Big spending South Africans urged to stash their cash

JOHANNESBURG – Flashy sports cars, big 4x4s, opulent homes, swimming pools and tennis courts set in spacious gardens: That’s one side of South African life.

Teeming squatter camps, corrugated iron shacks, no work and gnawing hunger: that’s the flip side. What the two have in common – though for very different reasons – is a failure to stash their cash for a rainy day.South Africa’s savings rate is low and sharply falling interest rates mean the country’s big spenders are putting even less money in the bank – ‘ problem for a society which needs investment to create jobs,’ said Simangele Sekgobela of the South African Savings Institute (SASI).According to central bank data, gross saving as a percentage of gross domestic product (GDP) in South Africa declined to 14,5 per cent in the first half of 2004 from 16 per cent in 2003 and 16,5 per cent in 2002.This is low by the standards of developed countries.According to the Organisation for Economic Co-operation and Development (OECD), Norway’s gross national saving rate as a percentage of GDP in 2003 was 30,8 per cent and Austria’s 22,4 per cent.The recent decline in South Africa’s savings ratio has been spurred in part by monetary policy.The central bank last year slashed its key repo rate by 550 basis points in the face of subsiding inflation and strength in the rand currency, bringing the prime lending rate to 11,5 per cent, its lowest in over two decades.It stunned markets this month when it shaved another 50 basis points off rates.Combined with the strong rand, demand in South Africa has been growing as cheaper imports get sucked into the country.But even when interest rates were much higher, South Africans still weren’t saving very much.SASI estimates that South Africa needs to get its savings rate up to at least 20 per cent of GDP to get economic growth to 3,5 to four per cent.It has been averaging about 2,7 per cent per year since in 1994, but economists say faster rates are needed to cut into a jobless rate of more than 30 per cent.According to central bank data, South Africa’s inflow of FDI averaged about US$1,987 billion per year between 1996 and 2003 – low by international standards.The problem, as some analysts see it, is that higher growth is needed to attract the FDI – but that growth won’t come until savings and investment have been booted.Analysts highlight a number of reasons for this state of affairs, including disincentives to saving.At the upper end of the income scale, South Africa’s relatively low cost of living may induce spending, as it frees up disposable income which can be splashed out on consumer goods ranging from big cars to fine wines.At the lower end, the costs associated with savings means poor township dwellers would rather hide their money under the bed than put it in a bank.The poor obviously have limited disposable income but they are also spending, and often beyond their means as many chase the dream of the good life.”The poor especially are spending their money on gambling, on the lottery and in casinos,” said Sekgobela.Not all the data has been bleak.In its annual economic review this month, the central bank said growth in real gross fixed capital formation – which measures investment – quickened to 12 per cent in the first half of 2004 from 6,5 per cent in the second half of 2003.- Nampa-ReutersWhat the two have in common – though for very different reasons – is a failure to stash their cash for a rainy day.South Africa’s savings rate is low and sharply falling interest rates mean the country’s big spenders are putting even less money in the bank – ‘ problem for a society which needs investment to create jobs,’ said Simangele Sekgobela of the South African Savings Institute (SASI).According to central bank data, gross saving as a percentage of gross domestic product (GDP) in South Africa declined to 14,5 per cent in the first half of 2004 from 16 per cent in 2003 and 16,5 per cent in 2002.This is low by the standards of developed countries.According to the Organisation for Economic Co-operation and Development (OECD), Norway’s gross national saving rate as a percentage of GDP in 2003 was 30,8 per cent and Austria’s 22,4 per cent.The recent decline in South Africa’s savings ratio has been spurred in part by monetary policy.The central bank last year slashed its key repo rate by 550 basis points in the face of subsiding inflation and strength in the rand currency, bringing the prime lending rate to 11,5 per cent, its lowest in over two decades.It stunned markets this month when it shaved another 50 basis points off rates.Combined with the strong rand, demand in South Africa has been growing as cheaper imports get sucked into the country.But even when interest rates were much higher, South Africans still weren’t saving very much.SASI estimates that South Africa needs to get its savings rate up to at least 20 per cent of GDP to get economic growth to 3,5 to four per cent.It has been averaging about 2,7 per cent per year since in 1994, but economists say faster rates are needed to cut into a jobless rate of more than 30 per cent.According to central bank data, South Africa’s inflow of FDI averaged about US$1,987 billion per year between 1996 and 2003 – low by international standards.The problem, as some analysts see it, is that higher growth is needed to attract the FDI – but that growth won’t come until savings and investment have been booted.Analysts highlight a number of reasons for this state of affairs, including disincentives to saving.At the upper end of the income scale, South Africa’s relatively low cost of living may induce spending, as it frees up disposable income which can be splashed out on consumer goods ranging from big cars to fine wines.At the lower end, the costs associated with savings means poor township dwellers would rather hide their money under the bed than put it in a bank.The poor obviously have limited disposable income but they are also spending, and often beyond their means as many chase the dream of the good life.”The poor especially are spending their money on gambling, on the lottery and in casinos,” said Sekgobela.Not all the data has been bleak.In its annual economic review this month, the central bank said growth in real gross fixed capital formation – which measures investment – quickened to 12 per cent in the first half of 2004 from 6,5 per cent in the second half of 2003.- Nampa-Reuters