Waiting for confirmation of the consumer meltdown
On 17 January 2007 Statistics SA released their monthly “Statistics of civil cases for debt” report. The report provides a summary of civil cases recorded, civil summonses issued and civil judgements in South Africa. It also provides an estimate for the total value of judgements recorded on a month to month basis. The latest report covers November 2007.
It is worth mentioning that Statistics SA collects data for this report from the 151 largest magistrates’ offices throughout South Africa. The response rate for November was 84%, meaning as many as 25 offices failed to provide data for the survey. Even so, the report provides some surprises
A 30% surge in debt defaults likely
The survey reveals that the rand value of civil debt judgements in November 2007 was 31.8% lower than the same period in 2006. The number of debt judges was also more than 10% lower. This data seems inaccurate in light of the seven consecutive interest rate hikes South African consumers have suffered in recent times. Against this backdrop we would expect the number to have risen significantly rather than shrinking.
Commenting on the latest numbers, Credit Guarantee Insurance Corporation senior economist Luke Doig says: “This contradicts rather sharply with our experience in insuring business-to-business credit transactions.” He believes numbers will have to surge dramatically in the coming year to reflect the true situation.
“The New Year has kicked off in dramatically poor fashion, and petrol prices appear set to be hiked by around 15c per litre in February. Business managers will have to be very watchful of their debtors in the months ahead to ensure that payments are received as per terms.
“Given the current business climate and the toll that higher input costs and interest rates are expected to take, we at Credit Guarantee foresee debt defaults possibly rising 30 percent in value terms this year with at least 10 percent more firms failing to open for business as a consequence,” says Doig
Liquidations on the rise too
Statistics SA publishes another monthly survey on business insolvencies and liquidations. They define insolvency as “an individual or partnership which is unable to pay its debt and is placed under final sequestration. The number of insolvencies does not refer to the number of persons involved, as a partnership which is unable to pay its debt is regarded as a single insolvency, irrespective of the number of partners.”
Liquidations are reported in two categories – compulsory or voluntary. Liquidation “refers to the winding-up of the affairs of a company or close corporation when liabilities exceed assets and it can be resolved by voluntary action or by an order of the court.” A voluntary liquidation occurs when “a company or close corporation, by own choice, resolves to wind-up its affairs.”
Business insolvencies and liquidations for the year to November 2007 are 6.7% higher than the similar period last year. On average 268 businesses closed their doors each month in 2007. Doig expects December failures to top 320, bringing the total business closures for the year to 3 268. An interesting statistic is that the number of court ordered insolvencies has shown a steady decline in recent years. Could it be that more South African companies are using voluntary insolvency as an exit strategy when the going gets tough?
Rosy inflation outlook
We’ve been scanning the news services for some good news to end this newsletter. Perhaps we can take some heart from Peter Brooke, head of macro strategy investments at Old Mutual Investment Group (Omigsa). He is the latest person to express that another interest rate hike would be a grave error. OMIGSA believes that consumer price inflation will fall in 2008. There prediction is for CPIX inflation to average 6.3% for the full year (against 6.5% in 2007) and will end the year as low as 5%. These estimates certainly scream for Reserve Bank governor Tito Mboweni to leave interest rates on hold on 31 January.
And if Omigsa’s estimates prove correct we can all hold thumbs for a rate cut in the third quarter of 2008. Until then it will be a struggle to keep the proverbial wolves from the door – and to remain becoming another statistic in South Africa’s civil judgement listings.
Editor’s thoughts:
Statistics SA has run into plenty of media criticism of late. We can think of a number of reasons for the lower than expected civil judgement data raises a number of questions. Is Statistics SA including all the relevant data? Has the process for obtaining a civil judgement become more difficult? Is there a backlog of cases at our magistrates’ courts? Or is the economy simply more resilient than we thought? Add your comments below or send them to [email protected]
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