Trends and Trends and challenges challenges

associated with associated with household savinghousehold saving

Johan van den Heever

Asisa Assembly 2014

Cape Town

25 June 2014

Capital formation must be stepped up considerably if the NDP growth trajectory is to be achieved

14

16

18

20

22

24

26

28

30

70 75 80 85 90 95 00 05 10 15 20 25 30

Fixed capital formationPercentage of GDP

Low domestic saving has in the past decade been augmented by foreign saving

12

16

20

24

28

32

36

70 75 80 85 90 95 00 05 10 15 20 25 30

Investment and saving

Percentage of GDP

Fixed capital formation

Gross domestic saving

Foreign saving inflow

However, reliance on foreign saving feeds into the foreign debt ratio and cost of servicing the country’s foreign liabilities

60

70

80

90

100

110

120

130

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

South Africa: Total foreign debtPercentage of annual export earnings

Raising domestic saving: Constraints on all three sectors

-10

-5

0

5

10

15

20

70 75 80 85 90 95 00 05 10 15 20 25 30

Gross domestic saving by sectorPercentage of GDP

Companies

Households

Government

Household saving has trended lower until the financial crisis, with a slight recovery thereafter

0

2

4

6

8

10

12

70 75 80 85 90 95 00 05 10 15 20 25 30

Households: Gross savingPercentage of GDP

Bank credit ceilings lifted

While the household debt ratio has inched lower to 74,5% of a year’s income, interest on debt has edged higher to 7,9%

of income

Despite low saving from current income, household real wealth has risen considerably over the past 15 years

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1975 1980 1985 1990 1995 2000 2005 2010 2015

Household sector real wealthR billion, 2005 prices

Revaluation effects have been key

The gross amount of cash flowing to insurers and retirement funds remains significant

0

4

8

12

16

20

90 92 94 96 98 00 02 04 06 08 10 12 14

Gross premiums and contributions receivedby insurers and retirement funds

Percentage of GDP

The gross amount of cash flowing to insurers and retirement funds remains significant…but how to nurture it further?

0

4

8

12

16

20

90 92 94 96 98 00 02 04 06 08 10 12 14

Gross premiums and contributions receivedby insurers and retirement funds

Percentage of GDP

Reducing unemployment is a key element in strengthening household saving…

…probably even more so if it can be concentrated in permanent contract appointments inclusive of retirement

fund membership

Source: Statistics South Africa, Quarterly Labour Force Survey , and SARB staff calculations

Unfortunately formal sector employment has been sluggish

There are limits to what government can do

Public sector employment has to be funded and cannot rise indefinitely without rising private sector employment and a growing tax base

Support from government also faces budget constraints 2013/14 social grant beneficiary numbers, from Budget

Review 2014: Child support 11,1 million Old age 2,9 million Disability 1,1 million Other 0,7 million Total 15,8 million

2013/14 social grant cost: R118 billion, 3,4% of GDP

Co-contribution, safety net schemes all subject to limited resources

Existing strengths and positives to build on

The firm gross savings among those with jobs and income streams Underpinned by solid institutions and sound principles

Improved reach of financial inclusion via technology SASSA card initiative making a big difference 75% of adults are banked Cellular telephone penetration is high - a platform for further

inclusion

Market signals and equilibrating mechanisms that are in place If capital formation rises, various mechanisms kick in,

including Interest rates and yields The exchange rate

Allow these to operate and not be stunted by macroeconomic instability or overregulation

Conclusion

There is a strong need to raise household saving in order to fund higher investment and economic growth

Easier said than done: earlier trend has been for household saving to decline Yet “macro” statement “SA households don’t save” is wrong

Strategy to structurally raise saving should emphasise: Raising formal-sector employment and generating inclusive

growth Optimised saving/retirement provision/social security

dispensation Stronger preservation rules and incentives Easy and affordable access to basic saving products

Confidence and investment are key to growth, employment

Macroeconomic and financial stability are cornerstones

Thank you Thank you