42 Middle East and Africa The EconomistJanuary 20th 2018
S
OUTH AFRICANS have dubbed this
month “Janu-worry”. After Christmas
and the summer holidays come the bills. A
popular classified-advertising website is
full of pleas for help. “Mashonisa[loan
shark] urgently needed,” says a typical
post. “No scammers.” Radio call-in shows
offer catharsis and survival tips.
The rest of the year is tough on pocket-
books too. South Africans are the world’s
most avid borrowers, according to the
World Bank. A study published in 2014
showed that 86% had borrowed money in
the previous year (see chart).
Most borrow from friends or family, but
an astonishing 25m out of about 37m adult
South Africans owe money to financial in-
stitutions or other corporate lenders (such
as utilities or shops that allow them to buy
now and pay later). To put that in context,
fewer than 10m people are formally em-
ployed (although many more work on
farms or in the informal economy, where
statistics are not reliable). Small wonder
that barely half are keeping up with their
repayments, according to the National
Credit Regulator, a government agency.
Some of this overstretching stems from
aspiration. Since the end of apartheid in
1994, a black middle class has rapidly
emerged. Many people are eager to show
that they have arrived, by flaunting a car, a
new suit or a smartphone. But not all can
keep up with the Khumalos.
Economic growth is slow, and unem-
ployment is either 28% (by the official mea-
sure) or 37% (by a more realistic estimate).
Black South Africans with jobs often have
to support a huge number of unemployed
relatives. (This is colloquially known as the
“black tax”.) The first person in a family to
attend university or get a good salary is ex-
pected to pay for the schooling of younger
relatives, and to foot the bill for funerals
and other wallet-draining events. Deduct
all this from a pay cheque and there may
not be enough for groceries. “South Afri-
cans are borrowing for everyday needs,”
says John Manyike, head of financial edu-
cation for Old Mutual, an insurer.
Many South Africans are ignorant of
the basics of personal finance, a trait that
transcendsincome levels. Neil Roets, who
heads Debt Rescue, a debt-counselling
firm, says new clients are first asked for
their household budget. Most do not have
one. “We get people coming in who earn
very big salaries...and have never learned
how to work with money,” Mr Roets says.The previous financial woes of Jacob
Zuma, South Africa’s spendthrift presi-
dent, have been well documented. When
he was drowning in debt in 2005, and de-
pendent on benefactors, he even received
help from Nelson Mandela, who gave him
1m rand ($148,000 at the time).
For those with fewer rich friends than
Mr Zuma, there are illegal loan sharks.
Many of theircustomers have jobs, but get
turned down by legal lenders because of
their poor credit scores. This does not
bother the mashonisas, who are adept at
collecting bad debts. Not all use threats of
violence. Some keep identification docu-
ments and bank cards as collateral. Othersillegally hold electronic payment cards
linked to the social security system. This
lets them tap borrowers’ government wel-
fare grants each month.
Legal lenders sometimes misbehave,
too. Shoprite, one of the country’sbiggest
retailers, was fined 1m rand in September
for “reckless lending”, after it failed to
check properly whether consumers could
afford to repay their loans. Cash Paymaster
Services, a private company controversial-
ly given a government contract to manage
welfare payments, has been accused of
pushing loans and other financial products
to welfare recipients and then deducting
onerous repayments.
Lenders insist that they are righting one
of the wrongs of apartheid, when black
South Africans were not allowed to bor-
row, by bringing people into the financial
system. They have a point. But little of the
money they lend is invested in a business
or in acquiring valuable skills. With inter-
est rates high and financial literacy low,
many loans lead to financial ruin. They
may even widen the gap between rich and
poor, since people who besmirch their
credit records by missing payments on
small loans will then struggle to get mort-
gages or business loans from banks.
Reckless lending also affects economic
growth. Absenteeism rises alongside fi-
nancial distress, since employees who
have to service big loans sometimes can-
not afford the minibus to work. Workplace
fraud and theft also tend to increase when
staff are indebted. Some debtors quit their
jobs so they can crack open their pension
pots to fend off creditors—and then reapply
for the same position, says Mr Manyike.
Debt can even cause social instability.
The often violent strikes at platinum mines
that broke out in 2014, which slowed the
national economic growth rate, were
partly born of debt. Miners’ take-home pay
was falling because lenders were getting
court orders instructing their employers to
deduct loan repayments directly from
their salaries. In Marikana, where in 2012
police shot dead 34 miners after a lengthy
strike, many workers had been caught in a
nasty cycle of unsecured short-term loans.
There are, however, some encouraging
signs of changes in consumer behaviour.
The 2017 TransUnion Consumer Credit In-
dex, which measures borrowing and re-
payment, notes a “marginal” improve-
ment in the level ofindebtedness. But it
also warns that high unemployment and
stagnant wages will keep households un-
der pressure. Better regulations to clamp
down on unscrupulous lending are being
drafted. A sprightlier economy would help
even more. Growth is expected to limp in
at just1.1% this year, after a recession in 2017.
It needs to pick up quickly to help house-
holds and the state itself—publicdebt has
climbed above 50% ofGDP—pay down
some of their crushing debt. 7Long walk to financial ruinKeeping up with the Khumalos
JOHANNESBURG
Household debt is hobbling the black middle classHey big borrowerSource: World Bank *From any sourcePeople aged 15 and over who have borrowed
money* in the past year, 2014, % of total
0 20406080
South Africa
Kenya
United States
Rwanda
India
World
Britain
China
Euro areaBuy now, default later