2022 is may be another year on the calendar, but in reality we know it is proof that the world has survived a horrendous pandemic, is grappling with a war, and with climate change that is becoming more palpable every day. The resulting economic crisis is the overpowering concern on everyone’s mind. Humans respond to all these changes in different ways, and one way is how they “consume” things around them, from resources crucial for their survival, to the luxury goods they buy at malls.
“The bulk of my spending goes to food, skin and hair care products, and small electronics, on some occasions. Over the past two years it has become difficult for me to sustain this level of spending, so I had to switch to cheaper albeit relatively good-quality alternatives. I also prefer to buy the more expensive items in installments,” says Salma Hussein, a 27 year-old working woman who is financially independent and is affected by the surrounding economic circumstances in Egypt.
Mohamed El-Komi, associate professor of economics at the American University in Cairo School of Business, and director of the Behavioral and Economic Decision Making Lab (BEDMLab), says that in light of the high inflation rate of 14.6 percent in Egypt, which is the highest over the past few years, the cost of food, and many other commodities is skyrocketing, and this comes with consequences.
“Food prices increased by 23 percent and Egyptians spend almost one third, on average, of their income on food and beverages. Add to this the increase in utilities’ bills. You’ll find that households are under a lot of pressure to spend just on the necessities instead of leisure and luxury. Consequently, people are spending money on lower-quality foodstuffs and clothes because they’re cheaper,” El-Komi said. He adds that “This encouraged suppliers to use less quality components because that’s the only way they can provide these products since nobody is buying much of the expensive items. Everyone is compromising quality and are consuming more low-quality products.”
One undeniable, extremely prominent change we’re seeing in Egyptian consumers’ behavior in 2022 is more reliance on the installments option to be able to afford some high-quality purchases they can’t otherwise afford, according to an article by Independent Arabia. “The rate of purchases made in installments jumped by about 100 percent within the past two years. The number of customers resorting to the consumer finance system in the first four months of 2022 increased by 100 percent, with a total value of EGP 9.16 billion ($479 million), an increase of 64 percent, compared to the last quarter of 2022, according to official statistics announced by the Egyptian Financial Regulatory Authority (FRA),” it reported.
Interestingly, the electrical appliances sector was the top one to see the highest demand surge in Egypt by those buying in installments reaching 44.9 percent, and the cars and vehicles sector came in second place with about 31 percent, furniture and homes came in third with 5.1 percent, followed by shoes, clothing, bags, watches and sunglasses in the fourth place with 4.5 percent, according to Independent Arabia. A proof of this growing demand on installments is the significant growth of a platform like valU, a popular fintech solution that enables customers to pay in installments for a large group of services and goods, and it has been expanding since its launch in 2017, achieving a near-triple-fold growth in its revenues y-o-y to EGP 56 million in the first quarter of 2021.
Salma Hussein, a consumer looking to rationalize her spending, says, “I often wonder why big malls are crowded with buyers who seem to have no problem spending on luxury items if statistics show that the demand is low in the Egyptian market. Does it reflect the reality?”
To that Mohamed El-Komi answers, “In a country as big as Egypt, even low demand is high, which explains why there is still a lot of buying and selling in the Egyptian market.” This does not mean that Egyptians have the resources to spend. In 2021, 30.6 million people were living in poverty in Egypt, according to Statsita. This means that only a very small percentage of Egyptians can actually afford to overconsume goods.
Overconsumption: a plague draining already-scarce resources
Looking back at 2020, as the ’pandemic year‘, changes in the patterns of consumption across all countries of the world are crystal clear. The World Economic Forum (WEF) says that in 2020, consumers globally continued to spend—and in some cases, spent more compared to pre-pandemic levels—on some necessities such as groceries and household supplies. “During times of uncertainty, people’s buying behavior becomes more erratic. What is clear however, is that they have reduced spending on all non-essential products and services,” reads the report.
In Europe, for example, a Mckinsey and Company survey finds that European households are constantly adopting new behaviors in response to new stressors. For example, spending on basic needs like food, transport, and energy is accounting for a higher share than in previous years. It says: “In ongoing trends, spending on discretionary items has been cut, as has money put toward savings. Consumers are buying smaller quantities or delaying purchases. Many are trading down: turning to private labels, discounters, or more affordable brands.”
This is an interesting finding because it highlights a fact: the amount of peoples’ spending does not necessarily decline during economically challenging times, it’s what they spend their money on that changes. This rule can be applied to almost all regions of the world, and it means that many countries across the globe are still struggling with overconsumption even when times are tough. A Scientific American study has observed a bizarre behavior of some groups of individuals during economic recessions: they tend to spend more impulsively on things they can’t afford. “Ironically, people raised in an environment low in economic resources make riskier and less conservative choices when reminded of recessions, regardless of their current economic status,” says the Scientific American. While the striking findings of this study cannot necessarily be generalized, they are present, and are worth taking a deeper look at.
Mohamed El-Komi, associate professor of economics at the AUC School of Business, believes Egyptians are guilty of overconsumption themselves. “This behavior takes a real toll on the environment and households. People buy too much of things they don’t even need and are made to think are essential, with money they don’t even have. The whole world is geared towards this kind of overconsumption, and it’s even celebrated,” he said.
This Trading Economics chart shows how levels of spending aren’t necessarily tied to economic crises, which reflects interesting ways consumer behavior responds to various circumstances. According to the chart showing Egyptian consumer spending from July 2018 to July 2021, the highest spending is seen in the second half of 2020 and first quarter of 2021 (up to EGP 1500 billion) – a period that was economically uncertain for the entire world.
Being a conscious consumer
It’s important to look at what overconsumption, or in other words, consumerism, results in, to understand what motivates a more conscious consumption pattern. “Overconsumption takes a serious toll not just on one’s financial resources, but also on the entire planet,” says Mohamed El-Komi. “There is an unbelievable number of landfills across the globe, filled with items and foodstuffs that are just wasted because there was no real need for them. Imagine where all of this goes,” he said. El-Komi believes the world would be in a much better place if people only bought what they truly needed, in the amounts the needed, with money they actually have.
“Start with your circle of friends. Don’t celebrate consumerist behavior. Policymakers have a role in changing this consumerist culture on a national level, but also universities, institutions, corporates and individuals play a big role in making this change,” he added.