eBusiness Weekly
Karl Gernetzky
News24.com
Data from fintech group Altron has shown the ability of SA’s households to improve and service debt improved in the fourth quarter of 2022, but there some concerning signs, including that financially pressured consumers are cashing in their insurance policies as well as putting off their retirement.
The Altron Fintech Household Financial Resilience Index (Afhri), compiled by economist Roelof Botha, climbed 1.4 percent in the fourth quarter of 2022 from the prior three months, but fell 1.1 percent year-on-year. In the last quarter of the year it received a significant boost from cashed in insurance policies, something which may only provide a temporary boost.
The index uses 20 components and the first quarter of 2014 as a benchmark. The fourth quarter figure means SA households are about 11.5 percent more resilient than they were at the beginning of 2014, but still 1 percent less healthy overall than they were before the pandemic.
Altron, which provides the technology platform for microlenders, is looking to provide its clients with additional insight into market dynamics, while also putting a spotlight on the lending industry for lower-income households and small businesses. The index is weighed towards short-term considerations as a result.
The best performing index figure in the fourth quarter was “unfortunately” long-term insurance surrenders, Botha told News24, with this component jumping just over 27 percent year on year.
These surrenders were “good for short-term cash flow, and probably also medium-term depending on size of the policy you are surrendering,” he said.
“But to surrender a policy is not a good long-term plan, that is very concerning,” he said. The worst-performing index figure was lump-sump pension fund payments, which fell 30 percent year on year.
“This is intriguing stuff, it means to some extent that people are not going on pension, they are deciding to stick around a little bit longer,” Botha said. It was the spread between the highest and lowest figures that was of particular concern, said Botha, and came amid a litany of reasons why SA’s economy was under performing.
Altron’s subindex for jobs in SA for Altron Household Financial Resilience Index.
Altron Fintech Q4 Household Resilience Index
Job paradox
The index components with the heaviest weighting are private and public sector salaries, given their importance for household disposable income, and they both declined about 3% year-on-year in the fourth quarter.
In real terms, the average monthly remuneration in SA has declined by 11.4 percent over the past year, from R18 470 in the fourth quarter of 2021 to R16 370 in the fourth quarter of 2022.
This was despite a pickup in SA’s employment levels during the fourth quarter, with Botha saying the lower remuneration, despite job gains, could be in part due to the recovery of SA’s labour intensive hospitality and tourism industry, a significant part of which small and unregulated.
Botha said while SA’s economic underperformance came amid, among other things, public sector mismanagement and state capture, a failure of SA’s private sector credit extension was also an “indictment” of what he said was the SA Reserve Bank’s (SARB’s) overly restrictive monetary policy.
While data showed last week SA’s consumer inflation unexpectedly rose to 7.1percent in March, the 11th month during which it exceeded the 6 percent top-end target of the Bank’s range, Botha said SA’s inflation wasn’t demand-driven, instead they were structural factors largely outside of the Bank’s control.
The cost of credit – and of capital – has increased by more than 60 percent since the SARB started to raise interest rates at the end of 2021, he said.
“The South African economy has never been able to grow at sustainably high rates in the absence of meaningful growth in private sector credit extension,” said Botha.
“To the extent that unjustified hawkish monetary policy reduces output growth, fiscal stability will also be threatened. Inflation targets are not cast in concrete and the SARB should consider a temporary adjustment from 3-6 percent to 4-7 percent.”
