A dubious picture
The almost 50% year-on-year fall in February liquidations to 200 (from 399) paints, at best, a very dubious picture of the true scenario. There is very little doubt that the improving trend experienced last year – a 10.8% fall in total liquidations to 355
There can only be two reasons for this: firstly, the beginning of the year often sees a sharp decline in official liquidations due to administrative reasons (read holidays). However, February then stages a recovery, as seen in 2011 when 27.5% more failures were recorded compared to a month earlier. This year, there was no month-on-month change whatsoever. The second reason may be allied to the difficulties and backlogs being experienced at the Companies and Intellectual Properties Commission (CIPC), similar to the inexplicable 60% fall in recorded liquidations in May last year (coinciding with the promulgation of the new Companies Act). Unfortunately, this worrying disclosure could lead to a false sense of wellbeing and ultimate complacency in dealings between companies, with potentially devastating results when reality eventually sets in.
While noting that these figures are often volatile and traditionally backward looking – a lagging indicator - they do imply that there is most likely to be a substantial surge in the figures in the months ahead. Our leading indicator of payment defaults has seen a 13.2% and 10.7% year-on-year rise in number in February and March respectively. Of much more concern, however, is the fact that the value of these potential defaults has risen 64.2% and 61.6% respectively. Again, while this is also a normal spike following the festive season, the quantum hereof portends ill.
The outlook for the months ahead is challenging – both external and domestic demand face headwinds, costs pressures are not abating and a new tax at every corner places ever greater stress on margins. Hopefully these pressures will begin to abate later in the year and higher economic activity will lead to improved payment behaviour and, in turn, to fewer business failures