THE waning spending power of consumers is fast getting to a point where the majority of South Africans will not have enough money to spend on basic items such as food and transport.
This is according to FNB chief economist Sizwe Nxedlana, who said spending is expected to fall from a meagre 1.7 percent in 2015 to close to zero percent this year.
“Unfortunately, given that inflation is set to accelerate further on the back of the drought-induced rise in domestic grain prices and sustained weak rand exchange rate, the purchasing power of most households will likely wane further in coming months,” he said.
He said an alarming increase in South Africa’s unemployment rate, rapidly rising food inflation and fuel price increases were making the situation worse, especially in low-income households.
Statistics South Africa reported that food inflation surged from 5.2 percent in the fourth quarter of 2015 to 11 percent in April/May 2016. The petrol price rose by nearly 13 percent between March and June. South Africans were hit with another fuel increase on Wednesday.
FNB said low-income households spend a proportionally larger share of their budgets on food and transport costs, compared to higher- income households, and therefore typically bear the brunt of the impact of higher food and fuel prices.
Financial adviser Paul Roelofse said people’s inability to buy goods was directly linked to the rising cost of living.
“Interest rates going up means the cost of debt is more expensive. Where I advise people to keep their debt spending to 30 percent of their income, most South Africans spend 75 percent of their monthly income to pay debt. The rising cost of petrol will also impact on the cost of goods and services,” said Roelofse.
For now, Roelofse advised consumers with jobs to white-knuckle the situation this year and not expect or push for an increase during the current economic climate. With South Africans holding onto their pennies, small businesses will especially be hit hard.
Cornelius Monama, the spokesperson for Minister of Small Businesses Lindiwe Zulu, said the department is mindful of the low growth and high unemployment in the South African economy.
“We are also mindful that small businesses run the highest risk of failure under these conditions,” he said.
He said in this environment government resources are also constrained.
“Government expenditure on business support and development, through programmes and incentives across departments, must show a return on investment. For entrepreneurs, it means that there is more opportunity for innovation,” said Monama
But entrepreneurs themselves will have to be more innovative in driving down costs without compromising quality.
“We still see significant opportunity for partnerships between large and small business.
"The Small Business Department is finalising a business rescue programme as a last resort to save viable businesses in need of rescue,” he said.
The Small Businesses Department is also working closely with the Department of Public Enterprises to develop sustainable supplier development programmes in state-owned companies.
“We offer a number of programmes and incentives to assist small businesses to procure equipment and infrastructure, to access management support and training, and to access finance,” said Monama.