Going bust: Insolvencies spike after July riots and lockdowns knock finance and tourism

The estimated number of insolvencies increased by 129.7% in the three months ended July 2021 compared with the three months ended July 2020, Statistics SA said on Monday.  

The data showed a year-on-year increase of 157.7% in July, from 104 last year to 258 insolvencies in 2021. 

Insolvency refers to when a company can no longer pay its debts. By law, when a company’s liabilities exceed its assets, it is insolvent. The business owners must then apply for it to be liquidated, or else be forced by the courts to do so.  

For the first eight months of the year, up to August, there were a total of 1,327 liquidations. 

The hardest-hit industries were the finance and insurance sectors, with 427 insolvencies year-to-date, followed by trade, accommodation and catering, with 286 liquidations. Liquidations in the community services sector were also in double digits, with 106 so far.  

The industry spread correlates with sector-specific job losses shown in the quarterly unemployment figures published in August, which showed the jobless rate at a record high of 34.4% in the second quarter of 2021. In that quarter, finance and services haemorrhaged more than a quarter of a million jobs.   

In 2019 and 2020 liquidations surpassed 2,000, and the latest figures for 2021 suggest the mark will be breached again, reflecting the parlous state of the economy first battered by the Covid-19 pandemic and then the looting and burning of businesses in July in a week of violence triggered by the arrest of former president Jacob Zuma.  

The unrest caused more than 300 deaths and is estimated to have cost the economy about R50-billion. The impact of lockdown restrictions may be more pervasive and longer lasting, especially on tourism and related retail activity. 

The government loosened Covid-19 lockdown restrictions in late July and in mid-September. But the tougher restrictions beforehand, such as the booze sales bans, have already taken a deep toll on sectors such as tourism. 

The Bureau of Economic Research (BER) said on Monday that tourism “is without a doubt one of the industries that has been hardest hit by the Covid-19 pandemic”.  

The BER said that based on tourism expenditure in 2020, the sector’s contribution to GDP shrank from 7.2% in 2018 to 2.9% in 2020, and the number of jobs supported by the industry declined from 1.6 million to 640,000, hence its outsized impact on bankruptcies in 2021 as internal and external travel plummeted. DM/BM