Alarm bells ring as South Africans fall deeper into debt

The number of deeply indebted consumers in South Africa over the past three months has risen sharply compared to the same period last year.

Debt Rescue CEO Neil Roets said they had seen a dramatic increase since June in people requesting debt counselling, and a spike of 54% month-on-month in July and August.

This is in line with a report issued by the United Nations Development Programme (UNDP) that predicts that as many as 34% of households were likely to exit the middle class into “vulnerability”, according to a mediaservices press release.

UN resident coordinator Nardos Bekele-Tomas said inequalities within and among nations were being exposed and exacerbated by Covid-19, as the poor and vulnerable were unable to protect themselves.

He said this would lead to major setbacks in addressing poverty, unemployment and inequality, according to the UNDP’s latest study on the socio-economic impact of Covid-19 in the country.

The UNDP study focused on how Covid-19 would drive temporary and long-term changes in poverty levels in South Africa and came to the conclusion that Covid-19 had wiped out a third of South Africa’s middle class, mediaservices said.

A recent survey by Debt Rescue has found that a shocking 85% of all South Africans needed help either financially, emotionally or both as a result of the Covid-19 pandemic.

A further 55% required financial assistance but had no access to credit, while an additional 96% were stressed about their health or finances, or both.

Roets, who commissioned the poll, told mediaservices he was deeply distressed by the findings.

“We have known for some time that things were bad but the results of this survey on top of the UNDP report just bowled me over. It showed clearly and emphatically that virtually the entire population of this country are in deep trouble and have no idea where or how help is coming from.”

“The fact that 85%of consumers polled in the survey said that their finances had been directly impacted by Covid-19 showed that most of us were in the same boat.

“We have seen a huge increase in the number of enquiries from folks who wanted to go under debt review.

The fact that only 11% of those polled believed they could pay normally after their payment holiday ended shows emphatically that there is a major problem in the offing, Roets said.

Other findings of the survey were:

• 26% of people successfully applied for payment holidays;
• 45% have been affected by either retrenchment, temporary layoff or salary reductions;
• 30% have no idea what the impact will be on their salaries;
• 16% were able to rely on credit;
• 51% had no savings to fall back on;
• 36% had to dip into savings to make ends meet in this time for health, finances or both;
• 74% keep up to date with news as they believe it is important;
• 16% felt the news was becoming too much to handle;
• 23% were not back at work yet, or weren’t sure when they would be able to return to work.

Roets said it was imperative to get the workforce back to work.

“While we fully understand that some issues are beyond the reach of the government, it is nonetheless important to get people back to work. The best thing to do right now is to lift the lockdown altogether and rely on South Africans to wear masks and maintain social distancing.

“It is imperative that we get the nation back to work in all sectors,” Roets told mediaservices.

The fact that Absa had set aside R7.3bn to absorb a wave of expected loan defaults as it reported a sharp drop in half-year earnings has shown the extent to which consumers had fallen on hard times.

“All the banks and other lenders will ultimately feel the pain as the economy has slowed down significantly.”

Like competitors, Absa has been building up cash buffers to cover potential credit losses from customers reeling from the pandemic, pushing it into a 82% drop in half-year headline earnings after bad debt charges in the six months to end-June jumped nearly four-fold to R14.7 billion, mediaservices said.

Roets added that the combination of an expected multibillion-rand revenue collection shortfall and the Covid-19 economic meltdown spells trouble for the state’s ability to sustain society and should be seen as a ticking time bomb that could lead to widespread social unrest.

The one advantage that consumers had was the fact that they were protected by very progressive legislation in the form of the National Credit Act.

“The process of debt counselling that was introduced more than a decade ago makes it possible for companies such as Debt Rescue to negotiate with creditors to obtain a longer repayment period with smaller repayments without losing assets like homes and motor vehicles.

“With gross consumer debt at around R2.8-trillion (2018/19 Stats SA), it is clear that South Africans are in for a very rough ride,” Roets told mediaservices.

(Compiled by Carina Koen)

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