South Africa has one of the worst savings rates in the world, but this poor savings culture is not only a problem at household level, it is symptomatic of a deeper issue, shows new research conducted into national savings by Investec and GIBS.
Speaking at the launch of the Investec GIBS Savings Index, René Grobler, Head of Investec Cash Investments, noted: “The only significant contributor of savings in South Africa over the past few decades has actually been the corporates in South Africa.” Both government and household spending is poor, notes the Index, with poor household saving also impacting on the ability of individuals to start their own businesses. After all, noted Grobler: “Corporates are often born out of household savings, so these two go hand in hand.”
Also speaking at the launch, GIBS Professor Adrian Saville noted that a broad culture of saving needed to be established in South Africa. “South Africa is in trouble, when you look at the historical record of the economy, there was a time when South Africa was in the business of producing a 25%-30% savings rate, which translates into 25%-30% investment spending. And that translates into strong economic growth. Look at the recent path and you’ll see that in the last 20 years saving has steadily fallen off, so that the saving rate in South Africa today is 16.3%; this puts us as one of the lowest savings rates in the world and that corresponds with an investment rate of about 18%. This is not nearly enough to fund 5% economic growth. In fact, an 18% investment rate will fund 2% economic growth.”
While Grobler noted that “South Africans are definitely better off and there has been growth in per capital income (between 1994 and 2014), we are nowhere near our counterparts (like Nigeria, Russia, Brazil, Turkey, India and China). We are a third of the way to where we need to be in terms of elevating per capita income.”
Many of the issues plaguing savings and economic growth in South Africa can, said Grobler, only be addressed by getting more South Africans working. “About a third of our country is unemployed or not looking for jobs,” she noted. “That has to have a significant impact on our ability to save as a nation.” It also impacts GDP growth. In fact, the data showed that in order to achieve South Africa’s ambitions of achieving 5.4% growth the country would require a savings rate of closer to 30%, rather than the 16.3% currently, said Saville.
Tracking how South Africa moves towards that goal by helping citizens to escape the ‘savings trap’ will be integral to the development of the Index, which will be released on a quarterly basis.
Reporting on the launch of the Index, ITInews quoted GIBS Dean, Nicola Kleyn as saying: “It is our hope that the fresh macro-economic research provided by the Investec GIBS Savings Index will facilitate this dialogue to elevate the country from the current low savings conundrum and steer us towards a path of sustained fiscal growth.”
Practically speaking, the research shows at least three ways that South Africa can escape the ‘savings trap’: by reducing consumption to bolster savings, attracting non-resident savings to promote portfolio investment and attracting foreign direct investment. “The promotion of domestic savings – especially among households – holds the greatest prospect for the promotion of elevated economic growth,” noted Grobler.
However, speaking to Business Day
, acting CEO of the South African Savings Institute, Gerald Mwandiambira, commented that while the South African savings culture was not improving, a combination of incentivising and compelling people to save could work to change the culture. Incentives could include tax-free saving schemes while employers could compel saving by deducting money from salaries and giving staff a 13th cheque.