)

MONEY TALK

South Africa's best financial advice, research, how-to's, and insights

Consumers still taking on too much debt

Another fuel price drop may only be a temporary reprieve.


The country may start the new year positively with a fuel price decrease scheduled for tomorrow, but a tough year is awaiting South Africans, with a series of price hikes that may send the economy into a tailspin.

Investors will not jump to invest after President Cyril Ramaphosa’s 2018 charm offensive, but will adopt a wait-and-see attitude to gauge the political climate, experts say.

Chief economist at Economists.co.za Mike Schussler said the country was heading for a tough year.

The drop in the petrol price announced by Energy Minister Jeff Radebe on Friday would be undermined by the pending tariff hike by power utility Eskom and subsequent fuel increases expected later in the new year.

The National Energy Regulator of SA (Nersa) approved a 4.1% increase for Eskom, effective from April, although the utility asked for a 15% hike.

Radebe said that, from tomorrow the price of 95 octane petrol will go down by R1.23 per litre and R1.22 per litre for 93 ULP and LRP.

The minister cited current local and international factors that influenced the fuel price drop.

Usually, such factors are a lower crude oil price and the rand strengthening against the US dollar.

Schussler highlighted projected economic growth of 1.5% for 2019 – a rise from the 0.8% of this year.

National Treasury revised GDP growth down to 0.7%.

“Agriculture is sure to put pressure on economic growth and, with these price hikes ahead, the consumer will be put under pressure,” Schussler said. “We see investment all the time, with South African investors going overseas and foreign investors investing in South Africa, but it’s going to be tough and uphill battle on the investment side.”

He said Steinhoff was facing an uncertain future. Steinhoff was being haunted by the corruption scandal that hit the international retail holding company, with some of its leading executives exposed for having contributed to its troubles.

“We don’t know what will happen to Steinhoff. It may be forced to sell as investors are in doubt.”

Neil Roets, consumer debt expert and CEO of Debt Rescue, one of the largest debt counselling companies in South Africa, was worried about reckless spending.

He told The Citizen that while tomorrow’s fuel hike was good news, consumers should not be misled into thinking the country was moving in the right direction.

“We are going for more increases in 2019. People must prepare themselves for unforeseen circumstances and must stick to their budget all the time.

“It’s going to be worse for the consumer,” Roets added.

Many people would begin the new year under stress after spending money on festive buying sprees.

Some, as usual, would have spent without preparing for their January needs, such as school fees and school uniforms.

“This is the time that many apply for debt counselling – and they need to do so early,” Roets said.

While the National Credit Act was helpful legislature for debt-burdened consumers and has been hailed as among the best laws in the world, few people know about it, he says.

Chief economist at Econometrix Azar Jammine was also hard-hitting, saying there was no hope until the government had addressed the important issues it knew have been behind economic and investment uncertainty.

“We can only have hope once the government has improved the growth rate of the economy. They know what to do but are not willing to do it,” Jammine added.

He said business and investor concerns revolved around land expropriation without compensation and the Mining Charter, which still needed to be corrected to make it possible for investors to invest in the sector.

Government also needed to increase the tempo in fighting corruption and state capture.

“The government must improve education outcomes – especially on mathematics and science.

“There is a great need to improve industrial relations because trade union activities are destructive and damaging to the economic activities and especially crippling manufacturing and mining,” Jammine said.

The economist said investors and businesses were also concerned about where government would get funding for its planned national health insurance.

He suggested it was important that government promote small business activities to create jobs and improve economic growth. –ericn@citizen.co.za

Need immediate financial help?

Thank you!

We look forward to the opportunity to get you debt-free!