38% of consumers in South Africa are unable to pay any of their bills and loans in full.
Nkosikhulule Nyembezi
Cape Town - You may have forgotten by now, but there was a brief moment during the coronavirus pandemic when we raised our hopes for improved credit scores and a well-lit pathway to accessing affordable credit and financial stability.
Analysts predicted that because of the forced reduced spending during the lockdown, society would embrace less indulgence and capitalise on low interest rates to pay off debt.
We were poised to emerge from lockdown ready and flush with new habits embracing smaller and less extravagant social gatherings and spending more time at home, instead of indulging ourselves in expensive lifestyles.
We were not supposed to plunge, as we have in South Africa, right into political crises of an inefficient government and an economy that is struggling to create jobs. We were also not supposed to sit at home too skint to freely enjoy meals because we were pondering what to do with the spoiling food in the refrigerator due to electricity blackouts.
But the phenomenon of improved credit scores and flush bank accounts is actually happening, just not for most of us. Soaring inflation and economic pressures are taking their toll on consumers.
According to TransUnion research conducted at the beginning of November 2022, two in three consumers (67%) have cut their discretionary spending in the past three months – but even with these cutbacks, at least one in three consumers (38%) are unable to pay any of their bills and loans in full.
According to TransUnion’s Q4 consumer pulse study, household incomes remained stagnant, with the percentage of consumers reporting an increase in household income (36%) unchanged from the previous quarter.
The number of households reporting a decrease in income (23%) increased by four percentage points, with job losses (23%) and reductions in salary and wages (20%) as primary factors. Most consumers surveyed (92%) believe access to credit is essential, but only 42% of respondents feel they have enough access, and 32% said they don’t.
The breakdown of these figures exposes how, on a global basis, a continued high inflationary environment coupled with more anticipated interest rate hikes has already tipped more consumers into default.
There are severe repercussions for the affordability of basic needs such as education, food, transport, and health.
To make ends meet, struggling parents are laying off domestic workers, downgrading from expensive private schools or sending children to nearby schools that do not require them to pay for transport.
The result is a precarious school year of uncertainty about whether breadwinners will afford to support dependants and service their debts.
Most creditors appear to have a bonanza of plunder with no police in town.
This situation has been happening for a while in our depressed economy.
But the pandemic and other factors choking the economy accelerated the trend. Even buying school uniforms is a struggle this time, and schools are lenient on parents, some of whom only last week received confirmation of the admission of their children to their preferred schools.
The obscenity of the system is made possible by the dramatically increased family responsibilities of individuals who are now looking after children left vulnerable by the pandemic.
Increased family responsibilities often require spreading thin, limited resources and more debts. More lucratively for creditors, the loans in the formal and informal sectors are increasingly given according to lenders’ terms that are often expensive and unfavourable to borrowers, so the hardship is likely to endure for a long time.
The purpose is to transform the consumer into a machine that can be switched off when not in use because of an unfavourable credit score, and squeezed out of money in every possible manner.
This includes demanding debt payments using the Unemployment Insurance Fund cash (although at least machines are tended to with maintenance). These consumers have no control over the health and quality of their credit report scores or employment protections, their shifts can be cancelled at the last minute, and there is no guarantee of tenure of employment just on account of power shortages alone.
What is most striking about the post-pandemic widespread indebtedness is the cross-class nature of the problem.
Working and middle-class families struggle to service debt as more people increasingly rely on the informal economy.
It is not only the hope of a world recalibrated by Covid-19 towards more robust public infrastructure and better corruption-free economic conditions that is turning to dust in our mouths.
An older dream is dying too: of a post-election campaign normalisation that was supposed to bring us all closer, usher in a utopia of a Ramaphoria-propelled “New Dawn”, expanded trade with the global South states, growth, employment and sustainable development.
What this model of “New Dawn” ended up achieving has been standardising ways for wealthy people to pay as little as possible, concentrating economic activity on those with purchasing power and hanging the rest out to dry.
Our lives are indeed becoming more similar across the country. In the rural and urban areas, poor and affluent people now have to resort to expensive loans to replace appliances damaged by constant power outages and to install electricity infrastructure as a stopgap for Eskom’s failures.
The failure of municipalities to deliver the electricity they exorbitantly charge us for exacerbates the problem.
This chaos is pushing more and more people to the margins, and it is dismantling the public services we depend on in a free-fall style.
But for the powerful tiny minority that owns most of the country’s wealth and whose political connections have become increasingly entrenched, this sort of capitalism is succeeding better than ever before.
As the billionaires’ riches increase, what hangs in the balance is their ability to argue that it is also working for us.
Nyembezi is a researcher, policy analyst and human rights activist
Cape Times
* The views expressed do not necessarily reflect the views of Independent Media or IOL.