June 30 - The rising cost of debt, combined with soaring inflation, is the
reason why company bankruptcies have leaped in the first few months of 2008,
according to company insurance industry analysts.
Corporate closures are expected to increase in the next few months
Bankruptcies in South Africa jumped to nearly 10%, in the first four months of 2008, according to the latest numbers released by Statistics SA.
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According to numbers released by Statistics SA this week, company
liquidations rose by 7.2% in the first five months of this year, while personal
bankruptcies jumped to a startling 9.7%.
A senior economist at Credit Guarantee Insurance of South Africa, Luke Doig,
said about the situation: "We expect corporate closures to escalate sharply.
Escalating input cost pressures, the squeeze on consumption demand and higher
working capital finance costs will all exact a toll. We do not expect any sector
or firm to escape the tightening noose."
Overdue advised accounts to Credit Guarantee Insurance of South Africa, the
country's main underwriter for company insurance, have jumped by 25% in the
first half of 2008, bringing the total to over 3000. Claims have sky rocketed by
42% to nearly R70-million.
According to statistics, the three main sectors to be affected by corporate
closures in South Africa are retail, manufacturing and financial services.
"We are growing increasingly concerned about the inflation outlook," said
Doig. "We believe that prime lending rates of 17% is possible by year end."
While company liquidation rates took a slight dip of 2.9% in May, this has
not managed to garner any optimism from industry experts. "The trend in
liquidations is still very clear, despite the drop in May," said Elna Moolman,
an economist with Barnard Jacobs Mellet Securities. "I also think insolvencies
are going to deteriorate substantially."
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