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Media Info
 Job loss, repossession fears increase
4 June 2009
Last week's announcement that the country is in recession has prompted fears of more job cuts and more people losing houses and cars as they struggle to keep up with payments.
Goolam Ballim, the chief economist at Standard Bank, said: "The country has not witnessed such a marked loss in economic momentum in over two decades, and it arrives at a time of heavy indebtedness for many South Africans who have engaged in liberal credit spending for the first time, creating the recipe for economic hardship.
"Therefore, there will be the incapacity to hold on to items like houses and cars as job losses continue."
The country's major banks are repossessing 2 500 homes a month, and 7 000 vehicles.
Statistics South Africa confirmed that 208 000 jobs were lost between October and March. Most jobs were lost in KwaZulu-Natal (117 000), followed by Gauteng (49 000) and the Eastern Cape (47 000).
Tito Mboweni, the governor of the Reserve Bank, in announcing a one-percentage-point cut in interest rates on Thursday, said there were tentative signs that the downturn in the global economy may be bottoming out as financial market conditions appeared to have become less restrictive.
"However, there are as yet few convincing indications that the recovery will be quick. At this stage it appears that a protracted period of slow, below-potential growth is most likely, with most analysts predicting some recovery later this year or early next year. Global inflation pressures remain subdued and have declined in a number of economies," he said.
Mboweni said the main upside risk to the inflation outlook came from cost-push pressures, in particular from electricity price increases, with Eskom asking the National Energy Regulator of South Africa for a 34 percent interim increase in electricity tariffs.
"Food price inflation remains well above average inflation, and has been lagging the favourable developments at the producer price level and in the spot prices of agricultural commodities. Food price inflation measured 17.9 percent in August last year and has been moderating persistently, but slowly, since then," he said.
But the signs for consumers are not encouraging.
Debt counsellors have accused banks of strangling the economy by not issuing loans, resulting in a collapse of the housing market, and now seizing the homes and cars for which they had initially put up the credit.
Vivienne Frank, an estate agent, said she knew of a Johannesburg couple who had a R2.5 million bond on their home for some years.
"He is a lawyer, she is a company executive, but they kept leveraging their bond for loans to fund a lavish lifestyle, including overseas trips. They're now in debt and have to sell the house, but the market has plummeted and they can only get R1.5m for the house, which means even after they sell it, they will have to pay the bank R1m."
Andre Snyman, the chief executive of Consumer Assist, the country's largest group of debt counsellors, said many home owners saw selling as a means of escape from debt.
"But they don't realise they still have to pay back any amount owing - and not over a long period, but immediately. It is better for such individuals to immediately go under debt counselling so that the terms of the loan can be restructured and they don't lose the house or car."
It was critical for heavily indebted consumers to go for help before legal action was taken against them, because "once legal action has begun we are constrained in how much we can assist", he said.
"There are 66 759 people being helped by debt counsellors in South Africa at present.
"That figure is growing at 7 000 a month and we estimate that this year those under debt counselling will grow by at least 300 percent. debt counselling is working, even though many creditors try to resist it."
Despite a worsening financial scenario, stores are still giving easy credit, luring consumers into debt traps.
Wendy Masegere, a Consumer Assist debt counsellor, said one major food and clothing retail chain offered her a R14 000 store card because she had a good credit rating.
"I didn't want it because every day I see what easy credit does to people. I have a friend who earns R3 000 a month and was given credit of R4 000 by a fashion chain.
"Very quickly people can get into debt as they accumulate cars, a house, credit card and store cards. If they lose their jobs or they go onto a shorter working week, their ability to pay disappears."
Simon Susman, the chief executive of Woolworths, said consumers would remain under pressure in the short term, despite the interest rate cut.
"A sustained decrease in interest rates and other inflationary pressures in the long term will make it easier for our customers to pay off their debts and ultimately restore more of their buying power."
FOR FURTHER INFORMATION www.consumerassist.co.za 0861 21 22 23 debt counselling call centre
Andre Snyman - CEO - Consumer Assist
aurelia.espag@consumerassist.co.za / 011 654 6018 (Languages: English, Afrikaans)
Source: Sapa
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