JOHANNESBURG – Payment holidays offered during the April-to-June period 2020 are set to cost South Africans an extra R20.7 billion in debt for the estimated 1.6 million consumers who participated, according to calculations by DebtBusters.
DebtBusters’ chief operating officer Benay Sager said on Monday that while payment holidays gave some relief to people facing a short-term cash crunch they came at a cost. This was as a result of interest accumulating on the debt owed.
“We understand that for many consumers payment holidays were a lifeline. For people who were desperate to make ends meet during the hard lockdown, the additional interest may have seemed an inconsequential consideration, but on average a three-month payment holiday will have increased what they owe by 4.2 percent,” he said.
Sager said in a country as over-indebted as South Africa, especially at a time when the economy is contracting, this was enough to push people who were just about making ends meet into a situation where their debt-to-income ratio was unsustainable.
The DebtBusters analysis was conducted based on the profiles of typical consumers who applied for debt counselling over the past year.
When the country went into a national lockdown in March, no one fully comprehended the deep, complex and devastatingly profound consequences it would hold for individuals and businesses.
Banks responded to the imminent crisis facing account holders, and as at July 7, had approved more than R30.6 billion in relief to individuals and businesses affected by the Covid-19 pandemic and national lockdown, according to the Banking Association of South Africa (BASA).
A report by specialist collections agency Shapiro Shaik Defries and Associates – Navigating through South Africa’s Debt Relief Programme and the Implications for Indebted Consumers – states that the debt relief programme, while crucial at the time, had tremendous implications for both previously and newly indebted consumers, and for how banks go about collecting an outstanding debt as well as supporting distressed customers.
Commercial director of Shapiro Shaik Defries and Associates Gareth Levinsohn said given the urgency demanded in the circumstances, the debt relief extended by banks to customers was done on a broad-based account and product level, and not on a customer-specific level.
As a result, many bank clients found themselves with more than one payment relief running across different products, all activated at different times, and potentially all with varying terms and conditions.
“South Africa was not unique in this approach with many of the world’s major economies following a similar approach. While this was entirely outside of the usual and normally stringent requirements of South Africa’s financial services sector, it was an entirely necessary and empathic response to the extraordinary circumstances and existential threat posed to livelihoods by a global pandemic and subsequent national lockdown.
“However, as banks now try to recover and recoup the outstanding debt, millions of South Africans remain in deep financial distress as these payment holidays come to an end. South Africa’s lockdown, one of the most stringent in the world, is taking a massive toll on business and the economy, with an estimated 7 million job losses in the offing,” said Levinsohn.
The big question is, with the initial reaction of providing relief for distressed consumers passed, how will this impact the response and recovery phases for South Africa’s financial services sector, as well as the millions of individuals who continue to find themselves under significant financial duress?
Executive director and chief economist at Efficient Group Dawie Roodt said at least 3 million jobs had been lost thanks to the lockdown – 1 million permanently. While the lifting of some Covid-19 restrictions was welcome, the bottom line was that the South African economy had been “broken”.
“I foresee fairly rapid growth in some sectors such as the hospitality and restaurant industries but the bottom line is that the South African economy has been broken and it is going to take years for it to recover,” he said.
Roodt said nobody knew precisely how much debt had been piled up during the lockdown but the fact was that it was probably more than most economists could guesstimate at this time. He said he was certain that what was experienced over the past several months was not a recession but a full-blown depression. “Many of the businesses that closed their doors during the lockdown will never reopen and those jobs and the contribution that they made to the economy in taxes are lost forever.”
Debt Rescue chief executive Neil Roets agreed with Roodt that the economy was severely damaged. “Our experience on the ground shows that an alarming number of consumers are unable to repay their debt. The extent of their indebtedness has also grown substantially compared with the same period last year.
“The most worrisome of all is the fact that we are now seeing the top earners on the ladder such as doctors, lawyers and corporate executives knocking on our door to place then under debt review.
“These are the people who typically paid the most taxes to keep the government afloat. Without their contribution the government is going to feel the pain that all of us are experiencing at the moment,” Roets said.
He said the only way out of the current crisis was for the government to do what consumers have been doing forever – work on a tight budget.
“Governments typically do not create wealth – they destroy it through reckless spending. If we begin by tallying up the many billions that have been lost to boundless corruption and look at the outright disaster which are our many bankrupt municipalities, we can get some idea of just how desperate the situation has become,” Roets said.
A recent survey done by Debt Rescue found that a shocking 85 percent of all South Africans needed help either financially, emotionally or both as a result of the Covid-19 pandemic. A further 55 percent required financial assistance but had no access to credit An additional 96 percent were stressed about their health, finances or both.
Roets said one of the findings that made him sit up and take notice of the evolving crisis was the fact that only 26 percent of the respondents reported that they had successfully applied for a payment holiday while 51 percent said they had no savings to fall back on.
He said the combination of an expected multibillion-rand revenue collection shortfall and the Covid-19 economic meltdown spells trouble for the state’s ability to sustain society and should be seen as a ticking time bomb that could lead to widespread social unrest.