SA maintains ‘discretionary spending’

According to the latest survey, 44% of South African consumers are expecting to maintain their spending on discretionary items over the coming six months, seven percentage points higher than the last survey conducted six months ago.

While 38% are expecting to decrease their spending compared to 43% six months ago, just 18% said that they plan to increase their spending, which is down a marginal two percent from six months ago.

The MasterCard Survey of Consumer Purchasing Priorities is released twice yearly and provides valuable insights into consumers' discretionary spending priorities for the six months ahead in 10 main categories. The latest survey was conducted from 1 October to 9 November 2009 and involved 10,623 consumers from across Asia/Pacific, Middle East and Africa.

Three new African markets were added to this survey - Kenya, Morocco and Nigeria - bringing the total number of markets surveyed to 24*. Data collection was via personal, online, telephone and computer-aided telephone interviews. The Index and its accompanying reports do not represent MasterCard's financial performance.

It's clear from the survey that South Africans still enjoy shopping. Of those who are planning to maintain or increase their spending, the top purchasing priority category, closely mirroring the results from the previous survey, is spending on fashion and accessories (27%), followed closely by their passion for dining and entertainment (24%). Buying or upgrading a home (24%) remains as the third most important purchasing priority.

On the opposite end of the scale, the three categories where few South Africans are planning to spend in the coming months include travel (3%), fitness and wellness (7%) and continuing education (13%).

"Travel is viewed by many as a luxury, whereas clothing and dining are much smaller, affordable outlays. People may also be less likely to take leave for a holiday in a downturn because of concerns over job security," says Rodger George, Consumer Business Industry Leader for Deloitte South Africa.

The survey also examined consumers' savings patterns, and found that a substantial 42% of the South African consumers surveyed said that they intended to save more over the next six months. This has declined slightly from the previous survey where 47% of consumers had planned to save more. Just over a third of consumers (36% compared to 24% in the previous survey) planned to save about the same amount over the next six months.

Continued concern over the economy appears to be fuelling plans for consumers either maintaining or increasing their savings. Of the 78% of South Africans who are expecting to save either more or as much as they had in the previous six months, the majority cited uncertainty over the economy and, hence, the need to be prepared for unforeseen emergency expenditures as their grounds for saving.

23% of consumers - compared to 29% in the previous survey - said that they planned to save less over the coming six months. The main reason cited for not being able to save more is that they believe they do not earn enough to save. The majority of South African consumers (33%) plan to save between 15 and 10% of their income in the next six months.

This is illustrated by the fact that the majority of South Africans' savings are expected to be put towards various long-term assets over the next six months. These assets include investments (42%), retirement (35%), and buying or upgrading a home (25%). These three savings patterns were also revealed as a priority in the previous survey. Interestingly, 21% of South Africans also currently view saving for a vehicle a priority.

"Although the worst is thought to be behind us, South Africans are still feeling the pinch of the recent economic downturn. It is not surprising then that so many of us are planning to do a little belt-tightening," says Anthony West, senior vice president and general manager, MasterCard Africa.

"The culture of saving in South Africa is particularly poor, and similar to some of the world's most developed countries, the household savings rate has been declining steadily over the past few decades," says George.

"The ratio of total household savings to total disposable income was 18.5% in 1961, 5% on average in the 1980s and has been negative since 2005, he explained. "However, the recent recession has been a bit of a wake-up call for many South Africans - especially those who had been expecting large salary increases and bonuses."

The survey also revealed that 40% of South Africans spend over half of their income on household expenses on items such as food, clothing, shelter, transportation, utilities, medical bills, insurance, support of children/ parents and so forth. 

George commented that higher prices for goods and services will result in less money left over for discretionary spend after paying for utilities and basic essentials. This in turn should reduce consumer spending on discretionary items. In addition, higher inflation normally results in higher interest rates, as the South African Reserve Bank follows its inflation rate targeting mandate. Higher interest rates also reduce consumption, and make borrowing more expensive for companies and would be investors.

Looking further afield to the African markets surveyed, it was found that Nigeria is the only market across the Asia/Pacific, Middle East and Africa (APMEA) region, where  the majority of its consumers (55%) are looking to increase their discretionary spend in the next six months.

Conversely, the majority of Kenyans are looking to decrease their discretionary spending with 65% planning to cut back in the coming months, while just under half (47%) are looking to save more.

Buying or renovating one's home is also among the top three priorities for both Nigeria (46%) and Kenya (44%), and a higher priority compared to South Africa (24%).

What is interesting to note is that Nigeria, Kenya and South Africa all have a different top spending priority - South Africa (fashion and accessories), Kenya (private tuition and extra curriculum activities for one's children) and Nigeria (buying or updating/renovating one's home).

"This illustrates the variances amongst different African markets, proving that companies doing business in Africa must not cluster sub-Saharan Africa as a single entity. Rather, companies needs to acknowledge and adapt to each market's intricacies and differences in order to do business effectively," says West.

"The positive news is that we will see consumers and consumer businesses returning to positive territory again relatively soon. However the boom years of 2003-2008 will not return immediately, neither will the high levels of credit extension, retail growth, finance, insurance, telecoms and other consumer businesses. Growth will continue to shift towards investment and the supply side of the economy - as it should to maintain balance," concludes George.