Saturday, November 26, 2022

Financial sector threatened by escalating job losses

Economists have opined that a permanent job loss means chopping off income that was previously received, the after-effects of which are dismal not only to the concerned individual but also to the economy at large.

Martin Hoko, personal financial management expert at PremierWealth, explained that people’s expenditure decisions are based on the income they receive, which in other words means that their lifestyle is dependent on how much money they earn.

This means that a loss of income directly puts a dent on one’s lifestyle. Any person who earns income has two types of expenditure; on-going expenses, which come from general upkeep and contractual expenses, which come in the form of loan commitments. In the case of contractual expenses, Hoko said non-payment leads to financial institutions attempting to recover the balance of the owed either through repossessions or foreclosures.

With regard to unsecured loans, which are obtained without any attachment of security, financial institutions often fail to recover the amount owed. Therefore non-payment of unsecured loans presents a risk to the financial sector, such that bad debt increases the risk to the economy.

On January 9th, 2015 a consumer wrote to Richard Harriman of the Consumer Watchdog: “Hi Richard, tell me, how do I check if I’m Blacklisted or not. The reason I’m asking you is that ever since I lost my job in 2011 I have failed to service my debt due to lack of money and I don’t have a job yet as we speak. I have an outstanding bank loan and furniture debt. I’m living in fear that maybe I’m Blacklisted since I have not been paying for the past four years. I’m however aware of the repercussion of failing to service the debt properly. How do I go about finding out if I’m blacklisted or not?”

Hoko explained within this context that the debt profile of a consumer who fails to service his loans gets impaired, with the possibility of being black listed. He added that even if such a consumer was to get a job, they would be subjected to a moratorium period during which they are denied access to funding from financial institutions. He also said that the denial extends to participation in the general economy.

The after-effects also involve depletion of retirement savings. According to the Pension Fund Act, the loss of a job allows access to only 25 percent of retirement savings, which is fully taxable except for the first P5, 000 spent. Hoko explained that the problem with this scenario is that it comprises retirees’ livelihoods as it would be too early to dip into savings, especially since there won’t be any more contributions towards them.

Sunday Standard investigations indicate that over 2000 jobs were lost in Botswana since Q4:2014. The hardest hit were diamond cutting and polishing firms Teemane Manufacturing Company, Mortiganz Botswana and Discovery Metal Limited, together with chewing gum manufacturing firm Cadbury Botswana, which either closed shop or retrenched staff.

Asset management company BIFM also underwent a restructuring exercise that resulted in an unspecified number of people losing their jobs. A number of companies have also shed jobs, though they did not make headlines. The recent reports on job losses bring home the unsettling reality that many locals could be suffering from the after-effects of loss of income. If left to spiral out of control, this situation could cripple the economy, particularly because the financial sector plays a very important role


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