After all the economic turbulence of 2015, South Africans are hoping for some relief in 2016. Unfortunately, all indicators are pointing to the fact that it will be more of the same: uncertainty, poor economic growth and a weak rand. We spoke to Stuart Kantor, the founder and managing director of Kanan Wealth, about his predictions for the year and what the impact will be on South Africans who are already struggling to make ends meet. His message is clear - “Don’t expect relief yet!”
The drought and food costs Whether or not the next few months bring relief in the form of much-needed rain, much of the damage has already been done to the agricultural sector, which means that food prices will almost certainly go up in 2016. South Africa’s maize production has already been hard-hit and we are importing this staple food as a result, which means it will cost more. Towards the end of 2015, meat prices actually went down as farmers slaughtered the cattle they were unable to feed, but this means that there will be a shortage of meat in 2016, and prices will increase.
Simply put, food prices are going to go up, so South African consumers will need to watch their plates and their budgets.
This will help:
Find out how you can save 20% of the cost of groceries.
Taxes will most likely go upWhen then Finance Minister Nhlanhla Nene gave his mid-term budget speech in October, he warned South Africa that there is a high likelihood of a tax increase being announced in February. His successor will most likely continue with these plans. A tax review committee has recommended possible increases on VAT, mining taxation, small business taxation, wealth tax, carbon tax and estate duty.
A VAT increase will be the most likely to affect all South African citizens, and a small business tax could hurt the entrepreneurial sector. Whatever happens, it’s likely that South Africans will be feeling the increased pinch of taxation next year.
Another Eskom price increase is on the cardsEskom has submitted an application to the National Electricity Regulator of South Africa (NERSA) to recover unbudgeted costs from 2014. If granted, this would mean we would experience a significant electricity fee increase in 2016. There is already an 8% tariff increase tabled for April this year, and the additional application – if approved – could bring the increase up to as much as 16.61%.
However, NERSA denied Eskom’s application for an additional 25% tariff increase in 2015, so the application doesn’t necessarily mean that Eskom will get their increase – but that 8% is confirmed, and it’s clear that Eskom is in need of much more capital. Either way, we’ll have to work hard to reduce power consumption – the only question is by how much.
This will help:
Find out how to save money by cutting your energy consumption.
Interest rates are projected to go upAlthough South Africans are hardly in a position to weather further interest rate hikes, economists are projecting, with some confidence, that we can expect two more in 2016. However, Reserve Bank governor Lesetja Kganyago will most likely soften the blow by keeping the increases low at 0.25 percentage points each time.
Still, for the South Africans who are indebted, this means they will be paying more interest on their outstanding balances in the months to come. Again, it’s important to pay back debt as a priority so that the impact of the increasing interest rate is lessened.
This will help:
Find out the fastest way to get out of debt.
Not much hope for a strengthening randEconomists are projecting that the rand’s steady decline will continue, thanks to “mounting negatives”. This will force the cost of our imports up, and make the cost of international travel increasingly prohibitive.
But commodity cycles offer a glimmer of hope While South Africa continues to face economic challenges on all fronts, the one area of reassurance is that we are not alone. Global commodity prices are down and economists are pointing out that they “don’t have much further to fall”. The commodity market is cyclical, and as South Africa is a big exporter of commodities, this downturn has hit us hard.
The anticipated “bottoming out” of commodity prices is expected to take place sometime next year, which should see us enjoying some increases and general market strengthening by 2017, which will hopefully have a knock-on effect on our wallets. This is a slim economic hope, but we’ll take it.
Keep tightening those belts Unfortunately, there isn’t going to be much relief for South Africans in 2016. “We hope that the past 12 months have taught us some valuable lessons on how to budget and save, and that we can continue to apply what we’ve learnt in the coming year,” says Stuart.
We wish you good luck, healthy bank balances and financial fitness in the year to come, and we’ll be bringing you information, tips and tricks to help keep your budget in shape and on track in 2016.