Hard times The middle class tightens its belt again

● Last year is one that Port Elizabeth resident Nosizwe Mali would rather forget. The 34-year-old mother of three lost her junior management job thanks to a decision by General Motors to exit South Africa.

Until then, as a member of the new black middle class, Mali would have been considered a “black diamond”.

Now, like many emerging middle-class South Africans, her advancement has been hobbled by a weak economy.

Mali, a BCom accounting graduate, has battled to find employment since November, even with the help of recruitment agents.

Her husband, a traffic officer, works in another town and returns home every fortnight. Like many emerging middle-class families, the Malis had taken on home loans and vehicle financing to fund a lifestyle that included comforts such as two cars, regular entertainment and a large grocery bill.

“You try to work hard because you want to give your children a better life you never had,” said Mali.

“It was not easy to get a degree. I wanted to give my kids a better lifestyle. When something happens that threatens that, it messes with your mind.”

Her provident and retrenchment package contribute to the household budget, but these funds are at risk of dwindling if she doesn’t find a job soon.

With debt and primary-school fees to pay for two children — after she removed her third child from preschool — Mali has cut her grocery bill by half, almost eliminated entertainment spending, and scrutinises every purchase.

It is not only newly middle-class households that are making adjustments.

Financial expert Simon Brown, 48, is on his third home, drives a paid-up roadster and has about seven different incomes through contract jobs, pegging him at comfortable middle-class earnings.

Nonetheless, he and his partner recently sold their four-bedroom home in Johannesburg and used the proceeds and some savings to buy a flat in Braamfontein Werf, Johannesburg.

The aim, said Brown, was to escape the debt trap.

“If I take what I was paying on the bond, the housekeeper, garden service, security and maintenance, I’m paying 80% less living in a small flat,” he said. Without major debt, he is also saving on interest payments.

“I know people, a quarter to a third of their take-home pay goes on interest. It’s harder the less you earn. But truthfully, I know people who earn more than me, and they struggle because they have two fancy German luxury sedans and a five-bedroom house in some luxury estate . . . these are decisions we make,” said Brown.

Even as many consumers struggle to make ends meet, some data shows they are in better shape than they were about a year ago. According to economists, this is due to tighter loan conditions that have limited the granting of loans, and lower inflation, which has improved disposable income.

Household debt as a percentage of household disposable income has continued to decline and reached 72.5% in the third quarter of 2017 since peaking at 87.8% in the first quarter of 2008, according to the National Treasury’s 2018 Budget Review.

Growth in private-sector credit extension slowed to 5.5% in January this year from 6.7% in December, lower than the consensus forecast of 6.6%.

However, the one percentage point increase in VAT next month will take about R22-billion out of the economy, and other tax increases may crimp budgets further.

Recent research by Stats SA shows an expansion in poverty rates, creating the impression that the middle class has stagnated.

But Carel van Aardt, the head of the household wealth division at the Unisa Bureau of Market Research, said another phenomenon was at play. “If you take the middle class as people from your low emerging middle class all the way to upper income/emerging affluent class, then the number of people has actually grown substantially.”

The number of low emerging consumers — those who have just entered the middle class — experienced a growth spurt between 1997 and 2007. In the decade after that, the pace of people migrating out of poverty into the emerging middle class, and into the middle of the middle-income bracket, increased.

Brown said these were the years in which the stock market was buoyant and commodity prices were booming.

“Politically, when Jacob Zuma was elected [at the ANC’s elective conference] in Polokwane in December 2007, GDP was touching 4% and our rand had strengthened from the collapse of 2001, so there was a lot of optimism.”

In 2007, the property market was at its zenith before price growth slowed dramatically during the next 10 years.

FNB’s household and property sector strategist, John Loos, said hikes in rates and tariffs of particularly electricity over the same period and the government’s failure to adjust income-bracket creep had significantly affected the middle class.

Medical aid and education costs were no more a burden than they were in the late 1980s and ’90s, during which there was a surge of middle-class people moving to private healthcare. Now the burden is high rates, tariffs and fiscal drag, Loos said.

Van Aardt said the rich felt the impact of inflation less, while cost pressures on the low emerging middle class and the emerging middle class had grown substantially over the past decade.

People in the low emerging middle class group have had to “buy down” to cover costs, particularly on items that are inflationary, such as food and fuel.

Weak economic conditions had eroded much of the potential growth in the middle class, Van Aardt said.