[by Luke Doig, Senior Economist, Credit Guarantee Insurance Corporation]

 

Is there a chance that the SA Reserve Bank will reduce rates this week in an attempt to shore up the economy and boost local activity?  Let’s hope so! The Reuters Consensus poll indicates that most economists believe that there is not likely to be a change but, I think there is still better than an outside possibility of additional relief in the first half of 2010.

 
December 2009 liquidations of companies and CCs rose 10.1% year-on-year to 382, taking the annual total to 4133, which might be a concerning 25.2% up on 2008’s level but, while this outcome has meant hardship for many, it is a far cry from the 70% increases seen in the first quarter of 2009.

 

Insolvencies of individuals and partnerships rose 12.6% year on year in November 2009, leaving the total for the first eleven months 5.4% below that of the same period in 2008 and there is some hope that this decline will continue when the December figure is released.

 

An analysis of the sectors shows how each was affected vis-a-vis the numbers of companies liquidated:

                                                2009        2008

Agriculture                                 40            38                          

Mining                                       17           70

Manufacturing                           236         202

A difficult trading period; demand remains subdued

Electricity, gas & water              20           14

Construction                              227         171

Hopefully there will be ‘legs’ to the infrastructural thrust

Wholesale & retail                      1305       988

Most pain appears to have been centred here

Transport (logistics)                   137         126

Finance, insurance &

Business services                       1770       1428

The downturn moved through the primary to the secondary and finally to the tertiary sector

Community services                   381         263

TOTAL                                   4133         3300

 

 

Credit extension figures are at all time lows and even though banks have relaxed some of their lending criteria, much more needs to be done to facilitate easier lending. The leading indicator has been rising for eight of the last nine months, with the November 2009 level being almost 12% above that of a year earlier.

 

So even with moribund retail sales data and the fact that payments due for purchases made late last year still have to be met, it implies that matters could begin improving as we move into the second quarter of 2010. While I have no doubt that there will likely still be a number of companies going to the wall, the faint beginnings of improved sentiment amongst South African businesses and citizenry in general, may point to improved trading conditions in the months ahead.

 

This may very well be buoyed by the euphoria leading up to the Soccer World Cup – during the event, schools are going to be closing, which will most likely translate into thousands of additional feet in retail outlets. Secondly, the World Cup is not going to be over for very long before re-stocking begins in the third quarter in anticipation of 2010 Christmas shopping.

 

 

Issued on behalf of:

Credit Guarantee Insurance Corporation of Africa Limited

Contact: Roger Munitich, General Manager - Marketing and R&D

Tel  (011) 889-7327

Fax (011) 686-9627

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For further information:

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About Credit Guarantee:

Credit Guarantee Insurance Corporation of Africa Limited, registered in 1956, is the largest (by premium income) and leading (80% market share) South African underwriting company operating in the field of debtors insurance.  Credit Guarantee is a subsidiary of listed company, Mutual & Federal which owns 51% of the company, ultimately making it part of the Old Mutual Group.

 

Credit Guarantee's major business is the insurance of domestic (local) and export payment risks where its client companies sell to other companies on credit terms.

 

Credit Guarantee’s unique strength lies in its ability to secure a vast store of confidential information and market intelligence from a network of contacts and to interpret this data to support the business of its clients - in both local and international markets.

 

It is ISO 9001/2000 compliant across all aspects of its operations and sports an AA+ (double ‘A’ plus) rating from Global Credit Ratings Company.