Johannesburg - Like many South Africans,
Nkululeko Makhaya has only the most basic financial strategy for
his future: a pension contribution deducted from his salary and
100 rand ($11.90) put aside each month towards family funeral
The 35-year-old admits this is woefully inadequate, but with
only a modest salary and obligations to both his immediate and
extended family, there is barely enough each month to see him
through to the next paycheck, let alone save.
Cue the future: what happens in 30 years when he is still
very much alive but retired, and inflation has eaten into his
"I'll get by somehow. Hopefully my children will have good
jobs and take care of my wife and me in return for the good
education I'm paying for now," said Makhaya, a salesman for a
Johannesburg cleaning products firm.
"I might not even live to retirement, in which case the
funeral policy will come in handy."
In fact, Makhaya is setting aside more than most people in
South Africa, where the majority of households are forced - or
choose - to spend most of their income, and just keep their
fingers crossed about the proverbial rainy day.
The weak savings culture is a big headache for the
government because it hampers speedy economic growth. With less
cash sloshing around its banking system, South Africa cannot
finance the infrastructure such as roads, ports and broadband
Internet needed to move its economy up a gear.
Tellingly, it fares poorly on both growth and savings when
compared to peers in the BRICS bloc of developing countries.
This year, South African GDP is forecast to grow at a rate
below 3 percent, against 8 percent for China and 7 percent in
India. And its savings rate of just 16 percent of GDP compares
with 53 percent for China, 34 percent in India and 20 percent
for Russia. Alarmingly, it appears to be getting worse.
"A strong savings culture is almost a prerequisite for
sustainable economic development and South Africa has in the
last 10 years or so gone backwards very fast," said Peter
Dempsey, deputy CEO of the Association for Savings and
Investment South Africa, a trade group for firms that provide
"Households basically save zero percent in aggregate,
meaning at a national level household income equals household
expenses. If you go back 10 to 15 years ago it was probably
sitting at 6 to 7 percent," Dempsey told Reuters.
Net household savings, mainly in the form of retirement
funds, long-term insurance, unit trusts and bank deposits, have
been in negative territory since 2005, the Treasury says. In
contrast, household debt as a ratio of disposable income remains
unsustainably high at 75 percent.
Finance Minister Pravin Gordhan and his predecessor, Trevor
Manuel, both begged South Africa's 50 million people to save
more, but their entreaties were trumped by the power of bling -
those with disposable income would rather spend it on the latest
flat-screen TV or smartphone than put it away for the future.
This partly reflects South Africa's racially divided
apartheid past in which millions of marginalised blacks had no
access to credit and other financial services. They are now
grabbing the chance to acquire assets at the expense of saving.
"It's not necessarily a bad thing," said Colen Garrow, an
economist at Meganomics.
"Low savings levels should be seen in the context of assets
such as homes and motor vehicles that new consumers purchased
after the first democratic elections in 1994. Before that, most
South Africans were simply not able to buy such assets.
"But I can see why Pravin Gordhan is worried. If you can't
finance investment out of your savings - which we can't - then
you're going to have to go out of South Africa and borrow on
international capital markets. That's exactly what's happening."
Under apartheid, black South Africans with little access to
traditional banking came up with informal savings schemes like
"stokvels", in which a small group of around a dozen people -
usually women - gather once a month and pool their savings.
Each chips in a small fixed sum, usually between 100 and
1,000 rand, and a different member each month gets to take home
the whole pot. Peer pressure ensures all members contribute,
providing a convenient way for women in poor townships to save
up for big purchases like furniture.
An estimated 40 billion rand ($4.8 billion) is invested in
stokvels, a recent study shows, but the money rarely finds its
way it into the formal financial system, denying the economy
access to funds that could help fund crucial investment. Banks
and investment companies are trying to get access to that money.
Sluggish growth represents a major political threat for the
ruling African National Congress, the former liberation movement
which turned 100 this year but is still learning how to run a
sophisticated emerging market economy.
The government says growth needs to hit 7 percent to make
any sort of a dent in unemployment that, at 25 percent, is
crushing the dream of the "Rainbow Nation" by perpetuating the
racial inequalities of apartheid and fuelling one of the world's
highest rates of violent crime.
Angry township protests by young men with little to lose
are already a daily occurrence, and, after uprisings across the
Middle East and north Africa in the last 18 months, top ANC
officials admit they sitting on a powderkeg.
Spend, don't lend
However, with bank charges stubbornly high despite
government pressure to get them down, and interest rates at
30-year lows since the end of 2010, there is very little
incentive for most South Africans to save.
Yields on 3-year domestic debt are now at 6.5 percent, close
to historic lows and compared with 8 percent five years ago.
Meanwhile, banks, credit card firms and shops make it all
too easy to borrow, despite a law introduced in 2006 to try to
enforce responsible lending.
Which is why Nkululeko Makhaya's neighbour in the
lower-middle-income Johannesburg suburb of Bramley drives the
latest BMW model. And why 23-year-old receptionist Sindi Mpheko
can only afford to rent a small backyard room in the rundown
township of Alexandra but always turns up for her job in the
Sandton financial district kitted out in the latest trendy wear.
"I'm just taking care of me for now, no responsibilities. I
want to have fun while I can and worry about the future later,
in my late twenties," Mpheko says, a touch defensively.
She is among the 90 percent of South Africans the Treasury
says are not tucking away enough savings and investment to
enable them to retain the same living standard on retirement.
Even higher income earners such as chartered accountant
Carol Khozwayo would rather invest in "visible" assets such as
property than put money in the stock market or government bonds.
Khozwayo and her husband have re-mortaged their house in the
upmarket Fourways suburb of northern Johannesburg to purchase
two smaller town houses they rent out to finance the repayments.
The 2007 collapse of asset management firm Fidentia in a
fraud scandal in which millions of rand - including pensions for
miners' widows - went missing, has also given the savings
industry a bad name.
"I would rather see physical evidence of my investment and
be assured that my children's future is fairly secure," Khozwayo
said. "Look what happened to Fidentia.