Credit Guarantee Insurance Warns of Continued Failures

April 2 - Rising interest rates and the never-ending upward spiraling prices of fuel, food and energy have caused many private households and corporate businesses to collapse under the pressure. Insurance industry analysts have warned that further liquidations and bankruptcies are on the cards, as more and more South Africans simply cannot keep up with rising costs.

A senior economist at Credit Guarantee Insurance of Africa said: "We are starting to see the cumulative effect of the interest rate increases and all the knocks business is taking at the moment. The sentiment we are getting from small to large institutions is that there may be wholesale company closures this year".

As the main underwriter of South African company insurance, Credit Guarantee Insurance expects defaults by debtors to increase by 50% by the end of 2008. Numbers such as these were only predicted in 1992 when the country went into deep recession.

Industry statistics show that personal insolvencies jumped to an annual rate of an incredible 58% in March, 2008, an obvious indication of the difficult predicament that South African households find themselves in. Struggling to manage their mortgage repayments, homeowners face increasing debt costs, as well as an increase in basic necessities such as food, fuel and electricity.

With the current power crisis in the country, Eskom is pushing to increase electricity prices up by as much as 60% to cover costs- something that will undoubtedly cripple many more homes and companies.

The result of increased liquidations and bankruptcies would unfortunately lead to job cuts and a greater percentage of unemployment, which in turn would further affect credit arrears and inflation, warned industry experts, such as Credit Guarantee Insurance of Africa.