Investec GIBS savings index: A path to prosperity for South Africa

Abstract

This note is devoted to stories of transformation and change, stories of countries, communities and families that make the journey from ‘poor’ to ‘prosperous’. These are not stories of miracles that peddle in false hope or that are filled with naïve optimism. The cases covered in this note deal with common problems, common ingredients and common sense to explore and examine how ordinary places become extraordinary. These cases are presented at a time when the South African economy is trapped in a low growth state, with deeply entrenched inequalities that retard economic mobility, confine capabilities, scar social welfare and narrow the path to prosperity. For South Africa, these deep-rooted problems are structural in nature, but they are by no means unique. Other countries have faced equal or greater challenges, and their transformation offers South Africa lessons and guides. Getting the country onto a prosperous path demands that we identify the constraints that bind South Africa, square up to the reality and establish the right structural levers to pull for the greatest impact to achieve elevated, inclusive, sustainable and transformative growth. The evidence explored in this note flag a primary constraint – South Africa’s dire savings-investment deficit – and the experiences of other countries point to ways in which this binding constraint can be broken. The South African economy has set up residence in low-growth terrain. Over the past decade, from the financial crisis of 2008 to the end of 2018, the country’s economic growth rate has averaged just 1.5% a year. This is barely ahead of the population growth rate of 1.2% a year, which translates into a decade-long economic stall. Cyril Ramaphosa’s presidency has promised to release the country from this low growth trap. However, for this policy proposal to translate into reality, South Africa must square up to its structural constraints. On this score, the evidence from the so-called ‘miracle economies’ lays bare a fundamental weakness in the country’s economic architecture: a pervasive gap between the available level of savings to fund the level of investment needed to achieve elevated economic growth, fund new firms and infrastructure, drive competitiveness, create jobs and transform the social and industrial landscapes. If the Ramaphosa administration’s ambition is to step up to the plate to deliver on the proposal of 5.4% economic growth a year, as set out in South Africa’s National Development Plan (NDP), there is an abundance of evidence and ideas from countries that have achieved elevated and inclusive growth on what is needed to close the savings-investment gap. The burgeoning field of behavioural economics adds to this endeavour by presenting the science of how this gap is closed by engaging households, firms, families and individuals.