Nelson Mandela once described the ‘walk to freedom’ as being a ‘long’ one. It was indeed a political struggle that took decades. AFRICAN MIS-ADVENTURE What parallels can we draw from the good, the bad, and the ugly side of consumer debt in South Africa? AUTHOR – Zak King Advancing the credit profession / www.cicm.com /<strong>June</strong> <strong>2021</strong> / PAGE 18
CONSUMER CREDIT AUTHOR – Zak King WHEN the Apartheid system was dismantled in the early 1990s, millions of South Africans were excited to enter the formal credit market for the very first time. Within a decade, most of these new credit users had over committed themselves and were seriously over indebted. What followed was a flood of consumers, including Government employees, receiving attachment orders against their monthly salaries due to non-payment. This ultimately saw the rise of the payday lender and a boom in shorter term lending. Over the next decade, the situation would worsen to the point where Government would finally decide there was a crucial need to adjust and consolidate existing credit legislation to try to reduce abuses, and thereby bring balance between the rights of the mighty credit provider, and the lowly consumer. The result was the establishment of the National Credit Act (NCA) which came into effect, rather fortuitously, in 2007 just before the great global recession. The Act, though not without drafting issues, forced credit providers to drastically adjust lending behaviour, and provided consumers with mechanisms for dealing with runaway debt. One feature of the Act required lenders to do extensive background checks and calculations to ensure that the lender could in fact repay the money each month. Failing that, the credit provider could find themselves guilty of ‘reckless lending’ and face a fine of up to 10 percent of their annual turnover. Another outstanding feature was the introduction of professional debt counselling. Trained and registered individuals would be able to help troubled consumers go to court and have their monthly debt repayments restructured into an amount they could realistically afford. WEATHERING THE RECESSION Perhaps it was due to the Act (and several other positive factors) that South Africa was able to weather the 2008 great recession better than many other developing countries. Unfortunately, a decade of dishonesty and corruption during the tenure of President Jacob Zuma was about to begin. This would drain municipal coffers, push up Government indebtedness and misdirect funds needed for infrastructure development and upgrading of power generation capacity. All of which would have massive negative consequences for one of Africa’s top economic powerhouses. During this difficult decade nearly one million South Africans would begin to make use of the debt counselling process. The country’s economy sat balanced at the edge of the abyss trying to avoid downgrades by international ratings agencies with the danger of this scaring off investors. And then came 2020, and with it a global pandemic. When COVID-19 first hit South Africa, at the end of March 2020, a three-week hard lockdown came into effect. People were only allowed to leave home to shop for food or seek medical attention. The lockdown was then extended and was in effect at various lessening levels of restrictions since. This allowed the economy to slowly get back up to speed, while regulating the pressure on the country’s medical infrastructure. South Africa was one of only a few countries in Africa willing, or able, to report meaningful COVID-19 statistics. This reporting and extensive testing made it stand out during the start of the Pandemic. Swift Government action and tough restrictions helped limit the spread of the virus among the population of around 60 million. Ten million tests have been conducted and to date only 1.5m South Africans have been infected, with a 95 percent survival rate. Lockdown however, hit the economy hard, particularly the mining industry, as well as the wine, manufacturing and tourism industries. Like elsewhere in the world, retail too was decimated in those first few months, as people who were not earning anything were unable to spend anything. EMERGENCY RELIEF Government was able to make a monthly GBP17 grant available to the poorest of the poor, in an effort to help ease the lockdown pressure. There were also some short-term tax changes made to help ease pressure on businesses and individuals. Over the remaining months of 2020, over 2.2m people would lose their jobs. To give that some context, South Africa already had 16.6m unemployed. This meant that now one out of every three in South Africa was unemployed, giving it one of the highest unemployment rates in the world (among those who bother to report such stats). At the start of lockdown, the major banks (who provide 80 percent of all credit in South Africa) wisely offered their clients the option of taking a three-month payment holiday on credit agreements, to help ease the pressure. They did not, however, freeze interest calculations, of course, and so they came out ahead and had cleverly avoided many unnecessary and probably unsuccessful collections headaches. Employers tried their best to pay their homebound workers what they could, and significantly, Government issued regulations preventing evictions during lockdown. They did not stop payments or limit interest but this allowed consumers to prioritise buying essentials, and in many cases forgoing paying rentals. As restriction levels progressively dropped, landlords have not had an easy time evicting Advancing the credit profession / www.cicm.com /<strong>June</strong> <strong>2021</strong> / PAGE 19 continues on page 20 >
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