Black November for consumers in South Africa

South Africans are from today paying R1.21 more per litre of petrol, and R1.48 more per litre of diesel – with petrol prices up more than 30% since the start of the year.

According to Sebastien Alexanderson, CEO of National Debt Advisors (NDA), most South Africans are already struggling to make ends meet, and this steep petrol price hike will see consumers having to once again dip into their already limited disposable income to keep their heads above water.

“It is very likely that we will see petrol cost around R20/ litre before year-end, and this will have a huge impact on all of us.

“Significant petrol price increases, such as these, push up the price of all other commodities, as the cost to produce and transport raw materials rises. This is then reflected in the cost of everyday necessities like bread, milk, maize – and virtually anything and everything on store shelves. From seed to plate, we will see rising costs.”

And with a further R1.45 increase in illuminating paraffin, those who use it for lighting, heating and cooking will be especially hard hit, said Alexanderson.

Those who do have an income and who are credit-active have been significantly affected by the pandemic and subsequent lockdowns, and are still trying to recover, he said. “At the end of Q2 of 2021 –the average arrears debt per consumer was nearly R16,000. The current debt overall stood at R2.077 trillion – with over R1 trillion of that allocated to unsecured debt.

“If consumers are in arrears with their accounts and have borrowed to the point where they are using bank-issued credit cards and personal loans with interest rates of up to 25% to pay for food and electricity – chances are that they won’t qualify for more debt. Especially since the National Credit Act (NCA) prohibits credible lenders from lending money to consumers who cannot afford it.”

With their access to credit curtailed, Alexanderson said that consumers will in all likelihood turn to rogue microlenders and community mashonisas – where they will pay up to 100% interest on loans made.

“Inevitably, banks are going to start hiking interest rates, and this is never good for consumers. Especially the middle class, who have – for a while now – experienced a degradation in disposable income.”

A recent study by the National Credit Regulator indicates that consumers are struggling to repay their short term credit.

From the study, it showed that credit cards were the type of credit that was most prone (23%) by consumers to increase their debt because of Covid-19 and the reason most regularly cited for increasing debt above the original loaned amount was “late or missed payments” for those with unsecured credit transactions.

Those with available funds in their credit cards utilised their facilities more regularly than other product types during COVID-19, especially in the case of those who had lost a portion of their income or savings.

Similarly from the TransUnion Consumer Pulse Study for Q3 for 2021, it shows that 41% of consumers report that a substantial proportion of South Africans remain under financial pressure as they’ve been in arrears for a bill or loan in the past three months. Of those that have missed payments, 33% reported missing one and two bills or loans, and 17% missed three bills or loans.

“From all of this, it is evident that consumers are struggling to make ends meet, by living on credit to afford their debt and living expenses. It’s a very dangerous situation indeed, with Black Friday coming up,” said Neil Roets, CEO at Debt Rescue.

With Black Friday and the festive season around the corner, Alexanderson cautioned South Africans not to overspend and risk becoming over-indebted. “This difficult financial climate we’re in is likely to get worse. There is no magic wand to vanquish debt. We need to take responsibility for our finances and seek viable debt relief options. We have to get back to the basics of drawing up a budget and sticking to it. If you have a side hustle that can generate extra income, now is the time to optimise it.”

While the lure of great deals may entice the best of us, the frenzy that is called Black Friday can plunge many South Africans into further financial trouble, Roets added.

A Debt Rescue survey among 1,000 consumers found that 86% of women indicated that they will participate in the Black Friday weekend, versus 15% of men, and among all shoppers, a noteworthy 60% will buy their goods on credit, instead of missing out on a good deal.

“Have a set budget of the amount that you can afford to spend,” Roets advised. “Then do your homework into what you want to buy so that you don’t get caught up in the frenzy of shopping for the sake of it as there is a 50% discount. Know your prices, as the deals aren’t always as good as they seem.

“Black Friday deals have also started earlier and earlier, so be mindful of your salary, and only spend money that you have available and avoid buying goods on store or credit cards as you will incur interest on those purchases, which could easily negate any discount you were hoping to take advantage of.”

With Christmas around the corner, consumers may also be tempted to buy gifts on credit too – which could put them further into debt. Going over budget can lead to a long-term debt spiral, as historically consumers would have relied on year-end bonuses to repay the debt incurred in this time.

However, bonuses are less likely each year, and particularly this year due to financial impact on businesses because of the pandemic, Roets said.

Read: Why this one financial trend in South Africa is so terrifying