Johannesburg - To change the low savings trend in
South Africa, big business and government need to find the balance between a
quick sale and creating the gap for a culture of savings, says Metropolitan
Retail chief executive Phillip Matlakala in a report.
He says that the low savings culture has attracted the attention of the
International Monetary Fund, which found that SA's low savings rate is one of
the biggest factors contributing to its relatively low growth rate.
According to the report, South Africa's low savings rate is likely to have
constrained investment given the normally high correlation between domestic
saving and investment rates.
"Relative to its peers, SA's savings trend is worsening," says Matlakala.
Over the period under review SA's saving-to-GDP ratio has been on average
14 percentage points lower than the peer group. However, while the gap over the
period between 1996 -2001 was 12 percentage points, worryingly between 2002 -
2006 the gap increased markedly to an average of 16%.
"Emerging economies have generally paid particular attention to improving
savings levels to sustain high growth rates. A high saving rate for any economy
is a yardstick of health and sustained growth. High domestic savings were the
hallmark of the Asian Tigers during the eighties and today, China, one of the
world's fastest-growing economies, has followed the trend having the world's
highest savings rate," says Matlakala.
"Quite simply, emerging economies cannot compete with developed economies
like the US which is still the highest recipient of foreign direct investment.
Savings is therefore crucial for investment or Gross Fixed Capital Formation."
The Indian government, for example, is vigilant about this issue and its
importance as a major economic driver. Since 2001 India showed steady growth in
gross domestic saving. Data shows that its savings-to-GDP ratio more than
trebled, from an average of 10% in the 1950s to about 34% in 2007. A government
study found that these levels are sustainable if it makes savings an attractive
proposition. It also found current savings levels are crucial for Gross Fixed
Capital Formation for sustaining the target growth rate of between 7% to 9%.
On the other hand investment in SA, says the IMF, has contributed very
little to growth (relative to its peers) while private consumption has been
disproportionately higher.
Positive trend
Ironically this higher private consumption may be indicative of a very
positive trend. Data released by the South African Advertising Research
Foundation last year revealed that some 2.4 million households improved their
quality of living between 2005 and 2007 exiting low-income LSM 1-3 categories
and entering higher categories LSM 4-8.
This development spurred demand for all types of assets from big ticket
items like housing and motor vehicles to retail goods and services - which were
simply unaffordable in the past. However, according to the IMF the decrease in
South Africa's private saving over the last decade was due to (1) relaxation of
credit constraints, (2) increased urbanisation, (3) increased public saving,
and (4) the ageing of the population - the biggest factor being the relaxation
of borrowing constraints after apartheid ended.
"In retrospect it appears the introduction of the National Credit Act in
2007 couldn't have come at a better time, drying up credit demand just as the
global credit crisis unfolded. So it appears that while the world grapples with
the first simultaneous recession of the United States, Japan and Germany in
more than sixty years, South Africans may be better off than their counterparts
in developed markets," says Matlakala.
As was the case in the 1980s during the Japanese property crash which led
to a credit crunch there, it's likely that most consumers affected by the
current economic recession - even in SA - are likely to save more as long as
the global economy remains in a precariously uncertain position.
In the 1980s
the Japanese were lavish spenders as a consequence of booming property prices.
But once the bubble burst and credit tightened, uncertainty instilled a savings
culture - a complete behavioural reversal, which remains until today.
"While it is understandable that South Africans spent the last few years
acquiring assets, they must now become vigilant of global economic
developments. Many global economists believe that the worst of the credit
crunch is behind us; however, it could have a long-term negative impact on
global asset prices. One of the more sensible ways for SA to weather the
current economic storm is to ease off consumption and save, if just a little,"
concludes Matlakala.
- I-Net Bridge