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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. 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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long term trends
Long-term trends
  • Declining savings ratio
long term trends4
Long-term trends
  • Declining savings ratio
  • Rising investment ratio
long term trends6
Long-term trends
  • Declining savings ratio
  • Rising investment ratio
  • Increasing dependence on foreign savings
  • Deteriorating sovereign balance sheet
  • Not sustainable in the long run
who are the savers
Who are the savers?
  • Corporates
  • Households
  • Government
reasons for poor government savings
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
what to do about government savings
What to do about government savings
  • Contain current expenditure: wage bill, transfer payments
  • Increase capital expenditure: address capacity
  • Continue with budget surpluses
reasons for poor household savings
Reasons for poor household savings
  • Savings = f (income, propensity to save)
  • Low disposable income growth
    • Low economic/ employment growth
    • Rising tax burden
reasons for poor household savings22
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
reasons for poor household savings24
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
what to do about household savings
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
reasons for poor corporate savings
Reasons for poor corporate savings
  • Corporates save to reinvest: balance sheet optimisation
reasons for poor corporate savings30
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
reasons for poor corporate savings33
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?
what to do about corporate savings
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
conclusion
Conclusion

To save or to perish: that is the choice!

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