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South African Savings Institute
31 July 2007
How to get SA to save
Jac Laubscher
Group Economist: Sanlam
Long-term trends
• Declining savings ratio
Gross domestic savings (% of GDP)
Long-term trends
• Declining savings ratio
• Rising investment ratio
Saving vs. investment (% of GDP)
Long-term trends
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Declining savings ratio
Rising investment ratio
Increasing dependence on foreign savings
Deteriorating sovereign balance sheet
Not sustainable in the long run
Economic growth vs. investment ratio
Economic growth vs. savings rate
Who are the savers?
• Corporates
• Households
• Government
Savings rates (% of GDP)
How has government been doing?
Government dissaving has been eliminated
Reasons for poor government savings
• Government savings = Current income minus current
•
expenditure
Current expenditure too high
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Military expenditure
Salaries and wages
Social grants
• Capital expenditure too low
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Lack of long-term vision
Priority of consolidation
Capacity constraints
What to do about government savings
• Contain current expenditure: wage bill, transfer payments
• Increase capital expenditure: address capacity
• Continue with budget surpluses
How has households been doing?
Household savings rate (% of GDP)
Household saving (% of disposable income)
Reasons for poor household savings
• Savings = f (income, propensity to save)
• Low disposable income growth
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Low economic/ employment growth
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Rising tax burden
Growth in real personal disposable income
Economic growth
Personal income tax (% of disposable income)
Reasons for poor household savings
• Savings = f (income, propensity to save)
• Low disposable income growth
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Low economic/ employment growth
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Rising tax burden
• Low propensity to save
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Lack of confidence in the future
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High inflation: “buy before prices rise”
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Financial deregulation plus asset price inflation
Household debt (% of disposable income)
Reasons for poor household savings
● Savings = f (income, propensity to save)
● Low disposable income growth
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Low economic/ employment growth
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Rising tax burden
● Low propensity to save
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Lack of confidence in the future
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High inflation: “buy before prices rise”
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Financial deregulation plus asset price inflation
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Instant gratification rather than sacrifice: “I want it all and I want it
now”
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Redistribution policies
What to do about household savings
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Faster growth in disposable income
Temper redistribution policies
Reduce income taxes, increase consumption taxes
Create a savings culture
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Discipline
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Sacrifice
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Financial independence
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Taking a long-term view
How has corporates been doing?
Corporate saving (% of GDP)
Reasons for poor corporate savings
● Corporates save to reinvest: balance sheet optimisation
Corporate saving vs. private investment
Reasons for poor corporate savings
• Corporates save to reinvest: balance sheet optimisation
• Require profitable investment opportunities
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Relatively high cost of capital
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Labour market inflexibility
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Relatively high corporate taxes
Corporate tax (% of profit) 2005
1
Ireland
12,5
6
Chile
17,0
17
Brazil
25,0
17
Korea
25,0
27
Malaysia
28,0
31
Mexico
29,0
31
South Africa
29,0
36
Australia
30,0
41
China
33,0 (25,0)
45
India
33,66
Corporate tax (% of GDP) 2005
1
Estonia
1,4
2
Germany
1,8
11
Brazil
2,3
22
China
2,9
25
India
3,2
28
Ireland
3,4
37
South Korea
4,1
43
Australia
5,3
44
Malaysia
5,3
50
South Africa
6,4
Reasons for poor corporate savings
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Corporates save to reinvest: balance sheet optimisation
Require profitable investment opportunities
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Relatively high cost of capital
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Labour market inflexibility
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Relatively high corporate taxes
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Low economic growth
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High existing market shares
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Lack of export opportunities
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Lack of entrepreneurial vision?
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Lack of confidence in the future?
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Short-termerism: share buy-backs, special dividends?
Business confidence vs. private investment
What to do about corporate savings
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Create profitable business opportunities
Reduce cost of doing business
Create positive business environment, e.g. regulation
Encourage competition
Reduce corporate taxes
Provide well designed incentives
Temper BEE policies
Conclusion
To save or to perish: that is the choice!