How Ramaphosa’s new plans could directly impact South Africans’ savings

The latest South African savings rate was down to 60.5 points at the end of 2017 – their lowest levels in 27 years.

This is according to the latest Investec GIBS Savings Index which was released on Wednesday (7 February).

“Given the tough political environment towards the end of last year and the near-recessionary conditions that loomed over the economy towards the end of 2016 and much of 2017, this is not a surprising result,” said Adrian Saville at GIBS.

A core argument of the Investec GIBS Saving Index is that South Africa needs an investment rate in excess of 30% in order to achieve the kind of elevated and inclusive growth that shapes economic competitiveness.

“As a result a savings index score of 100 represents a ‘pass mark’ for South Africa in terms of savings to support our economic growth objectives,” Saville said.

The Index measures our economy’s performance and its capacity to fund critical investment through savings. It is structured around three key pillars, namely:

  • The Structural Environmental Pillar – which measures the tendency of the South African environment to encourage and promote savings;
  • The Structural Flow Pillar – which measures the flow of savings that fund required investment; and
  • The Structural Stock Pillar – which measures the accumulated stock of savings resulting from historical flows.

Reform needed

In the latest results, the Structural Flow pillar remains in a long-term downward trend from 1990 to present and underlines the need for South Africa to structurally reform the economy.

“The Index score for this economically sensitive sub-component resembles the levels for the late 1990s when we saw the emerging market crisis and the late 2000s when we saw the global financial crisis,” Saville said

Furthermore, the other two pillars also influence South Africa’s ability to save and attract investment.

“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 reflected in the latest disappointing figures,” said Rene Grobler, head of Investec Cash Investments.

“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 financial education are as important as sound economic policies,” said Grobler.

“Tax-free savings accounts, tax incentives for retirement savings, initiatives like Savings Month and the like are positive means of promoting a savings culture, but they are not enough to reach South Africans who are still financially illiterate,” she warned.

Her hope is that Ramaphosa’s government will recognise the importance of introducing financial literacy courses to children even at a primary school level and find innovative ways to improve the basic financial education of youth and adults.

This, in turn, would hopefully support entrepreneurs in small business growth and encourage South Africans to save and spend wisely, she said.

Silver lining

As much as South Africa needs to work on repairing its economy, there is a prospect of near-term improvement, the report found.

“Business confidence plays a big role in savings and investment decisions, both for South Africans and foreign investors,” said Grobler.

“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 confidence in the country,” she said.

“We anticipate that as soon as the next quarter we will start seeing encouraging signs of life from the Index and its underlying components such as the Structural Flow and Structural Environmental Pillar indicators,” added Saville.

This is because capital funding for investment can only come from savings, he said.

“The importance of this element is recognised by Cyril Ramaphosa in his New Deal, which targets 3% GDP growth in 2018 and rising to 5% growth by 2023,” Saville said.

“To put this ambitious plan in place, we need to massively increase levels of investment from around 20% of GDP currently to the National Development Plan (NDP) target of 30%.”

Read: Expect a hike in the VAT rate this month

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How Ramaphosa’s new plans could directly impact South Africans’ savings