South Africa’s dismal savings rate
South Africa’s savings rate is below that of its emerging market peers and is one of the lowest in the world at only 0.5%. This was revealed by Deloitte’s South African Investment Management Outlook 2023.
The national savings rate measures the income households, businesses, and governments save. It is the GDP that is saved rather than spent in an economy.
The rate is calculated as the difference between a nation’s income and consumption divided by income. It is an indicator of a nation’s health as it shows trends in savings, which lead to investments.
The accounting firm said global challenges, such as inflation and high-interest rates, are amplified in South Africa by its low savings rate.
South African consumers do not have a buffer in the form of savings that they can dip into during periods of high inflation and recession.
In short, South Africans cannot maintain their lifestyle without taking on debt.
The effect of a potential global recession will also be compounded in South Africa as the country is crippled by rising public debt and is in its longest downward trend of GDP growth of 110 months since 1945.
The low savings rate makes South Africa highly dependent on foreign investment as it has minimal local funds to invest.
Trade tensions between the US and China will also impact South Africa in the year ahead, as its prominent exporting sectors are vulnerable to these tensions, Deloitte said.
These structural issues make it difficult for the government to implement policies and finance social programmes while pursuing a path of fiscal consolidation.
South Africa’s Gini coefficient is traditionally to blame for the low savings rate. However, according to Deloitte, a significant contributing factor is the lack of understanding and trust in opaque investment products.
South Africa versus the world
Deloitte compared South Africa’s savings rate with a group of countries, including its emerging market peers, Brazil and India, and more developed economies such as the US, the Eurozone and South Korea.
South Africa performed well below average, with a savings rate of 0.5%. The US has a rate of 12.4%, the Eurozone 11%, and South Korea 13.7%.
The country is even further behind its emerging market peers, Brazil and India, which have savings rates of 16.9% and 10.8%, respectively.