News in South Africa 18th August:

1. Latest debt index and stagnant incomes:

Most South Africans have 34% less purchasing power in 2022 compared to 2016 because of stagnant incomes and cumulative inflation growth, according to the latest Debt Index.

Latest debt index and stagnant incomes
Image taken by: Joslyn Pickens

South Africans, especially the middle class, are suffering from stagnant incomes, which aren’t able to keep up with rising inflation and increasing interest rates following the pandemic-induced lull. Annual consumer inflation spiked to 7.4% in June, reaching its highest level in 13 years, while interest rates recently rose by 75 basis points, outstripping the previous target set by the Reserve Bank.

These hikes, amid fears of a global recession, have upped the price of basic necessities, like grocery baskets, and heightened monthly payments on mortgages and loans.

This has led to a growing economic spiral, whereby more consumers are relying on unsecured credit to supplement the shortfall in their incomes, according to DebtBusters. This debt exposure to net income ratio, among consumers signing up with DebtBusters in the second quarter of 2022, is most severe among those earning above R20,000 a month, considered the backbone of South Africa’s middle class.

For those taking home more than R20,000 per month, the total debt to annual net income ratio is 147%. For context, consumers need to spend around 63% of their take-home pay to service their debt before coming to debt counselling. Inquiries for debt counselling were up 17% in the second quarter of 2022, compared to the same period last year.

“In the last six years, average net incomes were flat, meaning in real terms [when compared against inflation], most South Africans have 34% less purchasing power in 2022 compared to 2016, resulting in the need to supplement this income with unsecured borrowing,” noted DebtBusters’ latest Debt Index report released on Wednesday.

“On average, consumers have 22% more unsecured debt in 2022 compared to 2016, however unsecured debt levels are slightly lower than 2021 levels.”

Although the number of unsecured loans granted has decreased over the past four years, the average loan size has surged by 28%.

2. SARB warns of price spiral:

The South African Reserve Bank (SARB) warns that above-inflation wage negotiations could lead to price-spiral and a tighter monetary policy in the country.

Speaking on Wednesday (17 August) at a standing committee on finance, the SARB’s deputy governor Kuben Naidoo said that the bank is starting to see wage increases being pegged above inflation target ranges – which is worrying.

“If salary increases are not compensated for by productivity gains, then that does lead to inflation, and that would require a stronger monetary policy response,” said Naidoo.

He said that South Africa has seen rising food and fuel prices combined with rising core inflation which could lead to broad-based inflation that is damaging to households and household income.

Naidoo added that collective bargaining rates for wages are currently at 6.1%. This compares to the target range of inflation at 4.5%.

Sourced from BusinessTech

This would suggest that the country faces further second-round effects of the high inflation it is currently experiencing, he said. This could prolong the period by which inflation stays high, requiring the central bank to do more to bring it down.

“With increased inflation in the last six months, inflation expectations have gone up; we are quite concerned about that and part of the monetary policy steps we have taken certainly to try to bring inflation expectations back to the mid-range (4.5%),” said Naidoo.

The South African central bank is not alone in tightening monetary policy to curb rising inflation – such as when it raised the repo rate by 75 basis points in July. The SARB reported that inflation had had a similar effect on emerging markets such as India, Brazil and China.

3. ANC ordered to pay pensions:

The Financial Sector Conduct Authority (FSCA)’s commissioner Unathi Kamlana said that it may be forced to take more regulatory action against the African National Congress (ANC) should it fail to pay provident fund contributions for its staff members.

South Africa’s financial watchdog has instructed the governing party to pay R10 million every month to clear its R86 million debt in provident fund contributions for its employees.

More than 500 staff have been diddled out of their pension fund savings after it emerged that the governing party had failed to pay regular retirement contributions, adding to the desperation of workers who have been struggling to make ends meet after not being paid for months.

The ANC, which often fails to pay salaries, owes R 86 million in provident fund contributions for about 535 members.

The Financial Sector Conduct Authorities said it had reached an agreement with the seemingly cash-strapped party to make monthly contributions to the fund.

Commissioner Unathi Kamlana said that failure to stick to this commitment would have consequences.

“Then we will be forced to consider other regularity actions given the curatorship, liquidation and so on. We are not there right now and this is a step that is legally binding that we can use to enforce what we see as requirements to be complied with,” Kamlana said.

4. Healthcare sector outcry:

The 1st of August 2022 was a significant day. It was the day the Department of Health stopped providing the daily Covid-19 updates that started in 2020. As of 1 August, South Africa has:

Despite the loss of life, with some provinces having among the highest case fatality rates in the world (the Eastern Cape has a death rate of 855 per 100,000 versus the Western Cape’s 435)it could have been much worse. In this context, there is still a need for the government to formally acknowledge our health workers, their sacrifice and how their commitment and skill prevented many more deaths. The death of health workers in the line of duty was not just a loss of precious hands and expertise in a country with a human resource shortage, but also a loss of accumulated expertise and memory. It has made the implementation of the Human Resource for Health 2030 plan all the more urgent. It can’t afford to gather any more dust.

But in addition to direct impacts on the health system, lockdowns had indirect health costs. The prohibitions on alcohol allowed researchers to quantify the harm “ordinary” alcohol consumption costs, but we have bounced back to boozing with a vengeance.  

The collapse of essential non-health health systems, such as early childhood development services, which have not recovered, came with other high costs. Shockingly, to this day a R480-million fund meant to support early childhood development staff has only been half-disbursed. More and more evidence is emerging of malnutrition in children, a claim the government denounced and denied when it was made by Medical Research Council president Professor Glenda Gray in 2020.

Put bluntly, our burden of disease is about to get much worse. So, the question we should be asking is: Is our health system up to managing it?

5. Gautrain expansion complaints:

The Gautrain Management Agency (GMA) was bombarded with complaints and questions during a stakeholder engagement session this week on the proposed Phase 1 extension of the rapid rail network.

However, GMA CEO William Dachs argued that Gauteng’s booming population is set to place further strain on all modes of transport, and punted the case for Gautrain and its proposed expansion.

He said Gauteng’s population is forecast to grow to 16.8 million by 2025 and to 19.1 million in 2037 – that’s from around 13 million back in 2014. The morning peak hour ‘person trips’ for all Gauteng transport modes is forecast to increase to 2.7 million in 2025 and 3.2 million by 2037, from two million in 2014.

“If we try to move [all these] people on the road, it won’t work. You can’t take an additional 1.2 million peak trips in Gauteng and put them all on roads,” warned Dachs.

“The problem we have in Gauteng is that our rail network is up to 100 years old. We are in essence building cities and urban form where there is no new rail network to move people to and from work,” he said.

Dachs added that in areas such as the West Rand, which has seen a lot of development, the population density is unserviced by rail.

The proposed Phase 1 expansion will provide a link from Marlboro Station to a new Sandton Station though to Randburg, Cosmo City and south to Little Falls.

It will complement the current existing north-south route from Hatfield in Pretoria to Park Station in Johannesburg and the existing east-west line linking Sandton and Marlboro with OR International Airport.

The host of complaints and questions to Dachs related to, among other things:

  • The high price and unaffordability of tickets, which made the Gautrain unaffordable to low and middle class households.
  • The expropriation of properties and why the huge cost of expropriating properties is not reduced by taking the Gautrain totally underground.
  • The Gautrain is a failed project because it has failed to reduce congestion and is operating at low capacity.
  • How the proposed Gautrain route expansion “talks” to the plans for the Passenger Rail Agency of South Africa (Prasa).

Dachs said just over 26 000 passengers were transported on the Gautrain last week but pre-Covid-19 the trains were full and ridership levels hit 60 000 passengers per day.

He stressed that transport systems around the world were hard hit by the impact of the pandemic but the GMA has a plan to address this.

“We are confident that ridership will grow and return to those high levels again. This is not a permanent state,” he said.

Dachs admitted Gautrain fares are a contentious issue but said it costs R4 per kilometre in petrol costs, which is twice the cost of the Gautrain. He said the Gautrain was originally targeted at people who used their cars and to get them out of their cars and reduce congestion.

But Dachs said for many people who do not have cars, the cost of the Gautrain is prohibitively expensive.

He said the GMA believes there should be a differential fare approach, not just for Gautrain but for any public transport system, that picks up either an individual’s characteristics – if they are a student or a pensioner – or where they board and get off on the train or whatever public transport system.

“It’s a solution that we think can be practically implemented and it would have a dramatic impact on the use of public transport in general if you take quality issues aside. This is something we are looking at very seriously,” he added.

All information sourced from articles posted by: Business Insider, BusinessTech, EWN, Daily Maverick and Moneyweb.

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