Gordhan urges South Africans to save

14 July 2011

South Africa’s low savings rate is holding the country back compared to its peers, says Finance Minister Pravin Gordhan.

“Compared with our peers internationally, South Africa’s savings rate has not performed well,” Gordhan said at the SA Savings Institute’s 10th anniversary in Johannesburg on Wednesday.

South Africa’s gross saving rate was 16 percent of gross domestic product in 2009.

This compared to China’s savings rate of 52 percent, India’s of 37 percent and Russia’s of 22 percent.

Gordhan said it was no coincidence that these economies were leading the way.

South Africa needed to increase its savings rate if it were to become the “China of Africa”, he said.

‘Crucial for sustainable, inclusive growth’

“We are missing out on the savings dividend that should result from having a large workforce relative to the retired population, not least because the high rates of youth unemployment means that the dependency ratio is not as low as it should be.”

Saving was so important that was included in Gordhan’s ministerial performance agreement.

“The importance of savings for our goal of sustainable and inclusive economic growth is recognised in the inclusion of a target of a six percent private saving rate in my performance agreement signed with President [Jacob] Zuma,” he said.

Gordhan said that the household savings rate had declined by an average of 0.1 percent of GDP every year since 2001.

SA becoming a ‘consumerist society’

He blamed this on South Africans’ short-term outlook, a lack of transparent and cost-effective savings products, poor financial awareness and high unemployment, which left many without any money to save.

South Africa had become a “consumerist society … a society that wants to acquire things at any cost” and which was taking on increasing debt.

“… [T]his type of acquisitiveness also fuels the fires of corruption as people look for the quickest, easiest way to get things rather than to save for them”.

He asked how South Africa had managed to have a savings rate of 30 percent of GDP before 1994.

“… [A]fter 1994 we have a much more prosperous society, why did the savings rate fall?”

Gordhan said if South Africans could save more, the country would rely less on borrowing funds from other countries to meet its investment needs.

“This would make us less reliant on volatile short-term capital inflows for funding, which can easily reverse and pose risks of instability…. Today the whole issue of volatile capital flows is one of the biggest challenges faced by emerging markets.”

‘Reduces dependency on outside help’

SA Savings Institute chairwoman Prem Govender said there had been a slight improvement in savings as the debt-to-disposable income ratio had dropped from a high of 81.8 percent in 2008 to 78.2 percent in first quarter of 2011, according to the SA Reserve Bank quarterly bulletin.

She said individual saving was important as it reduced the country’s dependency on external help and led to the improved financial health of citizens while working and during retirement.

“A low savings rate, especially at household level, has negative spill-over effects leading to an increased burden on the state to provide safety nets,” she said.

Following the global financial crisis, South Africa’s recovery “continues to lag behind especially in terms of domestic savings and unfortunately the picture looks disturbing for the next few years,” she said.

This was exacerbated by substantial increases in oil prices and social and economic problems like poverty and unemployment.

The institute had appointed July as savings month, with the theme of “Save Now”.

South African Press Association