Lower LSM s: facilitating survival priorities

By way of introduction, Eighty20 is an analytics consulting company based in Cape Town 2

3 Agenda A closer look at LSM Expenditure

4 According to AMPS 2014 there are 15.2 million households in South Africa. In 2014 just 6% of households were in LSM s 1 or 2 and a further 19% were in LSM s 3 or 4 Percentage Thousands LSM 1-2 LSM 3-4 LSM 5-6 LSM 7-8 LSM 9-10 6% 19% 39% 21% 15% 868 2,883 5,988 3,137 2,360 HOUSEHOLDS 2014 2014B Black Coloured Indian White LSM 1-2 98% 2% 0%* 0% LSM 3-4 98% 2% 0%* 0%* LSM 5-6 90% 7% 1% 3% LSM 7-8 64% 14% 4% 18% LSM 9-10 36% 11% 8% 46% TOTAL 78% 8% 2% 12% Source: AMPS 2014B

5 In 2004 around 2 million households were in LSM s 1 or 2 (21% of households) Percentage Thousands LSM 1-2 LSM 3-4 LSM 5-6 LSM 7-8 LSM 9-10 21% 28% 27% 12% 13% 2,083 2,825 2,737 1,176 1,321 HOUSEHOLDS 2004 2004 Black Coloured Indian White LSM 1-2 98% 2% 0% 0% LSM 3-4 96% 4% 0%* 0%* LSM 5-6 78% 13% 3% 6% LSM 7-8 35% 17% 9% 40% LSM 9-10 9% 7% 6% 79% TOTAL 73% 8% 3% 17% Source: AMPS 2004

6 By 2010 the number of households in LSM s 1 or 2 had decreased to less than 1.5 million households (11% of households) Percentage Thousands LSM 1-2 LSM 3-4 LSM 5-6 LSM 7-8 LSM 9-10 11% 23% 35% 17% 14% 1,445 3,041 4,657 2,312 1,914 HOUSEHOLDS 2010 2010A Black Coloured Indian White LSM 1-2 98% 1% 0% 0%* LSM 3-4 97% 3% 0%* 0%* LSM 5-6 86% 8% 1% 6% LSM 7-8 50% 15% 5% 30% LSM 9-10 24% 9% 8% 60% TOTAL 74% 7% 2% 16% Source: AMPS 2010B

7 In 2014 less than 900 000 households were in LSM s 1 or 2 (6% of households) Percentage Thousands LSM 1-2 LSM 3-4 LSM 5-6 LSM 7-8 LSM 9-10 6% 19% 39% 21% 15% 868 2,883 5,988 3,137 2,360 HOUSEHOLDS 2014 2014B Black Coloured Indian White LSM 1-2 98% 2% 0%* 0% LSM 3-4 98% 2% 0%* 0%* LSM 5-6 90% 7% 1% 3% LSM 7-8 64% 14% 4% 18% LSM 9-10 36% 11% 8% 46% TOTAL 78% 8% 2% 12% Source: AMPS 2014B

Before we move on, what is a household? By and large household surveys define a household as a group of people who share a dwelling AND financial resources 8 HOUSEHOLD COMPOSITION OF SOUTH AFRICAN HOUSEHOLDS: 2011 (13 112 216 Households) EXTENDED FAMILY AND/OR NON-RELATED 41% NUCLEAR FAMILY 21% ONE PERSON 18% SINGLE PARENT 11% COUPLE NO KIDS 9% Source: IES 2010/11

9 Higher LSM households are more likely to be nuclear families, while lower LSMs are more likely to be extended families HOUSEHOLD COMPOSITION OF SOUTH AFRICAN HOUSEHOLDS BY LSM (13 112 216 Households) LSM 9-10 Extended: Nuclear Family: One Person: 23% 41% 8% Single Couple, Parent: No Kids: 7% 20% LSM 7-8 38% 29% 13% 9% 11% LSM 5-6 46% 18% 17% 12% 7% LSM 3-4 44% 14% 24% 13% 5% LSM 1-2 44% Nuclear Family: 10% One Person: 27% Single Parent: 13% Couple, no kids: 7% EXTENDED FAMILY AND/OR NON-RELATED Source: IES 2010/11 NUCLEAR FAMILY ONE PERSON SINGLE COUPLE PARENT NO KIDS

Domestic LSM 5 LSM 1 10 To understand the shifts in LSM it is useful to review the basis on which LSM is determined. The LSM is a Living Standard Measure developed by SAARF Get a: Rural Phone-less TV-less House-less And a computer LSM 9 But don t get robbed or you could end up in LSM 5 overnight! Employ a: Hitch a ride to Get a LOAN the city Build a shack LSM 2 Eighty20 s LSM Board Game Purchase Two For household LSM 3 LUCKY BREAK! RDP You get a: Move to LSM 4 House Purchase Two For household LSM 8 (low) Purchase household appliances LSM 7 Get a hi-fi, a TV and DVD player. You made it to: LSM 6

11 Have a look at the LSM calculator on our website to find out which LSM you fall into. Scroll right to the bottom of the home page to find the LSM calculator http://www.eighty20.co.za/lsm-calculator/

The subsidy housing programme which provides free houses to qualifying recipients has had a major impact on living standards 12

13 The number of households living in decent housing increased by over 3.5 million between 2001 and 2011. Over that time the private sector built around 660 000 units 2001 2011 CAGR SHACK IN BACKYARD 460 000 4% 710 000 5% 4.5% SHACK NOT IN BACKYARD 1.4 million 12% 1.25 million 9% -1% TRADITIONAL DWELLING 1.65 million 15% 1.1 million 8% -3.7% 7.2 million 10.7 million 3.5 MILLION MORE HOUSEHOLDS LIVING IN DECENT HOUSES FORMAL DWELLING 64% 74% 4.1% Source: Census 2001, Census 2011, Stats SA Building Statistics. Note: Excludes Formal other and other therefore will not sum to 100% Note: Formal dwelling: House/brick/concrete structure on a separate stand or yard, Town / cluster / semi-detached house, Flat or apartment * Includes residential buildings: dwelling houses < 80 m 2, dwelling houses 80 m 2 and flats/ townhouses completed 2001-2011

14 Housing formalisation impacts directly on access to services 2001 2007 2011 IMPROVEMENT FROM 2001 FLUSH TOILET* 5.8 million 53% 7.2 million 58% 8.7 million 60% 2.9 MILLION MORE HOUSEHOLDS CAN FLUSH PIPED WATER (TAP) INSIDE DWELLING OR INSIDE YARD 6.9 million 62% 8.7 million 69% 10.6 million 73% 3.7 MILLION MORE HOUSEHOLDS CAN WASH ELECTRICITY USED FOR LIGHTING 7.8 million 70% 10.0 million 80% 12.2 million 85% 4.4 MILLION MORE HOUSEHOLDS CAN SEE IN THE DARK Source: Census 2011 Statistical release P0301.4 (Census 2001, Community Survey 2007, Census 2011) Note: CAGR - compound annual growth rate Note*: What is the main type of toilet facility used by this household? Flush toilet (connected to sewerage system) or Flush toilet (with septic tank)

15 Housing formalisation has an impact on household expenditure You need something a bit nice in a house, it s not like a shack - Mali, married, aged 47 I think it will be cheaper after a year or two years, because I m still doing the house, inside and outside. Inside I like to put the face stone, also to put the ceiling, even change the stairs. I can build also on top of the kitchen, put a yard here. - Roger, married, aged 36 Despite the expense of building and the increase in living costs almost everyone was happy to have a house and considered it an improvement over their previous living standard. The increase in expense was therefore traded off against the improvement in quality of life, including physical and emotional aspects. - Housing the Household: Gender and Empowerment in South Africa, Sophie O. M-F. Mills, Thesis submitted for Ph.D., 2004, Department of Geography and Environment, London School of Economics and Political Science

16 LSM is also a function of the cost of durables. In many categories entry level products are increasingly affordable and access to credit has a material impact TOTAL COST OF APPLIANCES TO MOVE INTO HIGHER LSM GROUP LSM 4 LSM 5 LSM 6 LSM 7 Free R998 R2 973 R13 358 DVD player Microwave Get a subsidised house if you live in a metro 2 Radios DVD player 2 Radios 2 Radios Fridge freezer Hi-Fi 2 Cell phones Hi-Fi 2 Cell phones Colour TV Laptop Freezer Stove Note: Appliance prices from Game (05/08/2014): CD player R499; Cell phone R149; DVD player R279; Hi-Fi R499; Colour TV R899; Microwave R599; Freezer R2 099; Laptop R3 599; Fridge freezer R2 099; Stove and oven R1 989

Monthly household income Source: IES (Income and Expenditure Survey) 2010/11 Note: The line between the colours of the boxes indicates the median. The box comprises the middle 50% of households. The whiskers show the 1 st and 99 th percentile 17 IES data can be used to find the household income distribution across LSM categories R 150 000 MONTHLY HOUSEHOLD INCOME BY LSM (2011, nominal incomes) R 83 000 R 125 000 R 70,000 R 60,000 R 50,000 R 40,000 R 30,000 R 20,000 R 10,000 R 0 Median monthly household income LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 R 1 100 R 1 400 R 1 500 R 1 900 R 2 400 R 4 000 R 7 900 R 12 200 R 18 700 R 30 700 2014 Rands R 1 347 R 1 714 R 1 836 R 2 326 R 2 938 R 4 897 R 9 672 R 14 937 R 22 895 R 37 587

18 However, household income is not the best indicator of income because of varying household sizes HOUSEHOLD SIZE HH SIZE CENSUS 1996 CENSUS 2001 CENSUS 2011 One 16% 19% 27% Two 17% 18% 19% Three 15% 15% 15% Four 15% 15% 14% Five or more 36% 33% 25% A household consists of a single person or a group of people who live together for at least four nights a week, who eat from the same pot and who share resources Stats SA Source: Census 2011; Statistics South Africa: Achieving a better life for all

A better measure is income per capita. According to the 2010/11 IES there are 13.1 million households in South Africa. Roughly one quarter have a per capita income of less than R20 per day HOUSEHOLDS IN SOUTH AFRICA: 2011 19 Income per capita per day Population (households) R280 + 11% 1.4 million [R80, R280) 24% 3.1 million [R20, R80) 41% 5.4 million < R20 24% 3.2 million Source: IES 2010/11 Note: Per capita income is calculated as household income divided by the number of people in the household. Children under 10 count as half a person. Income has been adjusted where regular expenditure exceeds income

20 By overlaying LSM onto the income pyramid we can see that just under one in five households at the bottom of the pyramid are in LSM s 6 or 7 HOUSEHOLDS IN SOUTH AFRICA: 2011 Income per capita per day Population (households) R280 + 1% 4% 16% 38% 41% 11% 1.4 million [R80, R280) 6 22% 35% 28% 10% 24% 3.1 million [R20, R80) 18% 39% 37% 5% 41% 5.4 million < R20 34% 48% 18% 24% 3.2 million LSM GROUP: 1-3 4-5 6-7 8-9 10 Source: IES 2010/11 Note: Per capita income is calculated as household income divided by the number of people in the household. Children under 10 count as half a person. Income has been adjusted where regular expenditure exceeds income

21 Agenda A closer look at LSM Expenditure

22 The distribution of expenditure varies by income. Food accounts for 40% of total expenditure on average in BoP households. Clothing accounts for 11% of expenditure DISTRIBUTION OF CONSUMPTION EXPENDITURE FOR ALL HOUSEHOLDS: 2011 (By daily per capita income) TOTAL 22% 18% 16% 9% 7% 6% 4% 4% 3% 12% R280+ 27% 19% 7% 13% 9% 3% 5% 4% 4% 10% [R80, R280) 21% 20% 13% 10% 7% 5% 4% 4% 4% 12% [R20, R80) 17% 15% 28% 3% 4% 9% 2% 4% 2% 15% < R20 10% 12% 40% 2% 4% 11% 2% 3% 1% 14% Transport Food and non-alcoholic beverages Insurance and other financial services n.e.c. Recreation and culture Education Housing, water, electricity, gas and other fuels Health Clothing and footwear Communication Other* Source: IES 2010/11 Note: Income has been adjusted where regular expenditure exceeds income. Excludes imputed rentals for housing; * Other includes: Restaurants and hotels, Personal care and effects, Social protection and other services n.e.c., Alcoholic beverages, tobacco and narcotics, Furnishings and household equipment, Other unclassified expenses; Note: Health includes medical insurance and medical aid contributions; Housing includes goods and services for routine household maintenance

Households with a per capita income of less than R20 per month account for 14% of total expenditure on clothing in South Africa 23

24 Remember Maslow? MASLOW S HIERARCHY OF NEEDS

25 Rather than a tale of greed, the history of luxury could more accurately be read as a record of emotional trauma. It is the legacy of those who have felt pressured by the disdain of others to add an extraordinary amount to their bare selves in order to signal that they too may lay a claim to love. STATUS ANXIETY, ALAIN DE BOTTON

26 While basic items dominate the food basket for the poor there is discretionary spend 86% 82% BOP HOUSEHOLDS IN SOUTH AFRICA: 2011 (% of BoP households that have spent on certain items in the past year) 70% 58% 51% 50% 43% 34% 33% 32% 30% 29% 29% 28% 25% 21% 21% 21% 19% 16% 9% 7% 4% Essentials Treats Source: IES 2010/11; Excludes imputed rentals for housing Note: Income has been adjusted where regular expenditure exceeds income Note: Baked treats include rusks, biscuits, crackers, cakes, tarts and other baked goods; Sweets include toffees, glucose sweets, health bars and other sweets; Salty snacks include potato crisps, cheese curls, corn chips, and popcorn

27 Almost 40% of the BoP have purchased from KFC in the past month significantly higher than any other fast food chain FAST FOOD: PERSONALLY BOUGHT FOOD FROM THIS OUTLET IN PAST 4 WEEKS (Adults 16+ in BoP) 38% KFC 6% 8% Wimpy 3% McDonalds King Pie 5% Pie City Nandos Hungry Lion Chicken Licken Source: AMPS 2013B, Eighty20 analysis

The brand of maize meal that is consumed most often depends on household income. This is also the case for choice of potato chips or savoury snacks, but not for beer, bread and rice WHICH ONE BRAND DO YOU CONSUME OR BUY MOST OFTEN? (Adults 16+, By daily per capita income) 28 R280+ [R140, R280) [R20, R140) [R20, R80) <R20 BEER BREAD RICE MAIZE MEAL POTATO CHIPS / SAVOURY SNACK Source: AMPS 2013B, Eighty20 analysis

29 If we stop thinking of the poor as victims or as a burden and start recognising them as resilient and creative entrepreneurs and value conscious consumers, a whole new world of opportunity will open up CK Prahalad

30 THANK YOU! Further questions: claire@eighty20.co.za Subscribe on the Eighty20 website