Spending frenzy funded by a cocktail of wage hikes and unsecured lending
The English language is chock full of useful anecdotes… As I perused the Statistics South Africa Income and Expenditure of Households 2010/2011 survey, released in November 2012, the anecdote that sprang to mind was “rather late than never”. The informati
Stanlib economist Kevin Lings is less cynical. He observes that the survey provides a useful update on household expenditure and forms the basis for adjustments to the Consumer Price Index (CPI) weights. “Overall the results of the survey are not surprising, although the growth in spending on housing (including electricity and water) was higher than we would have anticipated,” says Lings. “It is also fascinating to see how much additional growth there has been in spending on clothing, footwear and communication”. The latter finding is backed up by the 2011 National Census which confirms that 88.9% of the country’s 50 million citizens own a cell phone. How do South African households spend their disposable income? And what can we learn about household consumption expenditure from the latest (sic) statistics?
Blowing R1.25 trillion each year
Statistics SA estimates that South Africa’s total annual household consumption expenditure topped R1.25 trillion for the 12 months under review. The average household polled in the survey spent in the region of R95183 with the bulk of this expenditure being for housing, transport, food and miscellaneous goods and services. Lings notes that average household consumption expenditure has increased from R56152 in 2005/2006, translating into a nominal increase of 69.5% or a real increase in spending of 24.6% over six years. Who is doing the spending?
“While all population groups made significant real gains in average annual consumption expenditure, Indian/Asian households had the biggest gains both in rand value terms (R57 443) and as a percentage increase (40.7%),” writes Lings. “Black African households had the second largest percentage gain (35%), but they had the smallest increase in terms of rand value (R14 510). Meanwhile, white households grew the least in percentage terms (16.1%), which translated into a R43711 increase”.
Surviving the inflation-plus scourge...
The above-inflation increase in household consumption expenditure suggests that household disposable income has outstripped inflation over the past six years too. This is borne out in the public sector where government’s wage bill – at around 11% of GDP – is more than double that of Russia (3.7%) and Brazil (4.8%). Finance Minister Pravin Gordhan is aware of the problem and admitted during his October 2012 medium term budget review that government wages had outstripped all other categories of state expenditure in the previous four years.
How did households apply the R346 billion in state wages earned in 2011 (and the estimated R378.3 billion this year)? Assuming government employees spend their pay packets similarly to those employed in the private sector you will find that housing, water, electricity, gas and other fuels remains the largest contributor to household consumption expenditure. “This category represents 32% of total household consumption expenditure, with the average household spending roughly R30505 during the year,” says Lings.
When combined with expenditure on food and non-alcoholic beverages, the two categories account for approximately half of all consumption expenditure in the country. Transport is the second largest expenditure group and is estimated at R214 billion or 17.1% of total household consumption expenditure. “The average South African household spent approximately R16319 on transport between September 2010 and August 2011,” notes Lings.
The burning debt issue...
There is some concern that households are relying on debt in addition to wage increases to fund their consumption. Figures from the National Credit Regulator (NCR) suggest that 9.3 million South Africans are behind with their credit instalments, with the outstanding amount tallying up to some R1.36 trillion. It is further estimated that 6400 consumers apply for debt counselling each month. Meanwhile, the central bank reports a 21% spike in unsecured credit to more than R350 billion in the year to June 2012. In recent months economists have debated whether the rapid expansion of unsecured lending is creating a credit bubble of sorts. The majority have dismissed such concerns, but there is growing evidence that local households are borrowing to pay for essentials.
African Bank, one of the major contributors to South Africa’s rising unsecured lending landscape, has noticed the trend. According to a recent Reuters’ article the bank is “turning more cautious about high-risk loans to increasingly indebted consumers”. The group’s Chief Financial Officer told Reuters: “We have cut back slightly on our credit and more importantly we’re being more selective about who and how much we give following the excessive supply in the market”.
Local retailers are among the largest beneficiaries of South Africa’s consumption frenzy… But it seems their outperformance over other sectors of the economy may be short lived. At some stage rising unemployment, sensible pay rises and a reining in of unsecured lending will have to curb local consumers’ enthusiasm for shopping.
Editor’s thoughts: South Africa’s consumption trends seem to contradict what is happening on the ground. It seems uncanny that we have more money to spend despite four years of slow economic growth and rising unemployment. If we assume that inflation-plus salary increases, particularly in the public sector, offset unemployment then the growth in consumption could well be fuelled by short-term unsecured credit. To what extent do you think South African retail shares have been fuelled by unsecured lending? Please add your comment below, or send it to gareth@fanews.co.za
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