Consumer debt up sharply in SA.
The review began with, "Consumer debt is growing at an alarming pace in South Africa, driving inflation upwards. Attempts by the South African Reserve Bank to bring consumer debt under control will dampen consumer spending, but are necessary to keep economic stability." Euromonitor said that in the first quarter of 2007 consumer debt was 76.0 percent of disposable income compared with 47.6 percent in 2003.
Consumer debt has an obvious, negative effect on inflation. The rate of inflation was 6.4 percent in June 2007 compared with 4.6 percent in June 2006. This rapid rise in the rate of inflation is the central reason for the SARB's concern. The SARB raised the basic South African interest rate by 2.5 percentage points in one year. The rate was increased from 7.0 percent in June 2006 to 9.5 percent in 2007.
"Another measure designed to make borrowing more difficult," said Euromonitor, "was the June 2007 introduction of regulations requiring credit providers to assess applicants' income, monthly financial commitments and prospects."
As a result of these moves consumer spending is likely to slow.
Other evidence of increasing consumer debt includes a sharp rise in private final consumption, an increase of 33.2 percent between 2001 and 2006. Retail sales are also increasing and an increasing rate. In 2004, total retail sales rose by 8.0 percent. In 2005, retail sales increased 10.8 percent. And in 2006 retail sales climbed 10.4 percent.
Most borrowing was in housing with mortgages 59 percent of consumer debt.
Euromonitor said, "The growth of private consumption reflects the emergence of a black urban middle class." In 2006, black consumers in the middle and upper income segments were approximately 12.0 percent of the employed workforce. In 2001, black consumers in the same income segments were only 2.0 percent of the employed workforce.
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|Publication:||Market Africa Mid-East|
|Date:||Nov 1, 2007|
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