Low savings rate hampering SA economic growth: Deputy Minister

Johannesburg, July 6 (I-Net Bridge)   Calling for a better savings culture on Monday, South Africa’s Deputy Finance Minister, Nhlanhla Nene, said the country’s low savings rate was worrying and put the economy’s ability to grow in a sustainable manner at risk.

Speaking at the launch of Savings Month, Nene said it was crucial to raise the level of our national saving in support of both short-term economic stability and long-term productivity growth and prosperity.

“Building a culture of savings in South Africa is vital in ensuring that higher economic growth is sustainable “

According to Nene, South Africa’s gross saving  rate as a proportion of GDP rose to 17.1 per cent in the first quarter of this year, up from an average of 15.4 per cent in 2008.

“But even with the recent rise in South Africa’s saving rate, our savings performance remains disappointing. Our saving rate is low by international standards and compares especially poorly to those developing countries with high rates of economic growth. In China, for example, the gross saving rate is over 40 per cent,” he said.

“South Africa’s aggregate saving has been on a declining trend because of the decline in corporate and household savings. Saving by the corporate sector represents the bulk of total saving, but the corporate savings ratio has fallen in net terms from 6.6 per cent of GDP in the 1980s, to 5.6 per cent in the 1990s and to only 3 per cent between 2000 and 2008.

“Household saving as a percentage of GDP has also declined sharply over the last 15 years, from 3.2 per cent during the 1980s to 0.2 per cent between 2000 and 2008. As a percentage of disposable income, household saving has fallen from around 5.4 per cent in the 1980s to 0.28 per cent between 2000 and 2008. As a consequence, household debt has risen steadily in recent years, and currently stands at 76.7 per cent of disposable income,” Nene added.

He said government was contributing to this culture shift in several important ways.

“Firstly, prudent macroeconomic policy creates an environment conducive to saving. Inflation targeting, for example, protects the purchasing power of savers and implies that savings are able to attract competitive real rates of interest. It must be noted, however, that low inflation itself may be a disincentive to save since households may be less inclined to hedge against future inflation by saving more. Policy must therefore create conditions conducive to higher investment, economic growth and job creation because it is ultimately these factors that enhance the ability of both corporates and individuals to save.

“Government is committed to supporting economic growth and job creation in several ways, notably through its infrastructure development programme, labour-intensive employment programmes and through education and skills development. Income tax reform that has also provided relief for saving through higher limits for interest earned on savings. An interdepartmental task team is evaluating policy options for raising savings and contributory
social security in partnership with the financial services sector. Creating an enabling environment also requires addressing barriers to saving, particularly those that are binding for poorer individuals. The first of these barriers is affordable access to savings and transaction services,” Nene stated.

He said several initiatives deserved mention:

- The ‘Mzansi’ bank account, which was launched collaboratively by the four largest commercial banks together with the state-owned Postbank. By reducing access barriers, Mzansi has drawn in many first time users of financial services. Uptake now exceeds 6 million. The success of Mzansi demonstrates that even low income individuals exhibit a willingness to save.

- The Retail Savings Bond initiative has attracted almost 33 000 investments, representing a total investment amount of over R4.2 billion.

- The National Credit Act has played an important role in reducing consumption-driven debt and ensures that the credit market is accessible, efficient and non-discriminatory.

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