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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.