Money and Markets

South Africans are getting poorer – and falling deeper into debt to get through the month

Business Insider SA
(Getty Images)
(Getty Images)
  • South African consumers are feeling the pressure at the pumps and supermarkets as the price of fuel, food, and electricity rises.
  • And while inflation grows, take-home pay stagnates, with many South Africans using credit cards and personal loans to supplement the erosion.
  • That's pushing more South Africans deeper into debt, with levels of unsecured borrowing being "unsustainably high".
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South Africa's rising inflation rates and stagnant incomes have created the perfect storm for surging debt as more consumers turn to credit cards and personal loans to make it through the month.

The economic fallout from the Covid-19 pandemic is still being felt by consumers. South Africa's unemployment rate has risen to record highs, and for most of those who've managed to keep their jobs or find new ones during two years of widespread retrenchments, salaries have been cut, unchanged, or in the best-case scenario, matched with rising inflation rates.

As fears of a global recession mount and Russia's conflict with Ukraine shocks commodity prices, consumers have already begun to feel the pain at petrol pumps and supermarkets. The cost of fuel, food, and electricity is soaring, with credit rating agency Moody's predicting that inflation will rise to 8% in South Africa this year, far above the Reserve Bank's (SARB) target band.

These rising costs of living and stagnant salaries are pushing more South Africans into debt as they attempt to supplement the shortfall in their monthly budgets, predominantly in the form of risky unsecured debt. The picture over a six-year period looks grim for South Africa's consumers.

"Nominal incomes were slightly lower than 2016 levels, however, when cumulative inflation growth of 31% is factored in for the same six-year period, disposable incomes shrank by 31% over this period," said DebtBusters of consumers who applied for debt counselling in Q1 2022.

"This means consumers are feeling like they are taking home 31% less today in real terms than they did in 2016."

Real take-home pay in South Africa, as monitored by the monthly BankservAfrica Take-home Pay Index (BTPI), dropped sharply in March 2022.

"The average real salary was R14,969 in March, falling below the R15 000 mark seen in the previous months," says Shergeran Naidoo, BankservAfrica's head of stakeholder engagements.

"The real BTPI annual decline of 5.6% is one of the biggest annual falls on record."

Although salaries have declined, Shergeran noted that more people are being paid compared to last year.

Debt exposure has increased for South Africans across almost all income groups but is particularly dire for those earning more than R20,000 a month. Consumers in this income bracket, who've applied for debt counselling, now have a debt-to-income ratio of 150%, the highest ever recorded in a first-quarter report by DebtBusters.

Additionally, unsecured debt levels for high earners have increased by 54% since 2016, compared to an average rise of 20% among consumers. This level of unsecured borrowing is "unsustainably high", according to Benay Sager, head of DebtBusters.

For consumers in the lowest income bracket, earning less than R5,000 a month, the debt exposure to net income ratio has increased from 56% in 2016 to almost 80% in 2022.

"This a direct result of erosion of net income [take home pay], consumers need to supplement this erosion with unsecured credit," explained Sager, adding that debt counselling queries had jumped by 32% compared to the same period in 2021.

"As interest rates start to rise and inflation increases, consumers should do everything they can to reduce the cost of credit and protect their assets."

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