A growing number of people in South Africa are struggling with crippling debt, a symptom of the fact that South Africans are ranked as the world’s biggest borrowers according to the World Bank’s 2014 Global Findex Database study.
This places a large amount of the population under pressure and unable to grow, which is not only bad for the economy, but bad for business.
In recent years, employee indebtedness has become a major concern for numerous sectors across the country, with the mining industry being no exception.
This is a problem that goes beyond pay scale. It’s not about how much you earn, but rather about how much you spend. With the arrival of instantly available personal loan services online, in stores and even through mobile services, it is now all too easy to accumulate debt. People continuously borrow and buy on credit, seldom taking into account their earnings versus expenses.
As one of the country’s major employers, we are concerned with the negative effects of high levels of debt. This why we are working with our employees and their families to disentangle themselves from debt or, better still, avoid it altogether.
We have enlisted a number of service providers, which will make available the appropriate systems, processes and education to enable employees to deal with high levels of indebtedness, and undertake responsible financial planning.
Andile Sangqu, our newly appointed Executive Head of Anglo American in South Africa shares his insights into indebtedness and how we’re working towards freeing our employees from debt, helping them avoid the traps and consequences of irresponsible lenders.
How does indebtedness affect your employees?
Employee indebtedness is understood to have a significant impact on employee safety and health, employee living standards, well-being and morale, and could be a contributing factor influencing high wage demands and even industrial action.
In principle, borrowing cannot be criticised – that is if it is managed responsibly, is mutually beneficial, falls within the bounds of the law and if its obligations are understood. Many South Africans are exploited by unscrupulous lenders and collectors who frequently circumvent the law and/or who exploit employees’ often limited understanding of personal financial management and limited access to recourse.
What is the solution to employee indebtedness for Anglo American?
There is unfortunately no quick and easy solution to this problem. Firstly, it takes time to help employees actually get out of debt. Secondly, we need to educate people on debt, how it works and why proper budgeting is important.
We have appointed a number of service providers who will help us address the issue of indebtedness in the group. These service providers specialise in initiating the awareness and enforcement around the abuse of garnishee orders, over indebtedness, credit life insurance, administration orders, reckless lending and more. By removing the administrative burden of managing garnishee orders these service providers help us ensure that only valid, accurate and affordable deductions are put in place. This puts money back in our employee’s pockets and out of the hands of debt collectors.
How successful has the efforts been in reducing indebtedness of employees to date?
In the time that Anglo American Platinum’s employee garnishee and administration orders have been audited over R3 million has been saved or refunded to employees, while the number of orders have declined by 50% as a direct result of their interventions. We aim to reduce all debt instalments to less than 50% of net salary through various debt relief solutions and interventions.
A financial wellness programme was launched in October 2014 to 98% of Anglo American Platinum employees with a total of 3,276 people signing up so far. This has resulted in a monthly saving of more than R1,3 million on the payroll through debt relief solutions. Our iron ore business, Kumba, has also benefitted significantly and saved its employees just over R125, 000 in just six months since the project started.
What other programmes does Anglo American offer and what are the key objectives of those?
We also provide what we call employee financial wellbeing solutions. We have already started discussing these programmes with the trade unions, which have been supportive of the initiative. Relieving employee debt has to be driven by a holistic solution, so there are quite a few objectives that have been put in place.
Key objectives are to:
- reduce debt instalments to less than 50% of net income for all employees seeking assistance
- eliminate 50% of tax AA 88’s charging penalties to employees via payroll deduction
- ensure at least 70% of employees receive financial literacy education
- save and refund at least R10m for employees from irregular garnishee deductions, and
- improve employee trust through employer financial assistance programmes.
What is the current levels of indebtedness within the Group?
We have noted that around 12.4% of Anglo American employees have garnishee and administration orders coming off their salaries and we are looking to improving on these percentages.
We are already seeing improvements and are tackling reckless lenders while supporting responsible ones so that our employees’ have access to appropriate, safe levels of credit.
What is the approach to dealing with indebtedness?
Our approach is to ultimately reach employees before their situation becomes so dire that they fall into the hands of administrators or ‘loan sharks’. We’re actively working to address this problem by taking a stand against irresponsible borrowing and lending; and, by working with our peers, organised labour and government, we’re developing viable and realistic solutions.
Solving employee indebtedness does not mean taking over employee debt. Our approach is more focused on debt rehabilitation. Once the debt is settled, and even managed for a few years, employees need to take responsibility for their actions, never falling back into the vicious cycle of debt.
Is indebtedness related to how much employees earn at the mines?
Indebtedness is not about how much a person earns as it can be found across the entire pay scale. It often happens that people aren’t properly educated around debt or do not have the financial tools and knowledge to properly manage their monthly budgets.
A key issue within the mining industry is not what the employees earn, but rather some of the reckless lenders that target these communities and take advantage of the situation.
It all comes down to how much one spends and borrows the unenforced consumer protection laws, the fair and accessible solutions available to indebted situations, the responsible behaviour of service providers and unashamed abuse by industry players.
This is why we aim to provide the appropriate systems, processes and education for all of our employees, to enable them to cope with high levels of indebtedness and to help them in their financial planning.
Borrowing money in certain situations makes sense, but this must always be managed responsibly and with great care. The consequences are too often written in the fine print, so we therefore work towards helping our employees in this regard and believe we are on the right track to transforming our employees’ debt problems.