Rich South Africans are living lavish – and it’s helping the economy

Middle to high-income earners are driving a recovery in South Africa’s hospitality sector and new vehicle sales, says Momentum Investments.

The group’s latest Consumer Pulse report for the first quarter of this year found that the recovery path in hotels and restaurants alongside vehicle sales points to an unbalanced recovery in the spending power of consumers.

Higher-income earners are displaying higher levels of purchasing power, reported Momentum.

High-income and middle-income earners have experienced a faster rebound from the impact of the pandemic compared to low-income earners.

This was reflected in employment statistics, as well as income growth – figures pointed to the positive, the group said, This offers them more flexible budgets compared to other most cash-strapped consumers.

Restaurants and hotels

Growth in restaurant and hotel spending has increased from an average of 0.5% before the pandemic in 2019 to 4.7% last year.

The recent BER Services Survey that analysed confidence among respondents in the hotel and restaurant sector showed that they are the happiest they have been since the first quarter of 2014, with a confidence score of 75.

Increases in released profits, fees charged and business volumes are the primary drivers of this increased confidence.

Regarding hotels, there has been increased demand from international and local customers.

Restaurants, on the other hand, have seen their prices go up as a result of higher food prices and load shedding costs, said Momentum.

“The surge in hotel inflation to 6.1% y/y in February from 2.3% in January reflects these upward price changes,” the group added.

Momentum said that the increase in restaurant expenditure might also be due to a preference for convenience through food deliveries when load shedding is frequent.

The graph below shows the monumental growth the sector has seen:

New vehicle sales

Momentum says that the number of new vehicles sold has gradually increased since a trough in June 2020.

There were roughly 130,000 new vehicles sold in South Africa during the final three months of 2022.

New vehicle sales are increasing despite a substantial increase in interest rates, high inflation rates and weak consumer confidence.

The National Association of Automotive Manufacturers in South Africa (Naamsa) expects the vehicle market to remain resilient this year despite weakening economic conditions, said Momentum.

The Toyota Hilux starting above R300,000, was the top-selling car last year, with the car manufacturer itself having the largest share of total domestic sales at 22%.

Coming into this year, over the first two months, Momentum reports that there were 89,434 new vehicles sold thus far – higher than a year ago.

The graph below shows the ebb and flow of new vehicle sales domestically:

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