The great consumption conundrum

Gareth Stokes, FAnews Online Editor

The best way for an economy to power out of recession is for consumers to spend. South Africans of all shapes and sizes need to return to shopping malls and display areas to purchase appliances, furniture and motor vehicles. But they can’t. Local consumer

A tale of two retail economies

Until consumers feel more secure in their jobs and more confident in the economic recovery they’re going to focus on essential goods and services only. It’s a trend that’s already exhibiting in the statistics. On the one hand the country’s leading listed supermarkets have reported increasing turnover and record profits. On the other, Statistics SA says retail sales are on the skids. The South African Revenue Services would support the latter view as VAT collections dry up. Statistics SA reveals an alarming 6.6% year-on-year slump in retail sales for November 2009. Analysts – who pencilled in a 5% contraction – were disappointed. Kevin Lings, chief economist at Stanlib says “the latest decline highlights that the SA consumer remains under significant pressure!” A quick look at consumer credit card activity confirms this. “In November consumer credit card debt fell by a very substantial R1.7bn,” says Lings.

“There is no doubt that SA consumers remain under pressure; reflected in declining sales and high bad debts,” says Lings. Lings believes this pressure will remain a factor for many months, but ease systematically through 2010. The Reserve Bank has applied the medicine and consumers must wait patiently for the impact of the 2008/9 interest rate cuts to kick in. Lings identifies a number of other factors that should assist consumers this year. These include a further moderation in inflation (in the short-term), wage increases in excess of inflation, less job losses as world growth improves and the natural boost associated with hosting the Soccer World Cup. Of course the jury is still out regards the positive spin-offs from this event.

Will the FIFA 2010 Soccer World Cup ™ live up to the hype?

Economists face a number of uncertainties when forecasting 2010 macroeconomic indicators. They’re unsure of the impact of regulated price increases – particularly the inflation-busting 35% per annum electricity price hike proposed by Eskom – on the domestic economy. And they’re in the dark about how much the FIFA 2010 Soccer World Cup ™ will contribute to South Africa’s GDP. After a recent economic presentation, Old Mutual Investment Group SA chief economist Rian le Roux, told journalists the benefit was extremely difficult to calculate. He said the half percent bandied about by economists was as good a guess as any. Even so, a handful of economists have warned that improvements in tourism related sectors could be offset in other sectors!

The most recent estimates are for an influx of 483 000 tourists during the competition, with approximately 150 000 from Africa. These tourists will spend in the region of R8.5bn. As the competition draws near there are many questions about South Africa’s readiness to host it. The attack on the Togolese football team (en-route to the Africa Cup of Nations in Angola) drew fire from commentators around the globe. More recently a group of travel agents distributed a damning email. “Recent e-mail warnings from travel agents advising South Africans to stay home from June 11 July 11, because of overbooked hotels, unavailable car hire and impossible airports are overstated,” dismisses Gillian Saunders, director of strategic solutions at Grant Thornton South Africa. The group sees no problem in hosting the tournament and believes accommodation and travel arrangements will prove sufficient. “It is interesting to note that in our highest tourism month of the year South Africa already hosts almost 870 000 foreign tourists, so there's no doubt our nation and current tourism infrastructure can cope with the influx of additional visitors during the World Cup," Saunders said.

Editor’s thoughts: Another concern raised by the World Cup organisers is with slow ticket sales. It seems South Africa is simply not ready for the sophisticated lottery system FIFA has put in place to sell seats. If they implement an over-the-counter ticketing solution, and reduce prices for local fans, the stadiums will be full to the brim. Will you be going to any FIFA 2010 Soccer World Cup games – and do you believe the event will boost local GDP? Add your comments below, or send them to gareth@fanews.co.za