allAfrica.com: South Africa: Consumer Slowdown Starting to Spread (Page 1 of 2)

CONSUMERS represent the hardest-hit segment of SA's economy in the slowdown, but their woes are likely to spread to industry as time goes by. A recent survey of the country's top business leaders suggests this is already taking place.

A slowdown in spending by consumers, who account for as much as two-thirds of gross domestic product, spreads to other parts of the economy. Steve Booysen, CEO of SA's largest retail bank, Absa, spelt it out in an interview with Bloomberg after his company's annual general meeting last month.

"There is a lag effect with the corporate and commercial business 18 to 24 months after the retail cycle," Booysen said.

While eight of the 10 CEOs polled by Business Day late last month said the economy would not go into recession -- the remaining two said the outlook was uncertain -- the slowdown is already evident in the consumer side of the economy. A rise in the Reserve Bank's benchmark rate of 2,5 percentage points since June, and surging oil and food prices are taking their toll. This is hard on homeowners and other users of credit, but is not a disaster for the economy, as Booysen said in Business Day's poll.

"It is important to remember that this year will also see a surge in infrastructure and fixed investment as many of the country's parastatals and the private sector build new capacity and as preparations for 2010 continue. That will push some of the focus away from our retail operation and towards our corporate and business bank, and our investment banking units."

Being in the business of lending money, both Booysen and his counterpart at First National Bank, Michael Jordaan, see the consumer side of their businesses suffering.

"We've seen a significant increase in bad debts -- mainly unsecured credit in our credit card area. As can be expected, this impact is now being felt in our home loans business."

This slowdown is also being felt by retailers. Grant Pattison, the CEO of Massmart, whose stores include Game and Dion , says his middle-income market is suffering.

"Products retailed through outlets that target middle- income customers are seeing slowing sales, but products sold through outlets that target higher earners are not showing the same slowdown," he says.

This middle market was the one identified by the National Credit Regulator in February as being the group most stressed by rising credit costs. People earning between R3500 and R7500 a month, almost half of the country's 17-million credit users, showed the greatest deterioration in their credit standing between June and September, figures from the regulator show.

Jasco Electronics -- which provides telecommunications services to clients such as Telkom, as well as security systems for businesses, and supplies consumer-related items such as salt water chlorinators and components for domestic appliances -- says it is seeing a slowdown in that last category.

"Our domestic product division is affected by the consumer spend," says CEO Martin Lotz.

By contrast, the construction industry is humming, pushed partly by government plans to spend more than R460bn on infrastructure over the next three-year spending cycle.

While the JSE's six-member banking index -- Absa, Standard Bank, RMB Holdings, FirstRand, Nedbank Group and Capitec -- has fallen almost 16% this year, and 9,4% since the start of last year, the 10-member construction and building materials index is down just 5% since the start of this year. Since January last year it is up 53%.

"We see continued growth opportunities in home and African markets," says Group Five CEO Mike Upton.

One area it is hoping to cash in on is regional demand for power-generating capacity. It was "waiting in the wings" to be the main equipment supplier to companies doing work for power utility Eskom, the company said last month .

Vehicle dealer and logistics company Barloworld, whose customers include both consumers and industry, is seeing a split between its business units.

"We see infrastructure and mining demand for equipment robust, and vehicle sales slowing," says CEO Clive Thomson.

How long the consumer slowdown will take to feed through to the rest of the economy is an open question. There are already signs that some industrial customers are feeling the squeeze. Richards Bay-based Bell Equipment, a producer of heavy equipment that does 40% of its business inside SA, says it is seeing a slowdown.

"We're seeing order deferrals or cancellations (albeit small), and a reluctance to invest by some suppliers and some customers," says CE Gary Bell.

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