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South African Savings Institute 31 July 2007 PowerPoint PPT Presentation


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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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How to get sa to save jac laubscher group economist sanlam l.jpg

How to get SA to save

Jac Laubscher

Group Economist: Sanlam

South African Savings Institute 31 July 2007


Long term trends l.jpg

Long-term trends

  • Declining savings ratio


Gross domestic savings of gdp l.jpg

Gross domestic savings (% of GDP)


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Long-term trends

  • Declining savings ratio

  • Rising investment ratio


Saving vs investment of gdp l.jpg

Saving vs. investment (% of GDP)


Long term trends6 l.jpg

Long-term trends

  • Declining savings ratio

  • Rising investment ratio

  • Increasing dependence on foreign savings

  • Deteriorating sovereign balance sheet

  • Not sustainable in the long run


Economic growth vs investment ratio l.jpg

Economic growth vs. investment ratio


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Economic growth vs. savings rate


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Who are the savers?

  • Corporates

  • Households

  • Government


Savings rates of gdp l.jpg

Savings rates (% of GDP)


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How has government been doing?


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Government dissaving has been eliminated


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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


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What to do about government savings

  • Contain current expenditure: wage bill, transfer payments

  • Increase capital expenditure: address capacity

  • Continue with budget surpluses


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How has households been doing?


Household savings rate of gdp l.jpg

Household savings rate (% of GDP)


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Household saving (% of disposable income)


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Reasons for poor household savings

  • Savings = f (income, propensity to save)

  • Low disposable income growth

    • Low economic/ employment growth

    • Rising tax burden


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Growth in real personal disposable income


Economic growth l.jpg

Economic growth


Personal income tax of disposable income l.jpg

Personal income tax (% of disposable income)


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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


Household debt of disposable income l.jpg

Household debt (% of disposable income)


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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


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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


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How has corporates been doing?


Corporate saving of gdp l.jpg

Corporate saving (% of GDP)


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Reasons for poor corporate savings

  • Corporates save to reinvest: balance sheet optimisation


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Corporate saving vs. private investment


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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


Corporate tax of profit 2005 l.jpg

Corporate tax (% of profit) 2005


Corporate tax of gdp 2005 l.jpg

Corporate tax (% of GDP) 2005


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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?


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Business confidence vs. private investment


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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


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Conclusion

To save or to perish: that is the choice!


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