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Covid-19 to push SA savings to record low

Stanlib Savings Report says country’s poor savings rate shows ‘how unprepared South Africans are for unforeseen financial shocks’.
South Africa has one of the lowest savings rates in the world. Image: Moneyweb

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.

Kevin Lings, chief economist at Stanlib. Image: Supplied

“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.

Read: We must move beyond the hallowed GDP

“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.

Source: Stanlib Savings Report 2020/ SA Reserve Bank

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.

Read:

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‘SA’s private sector is not on an investment strike’

“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.

Source: Stanlib Savings Report 2020/ SA Reserve Bank

“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.

Source: Stanlib Savings Report 2020, SA Reserve Bank & IMF

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.

Read: SA sees just over $5bn in FDI in 2019 – UNCTAD report

“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

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Why should people save? The govt will just provide.

How can people save when taxes and the rate at which living costs escalate are out of control?

Whats the point of saving when the govt can just come and expropriate it when they need to pay wages and social grants?

I agree with the article. But I dont see the ANC implemementing the kind of policies or reforms that would address the above 3 points.

The government has created a climate where savings are not encouraged as in other countries. Take a look at the gross unfairness with regards to the tax on interest earned.
This automatically discourages any savings.(Again the cANCer looking after their own interests as opposed to working towards an overall benefit for the country)

How can we possibly save money in South Africa after all the political turbulence?

For the younger generation don’t waste your life in S.A.
You will be better off overseas(EU, AUS, NZ, US) having a lower paying job than a higher paying job in S.A in the long run.

Plus your quality of life will be better!

Live for the day as they do in Europe and even more so in Africa.

Spend your money today, because it might be worth less tomorrow.

How many times have we heard it will get better, years go past and you get caught in the trap?

Is it looking better?
US$ = 16.5 ZAR, EURO = 20.5 Zar, BP = 21.5 ZAR.

I’m contemplating packing for the EU after Covid-19, even if I go with R100 only.

We work hard in S.A if you have a job and then your future is still uncertain.

Speculator.think when we can fly again, i should visit my friend in the uk and when i need to return just burn my passport.

Since 1985 many households left with their savings to greener pastures.

Many of those who still has something to save does not do it in this dump. Why would you? So these ANC thugs can steal it?

All that has changed is an useless socialist ANC government is now running the country into the ground.

With anything from 60% to 75% of disposable income going to taxes, levies and license fees, how are you supposed to save?

We pay 2 or three times for everything…..e.e. a police force, but we all have armed response. Medical care, but we all have private medical aid etc etc…these clowns have made an art form of double and triple charging us for everything…

You will make every effort to save if you have faith in the future even if only for your children’s sake.
Our poor savings rate says it all

People can easily save up to 45% p.a. if they simply learn & apply tax avoidance…
100% ZERO Income Tax;
100% ZERO CGT;
100% ZERO Death Taxes!

How do you avoid income tax? CGT can be avoided by cash transactions, and death tax by not dying, I supposed income tax by not having a job?

You can’t avoid CGT through cash transactions. The Income tax Act speaks of the total income, regardless of it being in cash or otherwise, regarded as income. Although it is speaking here of Gross Income, it also applies to Capital gains.

Money management is something that should be taught as a fundamental in school at an early age. There will be many people that will say, “How do teach someone how to manage their money if they don’t have any?” To which I would reply that there is no harm in teaching someone a useful skill even if you are not using it right now. People are taught to swim with the expectation that it may be useful some day. Government designed its own curriculum for schooling, so they could amend it to include these essential money management principles.

Saving and reasons for not saving is a wicked problem – one which does not have an easy “do this, and the problem solves itself”.

1) First and foremost, the reasons for not saving listed in below comments do not affect a majority of the SA population. Seriously, worrying about CGT and the tax on any INTEREST earned ABOVE R23 800 a year is NOT something most South Africans will have to be concerned about until late in their lives.

Just finding R23 800 in PRINCIPLE to actually save in the first place in a R144 000 a year/R12 000 a month household income is a step too far.

2) Saving means you can absorb knocks, not “I have to do a local trip this December” knocks. Knocks in a “do I go hungry tonight to feed my kids” kind of knocks. If you think I’m exaggerating how common this problem is, listen to ask Freshs show, and hear the plight of everyday young South Africans battling through this low/no income period.

3) Where’s my reward for saving, versus the boatloads for spending and taking out even more unsecured debt. The banking sectors answer of “all we do is provide a needed unsecured lending service” and “if we don’t provide the loans, the loan sharks will” are B/S. You push personal loans, revolving facilities and credit cards to anyone you can – you offer rewards to make us feel better about spending. You encourage personal loans for holidays because we deserve it. Your push unsecured lending like crack cocaine, knowing that there isn’t a way out, and the only real answer is for borrowers to borrow more to extend the loan.

4) Most Interest rates offered on saving products are sub-inflation, and tiered to cater for higher balanced private wealth clients anyway.

5) Financial education is a “learn as you go” process in the country. Why educate more and topple the banking Apple cart right? The banks NEED cheap funding (low priced deposits) to make a good enough MARGIN when they lend out on thin margined home loans – right? Increase financial education and youll have the masses demanding higher rates, which means higher funding costs for the Banks. Agreed, except when you have major banks with TENS of billions of Rands of highly priced unsecured debt lent out, making AS MUCH profit as the HUNDREDS of billions in home loans.

What’s the solution? There isn’t an easy one size fits all – but it involves higher base interest rates for small savers upfront (not in 3 years time when my savings grow enough). It involves ACTIVE rewarding of savings behavior with innovation and skill akin to the marketing geniuses in the loan and credit card divisions of the big banks. It involves keeping savers engaged with their money, letting us see, feel and play with our savings growing – to at least juxtapose with the immediate warm glow of a new purchase. It means offering ACTUAL benefits and incentives for us to SAVE more (cheaper lending rates if your savings are higher etc). And it means educating in simple and easily understandable language – pitches at a level akin to learning basics in high school.

I am part of the SA banking world. NOT ONE SA bank is doing even half of these things (yes, some are doing SOME of these, Capitec & TYME)

The closest I’ve seen is a fintech called Jupiter Savings – a seriously sharp team who have built a business model and App that is far and away the best in the market (not taking crypto guys in this). If our banks can’t help us, we need to help ourselves by finding these proper innovative start-ups doing the things in SA and grow with them.

When I first started working my cheque /transmission/current account earned interest.

My credit card paid more interest than most other accounts if I kept a positive balance.

Banks take 2 days to move interbank payments and they earn the overnight interest.

I agree completely the financial sector is causing 90% of the problem

Excellent and detailed summary of my view that, if you look at inflation, price increases, tax on interest and rates offered; not saving with cash in a bank account is a serious option. It is only worth it if you look at more serious structured and innovative products, many of which have quite high minimums.

There’s nothing to save!
Petrol going up again.no jobs . retrenchements.food going up.

End of comments.

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