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South Africa: Everybody Hurts
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Business Day (Johannesburg)
EDITORIAL
16 May 2008
Posted to the web 16 May 2008
Johannesburg
CRYPTIC comments about chicken wings and fillet will go down in history as one of the colourful turns of phrase which Reserve Bank Governor Tito Mboweni has used to make a point.
He told a public forum this week it was incorrect to say that the poor in SA suffer from higher interest rates, as they could not afford mortgages. It was high- and middle-income earners who felt the pinch, which forced them to eat less steak, he quipped.
On the face of it, Mboweni is right. People who don't have jobs, or who work in the "informal" sector of the economy are not directly affected by higher lending rates because they don't have debt. But indirectly, the effect filters down to everyone in SA Inc.
Like rising inflation -- which they aim to quash -- high interest rates raise business costs. When that happens, one of the first things to go is jobs. It may be right to assume that -- once again -- it is jobs held by middle- or high- income earners which are first to go. But it is also likely that some low-paid workers will get laid off.
It also means that gardeners, housekeepers and farm labourers who most often don't have formal contracts, will get less generous pay rises from their middle-class employers. In fact, their pay rises will probably be well below the headline measure of consumer price inflation, which is rising 10,6%. To make matters worse, the country's poor majority spend half of their income on food, and food prices climbed by an annual rate of 15,6% in March -- the fastest in more than five years. Charities which look after the country's most vulnerable people may also be affected, if wealthier citizens reduce their donations.
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At the end of the day, it is the middle-income earners who borrowed for the first time when interest rates were at record lows a few years ago who will be hit hardest as debt service costs on home and vehicle loans soar. They include the "Black Diamonds"-- SA's rapidly expanding black middle class. Financial pressure on this group does not auger well for either social transformation or healthy economic growth.
I am surprised that someone responsible for a country's finance does not realise that in anything that negatively effects the economy, it is always the very poor who carry the burden. e.g. a person who earns a good income, who employs a live in maid, and has regular garden help. If this person loses his job, then so does the maid, and the garden help. When the middle class have to tighten their belts, then it is the very poor who suffer, for it is the middle class that provides income and sustenance for the poor.
You're missing the big picture Author: rosswg. When the middle class lose their jobs the have the added disadvantage of a huge debt hanging on their heads, averaging R750 000! The poor go (debt free) back to their RDP house or informal shack and don't have the added daunting threat of huge debts. But at the end of the day we all suffer.
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