Thursday, July 17, 2008

South Africa Faces 'Toxic Economic Cocktail'

[Commentary] As global conditions worsen, South Africans set to suffer more than most

As one of the world's most inefficient consumers of energy, and one of the world's top polluters per capita, South Africa is struggling to weather the worsening energy and food crisis. Tuesday's highway carnage (a truck crashed into 25 vehicles) in Johannesburg is a metaphor for the economic destruction to come.

Repossessions Rife

Statistics from two large South African banks confirm that vehicle repossessions specifically have escalated dramatically, with thousands of car owners having to hand their keys back to bank managers. Standard Bank reported vehicle repossessions are up 40 percent. Car sales overall are down about 25 percent year on year.

South African realtor REMAX estimates that 17 percent (approximately 1 in 5) of homeowners will lose their homes this year. One of the reasons for this disastrous situation is that household debt in South Africa has reached a record high, 77.4 percent of disposable income (as reflected in the third quarter of 2007) last year. This is up dramatically from 49.8 percent at the end of 2002.

Crime Trending Sharply Upwards

Unsurprisingly, crime in South Africa has increased dramatically. Bank robberies are up 118 percent year on year. Robberies are up by more than half at businesses, and by more than a quarter at residences. Automated teller machine bombings are now averaging two a day, a rise of 3,000 percent over three years. Fuel stations, citing security concerns and low profits, are seeking to close operations during the night.

Striking Seen as Solution

Trade unions unable to accept higher prices across the board will go on strike, nationwide, in early August, a move that is certain to worsen the already untenable socio-economic position. Recent xenophobic violence has been linked to ordinary criminality resulting from a sudden increase in the plight of the poor to survive. This is set to flare up again as ongoing economic woes deepen.

Global Problem

Meanwhile, other countries face similar worries. In Flint, Mich., 400 manhole covers have been stolen since the beginning of the year. These covers can be sold for around US$20, but cost $200 to replace. General Motors Corp. product chief Robert Lutz said recently that "no one" predicted $140 oil. Meanwhile, GM itself is hemorrhaging staff, and attempting to trim itself at historic levels in order to survive, for example its $4 billion asset selloff.

Worldwide, airlines are facing multiples of a hundred million dollars in losses directly linked to fuel premiums. South Africa's Airline, SAA, has reported over 1 billion rand (approx. US$131 million) in losses, most of which are related to the fuel price virtually doubling.

South African consumers are worried, and behaving with increasing desperation. Shoplifting in grocery stores has also seen dramatic increases, including a trend away from luxury items, and towards basic necessities such as bread and milk. False hijackings, home burglaries and miscellaneous theft claims are reported to be on the rise, say local insurance investigators. Divorces, pundits say, are also set to increase.

Is There a Solution?

A good place for consumers to start is by facing up to their bills. What can and can you not afford? What do and do not you need? Have a look at all your monthly bills. You will see some of your biggest expenses are for communication, entertainment and food. You can save on your cell and land line bills, and in some countries, Internet fees are high (in these same countries, Web-based companies ought to suffer). Look at your utility bills, and find ways to trim your consumption (you should be doing this anyway, particularly in the area of energy consumption). Entertainment expenses are easy. Watch movies on television and cook your own meals.

While many economists predict that conditions may improve over the medium term, if one looks at the depletion levels of the world's major oil fields (Cantarrell, the No. 2 supplier to the United States is crashing at over 30 percent)it is obvious that we are facing a permanent change. And the rising cost of oil is a major symptom of the troubles we face.

It is not that we are running out, just that there is just not quite enough to go around. Shortages are now imminent. And with human populations continuing to increase (and consume) unabated, and with finite oil supplies remaining, well, finite, the price -- despite recent drops -- have only one direction to go.

This necessitates that we begin to make permanent changes to our habits now, or at the least, sooner rather than later

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