Insolvencies in South Africa have reached a record low, dropping by 13% year on year in 2023, according to the Global Insolvency Report report by Allianz Trade.

The decrease, which marks the lowest number of cases in over 30 years, is a positive sign for the country's economy.

Throughout the year, all quarters reported fewer insolvency cases compared to the previous year, indicating a consistent downward trend. 

However, the report predicts that the economic inertia experienced since 2022 will have lingering effects in 2024, resulting in a relatively stable number of insolvencies. 

It is expected that a moderate decrease will materialize again in 2025, driven by a substantial economic recovery.

The overall resilience of firms and the economy has been commendable, considering the challenges faced. 

South Africa's real GDP growth decelerated to 0.9% in 2023, a significant drop from the nearly 2% growth in 2022 and 5% in 2021.

One of the key obstacles hindering growth is the lack of reliable electricity supply and logistics networks, which have been identified as the country's top risk in the Allianz Risk Barometer. 

This ongoing issue continues to impede businesses and households from reaching their full potential.

Furthermore, the report warns that insolvencies may increase further due to the absorption of margins for interest repayment and potential business interruption events triggered by the potential recrudescence of social unrest related to the electoral cycle.

Despite the challenges, the significant reduction in insolvencies is a positive development for South Africa. 

It reflects the resilience and adaptability of businesses in navigating the economic landscape. 

As the country works towards addressing the underlying issues affecting growth, there is hope for a brighter future.

Overall, after two gradual rebounds in 2022 (+1%) and 2023 (+7%), global insolvencies are set to accelerate again in 2024 (+9%) before stabilizing in 2025 (0%) at high levels.

The number of business insolvencies rebounded in three out of four countries in 2023, with most recording a double-digit increase. 

Maxime Lemerle, Lead Analyst for insolvency research at Allianz Trade, said: “The increase in global insolvencies accelerated by 6 percentage points (pps) in 2023 compared to 2022, moderated only by the declines seen in China (-14%) and emerging markets such as South Africa (-13%) and India (-8%).” 

“Another worrying factor is the rise in large business insolvencies, which could generate further non-payment risk for smaller suppliers: 2023 recorded one case per day globally (365),” he said.

The global insolvency acceleration is not done yet, but the catch-up is coming to an end

Lower growth, trade disruptions and geopolitical uncertainty set the stage for another acceleration in global business insolvencies in 2024. Allianz Trade expects a third escalation in a row this year (+9%), fueled by a continuing increase in four out of five countries. The largest increases are expected in the US (+28%), Spain (+28%) and the Netherlands (+31%).

Allianz Trade, which operates in South Africa through the Allianz Commercial license, does not expect a tsunami of business insolvencies as recorded in the aftermath of the great financial crisis, when global insolvencies skyrocketed by +17% and +19% in 2008 and 2009, respectively. 

However, the catch-up should be noticeable in several countries, in particular the advanced economies of Europe, due to specific firms (the most exposed to profitability and financing issues) and specific sectors (notably B2C related sectors and construction).