Workers are borrowing more to cover transport and food costs

The costs of war in Ukraine have started to hit closer to home in South Africa. Workers spend more on transport, food and electricity to get through the month.

Soaring international oil prices, largely due to the Russian-Ukrainian conflict, have led to record fuel prices locally, which is also fueling rising food prices.

Read: A more expensive world is starting to destroy demand

Access to earned wages firms Paymenow and Level Finance say already overworked workers are fighting to get through the month without cutting wages before the end of the month.

Through the Access to Earned Wages process, workers can access a portion of their earned wages before the end of the month. Lenders are also able to closely monitor the reasons for borrowing.

With petrol prices expected to reach around R24 a liter in April, wage increases are starting to lag behind increases in the cost of living.

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According to Transaction Capital, which finances minibus taxi fleets across the country, taxi fares have increased more than 9% per year since 2013.

This far exceeds wage growth over the same period.

Statistics collected by Paymenow show that workers who requested payments did so mainly to cover their transport costs.

In January, employees registered with Paymenow requesting advances were trying to cover travel costs to get to work 46% of the time. In comparison, only 23% of disbursed payments were used for food. The trend continued in February and March.

“The First Step to Being Trapped”

“Going into debt just to cover monthly living expenses is the first step to being trapped by the unreasonably high interest rates associated with loan sharks,” says Deon Nobrega, co-founder and CEO of Paymenow.

“Access to Earned Wage as a concept is designed to prevent this by allowing workers to withdraw a portion of their earnings throughout the payment cycle to meet day-to-day needs or deal with financial emergencies.

“Historically, the inability to cover travel costs has been a key driver of employee absenteeism and churn in South Africa,” says Nobrega.

“The majority of those in our economy who are in formal employment are blue-collar workers and are financially vulnerable,” he adds.

Read: SA’s cost of living remains unaffordable for many

Raeesa Gabriels, CEO and founder of earned wage access company Level Finance, has also seen an increase in borrowing due to rising public transport costs.

“In January, we saw many more people accessing loans through our textbook and uniform platform. In recent weeks, borrowing has increased due to rising fuel prices, which impact taxi fares and public transport costs, as well as food, electricity, data and sudden emergencies. “, she says.

“We’re seeing people running out of money much faster than before, and that’s obviously due to the rising cost of living,” adds Gabriels.

Access to earned wages has grown in popularity, with companies pledging to help workers get out of the trap of unsecured credit or borrow from family and friends to get through the month.

Level Finance, which is backed by fintech financier AlphaCode, allows employees of corporate clients to borrow up to 25% of revenue that has been earned and not paid. This is especially useful for workers who are paid monthly.

They are able to borrow against the income accumulated during the month. The corporate client deducts the amount borrowed at the end of the month to pay the lender. Costs vary, but Level Finance charges 2.5% per transaction, with a one-time flat fee of R10 per month.

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“It’s designed to get people out of the debt trap and prevent them from having to borrow at exorbitant rates from lenders,” says Gabriels.

State support

The South African government has yet to announce any measures to help consumers cope with soaring fuel prices.

Countries like Brazil, Japan, South Korea and India have all announced domestic fuel tax cuts and subsidy increases to keep price levels affordable.

“South Africa shielded consumers from a spike in petrol prices in 2018, but the seemingly protracted duration of the Russian-Ukrainian conflict looks set to test the country’s record as global increases in fuel prices drive consumer inflation,” says Nobrega.

Read: SA weighs gas price cap, rationing to cut costs

“Ultimately, South African workers will not be able to cover all of their basic costs if input prices continue to fuel commodity price inflation…

“In a country with a low savings rate and a strained economy, those who don’t have quick access to their wages are most likely to fall into debt traps and lose their jobs as a result. It will be a disaster for the country,” he added.

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