South Africans are getting poorer – and it’s going to get worse

Due to an underperforming economy and soaring inflation over the past five years, South Africans have become noticeably poorer as salaries struggle to keep up with inflation – a trend which is expected to continue in the near term.

According to clearing house BankservAfrica, on the surface, over the past five years, salaries have seen solid growth of 22.8%, with the average nominal pay increasing from R12,573 per month in February 2018 to R15,438 in February 2023.

The BankservAfrica Take-home Pay Index (BTPI) reflects trends in South African take-home salaries (after deductions), derived from the salary payments made to approximately four million people (about 25% of the employed workforce of South Africa).

However, the Consumer Price Index (CPI) measuring the cost of living in South Africa, compiled by Stats SA, increased by 26.6% over the same period, confirming that nominal take-home pay has lagged on developments in inflation, said BankservAfrica.

Of more concern is that even when stripping out the impact of inflation, in real terms, average take-home pay has been slipping due to poor economic conditions, especially after 2021.

Up to 2021, the nominal take-home pay kept up with inflation, but in 2022 the nominal average take-home pay stagnated and fell well behind the notable increase in the cost of living, said the clearing house.

The graph below shows the noticeable decline in real take-home pay in South Africa from 2021.

“The economic environment has been exceptionally challenging for companies in the past 18 months, with harsh load shedding, high production costs due to escalating fuel prices, a weaker currency and rising wage demands, elevated interest rates and moderating consumer demand all contributing to dismal growth,” said Shergeran Naidoo, BankservAfrica’s Head of Stakeholder Engagements. 

Furthermore, many companies have recently indicated a shift in focus from potential expansion and investment (including salary and wage growth) to becoming less dependent on Eskom, i.e. capital earmarked for investment gets redirected for self-sufficiency.

South Africans are expected to get poorer

The persistent pressures of the South African economy and the shift of businesses from investment to self-sufficiency, given rampant load shedding, are evident in the latest BTPI data, while businesses, analysts and unions expect salaries and wages hikes to be smaller.

The average nominal take-home pay slipped marginally in May to R14,457, reflecting a decrease of 2.7% year-on-year and a notable 6.4% from February 2023 – reducing salary growth over the past five years (from February 2018) to only 15%.

Additionally, Real take-home pay fell to R13,416 per month in May 2023, or 8.8% lower on a year-on-year basis and the lowest level on record, while inflation remained at an elevated level of 6.3% year-on-year.

What’s worse is new data from the Bureau for Economic Research (BER) shows that businesses, analysts and unions expect inflation to increase in the second quarter of 2023 and beyond.

Inflation expectations of analysts, business people, and trade unions average 6.5% for 2023 and 5.8% for 2024. The respondents expect inflation to subside to 5.5% in 2025.

However, survey respondents also lowered their salary and wage growth forecast in 2023 and 2024.

“Whereas they previously expected wages to rise by 5.3% this year, this was trimmed to 5%. Wage growth of 5% is also pencilled in for 2024,” reported the BER.

On top of this, GDP growth expectations were downscaled by all three social groups to 0.6% in 2023.

These wage expectations are still below inflation expectations, meaning South Africans will only get poorer over the near term.

“The ongoing challenges of harsh load shedding, high cost of living, increased production costs due to escalating fuel prices, rising wage demands and elevated interest rates have held the economy back,” said Naidoo.

“The economic environment is likely to remain dismal and is unlikely to be conducive to job creation or improved salary increases,” he added.

Read: How much you need to earn to be middle class in South Africa