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Everyone can make a difference

09 July 2018 Jonathan Faurie

While there is a lot more positivity in the market since Cyril Ramaphosa took over as the President of South Africa, there are still deeply rooted structural constraints that need to be addressed if we want Ramaphoria to drive the economy forward. 

FAnews spoke to Yolanda Naudé, Head of Fund Research and Portfolio Manager at Citadel, to find out what these structural challenges are and how we can address them.   

Low savings rate

Yes, someone is beating the low savings rate drum again. But it is a serious issue that needs to be addressed if we want to achieve good economic growth. 

In a press release, Naudé pointed out that the household savings rate in South Africa for the fourth quarter of 2017 was a mere 0,2%. “While this does represent an improvement over the past three years, it falls well below the level needed to support higher investment spending and it compares unfavourably to other emerging market countries, as well as to the developed world,” said Naudé. 

She added that according to, the living wage in SA for high skilled workers are R21 000/month and R4 000/month for low skilled workers, and the living family wage is R10 300/month. 

Therefore, the country finds itself in a position where there are low wages (especially for low skilled workers) and a relatively high cost of living. This leads to the low savings rate and high debt levels for South African consumers. 

A swift decline

How does South Africa fare when it comes to the savings rate of international countries? 

Naudé pointed out that South Korea has a household savings rate of 8.8%, Mexico is at 20.6%, the US at 2.8%, the Euro zone 12.2%. The UK is at 5.3%.

In the past, South Africa was a heavy hitter when it came to savings ratios. Research from points out that the personal savings in South Africa averaged 4.82% from 1960 until 2017. This reached a record high of 23,8% in the second quarter of 1972 and a record low of -2,7% in the fourth quarter of 2013. 

SME struggles

If South Africa was traditionally a nation that performed admirably when it came to savings ratios, how did we get into the mire that we currently find ourselves in? 

“Quite simply, a major contributor of this is unemployment. The unemployment rate in South Africa currently sits at nearly 27%. Youth unemployment is close to 52%. This is a huge problem that needs to be urgently addressed,” said Naudé. 

Growth in another sector needs to be addressed. Traditionally, small and medium-sized enterprises (SMEs) placed an important role in South Africa’s economic growth. However, there are a lot of challenges that need to be resolved if this sector is to flourish. 

“Some surveys suggest that SMEs represent over 90% of enterprises in all economies, including South Africa. However, high levels of government bureaucracy, a substantial tax burden and restrictive labour regulations contribute to unnecessary restrictions placed on SMEs and prevent them from being greater job creators than they can be”, said Naudé. 

She added that SMEs can be a significant contributor to job creation and inclusive economic growth. “However, these businesses face a number of challenges. The Banking Association points out that, crime and corruption, a lack of access to appropriate technology and low production capacity, and a lack of financing and obtaining credit are all stumbling blocks that SMEs need to overcome,” she said. 

There is also very little government support when it comes to SMEs. Naudé pointed out that in 2014 it took 19 days to register a SME; in 2016, this figure increased to 46 days. 

A strong midfield

While it is undeniable that the majority of the burden of growing the economy needs to be placed on government’s doorstep, there are other players within the industry that can step up and become the industry’s star players. 

Savings is a problem, but at the end of the day, it comes down to personal choice. 

However, this goes hand-in-hand with the consumer education initiatives that are available in the industry. The Financial Planning Institute (FPI) has a lot of literature on their website when it comes to programmes that they undertake to encourage saving and responsible money management. Are we directing our reluctant clients to this literature? 

Editor’s Thoughts:
If we want our children to grow up in a country that has a lot of opportunities when it comes to economic growth, we must make our own contribution. Do not sit and wait for government to do something. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

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