Good news about salaries in South Africa – but there’s a catch

Bankserv Africa’s Take-Home Pay Index (BTPI) showed that income in South Africa has improved significantly in 2024, with salaries showing another jump in July. 

However, many South Africans will not feel much better off as their purchasing power has steadily eroded in prior years due to high inflation and poor economic performance. 

Bankserv Africa’s BTPI significantly improved in July. The company attributed this to a better business environment and rising confidence in the local economy. 

This was largely due to positivity stemming from the formation of the Government of National Unity (GNU) and a continued reduction in load-shedding levels. 

The company said the average nominal take-home pay reached R16,358 in July, increasing by 5.9% year over year. In real terms, salaries adjusted for inflation increased by 0.9% year-on-year to R14,400 in July 2024.

This indicates that the rally experienced in financial assets since the country’s election at the end of May is beginning to have real consequences for South Africans. 

The formation of the GNU has resulted in local assets rallying strongly amid investor optimism that a more market-friendly government will reignite the South African economy. 

Standard Bank CEO Sim Tshabalala told Daily Investor that things are already improving in South Africa, with reform processes well underway. 

This has resulted in over 145 days without load-shedding and positive signs at Transnet regarding the export of minerals and its rail network. 

South Africa’s financial markets have responded strongly to the election result, which was more positive than many anticipated. 

The rand is trading around 6% stronger than before the election, and the JSE All Share has hit a new all-time high and is up over 12% since the end of May. 

Investors are also more positive about the financial health of the country, with the 10-year bond up 17% since its pre-election lows. 

This rally in financial assets has primarily translated into lower inflation in South Africa, with the rand’s strength making imports cheaper. 

In turn, this has resulted in salaries increasing at a rate faster than inflation as the headline data steadily comes down. 

Despite this, many South Africans do not feel better off as their purchasing power is still well below that of before the Covid-19 pandemic. 

Independent economist Elize Kruger explained this is because take-home pay growth did not outpace inflation. 

This means that South Africans have become steadily poorer over the past few years, and the uptick in take-home pay in 2024 has not offset this. 

Furthermore, as consumers have struggled with the rising cost of living in South Africa, many have turned to debt to maintain their lifestyles. 

As a result, an increasing share of household income has been spent on debt-servicing costs and has crowded out other kinds of spending. 

This does subdue economic growth in South Africa, as a large share of the country’s GDP is generated by consumer spending. 

Kruger said that while South Africans do not feel richer right now, they will in time as their purchasing power gradually grows. Slowing inflation and anticipated interest rate cuts will help. 

As a result, consumer confidence will also pick up, stimulating the local economy and potentially creating a virtuous cycle where increased spending will boost growth and drive salaries higher. 

Consumer spending is also set to benefit from the implementation of the two-pot retirement system next month. 

This new system will enable South Africans to withdraw a portion of their savings for emergency expenses. 

Financial institutions, including the Reserve Bank, expect billions in withdrawals that will filter through to other parts of the economy.