The Drought Evolution of Cape Homes
of creating more visibility around the importance of savings in South Africa.
“Given the tough political environment towards the end of last year and the nearrecessionary conditions that loomed over the economy towards the end of 2016 and much of 2017, this is not a surprising result,” includes Professor Adrian Saville, professor of economics, finance, and strategy at GIBS and Chief Executive of Cannon Asset Managers, and who also co-authors and prepares the Index. “However, our sense is that we are on the cusp of a story that has a silver lining.”
The Index measures the performance of the South African economy in terms of its capacity to fund critical investment through savings and is structured around three key pillars, namely: The Structural Environmental Pillar that measures the propensity of the South African environment to encourage and promote savings; the Structural Flow Pillar that measures the consequent flow of savings that fund required investment; and the Structural Stock Pillar that measures the accumulated stock of savings that is the result of historical flows.
In the latest results, the Structural Flow Pillar remains in a long-term downward trend from 1990 to present, and underlines the need for South Africa to structurally reform the economy. “The Index score for this economically sensitive sub-component resembles the levels for the late 1990s, when we saw the emerging market crisis and the late 2000s, when we saw the global financial crisis,” says Saville.
Furthermore, the other two pillars also influence the ability of South Africa to save and attract investment. “We tend to underestimate the impact environmental, economic, and political factors can have on the ability of individuals, corporates, and governments to save, and this is reflected in the latest disappointing figures,” adds Grobler.
She goes on to explain, “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 saving at every level of society is critical to the wellbeing of our citizens, and to the sustained economic health of our country. Programmes that promote personal saving and financial education are as important as sound economic policies.
“Tax-free savings accounts, tax incentives for retirement savings, initiatives like Savings Month, and the like are positive means of promoting a savings culture, but they are not enough to reach South Africans who are still financially illiterate,” says Grobler.
Her hope is that the Ramaphosa government will recognise the importance of introducing financial literacy curricula to children at primary school level, and find innovative ways to improve basic financial education of people that may support entrepreneurs in small business growth, and encourage South Africans to save and spend wisely.
As much as South Africa needs to work on structural elements to repair the organisational make-up of the economy, there is a prospect of nearterm improvement. “Business confidence plays a big role in savings and investment decisions, both for South Africans and foreign investors,” says Grobler. “An improvement in 2018, following the positive indications on the political and economic stability of the country in December and January, could bolster business sentiment and confidence in the country.”
Saville adds, “We anticipate that as soon as the next quarter we will start seeing encouraging signs of life from the Index and its underlying components, such as the Structural Flow Pillar and Structural Environmental Pillar indicators.
“The capital funding for investment”, he goes on to say, “can only come from savings. The importance of this element is recognised by Cyril Ramaphosa in his New Deal, which targets three percent GDP growth in 2018 and rising to five percent growth by 2023,” Saville explains. “To put this ambitious plan in place, we need to massively increase levels of investment from around 20% of GDP currently to the NDP target of 30%.
“Although the result of this quarter is the lowest we have for the index from 1990 to 2017 and does not make for great reading, the reading itself underscores the need for the Index as a robust measurement tool.”
Grobler concludes, “For a more inclusive economy and elevated economic growth, we need more investment and to achieve that, we need higher savings.”
A propensity to save and the ability to invest are intertwined, and both are required for long-term wealth creation.
Professor Adrian Saville