South Africa keeps on getting distracted in its policies and approaches geared towards raising the long-term growth of its economy, said economist Keith Lockwood.
He spoke with Business Report following Altron FinTech release of its latest Short-term Credit Impact Index, known as the AFSCI Index, which tracks the impact of short-term credit extension on the South African economy on a quarterly basis.
The index for the third quarter of 2022, showed a 0.9% quarter-on-quarter increase in net short-term credit extension.
Explaining why the index remains pertinent, Lockwood said while short-term credit represented a very small share of total consumer credit, it was important because it provided a barometer of the financial health of a vulnerable, and often neglected portion of South Africa’s population.
He asked whether the country wanted to spend growth in credit extension in particular to low-income households when it needed to spend growth in per capita income, which it needed for the economy to keep growing at a substantially faster rate that the population growth.
“That would mean when the population is averaging 1.5% you need to be growing at least 3% and more on a sustained basis. Currently, the medium-term projections, even that the South African Reserve Bank is putting out for next year are not anything close to that. It means there are a number of fundamental things that we have to get right and put in place…
“But I think that the starting point is about the investment approach, investing in the right areas of the economy to improve productivity, such as transport, electricity, connectivity, communications infrastructure and all the things that we have been saying for literally a decade or more. We just need to do a much better job at implementing in that area,” he said.
Lockwood said new crises kept on coming up with alarming regularity.
“Some of them are international and sometimes they are local. In the process, we keep getting distracted from doing what we need to do, which is to raise the long-term potential of the economy. Those are fairly fundamental things.
The index showed that based on National Credit Regulator data for the second quarter of this year, there was a significant increase of almost 10% in the AFSCI Index when compared to the first quarter of the year. But relative to a year earlier, the index was down just more than 1%.
Another key finding is that while short-term credit made 12% less of an impact on the economy in the second quarter of 2022 than it did at the start of 2015 – the baseline year of the index – it is now making 111% more of an impact than it did at the height of the Covid-19 lockdowns in the second quarter of 2020.
The index also showed that as at the end of the second quarter of this year, the value of credit still on the books of registered credit providers amounted to R2.19 trillion – up 6.4% on a year earlier, and 1.1% (R24 billion) higher than the previous quarter.
More than 52% of this consisted of mortgages, 22% was secured credit, and over 13% was credit facilities. Developmental and short-term credit only accounted for 2.6% and 0.1% respectively.
In the year to quarter two 2022, the total value on consumer credit on the books of credit providers increased by R10.5bn.
Between the start of 2015 and Q2 in 2022, the average value of all short-term loans increased by 48%, compared with increases in consumer prices of 36% and nominal/current priced gross domestic product per capita of 40% over the same period.
BUSINESS REPORT