The Drought Evolution of Cape Homes

Premier Magazine (South AFrica) - - The Savings Status - Text: Mike Gre­eff, CEO of Gre­eff Christie’s In­ter­na­tional Real Es­tate Im­ages In­ter­na­tional Real Es­tate

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

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