Massive electricity price hikes hit household spending
|Published
By Neil Roets
The cost of groceries is widely expected to be the biggest increase in consumers’ spending over the next six months, but this is set to be usurped by the monthly electricity bill, if the proposed National Energy Regulator of South Africa (Nersa) –approved 40% electricity tariff increase is widely implemented – placing South Africans in the impossible position of having to choose between keeping the lights on and feeding their families.
The outcry against the outrageous electricity tariff increase, set to take effect from April, 1, 2025, should come as no surprise, with thousands of people across the country even signing a petition to protest against it.
While South Africans have heaved a collective sigh of relief over the past months, with the disappearance of load shedding in their daily lives, this begs the question whether the nation’s citizens are now being asked to pay the price for “fixing” the crisis.
South Africans are at breaking point right now under the combined onslaught of food prices that have increased far above the inflation rate, interest rates at the highest they have been in a decade and the relentless financial onslaught from Eskom. They are in dire need of some relief. It is deeply concerning that authorities are simply ignoring the writing on the wall.
Fortunately, Nersa’s plans to push through unlawful and invalid municipal tariff hikes in 2024, were prevented this week when their application for leave to appeal the High Court ruling in civil rights organisation AfriForum’s favour in June this year, confirming that Nersa’s decision to consider municipalities’ applications for tariff hikes without the required cost-of-supply studies, was deemed unlawful and invalid. This is a huge victory in the interest of millions of municipal electricity consumers.
Notwithstanding this, municipal power tariff increases were implemented nationwide at 178 licensed electricity distributors on July 1 this year, despite only 66 distributors having conducted cost-of-supply studies.
While food costs are now the top concerning household expense for South Africans, millions of whom are already teetering on the brink of financial ruin, the almost 40% increase in electricity costs will severely impact households, forcing many to choose between these two basic needs.
This latest unacceptable increase will take food poverty levels across the country to new levels if it gets implemented next year.
This while global food prices edged lower according to the Food and Agriculture Organization (FAO) of the United Nation’s Food Price Index for July 2024, which reported food prices edging lower to 120.8 in July 2024 from an upwardly revised 121 in June - due to a decrease in prices for cereals outweighing increases in cost for vegetable oil, meat products, and sugar.
The FAO food price index records the development of world market prices of 55 agricultural commodities and foodstuff, and is considered an indicator of future inflation and cost trends in the food industry. It is essentially a measure of the monthly change in international prices of a basket of food commodities.
Electricity prices threaten the cost of the food basket in South Africa. This is according to the Pietermaritzburg Economic Justice & Dignity Group (PMBEJD), who point out that all staple foods that form the basis of most family meals must be cooked for it to be edible – including maize meal, rice, samp, potatoes, and flour. This means that low-income families especially, are now forced to choose between spending the little money they have either on electricity or on food.
The PMBEJD says that, while the overall annual Eskom hikes are known and regulated by Nersa, at the local municipal level, where additional charges are included (unilaterally), and municipalities employ both credit meters and prepaid meters – managed by an assortment of vendors – the actual price of electricity which households must pay not only at a local level, but even from a national optic, is largely opaque, not sufficiently regulated and messy.
The reality is that South Africans are spending over a third of their take-home pay to cover their monthly expenses when their salaries run out – and this is largely being used to buy food and electricity, as well as covering transport costs. The fact that this Eskom increase is even being entertained shows a complete lack of empathy toward the large majority of the country’s citizens.
People are buying less food because their salaries cannot keep up with high inflation, interest rates, ever-increasing food prices and electricity prices that are fast being priced out of reach for the average citizen.
Many residents will rely more heavily on other sources of energy, like paraffin, which introduces a far more dangerous element into their lives and homes.
More and more South Africans are running out of money and relying on credit to get them through each month.
This concurs with a recent study by fintech company PayCurve, that shows that the surge in the price of food has led to an increasing number of consumers running out of cash mid-month, with at least eight out of every ten workers in South Africa turning to unsecured debt to meet necessities.
According to economist Dr Roelof Botha, who compiles the Altron FinTech Household Resilience Index (AFHRI) on behalf of Altron FinTech, arguably the most worrying trend in the latest AFHRI is the year-on-year decline of 8.7% in the ratio of household income to debt costs.
Merely two years ago, in the first quarter of 2022, households were sacrificing 6.7% of their disposable incomes to pay for debt costs. This ratio has since increased by 37%, with households now having to spend 9.2% of their disposable incomes on servicing debt.
With the new two-pot retirement system being implemented from September 1 onwards, that will enable contributors who are strapped for cash to access a portion of their pension funds before retirement, struggling consumers will undoubtedly be using this cash flow to plug holes in debt they have incurred – likely to their own long-term detriment.
We have seen a significant surge in debt counselling enquiries, a clear sign of the dire financial situation of South Africans who are seeking a valuable solution available to them when they are struggling financially, and with little relief in sight with regard to living costs, this is likely to intensify as the year unfolds.
Neil Roets is the CEO of Debt Rescue.
BUSINESS REPORT