Hidden handbrake on South Africa’s economy

South Africa’s dismal savings rate limits its economic growth by making it more difficult for companies and the government to finance new investments. 

However, there is one bright spot – corporate savings have remained resilient over the past decade, and now asset managers are fighting for the ability to invest this idle cash. 

South Africa has historically had a very low savings rate compared to its global peers, particularly fellow emerging markets. 

This acts as a significant drag on economic growth as it undermines the ability of local companies and the government to finance capital-intensive projects. 

Furthermore, it may push these companies and the government to raise funding outside of the country and in foreign currencies, significantly increasing the vulnerability of South Africa’s financial system to external shocks. 

The Reserve Bank, in its latest Quarterly Bulletin, revealed that South Africa’s national savings rate as a percentage of gross domestic product (GDP) remained unchanged at 12.7% in the first three months of 2024. 

This is a far cry below the historical average rate of 25% to 30%, which coincided with stronger economic growth in the early 2000s. 

Government spending has been a significant drag on saving in South Africa, with the Reserve Bank showing that the state has consistently spent more than it brings in. 

It has only managed to positively contribute to saving efforts in two quarters over the past five years. 

Households’ saving rate increased marginally in the first quarter despite South Africans coming under significant pressure from the rising cost of living. 

Gross saving by the household sector as a percentage of GDP has hovered around 1.6% for the past few years, narrowing slightly since 2022.

Conversely, gross savings by the corporate sector as a percentage of GDP has remained above 10% throughout the past five years. 

While this is positive regarding savings, it also shows that companies are hesitant to commit cash to new investments in South Africa due to its stagnant economy and political uncertainty. 

Many corporates prefer to keep their cash in the bank, earning interest, and only commit money to ‘subsistence’ investing to keep their business running rather than growing its operations. 

The graph below shows South Africa’s various savings rates over the past five years.

Asset managers targeting cash-flush corporates

Earlier this year, Old Mutual announced plans to expand its institutional money market offering to capture some idle cash on companies’ balance sheets. 

The company aims to do this by offering attractive yields matched with the liquidity needed to freely allocate money towards business operations and potential expansion projects. 

Sean Segar, co-head of Old Mutual cash and liquidity solutions, explained that the insurer aims to offer corporates the liquidity of call accounts with fixed deposit yields. 

“After decades in service to corporates, liquidity is a top priority, with corporates expecting to access their investment as easily as withdrawing against a call account,” the other co-head, Ian Ferguson, said. 

Ferguson explained that managing such a fund in South Africa is extremely difficult given the lack of viable investments in this area. 

This also makes outperformance very rare as most debt is issued by the government or guaranteed by the state, with slim pickings with regard to corporate debt. 

“There are only four or five domestic banks that can be included in the solution – and considering that yield ‘sweeteners’ such as corporate debt make up a tiny percentage of these funds, if at all,” Ferguson said. 

Despite this, there is a significant opportunity for South African asset managers in this space, with Old Mutual estimating these products could generate an extra R4 billion per annum in yield for large corporates.

The insurer is a recent entrant to this market segment that garners more attention from asset managers as local companies are sitting on significant sums of cash. 

Many of these companies are hesitant to invest this cash in new capex projects due to South Africa’s poor economic performance over the past decade and uncertainty surrounding its future. 

Towards the end of last year, Stanlib launched a fund specifically aimed at corporate treasuries sitting on piles of cash and seeking higher yields.

South Africa’s largest asset managers, faced with many headwinds, have been bringing new products to the market in search of returns for clients.


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