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South African Savings Institute 31 July 2007

How to get SA to save Jac Laubscher Group Economist: Sanlam. South African Savings Institute 31 July 2007. 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).

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South African Savings Institute 31 July 2007

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  1. How to get SA to save Jac Laubscher Group Economist: Sanlam South African Savings Institute 31 July 2007

  2. Long-term trends • Declining savings ratio

  3. Gross domestic savings (% of GDP)

  4. Long-term trends • Declining savings ratio • Rising investment ratio

  5. Saving vs. investment (% of GDP)

  6. Long-term trends • Declining savings ratio • Rising investment ratio • Increasing dependence on foreign savings • Deteriorating sovereign balance sheet • Not sustainable in the long run

  7. Economic growth vs. investment ratio

  8. Economic growth vs. savings rate

  9. Who are the savers? • Corporates • Households • Government

  10. Savings rates (% of GDP)

  11. How has government been doing?

  12. Government dissaving has been eliminated

  13. Reasons for poor government savings • Government savings = Current income minus current expenditure • Current expenditure too high • Military expenditure • Salaries and wages • Social grants • Capital expenditure too low • Lack of long-term vision • Priority of consolidation • Capacity constraints

  14. What to do about government savings • Contain current expenditure: wage bill, transfer payments • Increase capital expenditure: address capacity • Continue with budget surpluses

  15. How has households been doing?

  16. Household savings rate (% of GDP)

  17. Household saving (% of disposable income)

  18. Reasons for poor household savings • Savings = f (income, propensity to save) • Low disposable income growth • Low economic/ employment growth • Rising tax burden

  19. Growth in real personal disposable income

  20. Economic growth

  21. Personal income tax (% of disposable income)

  22. Reasons for poor household savings • Savings = f (income, propensity to save) • Low disposable income growth • Low economic/ employment growth • Rising tax burden • Low propensity to save • Lack of confidence in the future • High inflation: “buy before prices rise” • Financial deregulation plus asset price inflation

  23. Household debt (% of disposable income)

  24. Reasons for poor household savings • Savings = f (income, propensity to save) • Low disposable income growth • Low economic/ employment growth • Rising tax burden • Low propensity to save • Lack of confidence in the future • High inflation: “buy before prices rise” • Financial deregulation plus asset price inflation • Instant gratification rather than sacrifice: “I want it all and I want it now” • Redistribution policies

  25. What to do about household savings • Faster growth in disposable income • Temper redistribution policies • Reduce income taxes, increase consumption taxes • Create a savings culture • Discipline • Sacrifice • Financial independence • Taking a long-term view

  26. How has corporates been doing?

  27. Corporate saving (% of GDP)

  28. Reasons for poor corporate savings • Corporates save to reinvest: balance sheet optimisation

  29. Corporate saving vs. private investment

  30. Reasons for poor corporate savings • Corporates save to reinvest: balance sheet optimisation • Require profitable investment opportunities • Relatively high cost of capital • Labour market inflexibility • Relatively high corporate taxes

  31. Corporate tax (% of profit) 2005

  32. Corporate tax (% of GDP) 2005

  33. Reasons for poor corporate savings • Corporates save to reinvest: balance sheet optimisation • Require profitable investment opportunities • Relatively high cost of capital • Labour market inflexibility • Relatively high corporate taxes • Low economic growth • High existing market shares • Lack of export opportunities • Lack of entrepreneurial vision? • Lack of confidence in the future? • Short-termerism: share buy-backs, special dividends?

  34. Business confidence vs. private investment

  35. What to do about corporate savings • 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

  36. Conclusion To save or to perish: that is the choice!

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