Global Courant
As South Africa’s middle class and affluent households come under extreme pressure, low-income earners – such as the thousands of housekeepers who depend on income from private domestic work – continue to bear the brunt.
This is one of the findings of the latest Credit Stress report for the first quarter of the year, compiled by consumer analysis and research firm Eighty20.
The group noted trends among the low-income all-female group it calls “Mothers of the Nation.” Most of South Africa’s 830,000 employed domestic workers fall into this category.
Mothers of the Nation is a low-income segment where individuals earn around R1,000 a month – well below the minimum wage. It is the counterpart to the all-male “Hustling Males” segment.
According to Eighty20, both segments are mostly unemployed or underemployed (probably in a basic occupation), with the majority receiving government subsidies to survive.
The latest unemployment figures from Stats SA show that domestic workers have fared particularly badly since Covid with around 200,000 fewer jobs than a few years ago. South Africa has always had around 1 million active duty domestic workers, but this fell by around 250,000 workers following the Covid-19 lockdowns.
Despite some recovery, the number of domestic workers has not yet returned to pre-Covid levels. In the first quarter of this year, 67,000 domestic workers lost their jobs.
According to Eighty20, one reason for this could be the financial strain on the country’s middle class and affluent households, which is causing them to reconsider domestic help.
“One way a stressed homeowner can free up some cash is by cleaning his house and tending his yard himself,” Eighty20 said.
The Credit Stress report showed that pressure on household incomes in South Africa is mounting, with even the more affluent segments now seeing an increase in defaults.
While the relevance of low-income people in terms of credit volume is negligible, the pressure on these segments is evident.
Mothers of the Nation and Hustling Males make up only about 10% of the combined 13 million people who have some form of credit, and the total value of their loans is about one-tenth of one percent of South Africa’s loan portfolio, Eighty20 noted.
Despite this, the group noted that the “mothers” are under significant stress. Whatever their small debt, some 96% of the value of loans for this segment is made up of retail and unsecured loans, with a nearly 50% increase in new defaults for both products.
While loan balances on both loans are quite low – less than R2,000 – nearly 14% of all private loans default each quarter, which is double the South African retail average.
This is also reflected in recent financial data from lenders targeting these segments – Capitec and African Bank both recorded an increase in loan losses as South Africans came under increasing stress.
Capitec, with a customer base of 20 million South Africans, noted that many more households – especially in the lower income segments – turned to borrowing to survive the political and economic storms of the past year.
However, given rising rates and limited incomes, they have been unable to repay these loans.
African Bank published its interim results this week showing the same situation.
Group loan losses on loans and advances increased by a whopping 240% to R2,240 million (H1 22: R658 million) for the period, resulting in a loan loss ratio of 11.1% (H1 22: 4.8%) .
The consumer banking division was the concern, with an overall loan loss ratio of 13.6%.
African Bank said retail consumers are suffering the most from the poor economic climate due to high food prices and fuel inflation, which is affecting their ability to service their debts.
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