SA consumers in for a rough ride in 2019
JOHANNESBURG – While the decrease in the prices of petrol and diesel of R1.23 a litre for petrol and R1.55 for diesel will bring much-needed relief to cash-strapped consumers, the rest of the picture for 2019 looks gloomy, to say the least.
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. Many farmers are also considering leaving the industry because of the ongoing threat that their land may be confiscated by the government without compensation.
Neil Roets, chief executive of one of the largest debt counselling companies in South Africa, Debt Rescue, said they were gearing up for one of the busiest periods in January, February and March in the history of the company.
“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.”
Spark of light
Roets said the one spark of light on 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.”
With unemployment now at above 27 percent, key jobs sectors including mining and the industrial sector are expected to continue shedding jobs at unprecedented rates in 2019
Plans for the ANC’s great land grab are advancing at a pace with foreign investors spooked to the point that very little foreign direct investment needed to create jobs is coming into the country, Roets said.
Chief economist of the Efficient Group, Dawie Roodt, said one of the biggest threats to the economy was the fact that government spending was 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.
Roets said many South Africans who barely make ends meet during the year had plunged themselves ever deeper into debt over the holiday season by spending money on expensive holidays and generally having a good time – often on credit cards or with money borrowed from money lenders at exorbitant interest rates.
He said experience over time had shown that January was the month of the Great Reckoning when these chickens came home to roost.
“We see more new clients seeking help with the repayment of their outstanding debt in January and February than during any other months of the year because of additional debts that had been stacked up during the holiday season.
“Parents suddenly realise that they have to pay school fees that had not been budgeted for and with credit cards maxed out on luxuries in November and December many have no choice other than to seek relief by going under debt review to prevent debt collectors from seizing their property.”
It was hugely important to budget, especially for expenses such as school fees and payments on credit and store cards.
“Bear in mind that the interest rate on credit cards is substantial so wherever possible buy cash.”
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.
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