Can South Africa become a nation of savers?
Most people love a Shakespearean drama. One of the reasons that he is still one of the most studied authors of all time is that there are lessons that can be learned from his works which are still relevant today.
If one looks at the South African savings story, one can see the startling similarities that it has with a Shakespearean drama; this was highlighted at the recent launch of the Investec GIBS Savings Index.
Historical joy
As South Africa dwelled within the economic fringes during the apartheid years, there were many economists who saw the country’s potential and commented that we would be a great success story once economic sanctions were lifted.
These predictions duly came true with South Africa experiencing economic growth which was largely aligned with global growth. However, there were some that sounded the warning bells that our economic growth was inevitible and that it was too dependent on a strong demand for commodities.
This also came true. During China’s massive infrastructure build programme of the early 2000s, South Africa was happy to satisfy China’s insatiable appetite for commodities. But now that China is moving away from a commodity driven economy to a consumption driven economy, South Africa is suffering.
Dr Adrian Saville, Professor in Economics and Corporate Strategy at the Gordon Institute of Business Science (GIBS), noted the danger of the low growth that South Africa is experiencing and points out that the distance between policy ambition and actual outcomes is ever widening.
The magical mark
The National Development Plan is a driving document released by government which outlines South Africa’s growth ambitions and how we can achieve them. On the road to the magical mark of 6%, government’s initial growth plan is to achieve a growth rate of 5.3%.
At 2% we are currently falling way short of this mark. There are further concerns that we are also not in a position to achieve the 5.3%. However, Saville pointed out that the 5.3% mark is not ambitious and is achievable if we have the right ingredients in the country.
In order to achieve this mark, we also need to encourage foreign investment in the country. Saville referred to research that was conducted on the current state of the world economy. According to the research, South Africa only holds a 1.4% share in world markets; this is a steady erosion from the percentage we held in early 2000. “We must not think that the low growth that we are experiencing at the moment is cyclical. It is purely policy driven,” said Saville.
Household concerns
As indicated above, there are concerns when it comes to saving in an economic environment that is constrained. The fact that this may or may not be caused by government policy makes the situation even tougher to bear.
Rene Grobler, Head of Investec Cash Investments, clarifies a common fallacy that savings means savings purely made up from a household. “Savings constitutes three pillars; government, the corporate sector and households. If we look at this matrix, government is a discretionary saver while households are negligible savers. The highest saver in the country is the corporate sector.”
We are all aware of the fact that South Africa is a net importer as opposed to a net exporter. This means that we sit with a significant current account deficit. The fact that government is struggling to find ways to reduce this is troublesome for the country’s economic ambitions.
Added to this is the fact that South Africans are taxed at a high rate when compared to what we receive for our taxes. There are also concerns regarding inflation and a higher repo rate.
Implementable solutions
Both Saville and Grobler agree that at the end of the day, South Africans need to be given incentives to save. There is the tax free savings account which is available in the market, but the popularity of this initiative remains to be seen.
There are programmes around the world that encourages savings.
An initiative by Juntos Bank in Peru is a perfect example. Considered one of the poorest nations in South America, Juntos has developed a savings system that rewards people according to their savings patterns. If a person in Peru saves a certain amount of money every month for four consecutive months, Juntos will reward that person with a cash deposit of a month’s savings. So if a person saved $10 a month every month, Juntos will make a deposit of $10 into that persons account in the fifth month. Reports show that people are opening bank accounts at Juntos at increased rates because of this.
In the US, lower income earners can save money through the Doorways to Dreams programme which serves as a savings account and has strict rules as to when and under which conditions account holders can withdraw from the fund.
Editor’s Thoughts:
At the end of the day, we need to create a nation of perpetual savers. While this will be tough, considering the country’s current economic situation, short-term sacrifices can turn into long-term gains. What types of programmes can we implement in South Africa and will they work? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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