South Africans are not good savers. In fact, the country’s savings rate almost hit an all-time low in 2019.
This is another factor that has not positioned Africa’s most advanced economy well to weather the economic fallout from the global Covid-19 pandemic, according to Stanlib’s chief economist Kevin Lings.
Speaking during a webinar on the release of the asset management and investment group’s Savings Report 2020, he warned that the country’s weak savings rate will worsen this year and is likely plunge to a record low due to the impact of Covid-19.
“South Africa simply does not have healthy savings – some say it is weak or even pathetic … When you don’t have enough savings, you don’t have enough investment. Savings does not feature enough in [the government’s] policy discussions,” Lings said.
Citing SA Reserve Bank statistics, he noted that the country’s gross national savings has declined from more than 25% of GDP in 1985 to below 15% in 2019. The global average savings rate is around 25%, which means that South Africa has one of the lowest savings rates in the world.
“In 2018, SA’s total gross savings averaged a mere 14.4% of GDP – the lowest on record. In 2019, the level of savings was close to the lowest it has ever been – little changed, at around only 14.6% of GDP,” he said.
“Unfortunately, South Africa went into the Covid-19 crisis with an exceedingly low level of savings, which has been under increasing downward pressure over the past ten years. It is well down from 18.9% of GDP at the end of 2010 … Our savings rate can be described as structurally weak, given that it has not been above 19% of GDP since 2000 and has been trending lower for the past 30 years,” he added.
Responding to a Moneyweb question on the impact of Covid-19 on savings, Lings said the pandemic would put more pressure on savings. “It will get a lot worse,” he said.
He noted that general income levels in the country will be impacted by the more than two million job losses expected, in addition to salary cuts or no salary increases in much of both private sector companies and government posts.
“Job losses mean that people will draw on their savings, including pensions. It also means that they [affected workers] will be unable to contribute to savings. Covid-19 will put our already low savings [rate] under more pressure,” he said.
According to the Stanlib Savings Report, penned by Lings and fellow Stanlib economist Ndivhuho Netshitenzhe, the impact Covid-19 “quickly highlighted how unprepared South Africans are for unforeseen financial shocks”.
They stressed that South Africans needed to see the impact of the global pandemic as a “tough lesson” on the importance of having precautionary savings, beyond just contractual savings into pensions.
“Left without a steady income flow, many have had to dip into long-term savings to fund day-to-day expenses which will no doubt affect longer-term savings plans,” the report reiterates.
“This lack of precautionary savings and buffers to absorb unexpected financial shocks for households, businesses, and government is forcing South Africans to review both their future savings and consumption habits, highlighting the importance of precautionary savings,” it notes.
Meanwhile, the report also underscored how increased savings is important in bolstering investment and ultimately the growth of the South African economy.
“A low savings rate stifles growth and increases the country’s vulnerability during a time of crisis,” it points out.
“From a macroeconomic perspective, [the] level of national savings is vital for the successful and sustained development of the country, especially fixed investment activity and job creation,” the report adds.
Speaking during the webinar, Lings stressed that “this is why the South African government should be weary” about the country’s low savings levels.
“Household savings matter, because we need a certain level of savings [ideally over 25% of GDP] to be a prosperous and successful nation,” he said.
“A strong level of savings will lead to a strong level of growth … South Africa’s National Development Plan, in which Trevor Manuel was involved in producing, identified an optimal level of savings of 30% of GDP. We are currently below half of this. A good target is, at a minimum, to reach the global average of 25%,” he noted.
Lings pointed out that the country’s fixed investment has fallen to around 17% of GDP, which is too low. With South Africa’s savings rate being below 15%, the nation has a “perpetual savings shortfall” and this means that the gap in fixed investment is funded by foreign direct investment or international funding sources.
“If we want to really grow the economy, fixed investment should be around 30% of GDP … The current 17% is simply not good enough. We are highly reliant on foreign investment to supplement our low savings, for us to grow,” he said, adding that foreign investment is now also being negatively affected by the Covid-19 pandemic.
Listen: Nompu Siziba speaks to Kevin Lings, chief economist at Stanlib