A look inside FNB bank accounts reveals SA economy in surprisingly good shape – though wealthiest have suffered

Written on 11/05/2020
Jarryd Neves

Bank accounts reveal that consumer incomes are recovering quickly, after a dip earlier this year because of the Covid-19 lockdown.

The Covid-19 lockdowns hammered the SA economy, sparking wide-spread concern that the country is heading for a financial crisis. But an examination of take-home pay flowing into, and money moving out of, FNB bank accounts suggests consumer incomes and spending have rebounded quickly since April. South Africa’s large army of public servants – who did not lose jobs or earnings in the pandemic-imposed shutdown – have helped to maintain these levels. Dr Christoph Nieuwoudt, FNB executive responsible for data analytics, speaks to BizNews editor Jackie Cameron about what the bank’s statistics are telling us about South Africa, noting that savings are up and also taking advantage of low interest rates to buy property. – Jackie Cameron

With me is Dr Christoph Nieuwoudt, an FNB executive responsible for data analytics. Dr Nieuwoudt, you’ve had a very close look at spending patterns this year, and you’ve come up with some very interesting findings about what the economy really looks like as we fight Covid-19. Perhaps you could just briefly take us through how you did your research and what the key findings are?

So we’ve got a very big share of consumer income and consumer spend in South Africa. So we’re able to actually track it very accurately. You know, we’ve got daily, weekly spend, etc. So we’ve come up with some very interesting insights.For example, on both the income and the spend side, we found that it was massively impacted by lockdown itself. So in the month of April, for example, spending plunged by 60% on our base and incomes plunged by 26% in the month of April. It actually recovered relatively well. You know, starting into May was already a lot better. When we hit June and July, when the virus peaked in South Africa, we’d actually recovered in terms of both income and spend – to a very large degree. 

By the end of September, we were only down 3%, versus where we were in January. So I think the key insight we’re saying really is that lockdown has got a massive economic implication. But the actual spread of the virus had a relatively small impact or not even a discernible impact on actual spending patterns in the country. This is very important for us to understand this, when we are thinking about what could happen next with phase two, et cetera. 

So are we in better shape than we think we are? 

I think April was a lot worse than what people expected. Everybody says quarter two was bad. And we’re saying, yes quarter two was bad – but April was particularly bad. And actually, by the end of that, by June, things had actually improved materially from where they were. So from it from a spend side, where we were down 60%, we were down 20% by June.

From an income perspective, also, things had started recovering very well. Then July, August and September – month on month, every single month – we saw an improvement. So I do think that we are in much better shape now than what we’ve been. If you look at different income groupings, though, the experience has not been the same for everyone.

Wealthy people seem to have been harder hit. Why is that?

Now, that’s a very interesting insight I think we came up with. Everybody had predicted low income would be impacted big time. We saw the same on our data. Informal employment means that low income earners are generally quite at the mercy of the economy. But the interesting one was that the highest income earners – people earning more than R1,5-million a year – were impacted as heavily on a percentage basis as low income.

The simple reason is that the majority of wealthy people in South Africa are people that own businesses. They derive their income from their businesses. They’re self-employed or they are business owners. People extracted a lot less money from their businesses because the SME market, particularly, has been impacted particularly badly by Covid. So that’s not unexpected. 

If you compare that with middle income earners, for example. They are typically employed by larger employers. Government is a very big employer. You know, people there didn’t really take any pay cuts. That has really meant that middle income has recovered very well through Covid – even though there was an impact during the months of April and May. In general, middle income is actually up from where it was in February, whereas, the highest and lowest income still has some lagging impact. 

SA economy
Courtesy of FNB

That’s very interesting. We often complain that we have too many civil servants and the OECD has said that we have something like 12% of our GDP allocated towards civil servant salaries. But what you’re saying here is that, in a way, that’s helped prop-up consumer spending?

I think that’s right. But, the point I’d really like to make is that the lockdown is what has actually impacted consumer incomes and spending. Even civil servants wouldn’t have been able to have spent their money during lockdown. So lockdown is actually the problem. If we can address the remaining areas of concern, for example, the one area of spend which we are still very concerned about is tourism and accommodation. 

Even dining out has really recovered to a large extent. But tourism and accommodation is heavily impacted because people are still unsure about whether they will be able to travel. Can they make bookings or will this be impacted etc. If you think about it, some hotel groups did very well during lockdown because they catered for people with Covid. So ironically, you could only go to a hotel during lockdown if you had Covid because that was seen as a safe place for you to go. Whereas now that we are out of things, why would we not be able to give people assurance that they can make hotel bookings, irrespective of whether there is a second wave.

People should be able to avail of those because those industries have very large employers and that’s really where our concern is. You’re still sitting at more than 20% reduction in income for individuals that are employed in the tourism and wider accommodation sectors which is exactly the problem that we have to solve. 

Do your statistics show how many people have lost jobs? How have the job losses fed into your research? 

So I think that’s an interesting question. We measure the money going into your bank account. So we measured the take home pay – which is not exactly the same as employment. But in many ways, we believe our statistics are much more useful. During the month of April, we saw that 13% of individuals did not get paid, but the total salary drop was 26%. It was double that. So other people that did get paid, many – if not most of them – got less money than they normally would get.

Now, that would include things like overtime or people who are working on commissions, etc. They would be hard hit. But a lot of other people also took unpaid leave. There were various mechanisms that the employers used to reduce their wage bill, for their businesses to survive. That’s actually a more accurate way of measuring what the impact on the economy is, because that’s really what people have to spend. Consumption expenditure is over 60% of the GDP. So it gives you a very good indication. If people don’t get paid, they can’t spend the money.

SA economy
Courtesy of FNB

So do you think that the economy is in better shape than many economists suggest? We hear all these worrying stories about South Africa heading for foreign sovereign crisis and all sorts of things. What’s your perception, looking at your statistics?

So from our statistics, things are certainly looking significantly better than they were. Virtually every single month has been an improvement since lockdown level five – that we had in April. We can see where the sort of recurring pain is. But that’s not in the bulk. The middle income really carries spend in the economy. There, things are looking very good.

Some other positive news – if one had to look for it – was that consumers have been saving quite a lot of money during the Covid pandemic. So on FNB base, we saw growth of R20-billion in customer deposits – on balance sheet deposits. So customers certainly have been much more wary. You see a much slower credit extension. So clearly people have been a little bit wary of taking unsecured debt – but maybe that’s not a bad thing either. 

If you look at mortgage applications, people are sitting at record levels of mortgage applications because of low interest rates. Buying a home has never been more affordable – at least from a repayment perspective – than than it is currently. So we do think that if we can create just the right certainty for businesses to invest in the economy, to employ staff and for people to continue spending, then I think one certainly can avoid the pain of Covid stretching over a very prolonged period.

Very interesting to hear that South Africans have been saving more over the last couple of months. Where have they been saving? Money market funds, bank accounts? 

It’s a range of things. Some people would just keep more money in their current account. But certainly money market accounts offer a great value at effectively bank risk – virtually risk free. Those have been good. Where inflows have probably not been as good is off balance sheet – so equity investments. 

I think everybody is still very unsure about how the economic outcome is going to be, which is actually ironic, given that from many perspectives, stocks are trading at lows in terms of historical price earnings at least – or even even in expected price earnings. From our data, the shortness of the economic contraction was massive. But it actually has recovered. But this is not financial advice. I’m just giving my opinion here. If things recover the way that our data is panning out, then it may not be such a grim outlook for South Africa as what many people believe. 

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