Five-year review confirms salaries have not kept pace with inflation – economic growth likely to stagnate

The average salary in South Africa has failed to keep up with inflation, heightening financial strain on consumers battling in an underperforming economy, high unemployment rate and the after-effects of the pandemic, according to BankservAfrica’s Five-year Review of Take-home Pay and Private Pensions in South Africa for February 2018 to February 2023. The review was released on Wednesday.

“The average nominal salary, measured in the BankservAfrica Take-home Pay Index, increased from R12,573 in February 2018 to R15,438 in February 2023, showing growth of 22.8%,” says Shergeran Naidoo, BankservAfrica’s head of stakeholder engagements. 

However, compared with the 26.6% increase in the consumer price index published by Stats SA, this figure confirms that the nominal take-home pay has lagged behind inflation.

According to Stats SA, inflation averaged 6.9% for 2022, moving from 5.7% at the beginning of the year, peaking at 7.8%, and closing the year at 7.2%. Despite a brief dip in January this year, inflation has since returned to sit at higher than 7%.

Between 2018 and 2021, the nominal take-home pay kept up with inflation. However, in 2022, it took a turn for the worse as the nominal average take-home pay stagnated, falling behind the rising cost of living. 

The highest average take-home pay salary was recorded in February 2022 at R15,760 per month, whereas the lowest average occurred in April 2019 at R12,446 per month.

“Over the past 18 months, the economic environment has been exceptionally challenging for companies. The rampant load shedding, high production costs due to escalating fuel prices, weaker currency and rising wage pressures, elevated interest rates and moderating demand have all contributed to the dismal growth,” notes independent analyst Elize Kruger.

“Companies have indicated a shift from potential expansion and investment to becoming less dependent on Eskom, and have redirected capital earmarked for investment towards self-sufficiency.

“This conservative ‘survival’ approach is not conducive to employment growth in South Africa, and also keeps a lid on salary increases, as indicated in the BankservAfrica Take-home Pay Index’s performance in 2022,” says Kruger.

The results tie in closely with a recent RemChannel bi-annual Salary and Wage Movement Survey, which showed that South African employers expect to award wage increases of 4% to 6% over the next year. Over the past five years, the number of salaries paid (as per Bankserv data) increased by only 455,140, further reflecting the dismal state of the economy. 

However, on the other side of the fence, a review of the BankservAfrica Private Pensions Index reveals that the nominal BPPI climbed 43.6% over the same five-year period, moving from R7,001 in February 2018 to R10,054 in February 2023. 

Naidoo says the highest average nominal pension payment was recorded in July 2022 at R10,483 per month, while the lowest average was registered in February 2018 at R7,001 per month. Although pension payments have held up well against inflation, they are still lower than the average salary in South Africa. 

“According to the BankservAfrica data, the proportion of average pension payments relative to the average take-home pay has risen from 55.7% in February 2018 to 65.1% in February 2023, reiterating the finding that these payments have fared better than average salaries in the difficult economic environment,” says Kruger.

The investment performance may have been a contributing factor, combined with the resilience attributed to those receiving a pension.

With indications of an even lower economic growth forecast for 2023 compared to 2022, the economic environment will most likely remain bleak, resulting in a challenging job market and little room for salary improvements. 

Investec’s chief economist, Annabel Bishop, says this is a very negative environment as continuously falling real incomes reduce consumers’ spending power, a huge suppressor on demand for economic activity and production, thus weakening economic growth.

The International Monetary Fund, in its latest World Economic Outlook report published last month, forecasts that the South African economy is likely to stagnate in 2023, with several notable risks and ongoing factors that will continue to hinder growth. 

Not least among these risks is the ongoing electricity supply crisis resulting in intermittent blackouts, with Eskom indicating recently that South Africa should prepare for five more years of regular load shedding.

“Companies seeking to increase profitability in this environment by cutting back on staff costs... (are likely to) be experiencing high cost increases in other areas, such as electricity self-generation,” Bishop says. 

Kruger expects the nominal take-home pay to continue lagging on inflation in the months to come, unlike private pensions, where the underlying fundamentals of the data suggest they will continue to outperform take-home pay. DM