Article by BusinessTech
South African households are getting poorer, while the cost of living continues to rise, the latest Momentum/Unisa Household Net Wealth Index shows, as food prices and the general cost of living continues to rise.
The index, representing net wealth data at the end of the third quarter in 2019, shows that South African households across the country saw combined wealth drop by R237 billion in the three months since the previous measure.
According to Johan van Tonder, researcher and economist at Momentum, wealth is a more important measure than income in that it speaks directly to a household’s standard of living.
Wealth, as Momentum measures it, is a household’s total assets less its debt – and is not a measure of household income and expenditure. The report looks at whether South African households are using their income to build assets and pay debts, and how they are managing it.
“Real wealth, is taking the effect of inflation out of it – the real purchasing power of your wealth, and that has declined,” van Tonder said.
While South African households have a lot to contend with locally – low growth, unemployment, load shedding, and all the other factors hitting consumers hard at home – van Tonder noted that international issues contributed a very large portion to the overall decline in the third quarter.
“The trade war between the US and China had a massive impact on South Africans’ wealth. Because of the trade war, there was uncertainty in the financial markets, and that uncertainty led to declines in share prices of companies,” he said.
“Most of South Africans’ assets are invested in areas that were affected by this.” Around 70% of assets are financial assets – being pension funds, units trusts and annuities.
Other asset classes like property were more affected by what Momentum called “home-grown issues”, such as Eskom’s load shedding, state capture, and political and policy uncertainty.
Van Tonder said that only around five million South Africans currently make any contribution to pension and retirement funds [10% of the popuation] – which means when tough times hit (as they are in South Africa at the moment), the vast majority of the country suffers as a result.
This exact issue has been highlighted by the latest Household Affordability Index published by the Pietermaritzburg Economic Justice and Dignity group for January 2020.
The group noted a dramatic spike in food prices coming into 2020, which was making the struggle to survive harder for many households in the country.
It recorded a 4.4% increase in month-on-month costs for a household food basket, which now costs just under R3,340 in January. This is 7.1% higher than the same time last year.
While middle-class households will feel the pinch like any other, the rising cost of living is felt particularly sharply among poorer households, which make up the majority in the country.
“The situation could get dramatically worse should Eskom be granted a further 17% tariff hike, and if VAT is increased in the next budget as predicted by many economists,” the group said.
While the recent repo rate cut by the Reserve Bank has been welcomed and will work in the favour of many households, the PMBEJD said it is too little, too late.
“Millions of South African households are in a worse position and remain unaffected by the drop because they do not access credit through the formal banking system. For them, there has been no relief,” it said.
“Middle-class households are now joining the working class in the queue to take on debt for monthly consumption expenses – to put food on the table, put petrol in the car, keep the lights on and children in school.
“This is not a good place to be,” it said.
Momentum’s data concurs with this, with van Tonder noting that households are accruing more debt, with a rise in outstanding personal loans in particular.
Prospects for 2020
When looking at fourth-quarter data, Momentum said that early indications are the wealth increased over the last three months of the year, but not due to any change locally.
The easing of the trade war brought some relief to markets, effectively reversing some of the damage done in the Q3 drop.
The data projects that South African households possibly ended 2019 slightly wealthier than at the end of 2018, as a result.
“This is good news, but this is still not enough. Compared to other countries…we are at about half of what we should have (in wealth) to have a better living standard throughout our lifetimes,” van Tonder said.
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