A growing number of South Africans are using credit to purchases basic necessities such as groceries, says Debt Rescue chief executive Neil Roets.
Roets told CapeTalk that this issue has grown in recent months due to the country’s high unemployment rate, combined with the rising cost of food.
“The fact that you are buying things like normal groceries on credit, means that you are by default over-indebted. You are never supposed to finance these things.
“What it also tells us is that there are a lot of people that are over-indebted and not able to pay back their credit providers in such manner that they have enough money left at the end of the month to pay for their essential needs.”
Roets said that the situation has been exacerbated by the Covid-19 lockdown which meant that many workers have not seen any salary increases over the last year.
By comparison, prices have continued to increase. “Unfortunately salaries are just not going up in line with these increases,” he said.
Consumers have taken a knock
FNB chief economist Mamello Matikinca-Ngwenya says a string of negative developments has knocked less affluent consumers in recent months.
This includes soaring food and fuel prices, the onset of the third wave of Covid-19 infections in South Africa and the feeble recovery in low-skilled employment following unprecedented job losses last year, she said in a research note this week.
“The decline in consumer confidence during the second quarter of 2021 points to a lower willingness to spend among consumers and will likely translate into slower growth in overall consumer spending compared to the impressive first-quarter growth rate,” said Matikinca-Ngwenya.
However, she also pointed out that clear signs of a two-speed consumer market have started to emerge.”
“Following strong spending on food and other groceries during 2020, volume growth in the non-durable goods category is now coming under pressure on the back of a significant deterioration in the household finances of low-income consumers – who typically spend the bulk of their income on food and basic necessities.”
In contrast, durable and semi-durable goods sales volumes are being supported by pent-up demand from high- and middle-income consumers, who reduced their debt in 2020 on the back of record-low interest rates, accumulated savings by slashing their spending, she said.
This group also benefitted the most from the personal income tax cuts announced in the February national budget.
“Although durable and semi-durable goods sales are also likely to experience some headwinds in the third quarter in the form of the fast-spreading third wave of infections and possible further economic restrictions, the medium-term prospects for these categories, and high-income consumers, are decidedly rosier compared to the outlook for the non-durable goods category and
low-income consumers).
“In the absence of further expansionary welfare spending by the government, the prospects for low-income consumers and non-durable goods retailers are very much tied to job creation, which has been the Achilles heel of the South African economy.”
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