By Simpiwe Piliso, Adele Shevel and Karen Van Rooyen
South African consumers should brace themselves for possibly the toughest time in 10 years and economists warn that it is likely to get a lot worse before it gets better.
Nine successive rate hikes, soaring fuel, food, electricity and water prices have taken their toll on a broad sweep of society from the poorest to middle-class property owners, and even small businesses.
Signs that consumers are not coping include
The financial crunch will only be exacerbated by Reserve Bank Governor Tito Mboweni’s promise of yet another interest rate hike on Thursday.
Economist Mike Schussler warned: “It’s going to get a lot worse before it gets better it’s difficult to say how much worse.”
Schussler added that if oil prices continued to hover around current levels on Sunday crude prices posted their biggest one-day gain ever, rising 11 a barrel to above 139 the situation could rival the late ’80s when economic conditions were even worse than the economic shock of 1998.
Christa Chidrawi, executive director of Lifeline, said there had been an increase in people seeking help due to financial difficulty, some of whom were on the verge of suicide.
“Middle-class people (who) have built up something in the past few years are suddenly being exposed to the position that they may lose quite a number of those assets,” Chidrawi said.
Anticipating Mboweni’s announcement of a further rate hike on Thursday, financial institutions have warned struggling consumers to seek help before losing their homes and cars.
Although the current interest rate of 14.5% is nowhere near the 1998 high of 25%, it is having a greater impact on consumers, said FNB property strategist John Loos.
Consumers’ ability to weather higher interest rates is far lower now than it was in the ’90s, given that households generally have higher levels of debt now, Loos added, pointing out that the debt-to-income ratio has risen to 78% from 58% 10 years ago.
Three months ago household debt stood at R952-billion, and consumers are further burdened by soaring food and transport prices.
The petrol price has almost doubled in the past year, and many motorists are struggling to meet the cost of simply getting from home to work and back.
It now costs R627 to fill up a BMW325i a middle-class favourite R160 more than in January. A diesel-powered Land Rover Freelander costs R734 to refuel, R241 more than six months ago.
In the past six months, the cost of refuelling a Toyota Yaris has risen by R100.
Fuel Retailers’ Association chief executive Peter Morgan said his Mercedes-Benz cost R740 to fill up, so he put R300 worth of petrol in his tank twice a week because “it feels better”.
Morgan said many motorists were no longer filling their tanks, asking instead for “R100 and R200 worth” when they pulled into garages.
Supermarket giant Pick n Pay yesterday put the price of an extremely basic food basket of brown bread, maize meal, chicken, sugar and milk at R186 a week. For a breadwinner domestic worker earning the legal wage of R1067 a month, this is nearly 70% of pay.
Pensioner Ros Carroll, 72, from George in the Southern Cape, shops with her calculator in hand as her R600 allowance for groceries does not stretch that far any more.
Reunert Kharivhe, an accountant who runs a debt counselling agency in Johannesburg, said only 15000 people had applied for counselling at the country’s registered 362 service providers.
This figure should be much higher, considering the level of debts in South Africa, said Kharivhe who sees, on average, 60 new consumers a month. Martin Feinstein, managing director of the Business Place and who is also on the board of the Small Enterprise Development Agency, predicted 18 to 24 months of “hell for small businesses”.
Feinstein said the massive surge of personal debt incurred prior to the National Credit Act was now coming home to roost, with debt servicing now one of the top expense items.
“People will cut their own hair, do their own garden maintenance and that dent in the car that would have been fixed a year ago will now just be ignored,” Feinstein added.
Last month estate agents and auction houses confirmed there had been a substantial increase in the number of small businesses for sale, ranging from franchised restaurants to construction companies.
Ferdie van Greunen, a senior broker at Aldes, the largest business broking company in the country, recorded 250 business sales in Gauteng alone in December. According to Aldes data, 40% of these businesses were supermarkets, bottle stores, butcheries and petrol stations and another 20% were restaurants and fast-food outlets.
Aucor Auctions managing director Shannon Winterstein said vehicles ranging from old Toyotas to Aston Martins were being auctioned. “We are seeing cars on the floor that have barely been used,” he added.
Winterstein expects the value of cars sold to decline; dealers are paying less than the trade price, and the oversupply is set to grow.
Rael Levitt, chief executive of auctioneers Alliance Group, said the company had received data from financial institutions of an estimated 55000 families showing “mortgage stress”.
The financial pinch was especially acute in the R1.5-million to R3-million market, he said.
Monthly payments on a R500000 bond over 20 years have increased from R4992 in June 2006 to R6399; a R1-million home loan now costs an extra R2815 a month; a R1.5-million home loan means an additional R4223 and on a R2-million bond the extra monthly amount is R5631 Additional reporting by Nicki Gules and Xolile Bhengu.