Slump in savings rate reveals deeper underlying issues

THE INVESTEC Gibs Savings Index hit a low of 56.6 in the first quarter last year. Although the index lifted each subsequent quarter, reaching 60 in the fourth quarter of the year, this remains a far cry from the 100 score that corresponds with a healthy and robust savings environment. South Africa is stuck in a low savings rut.

“This is a sobering number,” says Dr Adrian Saville, professor in economics and competitive strategy at the Gordon Institute of Business Science (Gibs), who is responsible for compiling the index.

“Equally as sobering is that, as a percentage of gross domestic product, gross saving was at 14 percent in the final quarter last year and averaged 14.4 percent for the year, the lowest annual number on record since the index was started in 1990.”

The index is made up of three building blocks – namely, a score for the flow of savings, a score for the stock of savings and a score for the savings environment. Notably, the stock and flow pillars declined year-on-year, although there was an encouraging uptick in the environment pillar at the end of 2018.

“However, we need this improvement to be sustained over an extended period before an encouraging print can be turned into optimism about savings behaviour,” says Saville.

The environment pillar measures how conducive the setting is to encourage and promote savings, while the flow pillar measures the consequent flow of savings that fund required investment to support economic growth and job creation. The stock pillar measures the accumulated stock of savings that is the net result of historical flows.

Along with the modest uptick in the environment pillar, another positive came in the better behaviour of flows of foreign portfolio investment – which is one of the ways in which domestic savings can be supplemented. Specifically, foreign portfolio flows slowed to “functional” levels at the end of 2018, says Saville.