2023 was a battle for survival for South Africans

The year 2023 was a battle for consumers regardless of income due to the high cost of living, high inflation, interest rates and food and fuel prices. The cost of credit also ate into the incomes of South Africans that were already hollowed out by inflation.  

Cost of living crisis

South African consumers tried to survive the cost of living crisis in various ways, with 32% in a survey saying they moved to shopping online to get better deals, save on petrol and minimise shopping trips, while 26% said they only have enough money for food, shelter and the basics.

According to the 2023 NIQ Consumer Outlook Report for South Africa, consumers were living in a financial pressure cooker this year, with 70% of surveyed consumers already feeling like they are living in a recession while 76% said the increased cost of living is to blame for their recent financial struggles.

Inflation on a roller coaster in 2023

Inflation hit its highest level in 13 years in 2022 with an average inflation rate for the year of 6.9%. In January 2023 inflation decreased to 6.9% from 7.2% in December, then back up to 7.0% in February and even increased again to 7.1% in March, before slowing to 6.8% in April and further to 6.3% in May, 5.4% in June and 4.7% in July.

Then, just as we thought the worst was over, inflation increased to 4.8% in August and then jumped to 5.4% in September. After the three-month upswing, inflation cooled to 5.5% in November. What a roller coaster ride.

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Interest rate kept consumer spending in check

South Africa’s interest rates remain at the highest level since April 2009 and the impact of high interest rates is showing, while previous rate increases have yet to fully filter through to the real economy.

We started the year on a repo rate of 7.0%, but this soon became 7.25% after a 25 basis points increase in January. Then came the shocking 50 basis points increase in March that saw the repo rate jump to 7.75% before another 50 basis points increase in May brought the repo rate to 8.25%, where remained until now.

High food prices

Food prices increased so much and food became so expensive that 66% of people surveyed by Debt Rescue said they had to skip meals in recent months because they cannot afford three meals per day.

However, Wandile Sihlobo, chief economist of the Agricultural Business Chamber, says South Africa’s consumer food price inflation began to slow from March this year, from 14.4% to 8.0% in September. The product prices underpinning the deceleration throughout this period were primarily bread and cereals, meat, fish and oils and fats.

But October 2023 disrupted the six month consecutive decline, with consumer food inflation increasing to 8.8% from 8% the previous month. The product prices underpinning this increase were mainly milk, eggs, You’re paying more for food thanks to Eskom cheese, fruit and vegetables.

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Fuel prices also contributed to financial woes

Fuel prices also ate into consumers’ pockets and although the price seems to be decreasing now, there is new concern as international oil prices start to increase again due to attacks on ships in the Red Sea.

The price of unleaded 93 petrol started the year on R21.10 in January, then increased to R21.38 in February, to R22.65 in March and dropped a cent in April to sell at R22.64. In May the price started to increase again, this time to R23.01, before falling again in June to R22.30 and to R22.06 in July.

However, the price increases again in August, to R22.43, before a big jump to R24.14 in September and an even bigger increase to R25.22 in October. The price declined in November to R23.44 and further in December to R22.79.

Consumers’ credit and debt not a pretty picture

According to TransUnion’s Consumer Pulse Study for the third quarter, debt management remained a concern for all consumers, with more than one in three South Africans (38%) unable to meet their current bills and loan obligations.

Of those unable to pay their bills and loans, 39% planned to make partial payments, 36% said they will dip into their savings, 24% will borrow money from friends and family and 11% planned to take out a personal loan. Another 10% said they simply do not know what they will do.

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Household and disposable income contracted

According to the South African Reserve Bank’s Full Quarterly Bulletin for the third quarter, household incomes contracted for the third consecutive quarter, with real personal disposable income declining by 0.3% compared to the second quarter, after shrinking by the same margin in the second quarter.

Personal disposable income declined by a relatively sharp 2.9% so far this year, while inflation continued to outpace wage and salary increases and eroding real incomes. The cost of servicing their debt increased further at the same time, consuming 8.9% of their disposable income, up from 8.8% in the second quarter which primarily reflected the impact of sharply higher interest rates.

Savings and retirement in the doldrums

According to accounting firm Deloitte’s South African Investment Management Outlook for 2023, South Africa’s savings rate is at a shocking level compared to its emerging market peers, sitting at a dismal 0.5% in 2023.

The latest survey by Debt Rescue also reveals that not being able to put money away at the end of each month is the biggest concern weighing on the minds of South Africans, with a massive 67% of people citing this as their biggest challenge when it comes to saving although that is unsurprising due to the escalating cost of living.

The findings of the inaugural FNB Retirement Insights Survey paints a grim picture, with at least eight out of 10 surveyed South Africans planning to work past retirement age due to lack of retirement savings, while four out of 10 participants without a retirement plan will rely on selling assets or government social grants.

An alarming 89% of respondents plan to continue working or work part-time because they did not save enough for retirement, while 74% claim they have a plan in place to help them prepare for retirement although many of them, particularly in lower-income brackets, are not confident that their plan will work due to barriers such as age and current financial constraints, such as the high cost of living.

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Two-pot retirement system

Consumers were very excited about the two-pot retirement system because it would offer them a lifeline of withdrawing some cash from their retirement savings that they can use to pay off debts or just ease their budgets.

However, they were taken aback when Treasury asked to move the implementation date from 1 March 2024 to 1 March 2025, meaning they would have to wait even longer for the opportunity to use some of their retirement savings to get them out of their financial trouble. But now Treasury agreed with the portfolio committee that it will be implemented on 1 September 2024.

The system will divide members’ contributions into two clear categories: two-thirds will go towards mandatory retirement savings, while one-third will be designated for a savings pot, offering the option of annual withdrawals to help with unforeseen financial challenges.

Consumer confidence at its lowest point in more than 20 years

South Africa’s FNB/BER consumer confidence index decreased to -17 in the fourth quarter of 2023, the weakest festive season consumer confidence reading in over two decades. The low index score at the end of 2023 shows consumers are dispirited heading into the festive season, Oxford Economics Africa says.

With household’s disposable incomes stretched thinner than usual, spending will likely be focused on value-for-money items, while interest-rate-sensitive goods are expected to underperform.

A breakdown of the index per household income group shows high-income households, earning more than R20 000 per month and middle-income households, earning between R5 000 and R20 000 per month were more disheartened than low-income households, earning less than R5 000 per month, probably because lower-income groups are less sensitive to interest rate developments compared to affluent households.

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Win for consumer protection

The National Consumer Tribunal fined Vodacom R1 million because the company levied an unlawful penalty on consumers to cancel a fixed term contract. According to the Consumer Protection Act, service providers cannot levy unreasonable penalties that will make it too expensive for consumers to cancel.

The Tribunal determined that Vodacom breached the Act by charging an unreasonable cancellation penalty of 75% when consumers wanted to cancel their fixed-term contracts before expiry. The Tribunal also considered other CPA breaches relating to fixed terms contracts.