/ 4 September 2020

Financial recovery requires disciplined execution on policy measures that will boost confidence, says Old Mutual

Johann Els Old Mutual
Johann Els is Chief Economist at Old Mutual

South Africa, deep in a financial crisis caused by the Covid-19 pandemic, may show an economic upturn as local and global economic activity resumes. However, to make this financial recovery sustainable, and remove us from a long-term, low growth environment, will require confidence-boosting measures supported by disciplined execution, says Old Mutual.

Although there is still a lot of pain in the global economy, the steep downcycle which made the Covid-19 global economic plunge unique has now moved into a sharp upcycle. Although this growth could help South Africa regain some of its lost financial ground, the country was already in trouble when the pandemic hit, says Johann Els, Chief Economist of Old Mutual.

“Average annual GDP growth rate over the last five years was only 0.8%. Added to this, four of the last five quarters saw us slipping into negative growth. Global economies will return to increased growth, however, and recovery should be steep, as was the downturn, so South Africa will reap some benefits.

Els believes these will be short-term benefits. “What is more worrying is the medium to long-term forecast,” he says.

“Are we going to recover, or will we be stuck in a long-term, low growth environment — the worst possible position for the country? The biggest single threat we face, because everything hangs off it, is low economic growth.”

The government response to the pandemic was decisive and proactive, according to Els. “It was strong on policy and economic support. Unfortunately, it was limited in what it could do. We were in a much weaker position than we were during the 2008/2009 world economic recession. This time we already had problems in terms of growth, the budget balance and the debt ratio.

“At the start of the 2008 global economic crisis, GDP growth was about 5% a year. The budget was in surplus, and the debt ratio was less than 30%. Over the last 10 years, growth slipped substantially, and the budget deficit grew, while the government debt to GDP ratio went up. This growing debt makes it far more challenging to respond to this situation than if the economy was in a healthier position.

According to Els, South Africa has to raise confidence through a range of policy measures. “As consumers and business become more confident, more investments will be made in businesses, more people will be hired, spending power will increase, and the government will collect more tax. Growth is needed, and growth requires confidence,” he says. 

Consumers’ financial health impacted

Probably the most concerned about the possibility of no real prosperity for some time are South African consumers. According to the most recent Old Mutual Savings and Investment Monitor (OMSIM), 57% of respondents revealed that they are now earning less than they were just five months ago.

More seriously, 40% of those employed stated they only have enough funds to survive for one month or less should they lose their jobs. As many as 66% of the respondents reported that they are also worried about losing their jobs or incomes.


As the country moves from level three to two of the lockdown, the impact on consumers has been severe, as indicated by OMSIM’s research:

  • At least 50% of South African households are digging into their savings to survive
  • 37% of families are not meeting regular bill payments
  • 23% have cashed in savings or investment policies to raise cash
  • Only 50% of credit cardholders say they can still comfortably afford their monthly payments
  • 43% are accessing personal loans from financial institutions   
  • 19% are relying on loans from family and friends (up from 12% in 2019)
  • 12% are borrowing from micro-lenders (7% more than in 2019)
  • Membership of stokvel saving societies has dropped 10% to 34%
  • Membership of grocery buying schemes leapt from 9% in 2019 to 23% in 2020
  • Burial society participation has climbed 15% to 38% in the last 12 months.

“There is no doubt that financial education has a part to play in helping people regain their financial health. Consumers need financial strategies and help to identify ways of coping with debt,” says John Manyike, Head of Financial Education at Old Mutual.

“Many people who are overwhelmed by their present circumstances may avoid answering calls or letters from service providers. Unfortunately, being in denial about reality only worsens their situation, exposing them to legal action.

“Financial institutions and creditors understand what people are going through. The sooner consumers contact us, the greater the opportunities to find solutions that will ease their burdens, such as lower insurance premiums, payment holidays or extensions of loan repayments and debt consolidation plans.”

Adds Manyike: “We encourage people to contact us as soon as trouble looms. We have served South Africans and protected them from setbacks for 175 years. We have a long tradition of assisting our customers wherever it is possible. The Covid-19 pandemic has not changed this.”

For more information, visit: https://www.oldmutual.co.za/