South Africans must save more to grow economy

NOT GOOD: An expert says the savings rate in SA is appalling compared to other emerging markets. Picture: Shutterstock

THE Government should move to instil a culture of savings among its citizens in order to aid investment and grow the economy, analysts said yesterday.

The South African Reserve Bank says South Africa’s savings rate is only 15.4% of the gross domestic product, far below the desired rate of 25%.

Wits University economist Lumkile Mondi yesterday told The New Age that although South Africa’s savings rate was appalling compared to other emerging markets, the situation could be much worse as the country’s economic growth is projected at levels below 1%.

He said the government’s main concern should be growing an economy in order to boost unemployment, productivity as well as a surplus in which consumers can save from. “A sustained growth of more than 4.5% is necessary, but not sufficient.

South Africa needs savings rates that are at double digit rates, something which can signify a golden age for the country.

The issue of lower savings has always been related to a growth story, as well as a low savings culture,” he said.

Economist Clive Ramathibela said with emerging markets like India recording as much as 40% economic growth, South Africa’s 15.4% was well below appropriate levels, indicating that the country is too consumer based.

“South Africans have become far more indebted,” he said. He said by encouraging people to save, the government would see a far lesser dependency on the state and a lower burden on the fiscus.

FNB head of financial advisory Preenay Sathu said “an early age introduction of financial concepts, such as retirement planning and budgeting, may be one of the solutions needed to improve our savings rate and reduce dependency on the state”.

Sanlam chief economist Rain Le Roux said for the country to grow the economy, South Africa needs at least a saving rate of about 25% to the gross domestic product.

“Savings should finance investment and if your saving rate is at 15% to the GDP that means you would have to rely on foreign investors to make up for the shortfall. So unless we make ourselves attractive to foreign investors, we will continue to record lower economic growth rates,” he said.

He said corporate savings was rather too low as a result of low economic growth rates, further damping the country’s saving rate.-Vusumuzi Shabangu