Johannesburg — BUSINESS confidence in SA is declining as the strong rand continues to plague local businesses and negatively affects exporters, says Philip Reynolds, a partner in the reorganisation services division at Deloitte.

Cheap imports from countries such as China are putting the manufacturing sector and particularly the clothing and textile industries under pressure.

"The number of insolvency applications is rising and there has been an increase in the number of companies that are underperforming and that need our assistance, which is a sign that some businesses are starting to feel the pinch," says Reynolds.

There were 67 voluntary and 18 compulsory liquidations of businesses in January, according to Statistics SA. Reynolds says this is a worrying trend and perhaps evidence that the economy is entering a period of consolidation in which companies and investors are taking stock and identifying underperforming assets or businesses.

Low interest and inflation rates have also spurred an upsurge in private sector credit extension. The growth rate in the economy slowed to 3,3 %, below the expected 4%, in the fourth quarter of last year.

While poor performers may be identified during a period of consolidation, Reynolds cautions against knee-jerk responses such as liquidation and closure.

He says that in most cases a better outcome for all stakeholders can be achieved by restructuring, reorganising and rescuing a business.

Mike Truter, MD of Credit Guarantee Insurance Corporation of Africa, says caution also needs to be exercised in the coming months because, with interest rates low, strong consumer demand for credit has resulted in overall levels of debt increasing steadily.

It has now reached the point where the percentage of household debt in relation to disposable income is dangerously high.

"Never in my working life have I seen so much credit extended and surely something is going to give," Truter says.

"Although government must be commended for the exemplary fiscal and monetary controls it has put in place, now is not the time to be lax or reckless in the granting of credit."

Truter says that if interest rates start moving upwards, the effect on the man in the street who has overextended himself will be devastating and will have a knock-on effect throughout the economy.

Reynolds says that economic growth has brought about increased competition and consequently many businesses are under pressure.

The world economy is changing, with China and India coming on stream, and businesses need to be clever and innovative to survive.

Another important consideration is that, just as SA has started to make some progress towards bringing down the rate of unemployment, the country cannot afford to slip backwards, so saving businesses and the jobs that go with them is imperative.

Reynolds says that companies have to recognise and identify any underperformance early so that remedial action and innovative measures can be taken so as to remain competitive.