ECONOMIC REALITIES
Seeking a
savings
culture
The finance minister has lamented a poor savings culture in South Africa,
but just how bad is a rate of 17 percent of GDP in this financial climate?
Katherine Graham investigates
S
outh Africans spend more than they earn. That’s the
sad reality, a fact laid bare by the country’s extremely
low savings rate. In the first quarter of this year,
South Africa’s gross savings ratio measured 17.1%
of GDP, from an average of 15.4% in 2008.
‘Household savings accounted for just 1.5% of GDP and is on
a long downward trend,’ says Lullu Krugel, a senior economist
at KPMG. ‘A low domestic savings rate means the country must
rely on foreign money to finance growth – money which can be
withdrawn at the first sign of market instability.’
It’s a problem which government is the first to acknowledge.
Speaking at the launch of Savings Month in July at the South
African Savings Institute, Deputy Finance Minister Nhlanhla
Nene admitted that the country relied heavily on foreign capital
to fund its current account deficit. ‘It is crucial to raise the level
of our national saving in support of both short-term economic
stability and long-term productivity growth and prosperity,’ Nene
commented. ‘Higher domestic saving makes an economy less
vulnerable to sudden reversals in capital flows.’
LOW EARNERS, BIG SPENDERS
Krugel believes that the current low savings rate can be attributed
to a combination of low disposable incomes and a low propensity
6
THE BANKER
Edition 2
to save. ‘A major contributor to South Africa’s low average incomes is
the high level of unemployment,’ she states.
‘The official unemployment rate was 25.2% in the second quarter,
but with a labour force participation rate of just 54.7%, it is clear that
the tru