Interest rates

Interest rates reached its lowest point in 24 years before increasing by 5 percentage points from June 2006 to December 2008 in an attempt to curb inflation.  Interest rates, however, have dropped rapidly by 4,5 percentage points from December 2008 to May 2009 in an effort to stimulate the economy. 

 

Click on the thumbnail below for the enlarged graph of the trend in the prime overdraft rate since 2000.

 

Liquidations - on the increase

Monthly company liquidations per annum leveled off in 2008, but has risen sharply in 2009.

Liquidations are expected to continue the upward trend since 2004 as a result of tougher business conditions emanating from the global recession and credit meltdown and in spite of the interest rate decreases since December 2008.  Especially exporting commodity companies will be hardest hit by the recession experienced by the industrialised companies overseas.

 

 

Click on the thumbnail for the enlarged view of the most recent monthly company liquidation statistics (May 2009).

 

Click on the thumbnail for the enlarged view of the most recent monthly company liquidation statistics (May 2009).

 

 

Read more about liquidations trends at liquidation statistics.

New business rescue legislation  

New business rescue legislation as contained in Chapter 6 of the Companies Act No. 71 of 2008 was signed by the President on 8 April 2009.

Enacting this legislation will provide the turnaround industry with a substantial boost as it has in overseas countries where modern business rescue legislation has been introduced.  It is, however, not expected to become operational before the middle of 2010.

Government's rescue plan for SA vehicle sector

The entire automotive industry has been severely affected by the global downturn.

A task team led by the Department of Trade and Industry is considering a three-pronged plan to rescue the automotive industry, including tax adjustments to stimulate demand for cars.  The team, which includes industry and labour representatives, was set up as part of a South African response to the global economic crisis, thrashed out in the National Economic Development and Labour Council (Nedlac).  The framework envisaged a dedicated response to help ailing industries, including the automotive sector.  Industry players were not prepared to discuss the details of the plan, which is expected to be finalised by month-end, but it is understood that the rescue package will stand on three legs:

• Bridging finance to help cash-strapped car manufacturers’ balance sheets provided by the Industrial Development Corporation (IDC).  An industry source stressed that the finance would not be a bail-out, but loans that have to be repaid;
• Tapping into Department of Labour and Manufacturing, Engineering and Related Services Sector Education and Training Authority funds for on-the-job training to minimise retrenchments, while additional funds from the Unemployment Insurance Fund could be allocated to help workers already retrenched.  The loss of skills from inevitable downsizing has been identified as one of the biggest threats to the industry; and
• Incentives to stimulate demand, akin to programmes that have been rolled out in Germany and the UK. These could take the form of scrapping allowances, tax incentives or temporary rebates for trade-ins to stimulate demand.

Government will not bail out stricken companies

• ANC treasurer-general Mathews Phosa in April 2009 dismissed calls for bailouts for stricken companies, saying it would send the wrong message to business.  "We will be creating a precedent because if you did wrong things you get help from government.  It is an immoral approach to business - we (would be) punishing those who did well in business," he told the Cape Town Press Club.  Phosa said the incoming administration's top priority would be protecting the vulnerable and fighting poverty, but that he doubted that bailouts were part of a sustainable job creation strategy.

Bridging the private and private sector

The Turnaround Management Association - Southern Africa is intent on engaging with government bodies to promote closer cooperation between government and the private sector.  

During November 2006 it had fruitful discussions with dti and National Treasury on a wide range of topics including turnaround industry driving forces and constraints, and how government can help.

Also, in 2007 and 2008 it made a submissions to the dti on draft business rescue legislation as now contained in Chapter 6 of the Companies Bill, 2008, and participated in workshops in this regard.

Presently, it is launching the Certified Turnaround Professional programme in South Africa under license from TMA, its parent body, and in partnership with Services SETA.