Consumers are crying in spite of a generally benign inflation rate
A raft of recently released official data and information depicts an economy and a country on a downward spiral notwithstanding positive political rhetoric from policymakers who have just been inducted into the new administration of President Cyril Ramaphosa.
It’s going to take time before policy co-ordination and implementation take root and filter down to the productive side of the economy and lift business and consumer confidence. However, the recently appointed chairs of some portfolio committees don’t engender confidence, as some have been implicated in wrongdoing and corruption. Whether they will perform differently this time round remains to be seen.
The last thing SA needs is policy uncertainty and conflicting policy directives at an executive level, as has been the case in the past nine years, resulting in what has been termed an investment strike by the private sector.
SA consumers are buckling under economic pressure, even though general consumer price increases came in at 4.5% in May 2019 as reported recently by the office of national statistics. This is within the target range set by the monetary authorities and therefore sets the tone for the easing of interest rates at the next sitting of the monetary policy committee (MPC).
However, this data masks some notable increases in food and nonalcoholic beverages by 3.2% year on year and transport by 7.1% for the same period. These basket items hit consumers where it matters most: consumption and travelling. Monetary authorities can therefore not ignore this granular data in deciding the next interest rate level.
The latest report and observation by the Momentum/Unisa consumer financial vulnerability index for the first quarter of this year shows that the SA consumer’s finances had been under pressure for the past two years, with notable increases in vulnerability in income, expenditure and debt service costs. It will therefore require an extraordinary effort to relieve consumers of these pressures.
In this environment, it makes sense for the government to put a break in some the prices it has control over, such electricity and other administered prices to ease consumer pressure. That’s what a caring government should do. This requires proper governance and management of the economy. This poor state of consumer affairs is corroborated by notable increases in the number of unemployed people to 27.6% — or 6.2-million — as of the last quarter of 2018. Tackling unemployment should indeed be national priority, especially among young people. President Cyril Ramaphosa correctly characterised it as a national crisis.
The deteriorating productive side of the economy is not helping the situation. GDP decreased by 3.2% in the first quarter of 2019 — with notable poor performances in manufacturing, which fell by 8.8%; mining and quarrying, which decreased by 10.8%; and agriculture, forestry and fisheries, which contracted by a massive 13.2% in the period. Instead of absorbing labour, these industries have contributed to job losses, especially in the mining sector.
The ramifications of job losses are deep and wide-ranging. If there’s an assumption that each consumer has at least five credit accounts with retailers or credit providers, the snowball effect is wide. These debts won’t be serviced and the credit standing of these former employees will deteriorate to a point where some might be handed over to unscrupulous debt collectors.
The most bizarre of these cases was heard in the Western Cape High Court in 2015 with regard to the abuse of the emoluments attachment orders by the microlending industry. Had it not been for the good intentions of some employers, these consumers would have been indebted for life to the erstwhile credit providers.
Under these circumstances, it is no surprise that final household consumption expenditure decreased 0.8% in the first quarter, with clothing and textiles taking the lead with a 12.7% contraction, followed by transport, which decreased 3.1%.
The investment side was not spurred either as gross fixed capital formation decreased by 4.4% — the fifth consecutive decline. These are granular details notwithstanding, Unctad reported that SA attracted about $5.3bn of investment last year, far better that the previous three years. The president has said that over R250nn worth of projects has entered implementation phase.
The cost of servicing debt by households is reported to have increased marginally to 9.3% in the fourth quarter of 2018 from 9.1% in the third quarter, consistent with the 25 basis point increase in the prime lending rate in November 2018 and the faster growth in household indebtedness in the fourth quarter of the year. These are financial resources that could have been used to fund investments and other income-generating products and services.
The conditions are generally unfavourable to consumers, and the monetary authorities should really consider these data sets and bring relief to overindebted consumers.
• Gubevu is an independent economist.