Saving: will we turn the corner?

The election of Cyril Ramaphosa as president of the ANC could mark a turning point that results in companies and individuals having more confidence in the future of the country, resulting in a greater propensity to save and invest. reports

ADOPTING a savings mentality is not only good for you and your family; it’s good for your country. This is the underlying message of a report accompanying the latest Savings Index figures, released by Investec and the Gordon Institute of Business (GIBS).

South Africans’ propensity to save has declined for the past seven years in a row, the Investec-GIBS Savings Index shows

(see graph). At the end of 2017, the index was at a historical low of 60.5 points, but its authors are of the view that we may have reached the bottom of the curve and that the situation is likely to improve.

A country’s national savings rate, which incorporates household, corporate and government savings, is a key factor in contributing to economic growth. More money in savings means more money for investment in infrastructure and industry.

Professor Adrian Saville, professor of economics, finance and strategy at GIBS, the chief executive of Cannon

Asset Managers and the co-author of the Investec-GIBS Savings Index, says: “More than six decades of evidence points to an elevated investment rate, funded by high levels of domestic saving, as being one of the primary factors needed to achieve and sustain fast, transformative economic growth across geographies and through time.”

Economist Mike Schüssler makes the point – he did so at the recent Raging Bulls Investment Summit in Cape Town during a discussion on radical economic transformation – that South Africa’s accumulated savings is the highest in Africa and 11th highest in the world. The amount in pension funds stands at about R4 trillion.

However, our national savings rate – at 16.1% of our gross domestic product (GDP) in 2016, according to the World Bank – is low compared with other emergingmarket economies. Saville says that, to compete with these countries and make the shift from a low-growth economy to a high-growth one, we need to push up our national savings rate to about 30% of GDP.

The government, when formulating its National Development Plan, targeted GDP growth of 5.4% to meet its objectives of reducing unemployment to acceptable levels, combating inequality and ensuring our competitiveness in the global economy.

We’re nowhere near that figure – the World Bank expects South Africa to grow by 1.1% this year. In comparison, it projects China’s growth at 6.4%, while several African countries – among them Côte d’Ivoire, Senegal, Ethiopia and Tanzania – are expected to grow by more than 6%.

The Investec-GIBS Saving Index is a composite measure of the South African savings environment, the extent of flows into savings, and the levels of accumulated savings. It is constructed in such a way that a “pass mark” in terms of savings and investment to support South Africa’s economic objectives represents an index score of 100.

“The latest index figure of 60.5 points shows we have a long way to go towards laying the foundation for that kind of growth,” says René Grobler, the head of Investec Cash Investments, who spearheaded the creation of the InvestecGIBS Savings Index in 2016 with the aim of creating more visibility around the importance of savings in South Africa and to provide a benchmark for comparing South Africa with the rest of the world.

Saville says: “Given the tough political environment towards the end of last year and the near-recessionary conditions that loomed over the economy towards the end of 2016 and much of 2017, this is not a surprising result. However, our sense is that we are on the cusp of a story that has a silver lining.”

THREE PILLARS

The Saving Index is structured around three key pillars:

• The structural environmental pillar, which measures the propensity of South Africa’s social, political and economic environment to encourage and promote savings;

• The structural flow pillar, which measures the consequent flow of money into savings and investment vehicles; and

• The structural stock pillar, which measures the accumulated stock of savings resulting from historical flows.

In the latest results, the structural flow pillar remains in a long-term downward trend from 1990 to the present, and underlines the need for South Africa to reform the economy structurally.

The other two pillars also influence South Africa’s ability to save and attract investment.

“We tend to underestimate the impact environmental, economic and political factors can have on individuals, corporations and government’s ability to save, and this is reflected in the latest disappointing figures,” Grobler says.

“A propensity to save and the ability to invest are intertwined, and both are required for long-term wealth creation in the case of individuals, or economic growth in the case of nations. A culture of