Although consumers can expect some relief at the petrol pumps, our economy will take much longer to recover. Unfortunately, Covid-19 has left us with an economic crisis with inflation growing rapidly, rising interest rates and all-time high unemployment rates. This begs the question of whether our economy is able to rebuild and what we can expect moving into the last quarter of 2022?
Roxanne Webster, director in the business rescue, restructuring and insolvency sector at CDH
We have seen that during Covid, almost 3-million jobs were lost, and it is reported that those jobs have not returned which translates into consumers defaulting on their short, medium, and large term loans. Although lenders did display unprecedented leniency during Covid, we can expect that such leniency will slowly start turning into aggressive recovery as financial institutions now seek to recover their loans and interest.
Data released by Stats South Africa (“Stats SA”) shows that liquidations have increased by 2% during May to July 2022 as compared to the same period last year. In July 2022 alone, 165 liquidations were recorded which were mainly in the following industries:
1 The finance, insurance, real estate and business services industry experienced the most liquidations recorded 75 liquidation filings;
2 Twenty nine liquidations were experienced in the trade, catering and accommodation industry; and
3 Fourteen were experienced in the community, social, personal services industry.
Real estate will remain one of the industries on high alert as companies implement a much more flexible work policy. While flexible work policies may assist businesses in reducing their overheads, this has a knock-on effect on landlords of commercial offices who may now struggle to reach full occupancy levels and guaranteed income in the long-term. In addition, you have landlords struggling to recover their rental from tenants as their tenants may themselves be in a precarious financial position unable to service their debt due to rising interest rates, inflation etc.
While the total income for the tourist accommodation industry has increased quite drastically in June 2022 compared to June 2021 (which is expected), tourism is not yet back to where it was pre-Covid. This remains a concern moving into the last quarter of 2022. The industry’s ability to recover may be a direct result of the rising inflation and soaring interest rates which affect the consumers financial ability to travel. Quite notably, the Government published an Economic Reconstruction and Recovery Plan in response to the deepened economic crisis South Africa found itself and, in this plan, Government lists tourism as an industry to focus on, establishing a tourism equity fund aimed at funding commercially viable tourism enterprises. Sadly, the Department of Tourism was interdicted from processing applications and making payment from the tourism equity fund.
Struggling industries will need to take proactive steps to weather the storm to avoid possible liquidation and becoming another liquidation statistic. These proactive steps include the option of placing the company into business rescue when the company is still in a position to be rescued and all hope is not lost. A business rescue that is implemented when it is clear that the company is in financial distress and which process is managed effectively by experts, will certainly avoid liquidation.