Slashed wages just the start of spiralling misery
Unorthodox financial methods are required to avoid social unrest driven by severe hardship, say experts
Take a 40% salary cut or there will be no job to return to after lockdown.
This was the tough choice for IT security manager Dan Molefe and his colleagues, who work in Johannesburg’s restaurant sector.
“We were told we had to take the cut because the restaurants are closed. We were told if we don’t there will be no business to come back to.
“It’s tough. Schools still need fees paid. I don’t know how I am going to pay my rent or buy food. I will have to cut down on other expenses and investments so my family can eat.”
Molefe is one of a growing number of employees with much less money and debt counsellors are seeing an increase in consumers making debt review inquiries.
Debt Rescue CEO Neil Roets said, on average, his company received 2,500 debt review inquiries a month. Since lockdown it had received nearly 3,000.
“We believe these numbers and the number of people applying for debt review, usually 30% of our monthly inquiries, will rise.
“On average, those who have made inquiries have had their salaries cut by between 20% and 40%.”
On average, those who have made inquiries have had their salaries cut by between 20% and 40%.Neil Roets
Economists and finance investment management academics warned that if the country is to survive, government and financial institutions must adopt unorthodox approaches to avoid the economic collapse of millions of people.
The National Credit Regulator’s (NCR) latest quarterly consumer credit market report, released in December, showed that of the 25.2 million credit-active consumers, 10.71 million have impaired credit records.
A person is declared as having an impaired credit record when they have not paid an account for three months or more.
NCR company secretary Lesiba Mashapa said while the number of consumers applying for debt review had remained constant until now, they anticipated the number would rise in the aftermath of lockdown.
He said many would be affected by job losses and reduced incomes, impacting on their ability to repay their debt.
On Thursday, Lancet Laboratories, whose workers are in the midst of the country’s Covid-19 fight, conducting tests on potentially infected people, announced salary cuts of 30%.
Johannesburg IT specialist Riaan Venter, whose salary was cut by 20%, said employees at his company were told the organisation was trying to safeguard the business.
Venter, who supports his mother, said the cut would have a huge impact on him. He had started a new job in February, after being retrenched last year when his previous employer went into liquidation.
“While I adjusted my spending, I still have debt to settle. At the same time I am taking care of my mother. I counted on my full salary to do this.”
While I adjusted my spending, I still have debt to settle while at the same time taking care of my mother. I count on my full salary to do this.
He said what worried him was not knowing how long his salary would be reduced for.
Roets said South Africans’ debt to income ratio was 70% now, which means that percentage of their salaries goes toward paying debts.
“The hard reality is that in SA there is hardly anyone who can survive a month on their salary.”
He said with salary cuts, people would soon start cancelling insurance policies.
“Some people have emergency funds, but these will run out quickly. There will be spikes in defaults on credit and store cards.”
This is the reality for a media worker, whose salary was cut by 35%. He said he had temporarily halted his life and household insurance policies.
“The cut doesn’t mean the bills go away. My family and I will have to make some tough choices if we are to survive for two months or more.”
Sunil Nagar, Liberty Group’s operations managing executive, said while it was too early to determine the overall impact of lockdown on its customers, “once business and customers begin to feel the financial impact of the lockdown”, the pandemic may have implications on premium collections and policy cancellations in the short to medium term.
Prof Kalu Ojah, director of Wits University’s masters of management in finance and investment programme, said while it was unjustifiable to ask employers to keep paying employees who could not work in lockdown, workers were still expected to pay their debts.
“It’s a disastrous situation. For many, payments will be unsustainable beyond three months.”
He said to ease growing financial burdens, government would have to demand financial services firms place moratoriums on debt servicing in return for special rebates on taxes which they pay.
Wits school of economics and finance lecturer Lumkile Mondi said the country required unique approaches to fiscal programmes, especially if predicted social unrest, driven by severe social hardships, was to be avoided.