South Africans, it seems, just can’t stop spending.<\/p>\n
Roads in Johannesburg, Cape Town and Durban are jam-packed with more BMWs, Mercedes Benz and even Ferraris than you can shake a gearstick at.<\/p>\n
The country’s ubiquitous malls are filled with shoppers laden with enough bags to give Paris Hilton buyer’s remorse.<\/p>\n
The data behind the anecdotes of bling tell the same tale: consumer spending has increased every quarter since 2009.<\/p>\n
Retail sales have been wobbly since the global meltdown, but have jumped 3.8 percent in the last year.<\/p>\n
Yet all is not well among the great South African spending public.<\/p>\n
Consumers, it seems, are increasingly borrowing to survive — and often to pay for conspicuously ostentatious lifestyles — creating what many worry is a time bomb for Africa’s largest economy.<\/p>\n
Johannesburg nurse Celia Mondi, 40, is one of those borrowing just to make ends meet.<\/p>\n
“My savings have been depleted. I have no choice but to borrow to afford basic needs,” she said.<\/p>\n
“Almost my entire pay check goes towards repayments of credit cards, loans and insurance,” said the single mother of two. “Cash is scarce.”<\/p>\n
The fact that people like Mondi are struggling has economists and policymakers worried.<\/p>\n
That is because she is part of the black middle class — dubbed “Black Diamonds” — that have been a pillar of the South African economy since the end of apartheid in 1994.<\/p>\n
Reaping the benefits of the “Rainbow Nation”, Mondi and others obtained an economic standing that was impossible before apartheid was finally thrown aside in 1994.<\/p>\n
That meant access to mortgages, vehicle finance and many other forms of credit.<\/p>\n
But there are ominous signs the party appears to be coming to an end.<\/p>\n
According to the National Credit Regulator, there were 12 percent more applications for credit in December 2012 than September of the same year.<\/p>\n
Unsecured loans, with high interest rates, now make the bulk of applications.<\/p>\n
A fifth of credit-active consumers are failing behind in repayments by at least three months.<\/p>\n
Economist John Loos says households’ debt-to-disposable income ratio stands at 76 percent.<\/p>\n
And the health of the broader economy is not helping.<\/p>\n
Increased food, electricity and transport costs are eating further into already shredded pocketbooks.<\/p>\n
Inflation for March stood at 5.9 percent.<\/p>\n
Economists predict that inflation will breach six percent in the third quarter, with no relief in sight.<\/p>\n
To add to consumers’ woes the national energy regulator plans an eight percent electricity tariff hike over the next five years.<\/p>\n
The increase put an end to years of cheap electricity.<\/p>\n
Prices have also been pushed upward by a weakening of the rand, which has made imports more expensive.<\/p>\n
According to Loos, hiking interest rates, currently at 5.0 percent, could reduce household spending.<\/p>\n
“Arguably the most effective way to curb overall household borrowing growth is to hike interest rates,” said a report by Loos.<\/p>\n
But with the economy growing at a modest 2.8 percent — well below the levels of other emerging economies — and unemployment hovering at 25 percent, the room to raise rates is negligeable.<\/p>\n
South Africans looking for a used BMW, Mercedes Benz or Ferrari may want to head to their nearest repossession auction — so long as they have the cash.<\/p>\n
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