An economist at one of SA's leading asset managers has urged the country’s political and economic leaders to pay more attention to obtaining sustainable sources of foreign capital — and what this would mean for domestic political and economic policies — to attract foreign investment.
This as the country continues on a low growth trajectory, with business and consumer confidence at all-time lows.
Stanlib chief economist Kevin Lings said because SA has a savings constraint, which means it has become increasingly reliant on attracting foreign investment to sustain even a modest level of growth, the country’s leadership needs to skilfully navigate the movement of foreign capital in the global financial environment.
“Understandably, this reliance would increase dramatically in the medium term if the country was able to lift economic growth more substantially,” Lings said.
“Fortunately, the world has more of a savings glut than a savings shortfall. However, the movement of foreign capital has its own set of constraints, requirements and egocentricities, some of which are undoubtedly biased and unfair.”
Saving has long been recognised as a major factor in economic development; directly by its diversion of resources into the formation of capital, and indirectly through changes in technology that are implemented when new capital is put to use.
A country’s total level of domestic savings is the aggregate of savings by households, businesses, and government.
When domestic savings are lower than domestic investment a country can borrow from foreign savers to make up the difference, “but clearly this needs to be carefully considered given the risks associated with increased foreign debt including the risk of currency weakness substantially escalating debt-servicing costs,” Lings said.
He said governments in most countries struggle to contribute to saving as they tend to run perpetual budget deficits, which means the responsibility falls on households and the corporate sector.
In SA, the corporate sector does most of the heavy lifting, he said.
While there is no definitive minimum level of savings that a country should achieve, anything below 20% of GDP is considered relatively low, though not necessarily a crisis, while a level below 10% of GDP is extremely concerning and a significant hindrance to new investment and economic growth.
Stanlib data shows only 20 countries have a savings level of 10% or less of GDP, while seven countries have a negative gross national savings rate when measured as an average over the five years from 2018 to 2022.
“In comparison, the global average level of savings was measured at 28% of GDP in 2022, with Norway at 50.1%, China at 46%, Singapore 41.3%, Saudi Arabia 41%, Switzerland 35.4%, South Korea 34.9%, and Indonesia 30.8%,” Lings said.
The savings rate varies between countries due to a range of factors, including differences in the price of capital goods, income levels, growth rates, economic and social policies, confidence, demographics, and culture, he said.
“However, irrespective of the country, the level of national saving represents the resources an economy has available to invest either domestically or internationally,” Lings said.
For SA, the national savings rate was just 15% of GDP in 2022, well below the 34% average for emerging economies. Moreover, the rate has been below 20% since 1990, and fell to a record low of 12.6% in the third quarter of 2019.
“Interestingly, SA has a highly developed and sophisticated savings industry despite having a very low level of domestic savings — which we will discuss at the upcoming Stanlib Investment Conference in September,” Lings said.
While the availability of sufficient domestic savings or access to foreign savings are great for a country’s prospects, the two variables alone do not guarantee robust growth because the savings must also be invested well, he added.
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