Despite increased salaries South Africans are able to buy less

South Africans’ salaries increased by 22.8% over the past five years, but inflation eroded salaried workers’ buying power so much that they are actually worse off than five years ago.

Some of the reasons for this are the underperforming economy, high unemployment rate, soaring inflation and the impact of the Covid-19 pandemic, as well as rolling blackouts.

According to BankservAfrica’s Five-year Review of Take-home Pay and Private Pensions in South Africa for February 2018 to February 2023, the average nominal salary, measured in the BankservAfrica Take-home Pay Index, increased from R12 573 in February 2018 to R15 438 in February 2023.

However, compared to the 26.6% increase in the Consumer Price Index (CPI), the increase of 22.8% confirms that the nominal take-home pay has lagged behind inflation, says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements.

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Salaries kept up with inflation before

He says take-home pay kept up with inflation between 2018 and 2021 but took a turn for the worse in 2022 as it stagnated, falling behind the rising cost of living, with the highest average take-home pay salary recorded in February 2022 at R15 760 per month, while the lowest average was in April 2019 at R12 446.

“The economic environment was exceptionally challenging for companies during the past 18 months. The rampant rolling blackouts, high production costs due to escalating fuel prices, weaker currency and rising wage pressures, elevated interest rates and moderating demand all contributed to the dismal growth.”

Companies indicated a shift from potential expansion and investment to becoming less dependent on Eskom and therefore redirected capital earmarked for investment towards self-sufficiency.

“This conservative ‘survival’ approach is not conducive to employment growth in South Africa and keeps a lid on salary increases, as indicated in the BankservAfrica Take-home Pay Index’s performance in 2022,” Elize Kruger, an independent economist, says.

The number of salaries paid into workers’ bank accounts is an early indicator of the state of the employment market. Over the past five years, the number of salaries paid increased by only 455 140, further reflecting the dismal state of the economy and unemployment.

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Pensions paid at least better than salaries

On the other hand, the five-year review of the BankservAfrica Private Pensions Index revealed the nominal BPPI increased from R7 001 in February 2018 to R10 054 in February 2023, reflecting an increase of 43.6%, markedly above the CPI measured over that time.

Naidoo says the highest average nominal pension payment was recorded in July 2022 at R10 483 per month, while the lowest average was registered in February 2018 at R7 001 per month. Although pension payments held up well against inflation, they are still lower than the average salary in South Africa.

Kruger says the proportion of average pension payments compared to the average take-home pay increased from 55.7% in February 2018 to 65.1% in February 2023, although investment performance may have been a contributing factor, combined with the resilience attributed to the composition of pension receivers.

Even lower economic growth is forecast for 2023 compared to 2022 and the economic environment will most likely remain bleak, resulting in a challenging job market and little room for salary improvements.

“Therefore, the nominal take-home pay is expected to continue lagging on inflation in the months to come, unlike private pensions, where the underlying fundamentals of the data suggest it will continue to outperform take-home pay. Until the economic narrative could meaningfully change, expect ‘more of the same’ in the medium term for the BankservAfrica BTPI and BPPI,” Kruger says.

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Weak economic growth affected salaries

The average real GDP growth rate for the five-year period from 2018 to 2022 realised a marginal 0.5% per year and the middle year, 2020, is forever engraved in our memory as the ‘global pandemic recession’ year, Naidoo says.

“The subsequent years of 2021 and 2022 were ‘catchup’ growth years and South Africa only managed to reach pre-pandemic levels in the third quarter of 2022 but slipped below that level again in the fourth quarter. The economic environment has indeed been very challenging in the past five years as many pressing and ongoing issues have been holding the economy back and this is not an environment conducive to job creation or better salary increases.”