Savings rate critical to economic growth

As savings month comes to an end, government, business and individuals need to take a critical look at what is being done to turn the savings crisis around. The Investec GIBS Savings Index figure for 2017 Q1 reveals a score of 60.7 (where a score of 100 represents a pass mark), suggesting that little progress since the index was launched at the start of 2016.

Drawing on international research and evidence, the index assesses SA’s savings performance based on the extent of SA’s stock of savings, the savings rate and changes in environmental factors that influence the propensity of SA’s government, corporates and individuals to save.

“Evidence from across countries, at all stages of development, and through time identify a high saving rate as a critical driver of sustained, elevated and inclusive economic growth,” says Dr Adrian Saville, professor in Economics, Finance & Strategy at GIBS and founder and CE of Cannon Asset Managers.

“Sadly, despite the ambitious promises of elevated growth made by South Africa’s policy makers, this has not come to bear in recent times. Rather, the country has been caught in a low growth trap. Whilst the temptation is to point to a range of explanatory factors, the cause of low growth is the same in South Africa as elsewhere – and absence of saving to fund the investment required that supports economic growth and industrial transformation.”

The poor savings behaviour and performance by the SA economy from 1990 to present is broad-based and entrenched. The index reveals that the stock pillar has moved in a very narrow range over 27 years. This suggests that the country’s stock of savings needs to expand permanently by about one third.

The stock pillar and the flow pillar are consequences of SA’s savings behaviour, while the environmental pillar is where the search for factors and forces responsible for the inadequate savings result should begin. By identifying the most depressed components within this pillar, it’s evident where SA policy and effort should be focused in order to have the greatest impact.

With SA’s domestic economy having gone into recession in the first half of 2017, the growth rate will likely continue to lag the global figure by a wide margin in 2017. Unfortunately, this low growth will remain a headwind to job creation, further exacerbating an already elevated unemployment rate of 27.7%. Further casualties of a low growth environment include business confidence and profitability, which are important drivers of investment spending.

René Grobler, head of Investec Cash Investments says: “The insights derived from the index point to an enduring trend of spending rather than saving and both the macroeconomic as well as individual consequences of this merit serious attention in policy action and microeconomic initiatives.

“Our economic growth is at stake so the time has truly come for Savings Month to shift to a yearlong commitment by all stakeholders to play their part. For the consumer, it’s about looking for tangible, sustainable ways to reduce consumption to bolster savings and for government and business, it’s about putting in place mechanisms to assist this process. As is evident from the research one of the key focus areas of all stakeholders should be broad-based financial literacy education.”