Here’re the challenges faced by deeply indebted consumers
With Eskom more than R420-million in debt and municipalities owing a further R27-billion to the effectively bankrupt state-owned enterprise, deeply indebted consumers in South Africa are going to feel the pain as an increasingly distressed fiscus is trying to stop the wheels from coming off.
Efficient Group chief economist Dawie Roodt warned that there was a high likelihood of further downgrades coming from the ratings agencies, which would further tighten the noose around the necks of deeply indebted consumers.
“The biggest single remaining problem is the vastly overstaffed civil service and the fact that government employees consistently get increases well above the inflation rate.”
He said the only solution to this problem would be a head-on clash between South Africa’s increasingly powerful union movement and the government to radically reduce the number of government employees.
Neil Roets, CEO of one of the largest debt counselling companies in South Africa, Debt Rescue, said, in line with their expectations, there had been a stampede of consumers who were applying for under debt review after their spiralling debts had finally caught up with them.
“This has become an annual event after Black Friday, Cyber Monday and Christmas shopping. When consumers realise that they are at the end of their tether and that debt collectors are planning to seize their assets their only remaining option is to be placed under debt review.”
The fact that Eskom has asked for yet another tariff increase of 15% from energy regulator Nersa would also significantly impact on indebted consumers,
Roets said, despite assurances from President Cyril Ramaphosa and other government luminaries, there was some foreign direct investment coming into the country and creating jobs. At the debt coalface, where his debt counsellors were operating, this did not appear to be the case.
“We see many more people out of work or being threatened with retrenchment. The overall debts of consumers are also growing larger and accordingly becoming more difficult to pay off.”
Roets warned that the uncertainty being created by government’s planned land seizures is having a profoundly negative effect on the economy.
“Several of my friends and colleagues are successful entrepreneurs and not a single one of them feels comfortable investing more capital in their businesses at this point because none of us know what the future holds.”
“Total consumer debt now stands at close to R1.73-trillion (according to the latest figures released by the reserve bank) which clearly shows that South African consumers have not cut back on spending. A recent World Bank index has also shown that South Africa is one of the most indebted countries in the world.
He said almost half of all consumers were three months or more behind on their payments. The major culprits are credit and store cards followed closely by unsecured debt.
Expectations that there might be a reduction in the fuel price were quashed by the recent spike in the price of crude. This is expected to result in an increase in the price of all fuel prices of between 7 and 8 cents a litre.
The only measure of relief for consumers who are in over their heads is the legally-binding system of debt review which allows deeply indebted consumers to repay their debts over a longer period of time in smaller instalments often at a discount.
“Lenders are sometimes willing to take a cut if it means they can avoid having to involve debt collectors or foreclosing on the fixed properties of debtors.” Roets said.
IOL – Finance