South Africa needs to change its top-down approach, consult communities and fast track the delayed Integrated Energy Plan
The move to reduce dependence on Eskom will probably shift people’s patterns of expenditure and increase consumer debt levels in the coming months.
This is according to Momentum Investments’ Consumer Pulse report, which states that the shift will be influenced by the middle- and upper-income segment of the population who can afford solar panels, batteries and inverters.
“A household that can afford solar means that at the end of every month it is now paying off something that it didn’t pay off before, which is this alternative form of energy. That means that there’s less discretionary spend in the wallet,” said Momentum economist Sanisha Packirisamy.
“You find that necessary goods are still given priority, but discretionary spend takes a bit of a backseat because now you are distributing your wallet a little bit differently than previous months because now you’ve got to pay for this additional energy source that you didn’t need to previously.”
Going partly or totally off-grid costs anywhere from R150 000 to R350 000, according to Capitec.
Installing an inverter is a relatively affordable option for middle-income households, while the most expensive options would be installing a hybrid system or going off-grid.
“Obviously for some households, it’s a little bit less affordable to go the solar route so they might do an inverter or generator, but with the generator there is still the monthly cost of running it with your diesel,” said Packirisamy.
“Effectively, this means that you spend on something that’s almost non-durable in nature, just like food in your electricity or energy budget. That means that you have to cut your discretionary spending on luxury goods a little bit more.”
Packirisamy said there was already a pattern of discretionary spending cuts, given high inflation and the cost of living.
“We’ve seen that middle-income consumers, as an example, are now starting to cut subscriptions to things that are seen as non-essential. So, a TV subscription, for example, would be cut, or if you were on a higher insurance for your health and now you move to a lower level of offering for your health insurance. The middle-income class in particular is starting to scale back on items like that,” she said.
About a month ago, DStv operator MultiChoice reported a loss of R2.92 billion in its full-year results ending March 2023. For its South Africa segment, premium subscribers over the period declined by 6%.
MultiChoice said in a statement that “permanent high stages of load-shedding, interest rate hikes and elevated inflation levels have left a large portion of the group’s customer base unable to watch or afford video entertainment services”.
Packirisamy said that shopping behaviour also changed because of discretionary spending cuts. “We find that people are buying more from bulk stores rather than doing smaller convenience shopping, because there’s more of a chance to spend on discretionary luxury goods at convenient shopping centres.”
In its Consumer Outlook report for 2023, consumer insights group NielsenIQ found that people are seeking discounts (49% of respondents), shopping promotions (36%) and buying in bulk (50%).
According to the latest CPI report by Statistics South Africa for the month of May, households are spending 3.7% of their income on electricity and fuel.
The Bureau for Economic Research’s Hugo Pienaar said the 3.7% is not indicative of how much consumers actually spend on electricity, because it only takes into account monthly utility bills or a monthly electricity bill from Eskom.
He said that with the record load-shedding this year, the weighting of electricity and other fuels had decreased from five years ago, meaning consumers were spending less on Eskom and possibly more on alternative energy.
Agreeing with Packirisamy, Pienaar said that in the short term, consumers will feel the pinch and will have to shift their spending to isolate themselves from Eskom. But, he added, once the initial cost outlay was made, things will normalise.
“After a couple of years of paying off the upfront payment, not paying any more doesn’t do much to the pocket and will not necessarily shift expenditure because it’s not a large part of the household’s overall monthly consumption basket. However, right now there’s some switching going on as we speak.
“Somebody may not be going on an expensive holiday or may postpone buying a new car because they would rather use that money to get themselves off the grid. There is a switch taking place, but it’s not necessarily a long-term switch. It may be specific now to that upfront expense that people have to try to isolate from Eskom,” Pienaar said.
Consumers are also taking on debt to get themselves off-grid, and this is a trend that is also expected to continue in the short term.
“Consumers are taking out second mortgages and although it’s quite difficult to know the real reason that they are taking it out, some of that money is going towards implementing a solar system or maybe even an alternative water filtration system, given that we are also experiencing problems on the water side in South Africa,” Packirisamy said.
The Consumer Pulse report noted that consumer debt levels have increased and the rate of increase in household debt has been greater than the rate of increase in nominal disposable income. As household debt levels increase, debt repayment obligations also increase and crowd out savings.
Packirisamy said that consumers are struggling to make ends meet and that about 70% of the middle-income consumer’s disposable income is spent on servicing debt.
“People don’t really want to take out credit because it’s a weak economy and there is job security risk. But they are begrudgingly taking credit because they need to start paying off for some of the essential necessities that they need to actually spend on.
“Debt levels in the unsecured space are starting to pick up because people need those additional loans just to make ends meet at the end of every month, and not necessarily that they want to take out credit. I don’t think the appetite for credit is really there, but it’s there from the perspective that they need to meet the rising cost-of-living adjustments,” she said.