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Dr Adrian Saville, GIBS Professor in Economics and Competitive Strategy and René Grobler Investec Specialist Bank ‎Head of Cash Investments

As South Africa approaches the end of Savings Month government, business and individuals need to ask ourselves collectively what we’re doing differently to turn the savings crisis around. 

The announcement of The Investec GIBS Savings Index figure for 2017 Q1, a score of 60.7 (where a score of 100 represents a pass mark) released in the last week of July 2017, shows little progress since the index was launched at the start of 2016.

The structural decline of SA’s national savings rate over the last two decades provided the impetus for the Investec GIBS Savings Index. Launched last year to measure the country’s state of savings against international counterparts, the Index provides the real facts about savings so that we can understand what we have achieved and just as importantly, where we’ve gone wrong in an attempt to change the course of the future.

Drawing on international research and evidence, the Investec GIBS Savings Index assesses SA’s savings performance based on three pillars, namely:

  • The extent of SA’s stock of savings which funds the economy’s investment base;
  • The savings rate, represented by the flow of savings into the savings pool that funds investment flows; and
  • Changes in environmental factors that influence the propensity of SA’s government, corporates and individuals to save.

“Evidence from across countries, at all stages of development, and through time identify a high saving rate as a critical driver of sustained, elevated and inclusive economic growth.  It is recognition of this central and pivotal role of saving that underpins the Investec GIBS Savings Index as a basis for understanding the source and nature of economic development and prospects for South Africa’s welfare.  Sadly, despite the ambitious promises of elevated growth made by South Africa’s policy makers, this has not come to bear in recent times.  Rather, the country has been caught in a low growth trap. Whilst the temptation is to point to a range of explanatory factors, the cause of low growth is the same in South Africa as elsewhere – and absence of saving to fund the investment required that supports economic growth and industrial transformation. The findings of the latest edition of the Investec GIBS Savings Index confirm this observation,” says Dr Adrian Saville, GIBS Professor in Economics, Finance and Strategy and Founder and Chief Executive of Cannon Asset Managers.

Key observations from the 2017 Q1 Index findings, and their implications, with regard to the magnitude of fixing SA’s savings crisis, include:

  • SA’s low savings rate is deep-rooted in nature: Considering the 100 pass mark, SA’s highest level achieved by the Index since inception in 1990 to present is just 71.1. This was achieved in 1990 and has been in a downward trend ever since. The lowest point to date was the second quarter of 2016 with an index score of 58.3. This corresponded with a slump in global sentiment and followed a period of high uncertainty in the SA economy due to the firing of the finance minister at the end of 2015
  • The poor savings behaviour and performance by the SA economy from 1990 to present is broad-based and entrenched: The Index reveals that the stock pillar has moved in a very narrow range over 27 years. This suggests that the country’s stock of savings needs to expand permanently by about one third. The most recent flow pillar score of 55.9 at the start of 2017 suggests that SA’s savings rate needs to almost double from current levels to build the required savings pool
  • The stock pillar and the flow pillar are consequences of SA’s savings behaviour, while the environmental pillar captures inputs: This means in the search for remedies to the economy’s poor savings performance, the environmental pillar (which includes factors like high unemployment rates and low financial literacy) is where the search for factors and forces responsible for the inadequate savings result should begin. By identifying the most depressed components within this pillar, it’s evident where SA policy and effort should be focused in order to have the greatest impact.  

With SA’s domestic economy having gone into recession in the first half of 2017, the growth rate will likely continue to lag the global figure by a wide margin in 2017. Unfortunately, this low growth will remain a headwind to job creation, further exacerbating an already elevated unemployment rate of 27.7 percent. Further casualties of a low growth environment include business confidence and profitability, which are important drivers of investment spending.  

“The insights derived from the Index point to an enduring trend of spending rather than saving and both the macroeconomic as well as individual consequences of this merit serious attention in policy action and microeconomic initiatives. Our economic growth is at stake so the time has truly come for Savings Month to shift to a yearlong commitment by all stakeholders to play their part. For the consumer, it’s about looking for tangible, sustainable ways to reduce consumption to bolster savings and for government and business, it’s about putting in place mechanisms to assist this process. As is evident from the research one of the key focus areas of all stakeholders should be broad-based financial literacy education,” says René Grobler, Head of Investec Cash Investments.

“Changing a savings culture is tantamount to changing a nation’s ideology – it will take time and an extraordinary effort. If SA is to escape the trap of low structural growth, high-income inequality and entrenched unemployment, the consumption-led culture needs to change to one of saving that funds investment,” adds Grobler. 

What can SA learn from other countries?

The work of the Investec GIBS Savings Index has uncovered a small set of geographically different and industrially diverse countries that have successfully achieved high and sustained economic growth that has underpinned economic transformation and paved the road to prosperity.

These countries include Botswana, Brazil, China, Hong Kong, Indonesia, Japan, Malaysia, Malta, Oman, Singapore, South Korea, Taiwan and Thailand – and have sustained an average economic growth rate of 7% per year for 25 uninterrupted years or more.

These countries share a small set of common elements with some playing a disproportionate role in making up what has been described as a powerful, transformative growth cocktail.

Perhaps not surprisingly, high levels of household savings that consistently fund an elevated investment rate, is the most potent ingredient.

South Africa has much to learn from these other regions where a culture of saving has been adopted. Ultimately, there are numerous micro-economic solutions that can be considered for the macroeconomic ailment of poverty traps. For government and business, the fundamental attributes for any policy or initiative implemented need to be:

  • To promote financial literacy
  • To substitute access to credit with vehicles that promote savings
  • To create incentives to save
  • To encourage growth in productivity and incomes and a reduction in unemployment by promoting investment in productive assets

Placing a dedicated focus on savings for one month of the year will never result in enough change.

From policy action to industry-wide recognition that South Africa’s lack of savings is in fact a central socioeconomic challenge – high levels of attention and proactivity are required to bring about shifts in attitude and behaviour.

It’s after the month-long media commentary on the subject and the various events hosted to debate the issue that the real work begins. In order to move the needle, real strides need to be taken by government, business and every South African who is serious about doing their bit to both reduce poverty and fund economic growth.   

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