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President ignores the elephant in the room

If President Jacob Zuma were to be believed things have never looked rosier in South Africa and he was much beloved by the masses of South Africans who believed he was doing an outstanding job.

Delivering his State of the Nation address to parliament, he conceded that the ongoing drought was a problem but he largely blamed both the local and the international business communities for the country’s financial woes (and not a word was said about the firing of his previous finance minister Nhlanha Nene).

There had been nothing in the State of the Nation address that offered any hope that the government understood how dire the financial situation was nor any indications of what they were planning to do about it.

A clear indication of just how financially distressed South Africans really are is the dramatic increase in the number of people seeking protection from creditors by going under debt review.

So far this year we have had almost 120% more applicants who sought debt relief through the debt counselling process – one of the really good thigs that this government did for consumers, many of whom would never have managed to get out from under their mountain of debt were it not for the debt counselling process.

The fact that that ratings agencies including Fitch and Standard and Poor’s have all warned that South Africa’s bonds could be reduced to junk status if the economy was not better managed should serve as a wakeup call for the president and his cabinet.

It seems that our newly appointed finance minister, Pravin Gordhan, is doing a passable job but it remains to be seen whether his policies will be able to ward off recession and the downgrading of the country’s credit status.

Business Day reported that South Africa is teetering on the brink of a ratings downgrade cliff. Should rating agencies pull the trigger, the spectre of economic disaster looms large.

The cost of servicing SA’s bulging R1.8-trillion debt load will spiral; the country will be booted out of the World Government Bond index, making its bonds untouchable; and the capital outflows will be swift and devastating to an investment-starved economy. SA Inc is flirting with disaster and is fast approaching an economic iceberg. Will our captains steer the ship to safety or will the band fiddle away into the night?

South Africans are the biggest borrowers in the world, according to a recent World Bank survey, and 10.26 million people have accounts that are three months or more in arrears, the National Credit Regulator (NCR) said.

According the latest statistics released by the NCR, about 50% of all credit-active consumers are over-indebted, as they are in arrears by three months or more on at least one of their accounts.

The grim reality was that the majority of consumers in South Africa owed some 75% of their pay checks to creditors for loans usually with very high interest rates attached to them.

The reality is that many South Africans have become totally dependent of credit and without help, will probably never be able to pay back what they owe.

One issue that the government needed to urgently address was the near-total absence of financial literacy.

It is evident from the interviews we have with new clients who seek debt counselling that very few of them understand the intricacies of the financial system and what it means to stack up debt at very high interest rates.

The government has a vital role to play to ensure that financial literacy is taught at schools to avoid the growing abyss that many South Africans are finding themselves in.

It was imperative that consumers should seek help from a debt counsellor as soon as they realise that they were unable to cope with their mounting debts.

Your debt counsellor renegotiates your debt repayments with your credit providers, ensuring that your monthly payments are reduced to an affordable amount. You are automatically protected from any new legal action once you are under debt review.

The majority of credit providers have accepted that debt counselling is one of the best and most cost effective collection methods and are usually willing to negotiate repayment plans for indebted consumers that are affordable.

Neil Roets is the CEO at Debt Rescue.

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