South Africans do not save and not only suffer their own money matters – it lies at the heart of a vicious cycle in which it is impossible for the country’s economy to grow.
“To say that we are going to invest more to stimulate the economy is meaningless if one does not also say that the country will save more or in some way attract more foreign investment.”
So says Kevin Lings, chief economist at Stanlib. He spoke on Monday about the company’s latest savings report.
Stanlib found that South Africa has a savings rate of less than 15% of gross domestic product (GDP).
The international average is 25%. South Africa does not even keep up with emerging markets such as India and many others.
“We are consistently at the bottom of the list.”
According to Lings, this rate should be 30% for an emerging country like South Africa – indeed the target set in the National Development Plan.
Fixed investment in South Africa as a percentage of GDP is currently only 17% and should also be 30% if the country wants any economic growth.
Any investments in fixed capital formation in South Africa must therefore be financed through foreign investments.
And foreigners are losing interest.
Lings distinguishes between two types of fixed capital investments: maintenance and capital-forming investments.
The former is the minimum investment required to keep fixed capital such as factories and machinery running, while the latter refers to new capacity.
Lings says South Africa’s savings levels are so low that the country can barely sustain maintenance investments.
In the last ten years, South Africa has not created new fixed capital.
The manufacturing industry is now 17% smaller than in 2008.
According to him, state-owned enterprises that are supposed to create the foundation of fixed capital investments for the private sector through, for example, roads, ports and airports, have not made any new fixed investments on a net basis in the last ten years, despite their significant financing .
“This means that the private sector does not have enough to work with.”
Private sector investment as a percentage of GDP is currently only 12%. According to Lings, it should be at least 20%, but there is not enough infrastructure for them to invest yet.
Without infrastructure being built, and new investments being made, the economy will not grow, while the population will increase.
And it not only has a domino effect on job creation, but also on productivity.
Stanlib found that the growth rate in GDP per hour worked in South Africa is now negative.
Over the past five years, that average has been -0.5%.
“We pay people more every year to do less.”
And this is because there are not enough investments in new capital.
Load shedding is one of the causes of lower productivity – people go to work but cannot do their jobs because the government has not built enough generating capacity.
It’s a vicious cycle: To get more savings into the system, lower unemployment is needed, which can only be achieved through larger investments, for which more savings are needed.
Lings says the only way to get out of this is to deliberately target every R1 million invested in South Africa on projects and activities that stimulate economic growth.
“You can either build a prison with R1 billion or a steel plant – which one do you think contributes to the economy?”
Thus, unemployment may start to decline which in turn will lead to more people earning an income and thus more people hopefully starting to save.