South Africa’s shocking savings rate

South Africa’s savings rate is at a shocking level compared to its emerging market peers, sitting at a dismal 0.5% in 2023.

This was revealed by accounting firm Deloitte’s South African Investment Management Outlook for 2023.

The national savings rate measures the income households, businesses, and governments save. It is the GDP that is saved rather than spent in an economy.

The rate is calculated as the difference between a nation’s income and consumption divided by income. It is an indicator of a nation’s health as it shows trends in savings, which lead to investments.

The firm noted that global real GDP is expected to contract amid the challenging global economic landscape in 2023. However, the effect of a potential global recession will likely be amplified in South Africa, as many South Africans delved into savings during the pandemic to survive.

South African consumers do not have a buffer in the form of savings that they can dip into during periods of high inflation and recession. In short, South Africans cannot maintain their lifestyle without taking on debt.

This eventually was highlighted by several prominent South African banks in their latest annual financial reports, which all noted concern about the increase in credit impairments as inflationary pressures continue to erode South Africans’ disposable income.

Capitec, for example, recorded a staggering R6.3 billion in impairments – an 80% increase compared to the previous financial year.

Capitec noted the impact of higher interest rates has led to a 20% increase in the value of its average home loan debit orders, adding that the number of customers rolling into arrears and going into debt review has increased.

In light of dire economic strain on average South Africans and an undesired turn to relying on credit for everyday living expenses, Capitec CEO Gerrie Fourie said the bank had limited its credit facilities – making over 900 changes to its credit policies, purely because of the risk the bank sees with people turning to credit currently.

South Africa, crippled by rising public debt, is also in its longest downward trend of GDP growth (110 months) since 1945. Deloitte said this downward trend is compounded by rolling blackouts and an energy availability factor below 60%.

South Africa also relies on foreign investment, which may dry up during a recession, and as the impacts of greylisting play out, the firm added.

In addition, trade tensions between the United States (US) and China will likely impact South Africa in the year ahead, as South Africa’s prominent exporting sectors (e.g., manufacturing) are particularly vulnerable to these tensions.

These structural issues make it difficult for the government to implement counter-cyclical policies and finance social programmes while pursuing a path of fiscal consolidation, said Deloitte.

South Africa’s Gini coefficient is traditionally to blame for the low savings rate. However, according to Deloitte, a significant contributing factor is the lack of understanding and trust in opaque investment products.

South Africa’s savings rate versus the world

Deloitte compared South Africa’s savings rate with a group of countries, including its emerging market peers, Brazil and India, and more developed economies such as the US, the Eurozone and South Korea.

The euro area (also known as the eurozone) consists of 19 countries that use the Euro: Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Greece, Slovenia, Cyprus, Malta, Slovakia, Estonia, Latvia and Lithuania.

South Africa performed well below average, with a savings rate of 0.5%. The US has a rate of 12.4%, the Eurozone 11%, and South Korea 13.7%. The country is even further behind its emerging market peers, Brazil and India, which have savings rates of 16.9% and 10.8%, respectively.

Read: Households in South Africa are taking a beating