Saving our way to prosperity - can SA learn from the world's ‘miracle’ economies?
There's no silver bullet to achieve elevated savings rates
"Every ‘rich’ nation was ‘poor’ at some stage," explains Dr Adrian Saville, professor in Economics at the Gordon Institute of Business Science, who compiles the Investec GIBS Savings Index for South Africa. "Likewise, none of the ‘economic miracles’ also known as ‘saving stars’ such as South Korea, Chile and Singapore were born with saving spoons in their mouths.” Their household savings rates are above 15 to 20 percent even in the face of low-income rates. “How did they achieve elevated rates of saving and investment off low-income levels? What would do the trick for South Africa to transform from bad spenders to effective savers and wise investors?
René Grobler, head of Investec Cash Investments, discusses these questions with Saville during July, South Africa’s National Savings Month. Grobler states: “We launched the Investec GIBS Savings Index to highlight the real facts about saving and encourage an ongoing conversation around the importance of saving for South Africa. The index measures the savings levels and the critical factors influencing savings in the country. By the fourth quarter of 2018, the Index reached its lowest level of 60 points, while a score of 100 would be regarded as a ‘pass mark’ for the country. This is a far cry from miracle status.”
Learning from the “miracle” economies
The research from the Savings Index identifies the structural ingredients that build country prosperity. These ingredients are common across the countries that are identified as “economic miracles” such as Chile, Costa Rica, Estonia, Poland, Taiwan and South Korea. Combined, these ingredients produce vast gains in per capita incomes, productivity, industrial complexity and sustained improvements in developmental indicators, such as life expectancy, education levels, social mobility and inequality. The six ingredients include:
A high rate of savings;
Access to improving healthcare;
Access to improving education;
A favourable demographic structure;
A stable policy environment with effective institutions, and
These six ingredients are needed to promote sustained, inclusive and elevated growth and development and their absence provide the basis for understanding why, and how, a country is caught in a low-growth trap.
Of the six ingredients, the most powerful explanatory factor across countries and through time is the first mentioned – the savings-investment rate. Saville adds: “Based on this research, the first step in understanding and explaining a country’s economic performance and progress starts with an assessment of the investment rate which in turn is generally explained by the level of savings available to fund investment.”
SA economy treading water
“For South Africa to achieve an annual 5.4 percent economic growth rate which is what the National Development Plan has as the official policy position, we need a savings and investment rate of about 30 percent. Instead, South Africa’s savings and investment rate sits at roughly half that, at 15 or 16 percent,” says Saville.
He says what we have been seeing the past four or five years was just a tiny percentage growth and only replacing existing capital, instead of growing capital.
All sectors pulling together