Debt-trap warning for consumers in South Africa

South Africans are in for a difficult festive season, says CEO of Debt Rescue Niel Roets, after a big jump in both petrol and diesel prices in November keeps the pressure on consumers when they fill up and on producers who will need to pass their increased costs on.

The Department of Mineral Resources and Energy announced a 51 cents per litre hike in the petrol price for November, with diesel going up by a significant R1.43 per litre. The prices take effect on Wednesday (2 November).

The price hikes come as the average international product prices for petrol, diesel and illuminating paraffin decreased during the period under review. The price hikes have been attributed to the depreciation of the rand against the US dollar.

“Regardless of the economics behind this hike, it is devastating news for South Africans who were counting on a little financial relief over the festive season to briefly shrug off the economic woes of the past year and recharge their batteries,” said Roets.

“There will inevitably be a corresponding hike in public transport costs, and this means that many working-class citizens who have been looking forward to this once-a-year occasion to visit their families will simply not be able to afford the travelling costs this year.”

The price hikes in petrol and diesel will also unavoidably result in more food price increases, he said, at a time when two-thirds of the population can no longer afford three square meals per day.

“South Africans are paying nearly 14% more for basic food items than they did a year ago, and this is over and above the steep electricity and petrol prices, not to mention the interest rate hikes that have completely decimated people’s budgets,” he said.

The debt expert noted that as consumers struggle to meet the rising cost of living, they are likely to turn to credit cards and store cards to make ends meet – and that the festive season risks becoming a massive debt trap for many.

“South Africans (will be) leaning even more heavily on their credit and store cards to be able to celebrate the festive season in some kind of way – and for many, this will simply mean putting enough food on the table – starting out the New Year in even more debt,” he said.

Economists from Nedbank say that south African households are already increasingly turning to credit lines to help cope with the growing cost of living crisis in the country.

Commenting on money supply and credit data for September, the finance experts noted credit growth accelerated further in September at rates higher than expected – and this will only probably start to moderate after the festive season.

According to Nedbank, household credit demand grew by 7.2% year-on-year in September from 7.1% in August.

“Growth in general loans and credit cards increased further, probably reflecting distressed borrowing as consumers supplement spending given the rising cost of living,” it said.

Demand for other loans and advances, including unsecured credit, remained strong at 15.6% year on year.

The bank noted that credit growth has been more resilient than anticipated, and it will likely remain strong in the last quarter, sustained by higher consumer spending during the festive season.

Read: Consumers turn to credit to cope with rising cost of living in South Africa