Storm clouds gather for middle-class South Africa – the worst in 15 years
The number of South Africans crumbling under debt has increased dramatically this past month, and experts warn this is a result of living through the most difficult year in almost two decades thanks to stagnant salaries coupled with interest rates, food price inflation, increased fuel costs, and load shedding.
In January 2024, DebtBusters, the largest debt management firm in South Africa, reported a concerning rise in demand for debt counselling services.
“Year-on-year DebtBusters have seen a significant increase in debt counselling inquiries, jumping 41% in January 2024 compared to last year,” said DebtBusters’ head Benay Sager.
Sager noted that several factors had driven this increase, but one is that “2023 was the most difficult year financially for South Africans in the last 15 to 20 years“.
This surge in demand is attributed to the high cost of living, which has made it difficult for many people to make ends meet.
Additionally, there has been a significant increase in the use of payday loans by consumers seeking to supplement their salaries.
Signs of the worst year in over 15 years
Sager noted that South African consumers took a beating in 2023, and this is evident across multiple industries.
This was evident in the fact that several banks in South Africa recorded a substantial rise in credit impairments across the last financial year.
In a voluntary trading update for the year ending 31 December 2023, Absa noted that it expected its credit loss ratio to exceed its through-the-cycle target range of 75 to 100 basis points due to higher policy rates.
Additionally, African Bank said that its credit impairment charges on loans and advances grew by an astounding 240% to R2.24 billion (H122: R658 million), resulting in a credit loss ratio of 11.1% (H122: 4.8%).
Capitec, South Africa’s largest bank by number of customers, also recorded a major increase in credit impairments, which jumped by 80% to R6.4 billion (2022: R3.5 billion) following the economic turmoil in FY2023.
These signs of struggling households were evident across the board – hitting the middle class and even the wealthier segments of the population.
For example, Lew Geffen Sotheby’s International Realty CEO Yael Geffen noted that since November 2021, homeowners with relatively modest R2 million bonds have been slammed with increases of more than R6,000 per month.
She added that rates remain at their highest point in 14 years since the fallout from the global financial crisis weighed on the local currency.
According to FNB statistics, financial pressure accounted for 25% of all residential property sales in Q4 2023, exceeding the historical average of 18% and now the most important reason cited by sellers.
Adding to these stress signs, according to figures released by Naamsa, passenger cars – the largest share of new vehicle sales – lost 6.7% year-on-year in January 2024 – more than the 3.8% total volume decline across the entire market.
This showed South Africans are now shying away from buying new cars, while Absa noted demand across the consumer base is depressed.
Naamsa noted that this means five months of consecutive slowdown in volumes towards the end of last year – showing that the outlook for 2024 volumes looks lucky to show any growth.
Absa’s PMI data for January 2024 also plunged as demand and activity faltered, alongside new vehicle sales and exports.
“Outside of the global financial crisis in 2008/09 and the pandemic-induced lockdown period of 2020, the index has only fallen to this low level a handful of times,” Absa said.
The banks laid the blame primarily on inflation – particularly food inflation, electricity and petrol increases coupled with high interest rates and load shedding eating into the economy’s bottom line, which resulted in little job growth and salary increases.
“And, unfortunately, we expected this trend of financial hardship of 2023 to extend to the rest of 2024,” added Sager.
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