When it comes to debt, South Africans tend to dwell on all the negatives and are more likely to get swept into the narrative that consumers are drowning in debt and are worse off than anyone else in the world.
However, in a new column, chief economist at Economist.co.za, Mike Schussler provides some important data showing that things in the country – particularly around consumer debt levels – are not as bad as we think.
According to Schussler, debt panic feeds narratives used by politicians and other businesses to tighten their grip on a country’s collective assets.
“Debt is an ordinary and necessary part of modern economic life. There is no economy that I know of without financial obligation,” he said.
“In South Africa, the consumer is often thought to have a massive debt problem, and while consumers did struggle with debt during the peak before the National Credit Act started to operate, the fact is that, compared to developed world standards, our consumers have never had the same level of financial obligations.”
The economist highlighted four key areas where the data shows a positive spin on South Africa’s debt situation.
South African consumers have a handle on debt
While it’s undeniable that South African consumers have come under pressure due to taxes and rising costs over the past few years – when it comes to debt, South Africans are doing quite well.
When looking at household debt as a percentage of GDP, South Africa is well below the international average, and even sits below its peers in emerging markets.
“We are an upper middle-income country, and it would not be unexpected to have a slightly higher household debt-to-GDP ratio than emerging market households,” Schussler said.
“Let me say this again – South Africa has a well-organised credit market and good counselling and debt management institutions, along with very good legislation.”
Our pension funds work in our favour
South Africa has the eighth largest pot of pension fund assets measured in US dollars in the world today, Schussler said, adding that it has more pension assets than any emerging market out there.
Even if one had to take the 2015 value of BEE assets in the 100 largest JSE companies, this alone would be the 10th largest pension asset in the emerging market universe, he said.
This means that South Africa is sitting on a very healthy financing resource, which underpins its secure financial markets, the economist said.
We own homes
Schussler also noted that South Africa has a high home ownership rates, with the figure post-2010 at around 63.3%.
“The fact that over three million South African families stay in government-owned houses is something that could push the SA ownership rate beyond 80% at the stroke of a pen,” he said.
Things can still improve he said, adding that the data is obscured by some 2 million households that live on traditional land owned by traditional leaders where they have no way to get ownership rights in a modern sense.
We’re richer than our peers
Because of these solid fundamentals, South Africans are also, on average, wealthier than half the world.
“The typical adult in South Africa would be the 62nd most wealthy adult in the world due mainly to our great pension assets and partly to our homeownership rates,” Schussler said.
“However, this ranking dropped from the mid-50s about a decade ago. Still, to be 62nd out of 140-odd countries means the typical South African is still richer than more than half of the world.”
We come out even richer when looking at emerging markets. Among our emerging market peers, a typical South African is the 27th richest out of 103 countries.
Not all good news
Despite the positives, there are a couple of big negatives in the debt data.
While consumer debt is far below the global and emerging market average, government debt it showing an opposite, and more worrying trend.
According to Schussler, government debt as a percentage of GDP is currently around 10% higher than emerging market peers – even higher when taking government guarantees into consideration. He estimates that this will shoot past the international levels by the middle of the year (if guarantees are included).
What this means in practical terms is that the current trend points to a high likelihood of more credit rating downgrades, which may happen before the end of the year.
When looking at corporate debt, these levels are also far below global averages, but this speaks to a much bigger underlying problem – confidence is low, so companies are not lending to expand.
Despite this, Schussler noted that South African companies still have access to higher-quality funding through capital markets via the JSE – as well as venture capital for start-ups.
While many emerging markets have two to three times the loans from funders, South African firms have higher equity funding generally, he said.
“South Africans are not deficient in world wealth terms, and certainly not in emerging market terms,” Schussler said.
“South Africa has a wealth of assets but we concentrate on what we don’t have and what the rich do have, while the actual warnings that we should heed are that prescribed assets, theft and corruption make South Africans less wealthy.”