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  • Private and confidential

    Analyst certifications and important disclosures are in the disclosure appendix. For other important disclosures, please refer to the disclosure &

    disclaimer at the end of this document

    Consumer Expenditure Trends

    Consumer Trends

    Zaakirah Ismail*

    [email protected]

    Siphamandla Mkhwanazi*

    [email protected]

    Kim Silberman*

    [email protected]

    17 May 2016

    mailto:[email protected]:[email protected]:[email protected]

  • Expenditure Trends: Executive summary

    This research analyses SA households’ expenditure patterns.

    We divide household income into three broad annual (monthly) income categories: Low Income, Middle Income, and Upper Income. We further

    segment these groups as outlined below.

    Low Income

    R0 - R19,000 (R0 - R1,583): Lowest income group

    R19,001 - R86,000 (R1,584 - R7,167): Second lowest income group

    Middle Income

    R86,001 – R197,000 (R7,168 – R16,417): Low emerging middle

    R197,001 - R400,000 (R16,418 - R33,333): Emerging middle

    R400,001 - R688,000 (R33,334 - R57,333): Lower middle

    R688,001 - R1,481,000 (R57,334 - R123,417): Upper middle

    Upper income

    R1,481,001 - R2,360,000 (R123,418 - R196,667): Emerging affluent

    R2,360,001+ (R196,668+): Affluent earning

    We use data including survey data from the Bureau of Market Research (BMR).

    Source : BMR, (2015) Standard Bank Research

  • Expenditure Trends: Executive summary (continued…)

    Section 1: Headwinds facing the South African consumer: We present macroeconomic forecasts for 2016. Our forecasts include:

    GDP: 0.6% y/y

    Inflation: 6.6% y/y

    USDZAR: R15.63

    Current account deficit average: 4.3% of GDP

    Repo rate (end of period): 7.5%

    PCE: 0.6% y/y

    Section 2: Household Income and Expenditure:

    When define the household income brackets and unpack the number of households in each income bracket and their main income sources.

    We find that:

    62.3% of households fall within the poorest income bracket (Below R86,000 per annum).

    Households are predominantly dependent on salaries and wages as their main source of income (64%).

    24% of households rely on the government for income.

    We also look at aggregate household expenditure. These expenditure items include:

    Contributions i.e. installment type payments e.g. insurance, medical aid, pension fund contributions

    Expenditure by purpose

    Expenditure by function and

    Essential vs. non-essential spend

    Source: BMR, (2015) Standard Bank Research

  • Expenditure Trends: Executive summary (continued…)

    We find that:

    • Non-Durables comprises 44% of expenditure, services 37%, durables 9.5% and semi-durables 9% of household expenditure.

    • 60% of household spending is on essential items and 40% on non-essential items.

    • The largest components of household expenditure are food, beverages and tobacco (20%) and contributions, which refers to instalment type

    payments and includes medical aid, insurance and pension fund contributions (29%).

    • Transport comprises 15% of aggregate household expenditure. This includes petrol and purchases of new vehicles.

    • Health accounts for 6% and Housing, electricity, gas and fuels for 5% of aggregate household spending.

    • Education is only 3% of spending. This includes primary, secondary and tertiary education. Unfortunately the data is too aggregated to differentiate

    education expenditure.

    Section 3: Expenditure patterns per income group: We categorize expenditure per income group according to durable, non-durable, semi-durable

    goods and services. We also focus on specific household items that comprise a large percentage of spending within each of the household income

    brackets.

    We find that:

    As much as 59% of expenditure by low income households is on non-durable goods, primarily food, making these households more susceptible to

    food inflation. 8.8% of spending is on semi-durable goods and only 3.5% of low income household expenditure is on durable goods.

    Between 22% and 40% of spending by middle income households is on non-durable goods and between 5% and 10% on durable goods.

    15-23% of spending by high income households is on durable goods, making these households more sensitive to currency weakness and interest

    rate hikes. 19% of high income household spending is on non-durables

    Spending on services tends to comprise a similar percentage of each household budget i.e. between 25% and 33% of household spending.

    Spending on semi-durables accounts for almost 9% of household spending in lower income groups and only 4.5% of spending by affluent

    households.

    Source all charts: BMR, (2015) Standard Bank Research

  • Expenditure Trends: Executive summary (continued…)

    Section 4: The consumer basket per income group: We analyse each household income bracket’s consumption basket and implied trade-offs

    faced by each household income segment. This allows us to begin to identify potential stress levels, given the 2016 macroeconomic headwinds

    (Section 1). According to BMR the following items make up a typical households’ consumption basket:

    Clothing & footwear

    Communication

    Education

    Food

    Beverages & tobacco

    Furniture

    Household equipment & routine maintenance

    Health

    Hotels; cafes & restaurants

    Rent

    Electricity & Gas

    Housing; water; electricity; gas & other fuels

    Miscellaneous goods & services

    Recreation; entertainment & culture

    Petrol

    Transport

    Contributions

    .

    Source: BMR, (2015) Standard Bank Research

  • Expenditure Trends: Executive summary (continued…)

    We find that:

    Low income groups (R0 – R86,000 per annum):

    • Allocate large percentage's of their budgets to food (29%-34%), exposing them to high levels of food inflation. • Transport expenditure is the second dominant item in the basket. It comprises between 11%-12% of this groups budget. This group will be

    relatively more affected by oil price and fuel levy increases, and currency weakness.

    • On average, very little is spent on education (1.5%). • Contribution expenditure is also low (less than 1%). This means that some of these households might not have access to medical aid, insurance or

    a private pension.

    Middle income groups (R86,001- R1,481,000 per annum):

    • Allocate 7%-18% of their budgets to food. This is at least 10% lower than the low income group. There is an exposure to high food inflation but not as much as the two low income groups.

    • Transport expenditure comprises between 15%-19% of this groups budget. Therefore this group will also be affected mostly by an increase in the fuel levy, and currency weakness.

    • On average, this group spends between 2%-4% on education. This is significantly higher than the low income group. • Expenditure on contributions is also higher for this group compared to the low income group. This means that these households have better

    access to medical aid and insurance. Total contributions expenditure is between 16% and 30% for these households.

    Upper income groups (R1,481,001 - R2,360,001+ per annum):

    • Largest spend is on transport (30.1%). This include the purchases of new vehicles. This could also highlight access to more expensive modes of

    transport such as airlines, because of affordability. If one excludes petrol, transport expenditure increases the further one climbs up the income

    brackets.

    • Health expenditure is 6.7% of budget. The higher allocation to health highlights the fact that a higher income earners can prioritize health. If the

    proposed tariff on pharmaceutical products is approved this would have a relatively bigger affect on upper income groups.

    • Housing, water, electricity and gas make up 4.3% of the upper income budget. Furniture and household equipment purchases are also quite strong

    in this category at close to 6%.

    • There is an 8.8% budget allocation to recreational activities. This is the highest of any income group.

    Source : BMR, (2015) Standard Bank Research

  • Private and confidential

    Section 1: Headwinds facing the South African

    consumer

  • 7

    Private consumption expenditure (PCE) forecast to slow to 0.6% y/y in 2016

    Source: SBGS analysis

    GDP Growth outlook

    0.6% 2016

    CPI Inflation

    forecast 6.6% 2016

    Repo Rate hikes

    We expect a further

    50bps in 2016 and for

    repo to end the year

    at 7.50%

    Flat to slightly

    negative real

    wages

    Job shedding and slow

    employment creation

    Household

    deleveraging

    Food inflation

    forecast to average

    10.2% in 2016

    Fuel levy: 30c/l April 2016

    Electricity: 9.4% hike June 2016

    Water inflation of 10% expected

    Weaker rand due to

    commodity prices

    More moderate wealth

    effects than in 2015

    (share and house price

    returns)

  • 8 Macroeconomic forecasts

    Growth outlook for 2016 is 0.6%, in part due to the effect of the drought which is expected to shave 0.4ppts off growth and

    in part due to tighter financial conditions, especially for consumers. If the drought dissipates, which we expect, GDP growth

    should recover to 1.2% in 2017.

    The drought will have similarly negative implications for inflation and the current account deficit.

    Our inflation forecast for 2016 is 6.6%. Our forecast assumes oil averages USD40.0/bbl and the USDZAR averages 15.63.

    We expect nominal private sector wage inflation of around 6.5%, such that real wages are flat the marginally negative in

    2016.

    SA’s current account deficit (CAD) is forecast to average 4% of GDP in 2016. Weak foreign demand will restrain export

    volumes, but weak domestic demand will hopefully act to reduce imports, facilitating some narrowing of the CAD (current

    account deficit).

    Standard Bank’s Base case is for the repo rate to rise by a total of 125 bps in 2016; an extra 50 bps still expected. SA

    policymakers would need to be aggressive and proactive to prevent a downgrade to below investment grade on 3 June when

    S&P sits once again to review the country’s sovereign rating.

    USDZAR: Tactically, we continue to see rand weakness into June, but doubt at this point that the rand would move

    substantially weaker than 15.50. Spikes toward 16.00 in our view would be short-lived (bar any political surprises which may

    damage the credibility of National Treasury and the perceived willingness to maintain fiscal discipline).

    Furthermore, a less hawkish US Fed and, by implication, a more benign emerging market environment, has reduced the

    likelihood of the rand sliding as it did over December and January. Towards year-end, we see the rand strengthening again,

    driven predominantly by higher domestic interest rates and current account compression. We see the USDZAR reaching

    R15.00 for 2017.

    *Please see “SBR’s Consumer trends: consumer outlook 2016” for a more extensive view on macroeconomic headwinds.

    Source: SBGS analysis

  • Private and confidential

    Section 2: Household Income & Expenditure

  • 10 Introduction

    1) We unpack the number of households in each income bracket and the main income sources of households.

    We find that:

    62.3% of households fall within the poorest income bracket (Below R86,000 per annum).

    Households are predominantly dependent on salaries and wages as their main source of income (64%).

    24% of households rely on the government for income.

    2) We also look at aggregate household expenditure patterns. These expenditure items include:

    Contributions i.e. installment type payments e.g. insurance, medical aid, pension fund contributions

    Expenditure by purpose and function

    Essential vs. non-essential spend

    We find that:

    • Non-Durables comprises 44% of expenditure, services 37%, durables 9.5% and semi-durables 9% of household expenditure.

    • 60% of household spending is on essential items and 40% on non-essential items.

    • The largest components of household expenditure are food, beverages and tobacco (20%) and contributions, which refers to

    instalment type payments and includes medical aid, insurance and pension fund contributions (29%).

    • Transport comprises 15% of aggregate household expenditure. This includes petrol and purchases of new vehicles.

    • Health accounts for 6% and Housing, electricity, gas and fuels for 5% of aggregate household spending.

    • Education is only 3% of spending. This includes primary, secondary and tertiary education. Unfortunately the data is too aggregated to

    differentiate education expenditure.

    Source: BMR, (2015) Standard Bank Research

  • 11

    BMR household income classifications

    – These income brackets differ from the personal income brackets used in Section 2. We call these

    “household income brackets”.

    – Household income brackets are higher than personal income brackets, as it is assumed that

    there are more income earners present in one

    particular household.

    There are currently eight income group classifications:

    – R0 - R19,000 (R0 - R1,583)

    ► Lowest income group (Poor)

    – R19,001 - R86,000 (R1,584 - R7,167)

    ► Second-lowest income group (Poor)

    – R86,001 - R197,000 (R7,168 - R16,417)

    ► Low emerging middle

    – R197,001 - R400,000 (R16,418 - R33,333)

    ► Emerging middle

    – R400,001 - R688,000 (R33,334 - R57,333)

    ► Lower middle

    – R688,001 - R1,481,000 (R57,334 - R123,417)

    ► Upper middle

    – R1,481,001 - R2,360,000 (R123,418 - R196,667)

    ► Upper income/Emerging affluent

    – R2,360,001+ (R196,668+)

    ► Affluent earning

    Annual (monthly) income classification of households

    Source: BMR, (2015) Standard Bank Research

  • 12

    BMR 2015 Household Income

    Key points

    Source all charts: BMR, (2015), Standard Bank Research

    The slope of the Engel curve indicates the extent to

    which each income bracket’s purchasing power

    increases.

    The slope steepens between the middle and the upper

    income groups indicating the extent to which

    purchasing power increases per rand of income

    generated, once households move into the upper

    income group.

    South African households predominantly fall into the

    poorest category (18.2%) and the second-poorest

    category (44.1%). These two groups make up more

    than half of South African households: a combined

    figure of 62.3%.

    The middle income groups comprise a combined 26.4%

    of South African households.

    The wealthiest households in South Africa only account

    for 1.2%.

    BMR % no. of households

    2015 Engel curve

    0

    100

    200

    300

    400

    500

    600

    700

    800

    900

    Ave

    rag

    e ex

    pen

    dit

    ure

    (R

    and

    s 0

    00

    ’s)

    18.2

    44.1

    16.3

    10.1 5.9 4.3

    0.8 0.4

    -5

    5

    15

    25

    35

    45

    %

  • 13 BMR 2015 Household income

    Source of all tables: BMR, (2015) Standard Bank Research

    BMR Analysis %

    Salaries & Wages 64.23

    Grants 17.30

    Other transfers 6.48

    Net profit 6.16

    Pensions & Annuities 4.92

    Investments 0.90

    Total 100.00

    The largest source of income for households is income

    from salaries and wages (64%).

    This emphasizes the reliance on a healthy labour

    market.

    Main sources of household income

  • 14

    Total expenditure components

    Contributions include the following items:

    – Contributions to long-term insurers

    – Current taxes on income and wealth (note: not personal income taxes)

    – Medical aid contributions

    – Miscellaneous transfers paid

    – Pension fund contributions

    – Short-term insurance

    Consumption includes expenditure on the following

    household items:

    – Clothing & footwear

    – Communication

    – Education

    – Food

    – Beverages & tobacco

    – Furniture

    – Household equipment & routine maintenance

    – Health

    – Hotels; cafes & restaurants

    – Rent

    – Electricity & gas

    – Housing; water; electricity; gas & other fuels

    – Miscellaneous goods & services

    – Recreation; entertainment & culture

    – Petrol

    – Transport

    Source: BMR, (2015)

  • 15

    BMR household expenditure 2015

    Key points

    This represents

    expenditure of all

    households at an

    aggregate level.

    The largest

    component of

    expenditure of

    households is food

    (20%), followed by

    Contributions (29%).

    Transport

    comprises 15%; this

    includes petrol and

    purchasing of new

    vehicles, health 6%

    and housing,

    electricity, gas and

    fuels is 5%;

    education is only

    3%.

    Source all charts: BMR, (2015), Standard Bank Research

    Household expenditure patterns 2015

    Clothing & footwear 4%

    Communication 2% Education

    3%

    Food; beverages & tobacco 20%

    Furnishings; HH equipment & routine maintenance

    5% Health

    6%

    Hotels; cafes & restaurants 2%

    Housing; water; electricity; gas & other fuels

    5%

    Misc goods & services

    6%

    Recreation; entertainment &

    culture 3%

    Transport 15%

    Contributions 29%

  • 16 Contributions

    List of Items Total

    R/bn

    Current taxes on income & wealth 400.27

    Long Term Insurers pension & group life business 152.85

    Long Term Insurers Retirement Annuities 84.49

    Medical contributions by employer in private institution 39.63

    Medical contributions by household member in private institution 78.47

    Miscellaneous current transfers 6.25

    Pension fund employees contributions : Official pension funds 23.76

    Pension fund employees contributions : Official pension funds unanswered 0.81

    Pension fund employees contributions : Private pension funds 28.88

    Pension fund employees contributions : Private pension funds unanswered 0.98

    Pension fund employers contributions : Official pension funds 35.30

    Pension fund employers contributions : Official pension funds unanswered 0.37

    Pension fund employers contributions : Private pension funds 30.86

    Pension fund employers contributions : Private pension funds unanswered 0.32

    Short term insurance 35.36

    Social security paid 6.61

    Grand total 925.21

    Key points

    The largest

    contributions made

    by households are

    in the form of taxes.

    Thereafter, the

    second-largest is

    insurance and the

    medical aid sectors.

    Source of all tables: BMR, (2015) Standard Bank Research

  • 17 Expenditure by purpose and function

    Expenditure by purpose Annual Value

    R/bn

    Hotels; cafes & restaurants 63.22

    Communication 65.60

    Education 78.45

    Recreation; entertainment & culture 103.81

    Clothing & footwear 121.22

    Furnishings; HH equipment & routine maintenance 142.89

    Housing; water; electricity; gas & other fuels 169.96

    Health 193.39

    Misc goods & services 197.79

    Transport 463.13

    Food; beverages & tobacco 627.03

    Grand Total 2226.47

    Total expenditure

    amounts to

    R2226.47bn.

    Non-Durables is the

    largest contributor

    (44%). Services is

    37% and Durables is

    9.5%.

    Source of all tables: BMR, (2015) Standard Bank Research

    Expenditure by Function Annual Value %

    Durable goods 211.96 9.52

    Non-durable goods 984.62 44.22

    Semi-durable goods 196.94 8.85

    Services 832.95 37.41

    Grand Total 2226.47 100

    Key points

  • 18 List of essentials & non-essential items

    List of Items Essential

    R/bn

    Non- essential

    R/bn

    Total

    R/bn

    Clothing & footwear 120.07 1.15 121.22 Communication 65.06 0.54 65.60 Education 78.45 - 78.45 Food; beverages & tobacco 448.85 178.18 627.03 Furnishings; HH equipment & routine maintenance 60.18 82.70 142.89 Health 187.73 5.66 193.39 Hotels; cafes & restaurants - 63.22 63.22 Housing; water; electricity; gas & other fuels 140.42 29.54 169.96 Miscellaneous goods & services 8.01 189.78 197.79 Recreation; entertainment & culture - 103.81 103.81 Transport 226.91 236.22 463.13 Total 1335.68 890.80 2226.47

    Key points

    Within durable

    goods, transport

    makes up close to

    70% of expenditure.

    It also makes up the

    largest component

    of services at 22% of

    expenditure.

    Semi-durable

    expenditure is

    dominated by

    clothing and

    footwear (62%).

    Lastly, food,

    beverages, &

    tobacco comprises

    63.7% of non-

    durable expenditure.

    Source of all tables: BMR, (2015) Standard Bank Research

  • Private and confidential

    Section 3: Expenditure patterns per income group

  • 20 Introduction

    We categorize expenditure into durable, non-durable, semi-durable goods and services. We also focus on specific household

    items that comprise a large percentage of spending within each of the household income brackets.

    We find that:

    As much as 59% of expenditure by low income households is on non-durable goods, primarily food, making these households

    more susceptible to food inflation. 8.8% of spending is on semi-durable goods and only 3.5% of low income household

    expenditure is on durable goods.

    Between 22% and 40% of spending by middle income households is on non-durable goods and 5% and 10% on durable goods

    15-23% of spending by high income households is on durable goods, making these households more sensitive to currency

    weakness and interest rate hikes. 19% of high income household spending is on non-durables

    Spending on services tends to comprise a similar percentage of each household budget i.e. between 25% and 33% of household

    spending.

    Spending on semi-durables accounts for almost 9% of household spending in lower income groups and 4.5% of spending by

    affluent households.

    Source of all tables: SBG Research analysis

  • 21 BMR expenditure analysis 2015 per household Expenditure on durable goods (% of total expenditure

    per income group Key points

    Expenditure on

    durables increase as

    income increases.

    Higher income

    households will be

    hit harder by

    currency weakness

    and interest rate

    hikes.

    Expenditure on non-

    durables decreases

    as a percentage of

    total, as income

    increases. Food

    inflation will affect

    the poorest groups

    the most.

    Services comprises

    a larger percentage

    of the middle

    income group’s

    budget.

    Semi-durables

    comprises twice the

    budget for lower

    income groups

    (8.8%) versus the

    highest income

    (4.4%) group.

    Source all charts: BMR, (2015), Standard Bank Research

    Expenditure on non- durable goods (% of total

    expenditure per income group

    Expenditure on semi- durable goods (% of total

    expenditure per income group

    Expenditure on services (% of total expenditure per

    income group

    3.4 3.6 5.4

    7.0

    9.8 10.1

    15.8

    23.5

    0

    5

    10

    15

    20

    25

    %

    58.9

    52.3

    40.5

    32.6 26.5

    22.2 20.5 18.9

    0

    10

    20

    30

    40

    50

    60

    70

    %

    8.7 8.8 8.2

    6.9 6.4

    5.4 5.9

    4.4

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10

    %

    26.2 29.0

    30.6 31.2 30.5 31.8

    33.1

    25.7

    0

    5

    10

    15

    20

    25

    30

    35

    %

  • 22

    BMR expenditure analysis 2015 per household Key points

    Each bar represents

    the % allocation of a

    household’s income

    to expenditure of the

    item in question.

    Also note, this is the

    average expenditure

    per household

    within a particular

    income category.

    Source all charts: BMR, (2015), Standard Bank Research

    Clothing and footwear

    On average, households allocate around 6.1% of their

    budgets to housing, water, electricity gas and other

    fuels.

    Electricity tariffs for 2016 (9.4%) and expected hikes in

    2017 (13%) will significantly impact all households.

    Poorer households allocate more than twice what a

    richer household allocates towards clothing and

    footwear.

    As income of the household increases, the allocation of

    households income to clothing and footwear decreases.

    Effects of a pull-back of credit extended by retailers will

    affect poorer households.

    Housing, water, electricity, gas and other fuels

    6.2 6.3

    5.4

    4.1

    3.5

    2.7 2.6

    1.9

    1

    2

    3

    4

    5

    6

    7

    %

    7.5

    6.5 6.2

    6.5

    6.1

    5.3

    6.2

    4.3

    4

    4.5

    5

    5.5

    6

    6.5

    7

    7.5

    8

    %

  • 23

    BMR expenditure analysis 2015 per household Education Key points

    Each bar represents

    the % allocation of a

    household’s income

    to expenditure of the

    item in question.

    Also note, this is the

    average expenditure

    per household

    within a particular

    income category

    Wealthier

    households allocate

    a larger percentage

    of their budget to

    health. The upper

    middle income

    group allocates the

    most at 9.5%.

    Proposed

    pharmaceutical

    hikes would have a

    relatively bigger

    impact on the

    middle income

    group

    Source all charts: BMR, (2015), Standard Bank Research

    Health

    Richer households have greater access to educational

    institutions than poorer households.

    Poorer households cannot afford higher budgets for

    education because of competing needs.

    The middle class allocates the largest percentage of

    their budgets towards education. This is an average of

    3.4%.

    The lowest two income groups allocate an average of

    1.5% and the highest two income groups allocate an

    average of 2.8%.

    Medical aid

    1.5 1.5

    2.4

    3.2

    3.9 4

    3.3

    2.2

    1

    1.5

    2

    2.5

    3

    3.5

    4

    4.5

    5

    %

    5.3 5.5

    6.3

    7.1 7.5

    9.5

    7.7

    6.7

    5

    5.5

    6

    6.5

    7

    7.5

    8

    8.5

    9

    9.5

    10

    %

    0.1 0.6

    2.4

    5.6

    7.2 7.5

    5.5 5.4

    -1

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    %

  • 24

    BMR expenditure analysis 2015 per household

    Key points

    Each bar represents

    the % allocation of a

    household’s income

    to expenditure of the

    item in question.

    Also note, this is the

    average expenditure

    per household

    within a particular

    income category

    Source all charts: BMR, (2015), Standard Bank Research

    Recreation, entertainment and culture

    Higher income groups allocate close to 5.4% on

    average on furnishing, household equipment and

    household maintenance.

    Lower income groups allocate closer to 5.9% on

    average. These households will be relatively more

    affected by reduced risk appetite for credit extension by

    retailers.

    A household allocates more of their income to

    recreational activities as they earn more income. The

    highest income group allocates 8.8%. This is 6.8%

    higher than the poorest income group.

    Furnishings, HH equipment and routine maintenance

    2

    3.3

    2.5

    3.5 4

    4.4

    5.3

    8.8

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10

    %

    6 5.8

    4.1

    4.7 4.8 5.1 5.1

    6

    3

    3.5

    4

    4.5

    5

    5.5

    6

    6.5

    7

    %

  • 25

    BMR expenditure analysis 2015 per household

    Key points

    Each bar represents

    the % allocation of a

    household’s income

    to expenditure of the

    item in question.

    Also note, this is the

    average expenditure

    per household

    within a particular

    income category

    Source all charts: BMR, (2015), Standard Bank Research

    Transport (other, inclu. new vehicles)

    The fuel levy increase will have affect all households,

    but middle income groups will have been relatively

    more affected.

    Expenditure on Transport (other) , which includes the

    purchase of new vehicles expenditure increases as income

    increases.

    The richest household spends 3 times more than the poorest

    household on this category

    Petrol

    8 8.9

    11 12.3

    13.6 14.2

    21.2

    24.4

    5

    10

    15

    20

    25

    30

    %

    3.1 3.1

    4.6

    5.2 5.4

    4.7

    3.5

    2.9

    2

    2.5

    3

    3.5

    4

    4.5

    5

    5.5

    6

    %

  • 26

    BMR expenditure analysis 2015 per household Key points

    Each bar represents

    the % allocation of a

    household’s income

    to expenditure of the

    item in question.

    Also note, this is the

    average expenditure

    per household

    within a particular

    income category

    Source all charts: BMR, (2015), Standard Bank Research

    Food, beverages and tobacco

    Food expenditure comprises a large percentage of

    poorer households’ budget. There is an inverse

    relationship between food expenditure and income. As

    income of the household increases, the percentage

    spent on food decreases.

    Food inflation is expected to affect the poor the most.

    Food only

    33.5

    29

    18.9

    12.9

    9.2 6.8 6.8 5.7

    0

    5

    10

    15

    20

    25

    30

    35

    40

    %

    44.4

    38.5

    27

    18.8

    13.5 10.6 10.1 8.9

    5

    10

    15

    20

    25

    30

    35

    40

    45

    50

    %

  • Private and confidential

    Section 4: The consumer basket per income group

  • 28 Introduction

    We analyse expenditure patterns of the following items from a typical household’s consumption basket; the items are broken up as

    follows:

    – Clothing & footwear

    – Communication

    – Education

    – Food

    – Beverages & tobacco

    – Furniture

    – Household equipment & routine maintenance

    – Health

    – Hotels; cafes & restaurants

    – Rent

    – Electricity & Gas

    – Housing; water; electricity; gas & other fuels

    – Miscellaneous goods & services

    – Recreation; entertainment & culture

    – Petrol

    – Transport

    – Medical aid

    – Insurance

    – Other contributions

    Source: BMR, (2015), Standard Bank Research

  • Expenditure Trends

    We find that:

    Low income groups (R0 – R86,000 per annum):

    • Allocate large percentage's of their budgets to food (29%-34%), exposing them to high levels of food inflation. • Transport expenditure is the second dominant item in the basket. It comprises between 11%-12% of this groups budget. This group will be

    relatively more affected by oil price and fuel levy increases, and currency weakness.

    • On average, very little is spent on education (1.5%). • Contribution expenditure is also low (less than 1%). This means that some of these households might not have access to medical aid, insurance or

    a private pension.

    Middle income groups (R86,001- R1,481,000 per annum):

    • Allocate 7%-18% of their budgets to food. This is at least 10% lower than the low income group. There is an exposure to high food inflation but not as much as the two low income groups.

    • Transport expenditure comprises between 15%-19% of this groups budget. Therefore this group will also be affected mostly by an increase in the fuel levy, and currency weakness.

    • On average, this group spends between 2%-4% on education. This is significantly higher than the low income group. • Expenditure on contributions is also higher for this group compared to the low income group. This means that these households have better

    access to medical aid and insurance. Total contributions expenditure is between 16% and 30% for these households.

    Upper income groups (R1,481,001 - R2,360,001+ per annum):

    • Largest spend is on transport (30.1%). This include the purchases of new vehicles. This could also highlight access to more expensive modes of

    transport such as airlines, because of affordability. If one excludes petrol, transport expenditure increases the further one climbs up the income

    brackets.

    • Health expenditure is 6.7% of budget. The higher allocation to health highlights the fact that a higher income earners can prioritize health. If the

    proposed tariff on pharmaceutical products is approved this would have a relatively bigger affect on upper income groups.

    • Housing, water, electricity and gas make up 4.3% of the upper income budget. Furniture and household equipment purchases are also quite strong

    in this category at close to 6%.

    • There is an 8.8% budget allocation to recreational activities. This is the highest of any income group.

    Source : BMR, (2015) Standard Bank Research

  • 30

    R0 - R19,000 (R0 - R1,583) (lowest income group)

    Source all charts: BMR, (2015), Standard Bank Research

    This income group spends 33.5% of their budget on food

    and 10.9% on beverages and tobacco. This would mean

    that the drought will severely affect this group as food

    inflation rises.

    The second biggest item on the budget is transport other

    (8%).

    Only 1.5% of this groups budget goes towards education.

    1

    11

    21

    31

    41

    51

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    33.5

    10.9 8.3 8.0

    6.2 5.3 5.1 3.1 2.9 2.6 2.5 2.4 2.1 2.0 2.0 1.5 0.9 0.5 0.1

    0

    5

    10

    15

    20

    25

    30

    35

    40

    %

  • 31

    R19,001 - R86,000 (R1,584 - R7,167) (second-lowest income group)

    Source all charts: BMR, (2015), Standard Bank Research

    Largest spend is on food (29%) and second largest on

    transport (transport other plus petrol) (12%).

    Miscellaneous goods and services (9.5%) is the third-

    largest component

    Total expenditure on housing amounts to 6.5%:

    – housing, water & other fuels (2.4%);

    – electricity and gas (2.6%) and

    – rent (1.5%).

    Additional spending on furnishings, household equipment

    and maintenance is an additional 5.8%.

    There is a relatively large amount spent on clothing by this

    group (6.3%).

    Contributions* amount to 6.33% of these households’

    budget.

    Health accounts for 5.5%.

    Households in this income group spend approximately

    38.5% of their budget on food and beverages and

    tobacco. This is slightly lower than a household in the

    lowest income group (44%). The drought will also

    severely affect this group.

    Households in this income group spend only 1.5% of their

    budget on education.

    5

    25

    45

    65

    85

    105

    125

    145

    165

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    29.0

    9.5 9.5 8.9 6.3 5.5 4.9 4.3 3.3 3.1 2.6 2.4 2.4 2.3 1.5 1.5 1.4 0.9 0.6

    0

    5

    10

    15

    20

    25

    30

    35

    %

  • 32

    R86,001 - R197,000 (R7,168 - R16,417) (low emerging middle)

    Source all charts: BMR, (2015), Standard Bank Research

    Largest spend is on food (18.9%) and beverages and

    tobacco (11%). This comprises 27% of a household’s total

    budget. This is a significant drop of more than 10%

    compared to a household in the lower-income groups.

    Transport expenditure including petrol is 15.6% of the

    household’s budget.

    Total Contributions* account for 15.1%.

    Miscellaneous goods and services are 9.1%,

    Total expenditure on housing amounts to 6.2%:

    – housing, water & other fuels (1.7%);

    – electricity and gas (2.4%) and

    – rent (2.1%).

    Additional spending on furnishings, household equipment

    and maintenance is an additional 4.1%.

    Health is also 6.3%

    There is still a relatively large amount spent on clothing in

    this group (5.4%).

    Only 2.4% of a household’s budget in this group goes to

    education, twice as much as low income households.

    7.36

    17.36

    27.36

    37.36

    47.36

    57.36

    67.36

    77.36

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    18.9

    11.0

    9.1 8.7 8.1 6.3

    5.4 4.6 4.0 4.0

    3.1 2.5 2.4 2.4 2.4 2.2 2.1 1.7 1.0

    0

    2

    4

    6

    8

    10

    12

    14

    16

    18

    20

    %

  • 33

    R197,001 - R400,000 (R16,418 - R33,333) (emerging middle)

    Source all charts: BMR, (2015), Standard Bank Research

    Largest spend is on food at 12.9%. Including beverages

    and tobacco this comprises 18.8% of a household’s total

    budget. This is a significant drop of close to 25.6ppts,

    compared to the lowest income group.

    The second-biggest item on a household’s budget for this

    income group is total contributions* (22.2%).

    Transport (Other plus petrol) accounts for 17.5%.

    Miscellaneous goods and services account for 7.7%.

    Total expenditure on housing amounts to 6.5%:

    – housing, water & other fuels (1.6%);

    – electricity and gas (2.7%) and

    – rent (2.2%).

    Health is 7.1%.

    3.2% of a household’s total budget goes towards

    education.

    7

    27

    47

    67

    87

    107

    Bill

    ions

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    12.9 12.3

    11.2

    7.7 7.1 5.9 5.6 5.6 5.2

    4.1 4.1 3.5 3.2 2.7 2.4 2.2 2.1 1.6

    0.6

    0

    2

    4

    6

    8

    10

    12

    14

    %

  • 34

    R400,001 - R688,000 (R33,334 - R57,333) (lower middle)

    Source all charts: BMR, (2015), Standard Bank Research

    Largest spend is no longer on food, which accounts for

    9.2%

    Food including beverages and tobacco accounts for

    13.5%.

    Transport (other and petrol) at 19% is larger than food.

    Contributions in total account for a whopping 26.8%.

    Health expenditure (7.5%) is larger than miscellaneous

    goods and services (6.6%).

    • The higher allocation to health highlights the fact that a

    higher income earners can prioritize health. If the

    proposed tariff on pharmaceutical products is approved

    this would have a relatively bigger affect on upper income

    groups.

    Total expenditure on housing amounts to 6.1%:

    – housing, water & other fuels (2%);

    – electricity and gas (2.7%) and

    – rent (1.4%).

    There is a higher spend on education, compared to the

    other income groups (3.9%). These increases show that

    access to education is greater if one’s income is greater.

    There is also a 4% budget allocation on recreational

    activities. Higher incomes therefore allow for greater non-

    essential spending.

    7

    27

    47

    67

    87

    107

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    13.6 12.9

    9.2

    7.5 7.2 6.7 6.6 5.4

    4.3 4.2 4.0 3.9 3.5 2.7 2.2 2.2 2.0 1.4

    0.6

    0

    2

    4

    6

    8

    10

    12

    14

    16

    %

  • 35

    R688,001 - R1,481,000 (R57,334 - R123,417) (upper middle)

    Source all charts: BMR, (2015), Standard Bank Research

    Large spend is on food beverages and tobacco (10.6%)

    Contributions* in total account for a whopping (30.6%)

    Transport expenditure is larger than food expenditure

    (18.9%).

    Health expenditure is close to 9.5% of a household’s

    budget. The higher allocation to health highlights the fact

    that a higher income earners can prioritize health. If the

    proposed tariff on pharmaceutical products is approved

    this would have a relatively bigger affect on upper income

    groups.

    Total expenditure on housing amounts to 5.3%:

    – housing, water & other fuels (2%);

    – electricity and gas (2.3%) and

    – rent (1%).

    Furniture and HH equipment purchases are also quite

    strong in this category. This is close to 5.1% per

    household.

    There is a higher spend on education, compared to the

    other income groups (4%). These increases show that

    access to education is greater if one’s income is greater.

    There is also a 4.4% budget allocation on recreational

    activities. Higher incomes therefore allow for greater non-

    essential spending.

    8

    28

    48

    68

    88

    108

    128

    148

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    14.8 14.2

    9.5 8.3

    7.5 6.8

    4.7 4.7 4.4 4.4 4.0 3.8 2.7 2.4 2.3 2.3 2.0

    1.0 0.4

    0

    2

    4

    6

    8

    10

    12

    14

    16

    %

  • 36 R1,481,001 - R2,360,000 (R123,418 - R196,667) (upper income/emerging

    affluent)

    Source all charts: BMR, (2015), Standard Bank Research

    Large spend is on transport (24.2%)

    Food beverages and tobacco (10.1%).

    Transport expenditure is larger than food expenditure.

    This could also highlight access to more expensive modes

    of transport such as airlines because of affordability.

    If one excludes petrol, transport expenditure seems to

    creep up the further one climbs up the income brackets.

    Contributions* account for 24.7%.

    Health expenditure is 7.7% of a household’s budget. The

    higher allocation to health highlights the fact that a higher

    income earners can prioritize health. If the proposed tariff

    on pharmaceutical products is approved this would have a

    relatively bigger affect on upper income groups.

    Total expenditure on housing amounts to 6.2%:

    – housing, water & other fuels (3.3%);

    – electricity and gas (2.3%) and

    – rent (0.6%).

    Furniture and HH equipment purchases are also quite

    strong in this category at close to 5.1%.

    There is also a 5.3% budget allocation on recreational

    activities. Higher incomes therefore allow for greater non-

    essential spending.

    0

    5

    10

    15

    20

    25

    30

    35

    40

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    20.7

    12.5

    7.7 6.8 6.7 5.8 5.5 5.3 4.5 3.5 3.3 3.3 3.3 2.8 2.6 2.4 2.3

    0.6 0.6

    0

    5

    10

    15

    20

    25

    %

  • 37

    R2,360,001+ (R196,668+) affluent earning

    Source all charts: BMR, (2015), Standard Bank Research

    Largest spend is on transport (30.1%)

    Food beverages and tobacco (8.9%).

    Transport expenditure is larger than food expenditure.

    This could also highlight access to more expensive modes

    of transport such as airlines, because of affordability.

    If one excludes petrol, transport expenditure seems to

    creep up the further one climbs up the income brackets.

    Contributions* account for 27.3%.

    Health expenditure is 6.7% of budget. The higher

    allocation to health highlights the fact that a higher income

    earners can prioritize health. If the proposed tariff on

    pharmaceutical products is approved this would have a

    relatively bigger affect on upper income groups.

    Total expenditure on housing amounts to 4.3%:

    – housing, water & other fuels (1.2%);

    – electricity and gas (2.4%) and

    – rent (0.7%).

    Furniture and HH equipment purchases are also quite

    strong in this category at close to 6%.

    There is an 8.8% budget allocation to recreational

    activities. This is the highest of any other income group.

    -2

    3

    8

    13

    18

    Ran

    d B

    illio

    ns

    *Contributions is

    comprised of:

    Insurance, medical

    aid and other

    contributions

    27.2

    15.6

    8.8 6.7 6.3 5.7 5.7 5.4

    3.6 3.2 2.9 2.6 2.4 2.2 1.9 1.2 0.7 0.3

    -2.5 -5

    0

    5

    10

    15

    20

    25

    30

    %

  • 38 Disclosure and disclaimer

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