Democratic elections are a catalytic event in a country's political economy. Markets are often on tenterhooks over election outcomes, and South Africa is no exception. The country’s economic growth has been anaemic, with sovereign credit rating agencies keeping a very close eye on political and economic events. Even with post-election stability, the economic environment remains uncertain. The risk of changes in interest rates remains, and local consumers are certainly not out of the woods – they will need to manage their spending and credit carefully, and make sure they are not over-paying for financial products such as credit life insurance.
The successful conclusion of South Africa’s sixth democratic elections saw the Rand strengthening against major currencies, backed by positive assessments from local and international economists. The South African bond market also rallied, while ratings agency Moody's maintained its assessment of the South African economy at investment grade. Analysts currently agree that President Ramaphosa has a strong mandate from voters to deal with corruption, kick off his investment strategy and rescue struggling State Owned Enterprises.
But is any of this relevant to ordinary South African consumers? Or is economic positivity in relation to elections only relevant to businesspeople and politicians?
‘The elections are very relevant to individual consumers,’ says Nkazi Sokhulu, co-founder and Chief Executive Officer at Yalu. ‘The issue is one of economic stability. We experienced the benefits of this stability after the elections following the Moody's announcement, without really noticing it. But we would all have felt the consequences directly if the decision had been to downgrade our status. The impact would have been very clear to most South Africans at month end, no question.’
The South African economy has been struggling along at less than a 2% annual growth rate over the last four years. Petrol and electricity prices are seemingly always rising, and local consumers face the sharp end of inflation every time they buy groceries. With few other options, many resort to borrowing money to meet their basic monthly expenses.
‘If the elections caused worry among analysts about stability, we would have potentially seen a ratings downgrade, which would add to the cost of government's borrowing on the global markets,’ says Sokhulu. ‘This could cause inflationary forces across the economy to heat up, resulting in a good likelihood of a general interest rate increase. If this had happened, most borrowers would have had to pay more to service their debt every month. The consequences of this can be devastating for families already struggling to meet their monthly commitments.'
So, are ordinary South Africans destined to be victims of national politics and election cycles? Not at all, says Sokhulu. While political forces play an important role in all our lives, consumers still have important options available to them.
‘One of these choices is when to take on debt, and for what,’ he says. ‘Borrowing money to buy things you don’t absolutely need can create a problem at the end of the month, and consumers can empower themselves by focusing on effective decision making at the time of purchase.'
Sokhulu also highlights the importance of consumers making sure they are paying the minimum possible in monthly fees – with a strong focus on policies they haven't paid attention to or didn't even know they had.
‘Often consumers pay for a range of additional products and services surrounding a loan, as well as for the loan itself,' Sokhulu explains. 'Credit life insurance, for example, covers borrowers against their debt in the case of retrenchment, disability or death. This type of insurance is often, but not always, legally required for certain types of debt. A lot of consumers aren’t even aware that they are paying for this product, let alone that they can switch service providers and save money every month.’
Yalu offers consumers a quick five-minute online process that allows them to consolidate their different Credit Life Insurance policies into one policy, saving considerably in the process. The Yalu brand only launched in 2018, but it has already been a big hit with South African consumers. Yalu says it has potentially saved its customers close to a combined R25 million over the lifetime of their loans, while also claiming to have saved its personal loans customers up to 12% on their repayments. These impressive numbers are an indication, according to Sokhulu, of just how important financial awareness and education are – particularly in challenging economic conditions.
‘There's no doubt political developments have a huge impact on the lives of average consumers, particularly when it comes to interest rates,' he concludes. 'But it’s also important for people to take the steps that are available to them to actively manage their monthly expenses. If you keep your eyes and ears open, you’ll see there's a lot you can do to save money and take control of your financial life, no matter what happens.'
Issue date: May 2019
