South Africans got poorer in 2023

An analysis of household finances shows that real salaries have deteriorated in 2023, with South Africans going into more financial distress in the final quarter of last year.

This is according to Investec chief economist Annabel Bishop, who pointed to data from BankservAfrica that showed real salaries dropped significantly last year, down 4.7% year-on-year.

Toward the end of last year, this trend accelerated. In the last quarter of 2023, real take-home pay dropped 1.4% year-on-year and 3.7% quarter-on-quarter.

In addition, BankservAfrica’s Take-Home Pay Index decreased by 3.7% quarter-on-quarter in Q4 2023.

Lower real salaries dampened South African retail, with retail sales dropping 2.3% in October and 0.9% in November.

These factors, combined with high inflation, a weak rand, and more debt inquiries, point to South African households’ financial distress towards the end of 2023.

Inflation

Inflation is largely to blame for low real income levels. December 2023 was the first month since August 2023, when take-home pay increases exceeded CPI inflation.

Accounting for inflation, however, December saw only a stabilisation in take-home pay, with no improvement in real terms.

The only months in 2023 when real take-home pay improved were July and August when inflation slowed temporarily.

Unfortunately, Bishop said real incomes will likely contract further in the first quarter of 2024. In addition, due to the usual start-of-year cost increases, CPI inflation remained elevated in January.

The South African Reserve Bank forecasted that CPI inflation would average 5.3% in Q1 2024 and drop only slightly to 5.1% in Q2.

Inflation will likely remain heightened until July when the first interest rate cuts of 2023 are expected.

Another factor hurting South African consumers in recent months has been the exchange rate, as the rand is still weak compared to its purchasing power parity value.

An undervalued rand also negatively affects the cost of fuel and food, meaning South Africans will have to spend more.

South Africans sought more debt rescue in 2023

According to Debt Busters, there were 39% more debt inquiries in 2023 than in 2022, indicating that more individuals were facing financial distress.

This trend accelerated in the final quarter of 2023, with greater demand for debt management than in the same period last year.

Compared to Q4 2022, debt counselling inquiries increased by 46%, and online debt management increased by 54%. According to Bishop, this trend is expected to continue into 2024.

The debt burden is particularly concerning for lower-income earners, who tend to have a lower proportion of secured debt than more affluent households.

Notably, 56% of debt is unsecured for South Africans who take home R20,000 or less every month. For those earning over R35,000, this figure is 37%.

This debt disparity shows that poorer households are particularly vulnerable to financial distress in South Africa’s challenging economic environment.