South Africa’s ‘zombie economy’

While South Africa’s recent drop in liquidations could indicate that the country’s economy is improving, it could also reveal that businesses are merely surviving in South Africa’s stagnant, “zombie” economy.

This is according to the Southern African Advisory Company’s Tiaan Herbst, who told Kaya Biz that it is crucial to interpret the liquidation data with caution.

“The decline in liquidations amid periods of identified load-shedding is somewhat surprising as one might expect these power outages to negatively impact businesses, particularly small and medium-sized enterprises,” he said.

Herbst explained that the decline suggests businesses may have adapted to South Africa’s challenging operating conditions or that other economic factors are playing a more significant role in influencing the rate of liquidations.

“It could also point to a more robust economic landscape than initially thought, though interpreting this trend definitely would require a more nuanced analysis,” he said.

While the reduction in liquidations might be a positive sign, it could also indicate that businesses are merely surviving, which is not conducive to long-term economic health.

He said a reduced rate of liquidation may not necessarily signal economic recovery – it also largely signals a stagnant economy.

Herbst referred to this as South Africa’s “zombie economy”, meaning an economic landscape where businesses are neither growing nor failing – they simply maintain the status quo.

He said the decline in liquidations appears to align with the broader global economic improvement seen in other emerging economies like Brazil, India, Nigeria and Indonesia.

However, he also noted that each country has its own set of economic circumstances, which makes direct comparisons more complex.

For example, he said some countries might have robust social safety nets or different fiscal policies that affect the rate of business liquidations.

“So while South Africa’s decline in liquidation is a positive indicator on the global stage, we need to look at it as specific to each country’s economy and must consider this for a more complete understanding when one wants to really make a conclusion,” he said. 

To combat South Africa’s stagnant economy, Herbst believes the government needs to understand that the private sector needs “some form of positive commitment” from the state in the form of real fiscal delivery.

“We need to see that the government is actually opening its purse and investing back into the private sector, especially in the construction industry,” he said.

“And then we can see an economy renaissance.”

Liquidations over the past 6 years

Below is the total number of liquidations recorded in August over the past six years, as reported by Stats SA.