+ All Categories
Transcript

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

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

Certification

The analyst(s) who prepared this research report (denoted by an asterisk*) hereby certifies(y) that: (i) all of the views and opinions expressed in this research report accurately reflect the

research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part of the analyst’s(s’) compensation was, is or will be directly or indirectly related to the

specific recommendations or views expressed by the analyst(s) in this research report. Standard Bank research analysts receive compensation that is based, in part, on the overall firm

revenues, which include investment banking revenues.

Disclaimer and Confidentiality Note

Standard Bank Group Limited (SBG) is the holding company of The Standard Bank of South Africa Limited (SB) and is listed on the JSE Limited and is regulated by the Financial Services Board (FSB).

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution,

publication, availability or use would be contrary to law or regulation or which would subject SBG to any registration or licensing requirement within such jurisdiction. All material presented in this report,

unless specifically indicated otherwise, is under copyright to SBG. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other

party, without the prior express written permission of SBG. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of SBG or

its affiliates.

The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy

or subscribe for securities or other financial instruments. SBG may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. SBG will not treat

recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an

independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any

investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. SBG does not offer advice on the tax consequences of

investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change.

SBG believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or

derived from sources SBG believes are reliable, but SBG makes no representations as to their accuracy or completeness. Additional information is available upon request. SBG accepts no liability for loss

arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to SBG.

This report is not to be relied upon in substitution for the exercise of independent judgment. SBG may have issued, and may in the future issue, a trading call regarding this security. In addition, SBG may

have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different

assumptions, views and analytical methods of the analysts who prepared them and SBG is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report.

SBG is involved in many businesses that relate to companies mentioned in this report.

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information,

opinions and estimates contained in this report reflect a judgment at its original date of publication by SBG and are subject to change without notice. The price, value of and income from any of the

securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or

adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk.

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks

involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates),

time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation

and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase.

39 Disclosure and disclaimer (continued)

Some investments discussed in this report have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised.

Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to

pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some

investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such

an investment is exposed.

SBG maintains information barriers between its Research Analysts and the rest of its and its shareholders business divisions, more specifically the Investment Banking business. SBG’ analysts’, strategists’

and economists’ compensation is not linked to Investment Banking or Capital Markets transactions performed by SBG or its shareholders. Facts and views presented in SBG’ research have not been

reviewed by, and may not reflect information known to, professionals in other SBG or Standard Bank business areas, including investment banking personnel.

This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of SBG, SBG has not reviewed the linked site and takes no

responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to SBG or SB’s own website material) is provided solely for your convenience and information

and the con-tent of the linked site does not in any way form part of this document. Accessing such website or following such link through this report shall be at your own risk.

This report is issued and distributed in Europe by Standard Advisory London Limited 20 Gresham Street, London EC2V 7JE which is authorised by the Financial Conduct Authority (“FCA”). This report is

being distributed in Kenya by CfC Stanbic Bank Limited; in Nigeria by Stanbic IBTC; in Angola by Standard Bank de Angola S.A.; in China by Standard Bank Limited; in Botswana by Stanbic Bank Botswana

Limited; in Democratic Republic of Congo by Stanbic Bank Congo s.a.r.l.; in Ghana by Stanbic Bank Ghana Limited; in Hong Kong by Standard Advisory Asia Limited; in Isle of Man by Standard Bank Isle of

Man Limited; in Jersey by Standard Bank Jersey Limited; in Madagascar by Union Commercial Bank S.A.; in Mozambique by Standard Bank s.a.r.l.; in Malawi by Standard Bank Limited; in Namibia by

Standard Bank Namibia Limited; in Mauritius by Standard Bank (Mauritius) Limited; in Tanzania by Stanbic Bank Tanzania Limited; in Swaziland by Standard Bank Swaziland Limited; in Zambia by Stanbic

Bank Zambia Limited; in Zimbabwe by Stanbic Bank Zimbabwe Limited; in UAE by The Standard Bank of South Africa Limited, Dubai branch.

Distribution in the United States: This publication is intended for distribution as third party non-independent research in the US solely to US institutional investors that qualify as "major institutional investors"

as defined in Rule 15a-6 under the U.S. Exchange Act of 1934 as amended, and may not be furnished to any other person in the United States. Each U.S. major institutional investor that receives these

materials by its acceptance hereof represents and agrees that it shall not distribute or provide these materials to any other person. Any U.S. recipient of these materials that wishes further information

regarding, or to effect any transaction in, any of the securities discussed in this document, must contact and deal directly through a US registered representative affiliated with a broker-dealer registered with

the U.S. Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA). In the US, Standard Bank Group [SBG} has an affiliate, ICBC Standard

Securities Inc. located at 520 Madison Avenue, 28th Floor,USA. Telephone +1 (212) 507 5000 which is registered with the SEC and is a member of FINRA and SIPC

Recipients who no longer wish to receive such research reports should call +27 (11) 415 4272 or email [email protected].

Please note that this report was originally prepared by SBG for distribution to SBG market professionals and institutional investor customers. Recipients who are not market professionals or institutional

investor customers of these firms should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

This research may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the PRA or in respect of which the protections of the PRA for private

customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report.

In jurisdictions where Standard Bank Group is not already registered or licensed to trade in securities, transactions will only be effected in accordance with the applicable securities legislation, which will vary

from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements.

Standard Bank Group Ltd Reg.No. 1969/017128/06 is listed on the JSE Limited.

Copyright 2016


Top Related