We need sav­ings to

CityPress - - Business -

Ac­cord­ing to the In­vestec and the Gor­don In­sti­tute of Busi­ness Sci­ence (Gibs) Sav­ings In­dex, which was re­leased ear­lier this week, South Africa could learn a lot from 13 sav­ings “star” coun­tries – Brazil, Botswana, China, Hong Kong, In­done­sia, Ja­pan, Malaysia, Malta, Oman, Sin­ga­pore, South Korea, Tai­wan and Thai­land.

René Grob­ler, head of In­vestec Cash In­vest­ments, says: “We de­cided to cre­ate a sav­ings in­dex be­cause we recog­nised the im­por­tance of rais­ing aware­ness of South Africa’s cur­rent state of sav­ing, and wanted to stim­u­late the dis­cus­sion on sav­ings from a cor­po­rate, eco­nomic, aca­demic and so­cial per­spec­tive.

“Only once we have the facts, can we be­gin to mea­sure the per­for­mance of our econ­omy in terms of its crit­i­cal sav­ings com­po­nents.”

In terms of the in­dex, a score of 100 rep­re­sents South Africa’s pass mark for na­tional sav­ings mea­sured against the coun­try’s struc­tural high-wa­ter mark or the av­er­age scores of the 13 coun­tries termed the “sav­ings stars”.

The in­dex for 2015 pro­duces a score of just 63.4 – only two-thirds of where we need to be to match the sav­ings rates of the 13 sav­ings stars, which, im­por­tantly, have sus­tained an av­er­age eco­nomic growth rate of 7% a year for 25 years or more. Much of this is driven by the fact that the coun­try has ac­cess to high lev­els of sav­ings to in­vest in growth.

Adrian Sav­ille, pro­fes­sor in eco­nom­ics and com­pet­i­tive strat­egy at Gibs and chief strate­gist at Citadel, says: “At below two-thirds of the way to­wards ‘pass­ing’ the sav­ings test, the re­sults of the In­vestec Gibs Sav­ings In­dex make it clear that South Africa is stuck in a low-sav­ings trap. If the South African econ­omy is to achieve el­e­vated and sus­tained growth that trans­lates into so­cial in­clu­sion and de­vel­op­ment, it is a nec­es­sary con­di­tion that the coun­try closes this gap.”

One of the key in­sights de­rived from the in­dex is the fact that South Africa’s stock of sav­ings (the ex­tent of sav­ing ver­sus other dy­namic economies) needs to ex­pand per­ma­nently by about a third.

The re­search sug­gests that the South African econ­omy’s flow of sav­ings needs to al­most dou­ble to achieve its growth ob­jec­tives. Un­for­tu­nately, en­vi­ron­men­tal fac­tors and forces are pre­dom­i­nantly to blame for the in­ad­e­quate sav­ings re­sult. The three main ob­sta­cles to higher sav­ings are slug­gish growth in per capita in­come, slow growth in pro­duc­tiv­ity and a high rate of un­em­ploy­ment.

“The sav­ings in­dex re­search in­di­cates that there are at least three ways that South Africa can es­cape the ‘sav­ings trap’ – re­duce con­sump­tion to bol­ster sav­ings, at­tract non­res­i­dent sav­ings to pro­mote port­fo­lio in­vest­ment and at­tract for­eign di­rect in­vest­ment,” says Grob­ler.

“The pro­mo­tion of do­mes­tic sav­ings – es­pe­cially among house­holds – holds the great­est prospect for the pro­mo­tion of el­e­vated eco­nomic growth.

“The in­dex also iden­ti­fies a num­ber of mi­croe­co­nomic ex­am­ples that pro­mote sav­ings, even in low-in­come en­vi­ron­ments. Th­ese in­ter­ven­tions in­clude ini­tia­tives that pro­mote fi­nan­cial education and in­cen­tives to save,” he adds. “This kind of in­sight is crit­i­cal to ex­plor­ing pos­si­ble so­lu­tions and, with on­go­ing mea­sure­ment now pos­si­ble, stake­hold­ers have a place to start.”

Some of the so­lu­tions for ad­dress­ing the low rate of sav­ing in the coun­try in­clude in­creased ac­cess to fi­nan­cial lit­er­acy pro­grammes so that con­sumers un­der­stand the im­por­tance of sav­ing and how to man­age their fi­nances; the sub­sti­tu­tion of easy ac­cess to credit with prod­ucts that pro­mote a sav­ings cul­ture; in­creased in­cen­tives to save; and in­creased pro­duc­tiv­ity.

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