Picture: 123RF/OLEGDUDKO
Picture: 123RF/OLEGDUDKO

SA has little hope of boosting economic growth through its infrastructure investment drive if it cannot raise domestic savings levels, which hover at near record lows and leave SA a laggard by global and emerging market standards, economists say.

As SA faces an economic contraction that could breach 10% by private-sector estimates, and has precarious state finances characterised by soaring deficit and debt levels, the state wants infrastructure investment to form a linchpin of SA’s recovery plans.

The ANC, meanwhile, has advocated changing regulation 28 of the Pension Funds Act to steer SA’s pension fund industry towards infrastructure and capital projects as a solution to the state funding constraints.

But without a stronger domestic savings pool, which by 2019 totalled just 14.6% of GDP, SA’s economic growth prospects will remain stifled and continue to leave businesses and households vulnerable to crises such as Covid-19, according to a report from Stanlib economists Kevin Lings and Ndivhuho Netshitenzhe.

At these levels, SA’s entire domestic savings is equivalent to the main budget deficit outlined by finance minister Tito Mboweni in the recent supplementary budget.

“Effectively what that means is we are deploying all of the domestic savings to fund the government’s deficit … which leaves no additional savings for the private sector to flourish — that is how bad the savings have become,” Lings said in a webinar presenting the report.

This has left SA reliant on foreign inflows to supplement domestic savings, which has been declining over time, with foreign ownership of government bonds falling to about 30% in June, the lowest level in eight years.

“This exposes SA to its limitation of a lack of savings,” Lings said.

After the boost provided by the World Cup in 2010, fixed investment in SA has slowed to 17.4% of GDP.

Achieving a GDP growth rate of 6% and enabling the creation of at least 500,000 jobs a year would require fixed investment levels to reach 25%-30% of GDP, and remain there, according to Stanlib.

Under these circumstances, changing regulation 28 to direct more pension fund savings towards infrastructure does not address SA’s savings constraint, it only redirects how the existing pool of savings is used, said Lings.

SA needs to tackle the shortage of savings, particularly among households whose savings levels now hover at 0% of GDP. Though SA has high levels of contractual savings in the form of tools such as pension funds, it has low levels of “precautionary savings”, which are short term and easily accessible during a crisis.

To increase SA’s savings pool, SA needed higher employment, said Netshitenzhe.

“Getting people into the job market and getting them earning income will lead to a bigger pool of available money to save,” she said.

donnellyl@businesslive.co.za

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