In a year marked by economic challenges, South Africans, particularly middle-class workers, find it increasingly difficult to maintain their standard of living. The South African economy has faced numerous headwinds in 2023, with GDP growth remaining sluggish at under 1%. This economic stagnation can be attributed to a combination of factors, including global tensions, persistent supply chain issues, heightened load-shedding, rising interest rates, and escalating costs of essential commodities such as food and fuel.
The average South African consumer is grappling with mounting pressures, as increased interest rates and fuel prices place additional strain on their finances. Inflation further compounds the situation, with households, especially those with limited disposable income, struggling to make ends meet during these turbulent times.
Research and analytics firm Eighty20 defines middle-class workers as households earning nearly R25,000 a month with a personal income of R15,000, which aligns with the average take-home pay of approximately R15,578 per month as of September 2023, as per BankservAfrica’s Take-Home Pay Index (BTPI).
According to Nedbank’s NedFinHealth Monitor, 76% of South Africans reported an increase in expenses over the past year, while 62% indicated that their spending equals or exceeds their income. Moreover, 69% of South Africans find it challenging to pay their bills on time, with 33% of homeowners admitting to late home loan repayments in the last 12 months.
Eighty20’s credit stress report echoes these concerns, revealing a 12% year-on-year increase in total and average installment amounts. The installment-to-income ratio for middle-class South Africans has risen to 73%, marking a 10% year-on-year increase, which is the highest among all segments. The number of secured credit, including home loans and Vehicle Asset Finance (VAF), has declined.
Many borrowers are struggling to meet their loan obligations, with new defaults on home loans and VAF showing increases of 51% and 30%, respectively. South African Reward Association member Kirk Kruger noted that as much as 73% of disposable household income is allocated to servicing debt repayments, making South Africans one of the most indebted populations in the world in 2023.
The impact of a nearly 5% interest rate hike over the last two years is palpable. For instance, a middle-class South African with a R1.5 million bond, a R300,000 car loan, and a R50,000 personal loan is now paying approximately R5,438 more per month on loan repayments compared to November 2021. To maintain their standard of living, this individual would need an additional R8,915 per month before taxes, which amounts to over R106,000 per year.
The FNB/BER Consumer Confidence Index (CCI) indicates that middle-income households have witnessed a slight improvement in confidence levels, while low-income households’ confidence levels remain unchanged. FNB Chief Economist Mamello Matikinca-Ngwenya suggests that while the nation’s financial pulse remains weak, there is a glimmer of hope for consumers, especially with a decline in the CPI inflation rate. However, recent data shows a surge in headline inflation, which may influence the Reserve Bank’s interest rate decisions.
Stats SA’s latest CPI data reveals a substantial jump in headline inflation to 5.4% in September from 4.6% in August. While it remains within the SARB’s target range of 3% to 6%, economists anticipate that higher inflation may result in a year-end average of 6%, potentially impacting the Monetary Policy Committee’s stance.
Koketso Mano, FNB Senior Economist, attributes the inflation rise to elevated fuel prices and transport costs, driven by a significant hike in local prices in September. With another fuel price increase in October, inflation is expected to continue its ascent.
