SA savings fall behind emerging market competitors
South Africa has a notoriously poor savings rate. This, combined with the high levels of personal debt among consumers, paints a concerning picture for the future, particularly when compared with the far higher savings levels achieved in many other emergi
According to the March 2012 Quarterly Bulletin, published by the SA Reserve Bank, household savings as a percentage of disposable income fell 0.2% in the first quarter of 2012 in South Africa. Furthermore, debt as a proportion of disposable income in the same period was 75.9%. While this is down from the peak of 80.6% in 2008, it remains extremely high when compared to the level of around 53% just over a decade ago.
Willem Loots, Head of Umbrella Funds at Liberty Corporate, says promoting increased levels of savings among consumers is critical, not just to secure their own financial future, but also to grow the local economy. “If more consumers opt to save through mechanisms such as retirement schemes, more capital is made available to increase the productive capacity of the country. This is achieved through the underlying investments in the private sector (through shares, for example) and government (through investment in government bonds). At present South Africa’s economic development is heavily dependent on foreign capital, the availability of which tends to be very sensitive to global economic developments.
He says higher household savings levels therefore tend to have a positive effect on the collective in addition to the benefits to the individual. Currently, South Africa’s gross savings only equals around 16% of GDP. According to a World Bank report for 2010, key emerging economies such as China and India last reported gross savings as a percentage of GDP at 52.3% and 31.6% respectively in 2010.
“Government is planning to be at the forefront of encouraging a greater sense of awareness among South Africans of the need to save. The latest proposals released by the Treasury earlier this year, advocating the possibility of compulsory preservation of retirement savings, is one tactic that may improve the gross savings level over time. However, such proposals must also take into account the realities of an emerging economy – there is little point in forcing someone to preserve their retirement savings, if they are unable to provide food for their dependents in the immediate future.”
Loots says it is also crucial that the financial services industry plays its part in educating consumers of the need to save. “South Africa has a very sophisticated and well regulated financial services industry with a range of products that can be used for saving purposes. There are multiple channels that consumers can choose through which to save, including products such as a life insurance policy, pension fund, or discretionary savings such as a bank account or unit trusts.
“For example, money placed in a retirement annuity may be invested into various asset classes including as equities and property, which gives the investor favourable real returns over time. Having a portion of personal savings in cash deposits is important to ensure money is at hand during unforeseen events. A life insurance policy may also act as a savings tool in that it provides a method of wealth transfer to beneficiaries, which will help secure their financial future.”
“So far, South Africa’s emerging middle class has had very little impact in changing our country’s savings profile; however, it is crucial that we promote the need for a greater level of savings both among this group and all sections of society, to help improve the country’s domestic savings rate,” concludes Loots.
