Trends and challenges associated with household saving

1. Trends and challenges associated with household saving Johan van den Heever Asisa Assembly 2014 Cape Town 25 June 2014

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

3. Low domestic saving has in the past decade been augmented by foreign saving Foreign saving inflow

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

5. Raising domestic saving: Constraints on all three sectors

6. Household saving has trended lower until the financial crisis, with a slight recovery thereafter Bank credit ceilings lifted

7. 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

8. Despite low saving from current income, household real wealth has risen considerably over the past 15 years Revaluation effects have been key

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

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

11. Reducing unemployment is a key element in strengthening household saving…

12. …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

13. Unfortunately formal sector employment has been sluggish

14. 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

15. 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

16. 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

17. Thank you