BUILDING: Only The Strong Will Remain
Recent Western Cape Business News
As we draw close to the annual building industry shutdown in December 2009 there is a concern that building companies that have barely made ends meet during 2009 will struggle over this period, says Coface risk manager Jason Naidoo.
Cash flow has become critical for most companies and with very little sales this year there is an expectation that there may be closures of many building companies in January 2010.
Coface’s historical data confirms this trend during previous January periods. Past statistics show a remarkable increase in companies defaulting between October and March.
On the other hand companies that survive this period will be the ‘cream of the crop’ in the building industry and are likely to be successful into 2011. The resilience of these companies will pay off in the next 12 months, as the continued demand will assist with job creation and ultimately the economy as a whole.
The building and construction sector has been hit hard by the global recession especially in the residential market where consumer spending was severely impacted.
Consumers felt the pinch of job losses. Increases in electricity, food and petrol prices have all been contributing factors. As a result, the decline in interest rates earlier this year did not have the intended impact of assisting consumers. This is because the additional money was being used to pay off debt or accumulate emergency savings.
This coupled with the scarce availability of credit through financial institutions has resulted in many consumers putting on hold the purchase of new properties and the renovations of their current properties causing a knock on effect on the building industry with work becoming scarce.
The already strained market conditions in the building industry will be further stretched over the festive season as companies continue to pay salaries and running expenses without the benefit of what little income may be available in the market, had the company been working during the December period.
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