Consumers urged to make cash king

Economists have warned households to buy less on credit and to watch their spending because the economic and business outlook remains bleak.

With the eurozone going into recession after its recent debt crisis, economists have warned that South Africa is likely to experience slow economic growth this year.

They predict fewer exports to Europe, South Africa's biggest trade partner.

Last year, Minister in the Presidency Trevor Manuel warned households to watch their spending and said they were sinking into debt by spending beyond their means while trying to "keep up with the Kunenes".

On Thursday, the South African Chamber of Commerce and Industry said businesses that relied on consumer spending to survive were facing a tough 12 months.

Announcing this year's Business Confidence Index projection, Neren Rau, the chamber's CEO, said: "South Africa's economic performance hinges largely on consumer expenditure by households and the government.

"Businesses face a difficult and uncertain environment in the next 12 months, but domestic economic and sociopolitical stability could assist in securing positive business sentiment."

Announcing his mid-term budget last year, Finance Minister Pravin Gordhan said the government would invest R800-billion in capital infrastructure projects.

Rau, however, said: "The chamber is concerned that the rate of fixed capital spending is below what is needed to accumulate appropriate capital stock for sustainable, higher, economic growth."

Goolam Ballim, chief economist at Standard Bank, said, despite a tough economic 2011, some households had managed to reduce their debt. He said this trend needed to continue during 2012.

"South Africans should continue to find a workable balance between spending out of cash reserves and spending less on credit," he said.

Goolam said the negative shock from foreign markets that resulted in more than a million people losing jobs in 2009, might quickly filter into the local economy.

Towards the end of last year, Statistics South Africa said 350000 South Africans had lost their jobs since 2010.

Due to the country's reliance on foreign trade, the economy's slow growth would continue for two years after2012, with a projected growth of less than 3%.

With consumers spending less, businesses were likely to struggle, and competitive strategies would determine the winners and losers.

Chris Hart, chief economist at Investment Solutions, said while there were indications of a tough year for the economy, there was a possibility South Africa would attract investments from developing areas such as Africa, India and Brazil because the rand was likely to weaken to R9 to the dollar due to the eurozone crisis.

Last year, consumer spending remained high, with car sales reportedly up by 12% in the third quarter.

However, Hart said that, while consumer spending could remain the same as last year, household savings would take strain due to the tax on property transactions and investment savings - and tight labour policies that made it difficult for small businesses to survive.