Liquidation statistics sound a note of caution

South African year-to-date company liquidation figures were still lower than 2006, similar to debt judgments against individuals up to July this year, but with the shock of the 16.2% increase in business failures in August 2007 over 2006 numbers, there must surely be some concern amongst the business population in general. There was obviously some lag effect from the public sector strike in the processing of liquidations with June 2007's figure an incomprehensible 30.9% lower than a year earlier. Since then we have been playing catch-up, but whatever the cause for this very concerning jump in August, there is no doubt at all that the picnic up to end July 2007 was the proverbial calm before the real storm. I would go a step further as to suggest that the figures are losing credibility as a reliable economic indicator.  Similarly, there may well be a surge in reported debt judgements when the August figures are released on 18 October. This is according to Luke Doig, Senior Economist at Credit Guarantee.

"Credit Guarantee has already seen an expected, but somewhat dramatic increase in the numbers and values of possible inter-company payment defaults on the local market, seemingly supported by the August liquidation figures, but with the potential global slow down, there is absolutely no doubt that the same problems are soon going to be facing our exporters," says Doig.

"Company liquidation figures are also up in the USA and the UK but this does not mean that Credit Guarantee will blithely apply a knee-jerk reaction to South Africas very important trading partners and consider re-rating the risk on the countries concerned," continues Doig.

"Rather, a more rational and pragmatic approach to determining the possible future risk profiles of these first world markets will be adopted and while we know that the numbers of claims are going to increase over a period of time, we also view this as an inevitable cyclical development."