Why SA consumers are in for a rough ride in 2017

Cape Town - Consumers are in for a very rough ride in 2017, Neil Roets, CEO of Debt Rescue, cautioned on Friday.

He warned that 2017 was going to be a tough year and consumers who had difficulty making ends meet in 2016 were going to find it much harder in the New Year.

He pointed out that the first blow to deeply indebted consumers will already come early in January with fuel prices increasing.

South Africans will be hit hard at the pumps with petrol and diesel going up by up to 50 cents a litre, the Department of Energy has announced late on Thursday.

Roets said another factor to watch is what he describes as interest rate increases by the SA Reserve Bank (Sarb) being almost a certainty following the US Federal Reserve’s decision to increase its rate by a quarter percent. Expected further electricity increases are also expected to impact the debt load that consumers will have to carry in the New Year.

"Two important reports show that the South African economy is in deep trouble. The economic report by think tank FocusEconomics paints a bleak picture for the South African economy in 2017. Their team of economists and analyst have revised gross domestic product (GDP) growth expectations for the country even lower than predicted by government, suggesting that it might be as low 0.5%," said Roets.

The county’s outlook is dim. The electricity and water supply constraint will hamper growth by both interrupting production and by discouraging investment, the FocusEconomics report stated.

READ: SA consumers 'holding back' on big purchases

Apart from that the BankservAfrica Economic Transaction Index (Beti) report claims that SA is already in a per capita recession because real incomes have been in decline for at least the last three years due to economic growth being slower than population growth.

“The highly regarded Beti report shows that South Africans have seen their incomes decline in real terms for the past three years on average. All these indications suggest that 2017 could be the fourth year of the per capita recession," said Roets.

“It seems sad that we have to be so pessimistic at such a happy time of the year, but the sooner consumers realise that the economy is in trouble and tighten their belts, the fewer of them will have to come to us to bail them out by placing them under debt review."

Roets is concerned by many South Africans, who barely make ends meet during the year, plunging themselves even deeper into debt during the holiday season "by spending money on expensive holidays and generally having a good time – often on credit cards or with money borrowed from money lenders at exorbitant interest rates".

He said experience over time had shown that January was the month of the "great reckoning" when these chickens came home to roost.

READ: Main reasons consumers feel financially vulnerable

“We see more new clients seeking help with the repayment of their outstanding debt in January and February than during any other month of the year, because of additional debts that had been stacked up during the holiday season," said Roets.

“Parents suddenly realise that they have to pay school fees that had not been budgeted for and with credit cards maxed out on luxuries in November and December many have no choice other than to seek relief by going under debt review to prevent debt collectors from seizing their property.”

That is why Roets advises that it is hugely important to budget, especially for expenses such as school fees and payments on credit and store cards.

“Bear in mind that the interest rate on credit cards is substantial so, wherever possible, buy cash. With food inflation running at 11% and the Consumer Price Index (CPI) running at 6.6% - well above government parameters -  there is not the slightest possibility of relief in sight for consumers," said Roets.

“Total consumer debt now stands at close to R1.6trn (according to the latest figures released by Sarb) which clearly shows that South African consumers have not cut back on spending. A recent World Bank index has also shown that SA is one of the most indebted countries in the world.”

Roets pointed out that more than half of all consumers were three months or more behind in their payments. The major culprits are credit and store cards, followed closely by unsecured debt.