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Keep the belt tight for nowThe question still begs whether the world is out of the financial crisis or not, but I do not think South Africa is – and I do not find signs of recovery convincing yet. At the start of the crisis, South Africans were sussed into a false financial euphoria instead of grabbing the opportunity to prepare for the “lean years”, as Joseph warned the Pharaoh many years ago, writes Heinrich Kruger.
When you put a frog in a can of hot water, it will immediately hop out and away, but if you put it in cold water and slowly bring it to boiling point, the frog would become so used to the feeling that it would probably cook to death. We all know the story.
I believe that in South Africa, we were told initially that the financial crisis was an “American one” and that the South African financial system and controls were immune to it. I can vaguely remind myself that even Trevor Manuel uttered words to this effect.
The result was that we were not as prepared as we could have been.
Today it is history, and we followed the world with a bang into the recession.
Now we try to plot our position to decide where we are. Is the crisis still ahead of us or behind us? And what should we do to gain advantage from the current situation?
In February, I wrote here that investors then reminded me of a television documentary about a group of petrified tourists trapped on the dining-room floor of a cruise ship during a hurricane, sliding disorderly, flat on their backs from one end of the room to the other while the ship tilted dangerously from side to side and front to back amid the howling noise of the sea and wind.
I think the situation currently for South Africans is more so than before, but people are more used to the slower economy than in February and perhaps less afraid thereof.
It is clear that all South Africans are not in the same situation, though. There are many who can handle the situation better than others.
Those who have always been unemployed, could teach those who recently became unemployed much about survival.
It is not yet the end of cost-cutting by companies, and particularly with the Fifa Soccer World Cup coming up, I foresee a strong increase in the South African unemployment rate after the event.
People who became unemployed in the past year should learn survival tactics from the experienced unemployed. But they should also learn that toyi-toying will not fill stomachs and that one cannot squeeze money out of a recession-stricken economy on its knees. Particularly not when the local currency makes products from more productive countries, such as the Far East and South America, more affordable for importers and consumers.
Those who are employed must remember that they can be regarded as a cost factor and their services terminated to save costs.
The reason I use “regarded”, is because the employee must ensure that he/she adds more value to the employer’s bottom line to ensure that the employer will perceive him/her as an asset and not a cost.
Note that I use the word “perceive” because perception is in most instances not factual.
Simply ensure that the perception does not go against you as employee, while the fact may be that you are an asset and you may still lose your job because your boss does not realise that you are indeed an asset.
Many South Africans are still indebted to the level of desperation. Due to unrecovered asset prices (I do not regard price necessarily as value), low interest rates, rental and dividend yields and in many instances lower salaries or commission incomes, people struggle to make ends meet as well as service their debt.
Interest rates are very close to a low and the economy looks as if it is at least another 24 months from recovery, when people like these will start to feel relief in their pockets.
These people will have to get rid of their debt and will have to go the extra mile to do so. It will be a good idea for such people to obtain help from debt counsellors registered as such with the National Credit Regulator, and devise a plan to lower their debt.
Chances are that the possibility that people in this position can lose their jobs in future is also not yet out of the question.
Many consultants in various fields find themselves in this situation.
Pensioners in particular are struggling. Most pensioners are back on income yields of three years ago and asset values/prices of three years ago, while costs for middle-class families on items such as food and medical costs have nearly doubled over the same period.
A couple aged 70, with a pension fund of R3 million, who draws according to actuarial tables after tax approximately R17 000 per month will be, in terms of income and assets, back to the levels of late 2006, but their food and medical costs of R7 500 per month in 2006 will now be close to R15 000.
Many retired professionals such as doctors, attorneys and accountants are in this specific situation.
Investors in general find themselves in a situation of low money markets yields, and overpriced equities.
Listed property seems fully priced and bonds offer some value.
Overall, the South African market recovery has overshot the South African economy and will have to wait for the catch-up.
The message to the man on the South African street is: “Keep your belt tight for another 12 months at least”.
