South Africa’s middle-class is being wiped out

Financial experts have seen an uptick in debt-related queries over the past few months as the effects of the country’s lockdown are still being felt, with the middle-class particularly hard hit.

The number of people in debt who are relying on their credit to stay alive has sky-rocketed, leaving the South African economy teetering on the edge of borrowed time, said Hans Overbeek, founder and chief executive of Cyber Finance.

While the impact is being felt by all sectors and groups, Overbeek said that middle-class families are increasingly falling behind.

“Many permanently employed workers have had to transition to contractual or informal employment, as businesses try and mitigate their own losses,” he said.

“Households below the poverty line have increased dramatically, while an estimated 34% of middle class families are estimated to fall into vulnerability.”

Overbeek said that more South Africans are also becoming indebted as they rely on their credit to support themselves and their families.

“Many people who were on track to pay off their debts prior to the pandemic have now been forced to take two steps back, as they struggle to stay afloat,” he said.

Data from consumer credit reporting company, Experian, found that the South Africans most affected by the economic downturn are those with the highest exposure to secured lending and other banking products.

These South Africans are increasingly more affected than those who experienced financial hardship before the Covid-19 pandemic, it said. This has been felt particularly hard in the higher income populations.

Not just the poor 

Statistics released in March by the SA Human Rights Commission (SAHRC) revealed over 50% of South Africa’s credit-active consumers (19 million) are over-indebted.

This has been compounded by South Africa’s low level of savings, said Neil Roets, chief executive of Debt Rescue, the largest Debt Counselling company in South Africa.

“Coupled with widespread retrenchments, and salary cuts, consumers are financially stressed and as 2021 progresses it’s likely we will see this situation get worse before it improves,” he said.

“Add to this that credit providers are now aggressively pursuing collections after the end of payment holidays, we are in for a very rough ride.”

Roets pointed to Eskom’s tariff increases which will soon be phased in, while consumers face a ‘double whammy’ at the fuel pumps come April due to a rise in petrol and diesel costs as well as an increase in fuel tax announced in February’s Budget Speech.

This has a knock-on effect in the form of increases in goods as transport costs rise, and the general price of living goes up relatively in response, he said.

“It’s not an easy time, that’s for sure. We urge consumers to cultivate a more frugal way of living as who knows how long this pandemic will last; reports of an imminent third wave are increasing by the day and potentially by May or June we could be back in lockdown all over again,” he said.

Worrying business recovery

A survey by non-profit organisation BeyondCOVID released this week shows that smaller and medium businesses will see a rocky recovery in 2021.

The survey, which was conducted by specialist management consultancy Redflank, showed that 26% of SMMEs report were forced to close their doors, 7% permanently, with forecasts that they expect to lay off a collective 1.2 million staff over the next six months.

41% of businesses are planning to retrench staff over the next six months. Construction, accommodation & food, manufacturing, and ICT are worst impacted, with the public sector. The healthcare and financial services are expected to be the least impacted.

Other findings from the survey shows:

  • 54% of businesses said they were currently operating below capacity;
  • Businesses expect recovery to pre-Covid-19 levels to take six months longer now (3.5 years) compared to their projection of three years at the onset of the pandemic;
  • The number of businesses with staff working from home has dropped from 74% in July 2020 to 57% now; up to 61% of businesses have indicated a willingness to allow staff to continue working from home post-pandemic.
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