Johannesburg - The rich are the most indebted and banks are reporting a 50% increase in bad debt as South Africans now owe R1 139bn - R8,20 of every R10 a South African earns goes to pay off debt. Or should, but the latest figures from the Bureau of Market Research (BMR) at Unisa shows that more can't pay and are sliding down a steep slope into financial despair.
Liza van Wyk of executive management skills training group, AstroTech says, "we are seeing enrollments in our financial courses rise and more executives asking not just how their companies can cope, but how they can manage their way out of serious debt."
The Unisa research shows that the income group with the biggest debt burden earns between R500 000 and R750 000 a year. Their debt represents more than 135% of their disposable income and they use 34% of their disposable income to pay back debt.
Their woes have seen the property market and car sales collapse with more than 4 000 jobs lost as more than 200 car-dealerships have closed, according to McCarthy. Ford will start lay-offs soon.
Nonetheless, major banks like Investec have said they see global economies beginning to lift in mid-2009 although economic conditions in South Africa are likely to remain flat for at least a year.
"Our Finance for Non-Financial Managers course is consistently jam-packed, we're seeing high interest in our early February course on Corporate Budgeting as well as our Risk Management and Strategic Management courses," Van Wyk said.
Low rand won't help
"Our skills trainers are reporting the most attentive delegates yet in financial courses, with many afterward asking for personal guidance - and these are the cream of South African business, government and parastatals."
Wayne Ford, AstroTech's top financial management trainer and a highly-respected management consultant giving his overview of the present situation said a low rand against most major currencies would not necessarily help the economy. "Not every company will be able to compete in the export market. Any company that cannot compete and survive unless domestic consumption expands is not going to be able to succeed in the much more aggressive export market."
Ford said the biggest challenge facing South Africans and global financial markets was pervasive over-spending. "We keep interest rates high partly to reduce credit spending and thus domestic inflation, and partly to protect the exchange rate and reduce imported inflation from things like oil and foodstuffs.
High inflation is disastrous to the poor, who have no spare disposable income, no savings and minimal flexibility to increase their income - other than to strike for higher wages. Fighting inflation is one of the best ways to help the poor.
"And when banks won't lend to them any further, those in financial trouble go to loan sharks and incur extortionate interest charges. 'Incentivising' everyone to cut debt is critical.
"The American plan to cut rates in order to fuel credit spending was fine in the very short term, but it was poorly judged credit spending that caused their problem in the first place. You don't have to be a genius to realise that the credit boost they are creating now (which is being funded by increasing the federal debt) will lead people into further debt, which will have to be paid for in the future by families who can't afford their existing levels of debt now.
This is like treating gangrene with morphine - although it has stopped hurting it is still there, it is getting worse, and if left untreated for much longer it will certainly kill you."
More focus on green energy sources
The challenges for labour & land redistribution Ford said, "Creating jobs is very important, but those jobs must be sustainable. If we create jobs by allowing customers to buy on credit then those jobs will disappear as soon as the next level of credit-seizure is reached.
Also, if jobs are created by allowing families to get into debt, then the cost of prosperity will probably exceed the prosperity itself, and the whole cycle will continue to spiral negatively. These negative spirals kill entire economies - the USA is close to the edge right now, and many developing nations have long since slipped over the edge.
"Allowing the exchange rate to drop helps exports but has the parallel (and much faster) effect of raising imported oil prices." Ford said that: "We need to increase exports by reducing manufacturing costs by improving productivity vs wages. It would help if we could break our dependence on imported oil and food, as we could then happily devalue the currency.
This requires a massive focus on green energy sources and better support for efficient corporate farms as opposed to land redistribution to subsistence farmers who can barely feed their own families, far less entire towns. The example of Zimbabwe is very relevant here. "A growing economy needs citizens to save. This makes banks cash-flush, which eases the cost of borrowing and makes capital available more cheaply.
The short term solution for individual families is the following:
Use all available cash to pay off debt.
Use less fuel - switch to public transport where practical.
Grow some of your own food in the back yard.
Trade in your car for the cheapest car you can find.
Get solar heating installed as soon as you can afford it, and meanwhile save power with low-energy lightbulbs.
Get a second job.