Food prices, electricity costs, municipal tariffs, medical aid fees – all soar as incomes fall, crushing South Africans’ personal finances, and load shedding puts more pressure on businesses.
The story of consumers being squeezed in is one we’ve heard over and over for the past two years, but South Africans may well be at a tipping point.
Municipal rate tariffs will be finalized in increments effective from the end of June, the country’s largest health program increased contribution increases from 7.9% to 9.9% this month, and food prices rose 14% from last year – and that’s it before you take into account shedding costs.
The Johannesburg municipality’s draft medium-term budget notes that while there is consensus that not much has changed from the previous fiscal year, the material impact of the load shedding on the region’s economy should highlight the increased cost. increased vulnerability of life and households.
“Load shedding means reduced productive hours, shifting off-grid, increased cost of doing business, job loss in non-key industries, increased crime, and reduced usual scale of operations,” the document says. “This directly impacts municipalities when it comes to the sale of utility services, additional security measures, pressure to deal with infrastructure collapse and vandalism, the availability of current technology and the speed with which alternative solutions are found.”
Mayor of eThekwini Mxolisi Kaunda said that tariff increases are inevitable due to the economic environment made above inflation. “The Eskom hike and the Umgeni Su hike are out of our hands,” he says.
Councilor Siseko Mbandezi, member of the Cape Town mayor’s finance committee, said the Municipality managed to reduce Eskom’s municipal rate increase of 18.49% to 17.6%, absorbing about R15 million per month.
“This is while still financing a reliable electricity service and we plan to end [Cape Town’s] reliance on the expensive power of Eskom alone as soon as possible. If the Municipality pays for the full tariff increase, this will be more than Rs 180 million per year. This is something that the Municipality and taxpayers cannot afford,” he said.
According to Mbandezi, about 70% of Cape Town’s tariff revenue will go to bulk electricity purchases from Eskom, with the remaining 30% invested in service delivery and de-loading.
Cape Town also plans to give residents a break for properties worth less than Rs 5 million, with the first Rs 450,000 of property value exempt from rates.
Consumers who do not pay municipal fees and school, doctor and attorney fees.
Worryingly, a recent Stats SA report on debt-related litigation shows that consumers are increasingly failing to pay off their debts, including council fees, tuition, school fees, and money owed to medical practices and lawyers. These types of loans fall outside the National Loan Act, which means they cannot be renegotiated by debt advisors.
Benay Sager, president of the National Debt Counseling Association, said that subpoenas for services-related debt, primarily municipal rates, increased by nearly 25% in November 2022 compared to the same month in 2019 before the pandemic.
Comparative data on tuition fees and tuition fees for the same periods show a 33% increase in judgments. However, the volume of general calls has decreased.
“Some creditors realize that obtaining a subpoena is not the most effective way to recover their claims, and financially struggling consumers prioritize the loudest shouting creditors.
“Often these are businesses rather than schools and municipalities, so a lot more people are late paying these types of debts,” Sager explains.
Rising food inflation
Reports show that food inflation rose 14% over the past year, reaching its highest level since March 2009. Food and non-alcoholic beverages were the largest contributors to annual inflation, and increases in transportation and fuel were also substantial.
Luigi Marinus, head of investment at PPS, says the concern is that the 4.25 percentage point hike in interest rates since the start of the current walk cycle is prolonging the impact but not yet having the desired mitigating effect on inflation.
“After the surprise 50 basis point increase after the last [Monetary Policy Committee] meeting, this rise in inflation may signal that we are not yet at the end of the walking cycle,” he warns.
Marinus said electricity and other fuels rose 8.2% year-on-year, but the more than 18% approved hike in Eskom tariffs that took effect this month and the municipal tariff increases in July will have more of an impact on inflation.
On the Daily Maverick Cost of living crisis – SA CPI rises to 7.1% in March, food inflation hits 14-year high.
Consumers can no longer afford to keep the lights on
South Africans have to contend with sustained Stage 6 load shedding, which by all accounts will continue indefinitely, with the prospect of moving to Stage 8 as winter approaches.
A recent survey by Debt Rescue said that 77% of respondents believed electricity had become unaffordable, and a surprising 89% said it would have a significant impact on their budget.
Neil Roets, CEO of Debt Rescue, said that 40% of respondents are currently spending between Rupees 500 and 1,500 per month on electricity and cannot afford another increase.
The government continues to advise consumers to use electricity sparingly, reminding that the grid is under pressure and that millions are forced to take responsibility for their electricity needs at great personal cost.
Roets reported that 61% of respondents invested in energy-efficient appliances; 29% switched to prepaid electricity to reduce their consumption; and 16% realized solar energy conversions.
“It’s hard to believe in forces that are unaware of the predicament most of the population is in,” he says.
Daily Maverick Report shows clear signs of financial distress among SA consumers.
Paul Makube, senior agricultural economist at First National Bank, states that the bread and cereals category in the food basket recorded the highest annual increase of 20.3%.
“This reflects the lagged transition of the recent decline in grain prices at the producer level. Producers still bear the high cost of grain prices from 2022 due to a delay of up to five months in transition to consumer level.
“Continuous and steep load shedding in 2023 has exacerbated the situation. The weight of this category is important in the food basket with 21%,” he warns.
The Daily Maverick Competition Commission criticizes food manufacturers and retailers over prices He says the relentless cost pressures from load shedding will keep food prices down in the short term.
“However, monthly prices in both domestic and international markets have been trending downwards recently, which has the potential to limit further rises in consumer prices in the second half of 2023.
“Fortunately, the local summer crop season is expected to end on a high note with a good harvest, given the excellent seasonal conditions that bode well for food inflation in the coming months,” he said.
Wages fell and expenses fell too
The increasing pressure on consumer wallets is also reflected in the harsh retail environment.
Lara Hodes, economist at Investec Bank, says that in some cases retailers have had to reduce load reduction by spending money on spare power just to keep trading.
“Consumer sentiment is very low, interest rate [rising] is putting a heavy strain on disposable incomes,” she says.
Average real take-home wages fell 8.3% in February this year, according to BankservAfrica.
This was filtered by households towards lower consumption spending and a notable drop in confidence levels as reported in the latest FNBBER Consumer Confidence Index, which fell to -23 points in the first quarter of this year, illustrating consumers’ concerns about the South. Africa’s economic prospects and household finances.
Capitec, one of the largest banks in the country, has announced that it has reached R6.3 billion in loan impairments , an increase of 80% for the last year by the end of February.
Chief executive Gerrie Fourie said the increase in loan impairments was mainly driven by the impact of the worsening economy and high inflation.
“We see that consumers are pressured by rising spending and declining incomes. I guess what I’m trying to say is don’t keep up with the Joneses, live within your means,” he says.
On the Daily Maverick Capitec CEO warns consumers to live within their means as loan impairments increase by 80%.
Hodes says he does not expect a significant increase in household consumption in the short term .
“Growth is expected to be 0.2% for this year as downside risks persist due to increased load shedding,” he says.
The BankservAfrica Economic Transactions Index, a measure of economic transactions between SA’s banks, also fell in March to its lowest level since December 2021 – another sign of a possible recession on the horizon.
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