CAPE TOWN - We’re in recession, and consumers are being squeezed on all sides: fuel costs are at historic highs, food costs are rising, VAT is up, retail is flat, unemployment stands at 26.7%, and with more fuel price increases on the horizon, the festive season is looking gloomy for most South Africans.
StatsSA’s August 2018 figures aren’t encouraging: retail trade sales (RTS) increased by 2.5% year-on-year, but only by a modest 0.6% in August compared with July. Seasonally adjusted, RTS increased by 0.5% compared to the previous quarter.
Retailers' biggest annual growth areas were for household furniture, appliances and equipment (10.4%); textiles, clothing, footwear and leather goods (6%); and pharmaceuticals and medical goods, cosmetics and toiletries (3.1%). StatsSA says the main contributors to that 2.5% increase were clothing, textile and footwear retailers (contributing 0.9 of a percentage point); and general dealers (0.7 of a percentage point).
Ronelle Kind, advice framework manager at Momentum Corporate, says the Momentum/Unisa Consumer Financial Vulnerability Index second quarter results paint a gloomy picture: showing that Ramaphoria has waned into a false economic dawn, consumers are “back in the dumps” and it’s going to get worse.
In the first quarter of 2018, the figures were looking upbeat, Kind says. But the third quarter isn’t rosy: with the VAT increase, fuel prices at their highest and retail figures flat.
“Retailers are trying to absorb the costs - consumers are trying to tighten their belts but there are often no more holes in that belt, Kind says.
Beyond the numbers, the economy might be in a slump but consumer confidence is buoyant. Tsitsi Hatendi-Matika, the head retail investment specialist at Absa’s Wealth and Investment Management unit, says this is in spite of the volatile world market, inflationary pressures, weak rand, record fuel price, VAT increase, electricity costs, unemployment and a myriad political factors dragging down sentiment.
“It feels contrarian,” Hatendi-Matika says. “But consumer confidence is at its highest levels since the global economic crisis.”
That confidence though wanes for those further down the economic bracket. The higher income brackets are generally optimistic about the change of guard in government, but the poor might consider themselves having been better off during the Zuma years, she says.
Kind says consumers won’t see changes soon. There’s a deterioration in income, expenditure, debt, savings, and overall vulnerability scores, but income is clearly down, at 3.86%.
“People are feeling their income is being threatened. There’s a lot of retrenchments and job insecurity. The savings index is also down. It’s a vicious cycle. People are pessimistic. Things won’t change in the next quarter.”
An increase in unsecured and other lending is becoming a concern. Hatendi-Matika says: “It’s worrying. You’d think they would slow down. But the banks are saying they’ve improved their profile of who they are lending to, they’re extending credit to the middle- to upper-income earners - and they’re much more strict about who they are lending to.”
In terms of the latest StasSA figures, Hatendi-Matika is encouraged by a slight improvement in retail trade figures - particularly household items such as furniture and appliances. The 3.1% percent increase in toiletries she attributes to strong results from Dischem.
“And PnP’s results were massive - the best they’ve had in five years.”
Annabel Bishop, chief economist at Investec, says notwithstanding the modest lift in retail sales for August, demand remains lacklustre.
“Consumers have seen a period of tight credit conditions, with an attributed better management of debt by credit providers, underpinned by stricter regulations and assistance from credit regulators. This has assisted in reducing impairments - recorded by registered credit providers - along with the statistical impact of the 2014 amnesty regulations for debt,” Bishop says.
Millions of consumers benefited from the amnesty, which has had a noticeable impact on reducing the number of impairments recorded by the National Credit Regulator.
“Growth in credit extended to households has lifted year-on-year, with many households under financial pressure, and the second quarter of 2018 delivered an outright contraction in household consumption expenditure as real disposable incomes contracted.”
She says growth in credit extended to households has lifted compared to last year by 4.2%, which is the greatest increase in borrowing since 2014 as consumers likely increasingly resorted to borrowing in the face of lower salary and wage increases.
More households are dependent on credit card usage (an increase of 5% y/y); overdrafts (5.1% y/y versus 5,6% y/y in 2017), but mortgages are only up by 3 (compared to 4.3% y/y in 2017).
A big concern was the lack of financial literacy, Kind says. “We buy things we don’t need, we don’t plan. It’s South African culture - we don’t save, nor do we cushion ourselves. We spend more than we earn, take on too much credit, so when there are small - or big - changes in the economy, there’s little margin."