News in South Africa 27th June:
1. South Africans severely indebted:
South Africans are among the most indebted people in the world, with as much as 73% of disposable household income servicing debt repayments.
Credit abuses and frailties in the legislative framework, compounded by financial illiteracy, leave borrowers vulnerable to manipulation by lenders. This is according to a SA Law Journal article by Stephan van der Merwe, senior attorney at the Stellenbosch University Law Clinic.
The Constitution provides for equal access to the courts where debt is concerned but this is effectively denied to poor South Africans, particularly where smaller debts are involved. Van der Merwe laments that the higher courts have missed an opportunity to strengthen the rights of borrowers against the unscrupulous practices of lenders.
The problem is dire enough to warrant judicial intervention and effective access to courts to assist vulnerable debtors.
Imbalanced power dynamic
The skewed power relationship between these parties ensures that debtors are no match for shrewd creditors.
Advocate Geoff Budlender argued in a 2004 article, Access to Courts, that “prevailing levels of poverty and illiteracy have the result that many people are simply unable to place their problems effectively before the courts”.
Private law firms are unlikely to wade into the debtor protection business as there is little or no money in it, while legal aid assistance is thin, and requires a solid grounding in consumer and banking law, frequently lacking among junior attorneys who are often assigned to such cases.
Unjust debt collection
The Constitutional Court has confirmed that unjust debt collection practices have the potential to infringe constitutional guarantees, in addition to the right of access to courts, and the livelihood and dignity of low-income earners.
2. Two outbreaks of bird flu:
South Africa reported two outbreaks of highly pathogenic H7 bird flu in poultry east of Johannesburg, the Paris-based World Organisation for Animal Health (WOAH) said on Monday.
In total 9,500 farm poultry died from the virus in the town of Victor Khanye in Mpumalanga province, with one location having 2,000 poultry and the other 7,500, WOAH said, citing South African authorities.
The strain detected was H7, which is different from the H5N1 one that has killed several hundred million birds around the world.
3. Business liquidations climb:
Businesses in South Africa are struggling amidst a disastrous economy, with the number of liquidations continuing to tick up in 2023.
According to Stats SA, 151 businesses were liquidated in May, with 134 volunteering to do so and 17 on a compulsory basis.
This takes the total number of liquidations to 674, adding to the 112 businesses that were liquidated in April.
Liquidations are significantly higher than in April 2023, but year on year the rate is lower at -20%. On year-to-date measure, total liquidations are also down from 2022 (-14.5%) as well as over a three-month rolling period (-15%).
According to the data, the worst hit industry was trade, catering and accommodation, with 36 liquidations.
This was followed closely by the financing, insurance, real estate and business services sector with 33 – a decline from 45 in April.
However, the unclassified industry category saw the largest number of liquidations, with 59.
Like April, the electricity, gas and water and the agriculture, hunting and forestry industries saw no liquidations in May.
In the midst of South Africa’s unemployment crisis, Stephen de Blanche, Chief Revenue Officer for TransUnion Africa, said that small businesses are crucial for creating jobs in the country.
However, de Blanche noted that small businesses face many headwinds limiting their ability to grow.
4. Dividend drought looming:
South African investors are likely to face a dividend drought soon, with companies unable to pay dividends due to the tough operating environment and an uncertain economic outlook.
This is according to a portfolio manager at Sanlam Investments, Roy Mutooni, who spoke to CNBC Africa about the growing trend of South African companies opting not to pay dividends.
Mutooni said that the rising cost of capital with increasing interest rates is not determining whether a company chooses to pay dividends. Rather, it results from a difficult operating environment and a negative economic outlook.
Companies are choosing not to pay dividends out of prudence, as many would prefer to use that cash as a buffer against future shocks.
“You have to make a rational choice as a management team. Where does the next rand go? Where does it give you the most bang for your buck?”
In particular, companies have had to redirect money to mitigate the effects of load-shedding through generators or alternative power sources. This money usually comes out of dividend payments and general capital expenditures.
However, highly cash-generative businesses may continue to pay dividends as they can maintain a strong balance sheet while giving investors dividends.
5. Social grant problem:
Prof Haroon Bhorat, who serves on the Presidential Economic Advisory Council (PEAC), says the social relief of distress (SRD) grant is not increasing the chance of getting employment in South Africa.
Although the grant increased the chance of getting employment by 3% when it launched, that effect subsided within a year.
Bhorat said the funds should instead be directed to the informal and formal sectors as this will drive development and supply-driven growth.
All information sourced from articles posted by: Moneyweb, Reuters, BusinessTech, DailyInvestor, and Business Day.
