Less consuming, more investing. THE last time consumers were as pessimistic about their own financial prospects as they are now was about a decade ago. And according to the latest FNB-Bureau for Economic Research survey of consumer confidence, it is low-income households that are least confident about their ability to keep spending. While the more affluent households remain fairly upbeat, those households earning less than R7,000 a month are distinctly downbeat. And chances are that the consequences of this are not only macroeconomic — they also bear on the political environment. The survey shows that consumers’ rating of the outlook for the national economy, their own financial prospects and whether it is a good time to buy durable goods have all deteriorated significantly in the latest quarter. A striking aspect of the survey over the past two decades has been that black consumers’ confidence has, more often than not, been higher than that of white consumers. Yet even among black consumers, confidence has fallen particularly sharply of late. The pattern no doubt reflects the pressures that low-income households face — pressures which have been one of the key drivers of the labour unrest and the often outrageous wage demands which, along with turbulence in the trade union movement, have characterised the industrial relations landscape over the past year or more. High levels of unemployment take a steep toll on low-income earners, because one wage has to stretch to feed so many mouths. That adds to the effect of rising costs of basics such as food or electricity. Then there is the credit story. The explosion of unsecured lending has helped to support those lower income households who are feeling the pressure, enabling them to keep spending. Against this, all that credit has itself served to make those low-income households even more vulnerable to setbacks such as the loss of a job. The extent of garnishee orders has been one reflection of this vulnerability. As arrears have risen and levels of risk have climbed across the unsecured lending industry as a whole, lenders have tightened the credit criteria and pulled back on lending. The result is that those low-income households have been losing access to the credit which kept them afloat, at least for a time. Not that it is only the poor who were borrowing. Much of the explosion in unsecured lending has been in larger loans, for the middle market rather than the poorest. That has helped to fuel consumer spending, even at a time when growth in the economy, and in disposable incomes, has been muted. Arguably, if consumers are somewhat less confident and more sober about their financial prospects, that is not all bad. A bit of realism on the part of borrowers could help to curb the worst excesses of the unsecured lending boom. There is also good reason to curb some of the credit culture higher up the income scale. It has helped to support an aggressive consumerism which is not particularly good for our society or our economy. Ideally, South Africa’s economic growth would be driven to a far greater extent by investment in fixed capital, which would provide the basis for the economy to grow faster and more sustainably in future years. Our economy’s balance between consumption and investment is far from optimal. It is one of the key constraints on our ability to sustain job-creating growth. If we saved and invested more for the long term, and spent less on cars and clothes in the short term, our economy would be a lot healthier. The trouble is that as things stand, the economy relies heavily on consumer spending as a driver of growth. Household consumption expenditure accounts for just over 60% of gross domestic expenditure, while investment spending is just over 19%. So if consumer confidence is at a decade low, the implications are quite dire. That’s particularly so given how sluggish investment spending has been. The private sector continues to account for the bulk of investment spending. But public sector investment was supposed to buoy the economy and drive growth and job creation, not to mention creating local industries and skills. There are grand plans — not just the R827bn the public sector has on the drawing board for the next three years, but the more than R3-trillion which is being targeted by the Presidential Infrastructure Co-ordinating Commission. Some of the spending is happening, at Eskom, Trans-net and other parastatals, and to some extent in government itself, at various levels. But there is a pattern of underspending on capital budgets. And it is not at all clear that government has the skills to do that investment spending, never mind doing it in a manner which is straight and not corrupt, effective and not wasteful. Government talks about a much greater role for the private sector in infrastructure investment. But it is not clear that the commitment or the capacity are there. The challenge for policy makers, then, is to create an environment in which we get realistic levels of consumer spending — and much better levels of investment spending. Both are needed for faster and healthier growth.
Posted on: Thu, 03 Oct 2013 05:44:57 +0000
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