times amplified by Covid-19.
Data from Statistics South Africa (Stats SA) show that 122 companies were liquidated in January alone, following 2 035 companies that had to close for business last year.
All in all, the data show that 11 686 companies went under over the past six years. The bloodbath in the corporate sector is reflected in the dismal jobs data.
Stats SA last month published the results of the Quarterly Labour Force Survey (QLFS) for the fourth quarter of last year, citing the unemployment rate as the worst since it started publishing the QLFS in 2008 at 32.5%.
University of Stellenbosch Business School guest lecturer Jason Hamilton said companies that have weathered the storm so far have done so with significantly more debt, depleted financial resources and possibly diluted equity positions.
“Those with the deepest pockets and strongest balance sheets – thus larger companies – are best placed to access further local and global capital to survive and possibly thrive. But we can expect to see an increase in liquidations and business rescue filings in 2021 as the pandemic drags on,” said Hamilton.
“This will require companies to simultaneously take both a conservative and a pragmatic view in plans and budgets for 2021, incorporating careful risk analysis and developing contingency plans, while also devoting capital to future growth opportunities.”
Measures announced by President Cyril Ramaphosa to boost ailing businesses last year have largely failed to save companies from going belly up.
The Banking Association of South Africa said that as of January 16, R17.84-billion in loans had been approved by banks and taken up by small businesses under the Covid- 19 loan guarantee scheme.
The National Treasury provided a guarantee of R100-billion to the scheme, with the option to increase the guarantee to R200-billion if necessary, if the scheme was deemed successful.
The eligibility criteria put forward by the banks has been blamed for the slow take up.
As of January 16, the scheme received 48 366 applications for loans, 27% of them were approved by banks and were taken up by the applicants. Dumo Mbethe, the CEO of Momentum Corporate, said with the unemployment rate sitting at a record high, businesses, small and large, are the primary source of employment and critical in dealing with the national priority of job creation.
“The pandemic and related lockdown have left our nation reeling as we face a record-high unemployment rate of 32.5%, which increased by 1.7 percentage points at the end of 2020, on the back of rising liquidations, which increased by 14.2% year on year at the end of 2020,” said Mbethe.
“Fortunately tax revenue exceeded the forecast in the 2020 medium-term budget policy statement and we’ve been able to avoid the R40-billion potential increase in corporate and personal tax that was on the horizon in November 2020,” he added.
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