The views expressed in this article are not necessarily those of the FIA. The article below was supplied by Investec and the Gordon Institute of Business Science (GIBS)
Investec and the Gordon Institute of Business Science (GIBS) have released the latest results of the Investec GIBS Saving Index, which measures South Africa’s savings rate and the country’s savings behaviour. The headline index gure for 2017 Q3 was announced at 60.5 points at the end of 2017, which marks a low point in South Africa’s savings track record for 27 years.
The Investec GIBS Savings Index was started in 2016 to highlight the importance of savings in South Africa and to provide a global benchmark for SA against the rest of the world.
A core argument behind the Investec GIBS Saving Index is that for South Africa to achieve the kind of elevated and inclusive growth that shapes economic competitiveness, our economy needs an investment rate in excess of 30%.
A savings index score of 100 represents a “pass mark” for South Africa in terms of savings to support our economic growth objectives. The latest gure of 60.5 points shows we still have a long way to go towards laying the foundation for that kind of growth.
The result is no surprise, given our recent political and economic climate. We tend to underestimate the impact environmental, economic and political factors can have on individuals’, corporates’ and government’s ability to save, and this is re ected in the latest disappointing gures. A propensity to save and the ability to invest are intertwined, and both are required for long-term wealth creation in the case of individuals, or economic growth in the case of nations.
A culture of saving at every level of society is critical to the well-being of our citizens, and to the sustained economic health of our country. Programmes that promote personal saving and nancial education are as important as sound economic policies.
And while tax-free savings accounts, tax incentives for retirement savings, initiatives like Savings Month and the like are positive means of promoting a savings culture, they are not enough to reach South Africans who are still financially illiterate.
Our hope is that the government will soon recognise the importance of introducing nancial literacy curricula to children, even at primary school level, and nd innovative ways to improve basic nancial education of youth and adults that may support entrepreneurs in small business growth and encourage South Africans to save and spend wisely.
But despite the poor results re ected by the index, we do believe we are on the cusp of a story with a silver lining. An improvement in 2018, following the positive indications on the political and economic stability of the country in
December and January, could bolster business sentiment and con dence in the country. We anticipate that as soon as the next quarter we will start seeing encouraging signs of life from the index – and the capital funding for investment can only come from savings.
The importance of this element is recognised by President Cyril Ramaphosa in his New Deal, which targets 3% GDP growth in 2018 and rising to 5% growth by 2023. To put this ambitious plan in place, we need to massively increase levels of investment from around 20% of GDP currently to the NDP target of 30%.
We believe savings must be rmly on everyone’s agenda in 2018 and beyond. For a more inclusive economy and elevated economic growth, we need more investment. And to achieve that, we need higher savings.