Low savings hamper S. Africa's growth

By M. S. Prabhakara

CAPE TOWN, FEB. 25. Despite its stark economic and social disparities, South Africa is a very rich country. And yet, its rate of domestic savings remains very low perhaps because those with the wherewithal to save do not have any long-term stakes in the country's future. Thus, there are no domestically mobilised funds for investment, and the conviction has grown that the only way growth can be generated is through foreign investment, a chimera which continues to be chased. However, it is acknowledged that the major part of such foreign funds has come in portfolio investment.

This is one of the most notable, indeed constant, features of South Africa's economy. The situation has not been helped by the positive encouragement to profligacy and wasteful expenditure from the highest levels of the Government. The boom in casinos and lotteries and what is formally known as the gambling industry, shows no signs of slackening.

The poor domestic savings are again highlighted in the budget for 2000-01 presented to Parliament by the Finance Minister, Mr. Trevor Manuel recently. The rate of domestic savings, that is, the ratio of gross domestic savings to gross domestic product, has remained around 15 per cent since 1994, when the first democratic Government assumed office. According to the budget, it averaged to about 15.3 per cent of the GDP in the first three quarters of 2000.

The household savings component of this was very much lower. From a ``high'' of 3.6 per cent of the GDP in 1992 it declined to 0.2 per cent in 1999 and showed a slight improvement, which is described in the Budget Review, a document broadly corresponding to the pre-budget Economic Survey in India, as ``higher savings performance'', at 0.4 per cent in the second and third quarters of 2000. In contrast, the rate of domestic savings in India has remained steady at 26 per cent, with household savings at a very healthy 20 per cent - this despite all the incentives to splurging and promoted by industry and advertising.

The budgetary exercise in democratic South Africa continues to be informed by an awareness of this reality and, flowing from this, the conviction that only foreign investment can ensure economic growth. Last year's Budget Review said: ``Relative to GDP, South Africa saves significantly less than most comparable nations and foreign investment is, therefore, crucial to economic growth''.

That growth, which was three per cent in 2000, is expected to average 3.5 per cent annually over the next three years - the time-frame of the medium-term revenue and expenditure framework of the budgetary exercise.

And yet, the Finance Minister, looking sleeker than ever, was nothing if not absolutely upbeat about the performance of the economy as he presented his fifth budget. Five years ago, the appointment Mr. Manuel, a black (though not in his pigmentation) as Finance Minister was accompanied by the all-too- usual expression of ``lack of confidence of the markets'' in his capacity to manage the ``sophisticated economy'' of South Africa. Now, rumours generated by the same market forecast dire consequences to the rand - and profit from the speculation let loose - if Mr. Manuel were to leave.

The budget, as every such exercise, remains a mixed bag; and so has been widely welcomed, with the usual reservations. It provides some tax relief to the lower and middle income earners, makes increased allocations for education, promises an accrual of Rand 18 billions to the exchequer through the proceeds of the privatisation process that is vigorously on - despite protests by the unions.

The revenue from the selling of state assets is to go to meet debt and debt service payments. The budget envisages a modest deficit of 2.5 per cent of the GDP. This is expected to come down to 2.1 per cent in 2003-04, at the end of the present time-frame of the medium-term expenditure framework.

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