30 July 2019
Let’s take a moment to consider the role that we, as individuals, can play in helping our country to reach these goals through the simple act of saving and investing whatever we can every month. Macroeconomists often refer to the following virtuous cycle in economic development:
Saving funds investment > investment fuels growth > growth enables more savings as people generate more income.
The National Development Plan (NDP) echoes this sentiment, as policymakers view inclusive growth to be paramount in eliminating poverty and reducing inequality.
The fuel for growth through investment can come from a number of sources – including individuals and households, private sector companies, foreign investors and the government. However, for the fifth consecutive quarter, we have seen a decline in the private sector’s willingness to make long-term investments (as measured by gross capital formation). This means that business owners are not reinvesting profits into their businesses to the extent they have in the past. This, together with the current budget deficit, means that South Africa will either continue to become increasingly dependent on foreign investment, or we will have to step up as individuals and households.
The truth is, we have not been doing well. The portion of income that South Africa saves (in other words, the gross domestic saving rate) has been falling steadily to reach an all-time low at the end of last year. The net household saving rate (the amount that households save less the debt they incur) has been virtually zero or negative since the mid-2000s.
In this context, what can you do to play your part in turning this trend around?
There has never been a better time to start saving for your own long-term financial success, while playing your part in supporting local economic growth.