Consumers face debt crisis as recession grips SA

Cape Town – South African consumers face a debt crisis after the country entered a technical recession in 2017, according to Debt Rescue CEO Neil Roets on Friday.

“We have been living through the recession for the past couple of months,” he said. “It has had a big impact on consumers. More than 10 million consumers (over 50% of economically active South Africans) are over indebted, which means they are in arrears on at least three payments.”

Roets said a lot more people have applying for debt review over past couple of months. “People are worse off with regards to finances,” he said. “We see all these price increases, but salaries are not increasing. People are also learning about debt counselling, which is helping them.”

A shock contraction of 0.7% in the economy during the first quarter of this year has tipped South Africa into a technical recession and quashed any hope of creating enough jobs to halt the steady climb in its unemployment rate, which hit a 13-year peak of 27.7% during the same period, writes Finweek’s Mariam Isa.

“Plunging growth and soaring unemployment encased in a toxic political environment are likely to mean a recession during the first half of this year and keep the economy suspended ahead of the ANC elective conference in December,” said Standard Bank’s chief economist Goolam Ballim.

The recession will have a snowball effect on the consumer, said Roets. “The rand will lose a lot of value, meaning we will see more price increases, especially petrol and diesel price increases.

“That will see goods and services increase, as most goods are transported on the roads,” he said. “There is a direct impact on goods going up. Making it worse, is that when the fuel price goes come down, we won’t see a reduction of transport costs going down.”

With a long-term recession a possibility, Roets said consumers have no choice but to prepare for the worst.

“Consumers should get financially educated,” he said. “They should check out their budget, live according to that budget and according to what they can afford. They should make provisions for unforeseen circumstances.

“People should also know their rights, and know how they can be assisted in debt counselling,” he said. “It has helped people pay off debt in affordable way. South Africa’s National Credit Act is one of the best in the world.

“If people don’t make use of debt counselling, there is always the option to negotiate with credit provider yourself,” he said. “You might come to some arrangement, but they won’t take into consideration your other debt. We look at the holistic situation.”

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