The number of companies in the ICT sector going into liquidation last year fell by about two-thirds, compared to the almost 100 entities that closed their doors in 2010, in the aftermath of a global financial crisis.
However, while the declining figure indicates the sector is starting to recover, this year is likely to be challenging as the global economy is still characterised by several uncertainties, including the crisis in the Eurozone.
According to information provided by the Companies and Intellectual Property Commission (CIPC), 27 companies filed for voluntary liquidation last year, while one was “dissolved” and two were in the final stages of closing their doors.
This number is a far cry from the 99 firms that shut up shop in 2011, and seems to indicate the sector is faring better than the rest of the economy.
Statistics SA's latest liquidation figures indicate the number of liquidations for the first 11 months of 2011 fell 11.8% year-on-year, from 3 667 to 3 236. Stats SA says the decline was due to a 14.3% drop in voluntary liquidations, as 487 fewer companies decided to close their doors last year.
Econometrix chief economist Azar Jammine says the number of liquidations would be expected to come down as interest rates are at a very low level, placing less of a burden on companies.
Jammine points out that some liquidations in the broader economy could be the result of pent-up distress that built up over several years before companies finally admitted defeat and closed their doors.
Faring better
Almost 100 IT companies closed their doors in 2010, according to figures provided by the CIPC's predecessor, the Companies and Intellectual Property Registration Office (Cipro).
ICT company collapses in the past few years include Faritec's largest unit, Square One, Dialogue SA, Eclipse Networks, Masana Technologies, Music for Pleasure and Goal Technology Solutions.
At the beginning of last year, research firm IDC predicted 2011 would be the first full year of true growth in IT spending in SA, and that investment in ICT would grow at 7.5%.
Jammine notes that ICT remains a growth sector, and skills are in short supply. However, companies could be affected by slow payment rates within the public sector, he adds.
Be wary
Despite the slowdown in closures within the sector, this year is still expected to be challenging. The economy is expected to grow at 3.4% this year, rising to just over 4% in 2014 and 2015, finance minister Pravin Gordhan said in October.
Irnest Kaplan, MD of Kaplan Equity Analysts, says despite the good news of reducing liquidation figures, 2012 will still be a challenging year for the sector. He explains the primary clients are still being cautious about spending due to global uncertainties.
Kaplan notes that some parts of the industry may be faring better than others.
Trade and industry minister Rob Davies recently highlighted some of the issues that SA is facing. Davies, speaking on behalf of president Jacob Zuma, was addressing the members of the Abu Dahbi Business Chamber and South African Business delegation at the Emirates Palace, United Arab Emirates.
Davies said: “Like many countries in the world, SA was negatively affected by the global financial crisis; economic growth in 2009 fell to 1.7%.”
Although the economy recovered in 2010, led by the construction and manufacturing sectors, the current sovereign debt crisis in the Eurozone poses an additional threat, said Davies.
Gordhan also warned that the global environment poses “considerable risks” to both the world's economic recovery and the outlook for SA's recovery. Although public-sector spending has expanded, he said, not enough is being done to build a growing economy.
In 2008, the world saw one of the worst global crises since the Wall Street crash of 1929 led to the great depression. The financial crisis resulted in the collapse of global banking giants, such as Lehman Brothers.
SA did not escape the global downturn unscathed, with several companies closing their doors due to the aftermath.
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