Xmas bells ring in profit — and deeper debt

President Jacob Zuma has warned of another potential “financial meltdown”; the rand has slipped to new lows against the dollar, euro and sterling, heralding further rises in fuel and some other prices; and the cost of the staple food of the majority, mealie meal, having already risen 22 per cent, is about to rise again.

And this week, the federation of unions (Fedusa) pointed out that the average prices of vegetables, meat and transport have all also increased in recent months. At the same time, says Fedusa general secretary, Dennis George, the disposable income of workers has registered a significant fall.

Yet, despite this background, business is hoping that all the tills in all the towns of South Africa will jingle merrily this Christmas. And business analysts are already predicting that this may well be the case, based on sales for September.

Trade union activists and analysts do not necessarily disagree. “There is increased pressure now for working class families to buy more to keep their families happy for Christmas,” says National Council of Trade Unions general secretary, Manene Samela.

He and other unionists are aware that sales and marketing departments have been hard at work laying the ground to ensure a boost in retail turnovers. Already in place are various techniques and tactics aimed at propping up bottom lines.

This, in the final analysis, is the business of business, to guarantee the steady growth of profit that, in the process, adds to the statistics for growth in the economy. And growth, as the business lobby and the government keep insisting, is good.

The labour movement agrees — but only if it is “real growth”. This means more and better jobs along with greater material output and productivity. Retail sales, like increases in insurance premiums and security company profits can often be the antithesis of real growth.

Although the labour movement has noted on various occasions that the call to spend, spend, spend is very short-sighted, the call continues to be made — along with the contradictory demand from government to save. From a union viewpoint, much management thinking and planning extends only to the next quarterly or half-yearly results, without any consideration of the long-term consequences..

The fourth quarter of the year, ending with the Christmas season, provides one of the best opportunities for such blinkered thinking — and actions to match. Samela points out that this opportunity seems to have been exploited to the full in recent weeks.

He and other unionists maintain that the measures taken to to get the tills of the towns ringing, are similar to those that led, via the sub-prime mortgage debacle in the United States, to the current and ongoing global crisis. They point out that, in the United States and Europe in particular, it was the extension of credit to unsustainable levels that boosted sales of everything from cars and televisions to houses.

Such credit extension was lauded while it contributed to optimistic asset and growth figures. Then, as payment defaults mounted, financial assets were declared “toxic” and the system began to unravel.

Not that organised labour thinks that anything near the same level is about to happen here, although the concept of buy now, pay later — and later still — is now firmly in place. Take, for example, motor vehicles. Pre-Christmas radio advertisements now encourage us to buy a brand new car on credit on the basis that the first payment will only be due “in six months”.

Of course “terms and conditions apply”, such as a clean credit record and enough, quite costly, insurance cover. But, in at least one case, even a deposit or the trade-in of an older vehicle, is waived.

For ordinary working people — even those earning enough to qualify to buy a bottom of the range car — six months can mean anything from mere survival to destitution. Clean credit records may be severely tarnished in that time.

The absence of a clean credit slate should, of course, preclude the nearly 9 million South Africans who already had “impaired credit records” at the end of June this year. These are people who are at least two months in arrears with their accounts.

Other deeply indebted households may so far have avoided joining this listing by merit of borrowing still more. According to the latest available figures there has been a near doubling since 2010 in the number of “other loans and advances” along with an increase in consumer credit.

This month, flyers were distributed around the country under the heading: “Life is expensive” pointing to a “PayDay Advance”. They come from reputable second hand dealer and money lender Cash Converters and offer “instant cash loans against your next salary”.

This is part of the “other loans and advances” available in terms of the National Credit Act (NCA) that was supposed to protect poorer, non-bank borrowers from usury. But since the act allows for an interest rate of 60 per cent a year (5 per cent a month), along with administration and initiation fees, a R1 000 loan can, over 12 months, cost 135 per cent — only if admin and interest payments are met every month.

As this column pointed out in 2005 when the NCA was promulgated, repayments can be very much higher if interest and admin charges are not paid every month. Because, then, interest can be added to the unpaid loan, making for a classic debt trap.

And when poorer families find themselves in such a trap, they all too often resort in desperation to the mashonisas, the illegal money lenders whose business does not seem to have been affected by the advent of the NCA. In such cases it is not just income and possessions that are on the line, but life and limb.

So while the tills may indeed ring merrily in the run-up to Christmas, they will also sound a dirge for millions of working people who will face greater debt and difficulty in the coming year.