Shopping-mad SA shrugs off rate hikes

JOHANNESBURG – Sheila Rugoyi loves to shop.

Not for flash labels but for smart, funky clothes for her three children and the odd set of lacy underwear for herself. South Africa’s first interest rate rise in almost four years in June didn’t stop her.Neither did the second, earlier this month.Even the growing prospect of a third isn’t enough to keep her away from Johannesburg’s sprawling shopping malls.”I don’t worry about things like interest rates,” she said with a laugh during a recent shopping trip, as she brandished a large bag.”I just buy the things I want for me and my family.”Rugoyi – whose gold earrings and sculpted hair-do place her among the burgeoning black middle class – seems to speak for millions of South Africans who have shrugged off two rate hikes in three months to splash out on clothes, cars and furniture.Retailers in Africa’s biggest economy have enjoyed a three-year spending boom fuelled by tax cuts, record low interest rates and the emergence of a black middle class more than a decade after the end of apartheid.Economists and investors expected shoppers to start curbing spending and paying back debts as rate hikes inflated interest repayments on big-ticket items.But official data and anecdotal evidence have so far proved them wrong.Central bank officials said in late August that consumer demand – which has powered South Africa’s longest period of economic expansion on record – had shown no sign of slowing since the hikes, aimed at curbing inflation and household debt.Gross domestic spending, the main measure of demand, rose by 9,5 per cent in the first half of 2006, versus six per cent over the whole of 2005.Household debt stands at record levels at about 67 per cent of disposable income.And despite investors warning of slower growth, retailers were resolutely upbeat in announcing results this month.Fashion retailer Truworths said sales growth in the eight weeks since the end of June had exceeded 20 per cent.Simon Susman, chief executive of food and clothing retailer Woolworths told Reuters bad debts at the company’s store and credit card business had not worsened in the first two months of this financial year, nor had revenue growth.Some economists argue it is simply too early for rate hikes to bite, and most agree that the central bank will have to raise borrowing rates again to tame spending and household debt.Many economists expect the central bank to raise the key repo rate by at least half a percentage point by the end of the year from eight per cent now.But rates are only a small part of the retail story.A government drive to shift more of the country’s wealth into black hands by requiring companies to meet quotas on black employment and ownership has created a new class with cash.”There is this huge pent-up demand of first-time buyers, which has created a sustainable shift,” said Nedbank economist Nicky Weimar.”Even if rate hikes slow spending, there is still all this wealth creation that is benefiting retailers.”Betty Makgoba is a case in point.She has worked in foreign exchange for 10 years but recently secured a coveted job at Investec bank thanks in part to affirmative action policies.”My situation has changed dramatically because black economic empowerment really rules our world now,” she said during a quick shopping trip on her lunch break.”I got a good job, I moved house, I bought a nice car.”Makgoba, wearing a smart green corduroy suit, said she was careful with her money, but that two interest rate hikes had not stopped her snapping up a bargain if she spied one.”Another hike might affect my spending,” she conceded.Nampa-ReutersSouth Africa’s first interest rate rise in almost four years in June didn’t stop her.Neither did the second, earlier this month.Even the growing prospect of a third isn’t enough to keep her away from Johannesburg’s sprawling shopping malls.”I don’t worry about things like interest rates,” she said with a laugh during a recent shopping trip, as she brandished a large bag.”I just buy the things I want for me and my family.”Rugoyi – whose gold earrings and sculpted hair-do place her among the burgeoning black middle class – seems to speak for millions of South Africans who have shrugged off two rate hikes in three months to splash out on clothes, cars and furniture.Retailers in Africa’s biggest economy have enjoyed a three-year spending boom fuelled by tax cuts, record low interest rates and the emergence of a black middle class more than a decade after the end of apartheid.Economists and investors expected shoppers to start curbing spending and paying back debts as rate hikes inflated interest repayments on big-ticket items.But official data and anecdotal evidence have so far proved them wrong.Central bank officials said in late August that consumer demand – which has powered South Africa’s longest period of economic expansion on record – had shown no sign of slowing since the hikes, aimed at curbing inflation and household debt.Gross domestic spending, the main measure of demand, rose by 9,5 per cent in the first half of 2006, versus six per cent over the whole of 2005.Household debt stands at record levels at about 67 per cent of disposable income.And despite investors warning of slower growth, retailers were resolutely upbeat in announcing results this month.Fashion retailer Truworths said sales growth in the eight weeks since the end of June had exceeded 20 per cent.Simon Susman, chief executive of food and clothing retailer Woolworths told Reuters bad debts at the company’s store and credit card business had not worsened in the first two months of this financial year, nor had revenue growth.Some economists argue it is simply too early for rate hikes to bite, and most agree that the central bank will have to raise borrowing rates again to tame spending and household debt.Many economists expect the central bank to raise the key repo rate by at least half a percentage point by the end of the year from eight per cent now.But rates are only a small part of the retail story.A government drive to shift more of the country’s wealth into black hands by requiring companies to meet quotas on black employment and ownership has created a new class with cash.”There is this huge pent-up demand of first-time buyers, which has created a sustainable shift,” said Nedbank economist Nicky Weimar.”Even if rate hikes slow spending, there is still all this wealth creation that is benefiting retailers.”Betty Makgoba is a case in point.She has worked in foreign exchange for 10 years but recently secured a coveted job at Investec bank thanks in part to affirmative action policies.”My situation has changed dramatically because black economic empowerment really rules our world now,” she said during a quick shopping trip on her lunch break.”I got a good job, I moved house, I bought a nice car.”Makgoba, wearing a smart green corduroy suit, said she was careful with her money, but that two interest rate hikes had not stopped her snapping up a bargain if she spied one.”Another hike might affect my spending,” she conceded.Nampa-Reuters