The surprising rise in business insolvencies
Debt and long payment terms are the black spots of very small businesses. These entities which constitute an important part of the entrepreneurial fabric are struggling to cope with the economic situation. Weakened by the various shocks, including that of Covid-19, small businesses are experiencing a significant increase in failures. In the first quarter of this year, 3,830 failures were recorded by Inforisk.
They are up 28% compared to the same period last year. “We are surprised by such an increase. Even after Covid-19, we had not recorded such an increase”, underlines Amine Diouri, Director of Studies and Communication at Inforisk. He estimates that 15,000 failures will take place this year. What is puzzling is the concentration of failures of very small businesses: 98.8% versus 1.1% for SMEs, and 0.1% for large enterprises. In other words, small enterprises remain fragile. “Generally, they are single-client, their capital is poorly structured, and they have financial problems”, adds Diouri. For small enterprises, the challenge is to manage to stay alive and get through the first five years, a period during which they rarely generate profits and where they need cash to finance themselves and find markets. Moreover, very few of them manage to grow and pass to the SME stage before becoming a large corporation. Over the past few months, the situation for companies, in particular very small enterprises (VSEs), has reportedly become more complicated with rising interest rates, and debts to be repaid, all of this, not to mention the long payment terms. These are the cause of the agony of an entire section of small and medium-sized enterprises. The law should trigger a paradigm shift which should, in principle, guarantee to SMEs and VSEs payments within normal deadlines. This piece of legislation, which awaits its publication in the Official Gazette, provides for a fine whose amount is equivalent to the Bank Al-Maghrib’s key rate plus 0.85% for each month or fraction of a month of additional delay. Initially, the law will target companies that achieve a turnover of more than 50 million Dirhams excluding taxes (USD 5 million), regardless of the amount of the invoice. From January 2025 onwards, the fine will apply to invoices of 10,000 Dirhams (USD 1,000) or more excluding taxes. However, the average amount of invoices for small enterprises is often below 10,000 Dirhams. That said, businesses in dire straits are to be found trade / retail sector: this is the case for three out of ten failing businesses, real estate for 20% of them, and construction, for 17% of them. They are concentrated in particular in Casablanca and Rabat.
Khadija MASMOUDI
