While news of another major petrol price cut in January will give many a happy start to the new year, finance experts warn that the year ahead may not be as bright and cheerful.
In 2018, South Africa had a challenging time, with persistent issues in the economy weighing things down. A constrained budget, high levels of unemployment, creeping growth and low consumer confidence and spending were just some of the blotches on the path.
According to debt expert, Neil Roets, the recent petrol price cuts – while welcome relief – will do very little to change these fundamental problems, which are expected to continue in 2019.
“With more than a quarter of South Africa’s workforce unemployed – and little or no hope existing that this picture will change anytime soon – there is now the added danger of a much-reduced maize harvest because of the absence of rain,” Roets said.
He added that many farmers are also in a difficult and uncertain position, with land expropriation by government without compensation also on the horizon.
Chief economist at Efficient Group, Dawie Roodt said that there are other issues too – with one of the biggest threats to the economy being the fact that government spending is out of control.
“By firing a few senior executives at Eskom, it may be that President Ramaphosa is trying to send a message that the time has come to trim the fat – but the bottom line is that vastly more than this token gesture will be needed to save the South African economy.
“Just the cost of servicing existing debt is becoming unaffordable and is a major constraint to growing the economy,” Roodt said.
Indebted consumers
South Africa entered into a technical recession in 2018, the first time since the fallout of the global economic crisis.
While there has been much fanfare around the country managing to pull out of the recession in the last quarter, Roets says that the increase in consumer spending that helped accomplish that means bad news for debt levels.
“We know from media reports that consumers spent massively over the Black Friday, Cyber Monday and over the Christmas Holidays and that is going to have severely negative consequences for deeply indebted consumers.”
Roets said the one spark of light von a very dark horizon was the comment by auditing firm PwC that warnings issued by debt experts such as Roets and other had somewhat curbed consumer spending.
“There is a certain kind of madness that grips consumers over the holidays where spending becomes totally irrational and this is not helped by the massive advertising campaigns that retailers launch at this time of the year to encourage shopping.
“We in the debt counselling industry see the extremely negative results of binge shopping in the following year when we have to assist consumers to deal with the mountains of debt they had incurred.
“The one consistent comment we get is this sense of entitlement that because everybody else was shopping they felt entitled to join the shopping stampede.”
Tough 2019
Roets warned that 2019 was going to be a tough year and that consumers who had difficulty making ends meet in 2018 were going to find it much harder in the new year.
“Total consumer debt now stands at close to R1.73-trillion (according to the latest figures released by the reserve bank) which clearly shows that South African consumers have not cut back on spending. A recent World Bank index has also shown that South Africa is one of the most indebted countries in the world.”
He said almost half of all consumers were three months or more behind in their payments. The major culprits are credit and store cards followed closely by unsecured debt.
The only measure of relief for consumers who are in over their heads is the legally-binding system of debt review which allows deeply indebted consumers to repay their debts over a longer period of time in smaller instalments often at a discount.
“Lenders are sometimes willing to take a cut if it means they can avoid having to involve debt collectors or foreclosing on the fixed properties of debtors.” Roets said.
