South Africa’s Savings Crisis: Households and Businesses Grapple with Economic Woes

South Africa's Savings Crisis
  1. South Africa’s national savings rate has dropped significantly, with a decline to 13% of nominal GDP in Q4 2022, reflecting a dissaving trend across households, businesses, and the government.
  2. Increasing reliance on credit has been observed as individuals and businesses struggle to cope with economic challenges, such as rising costs of living and subdued growth.
  3. Addressing the savings crisis requires targeted policy measures, infrastructure improvements, and promoting financial responsibility to ensure long-term financial stability for South Africans.

South African households, businesses, and the government have been hit hard by an alarming decline in national savings rates, which plunged to 13% of nominal GDP in the final quarter of 2022. The decline reflects an ongoing trend of dissaving across various sectors of the economy, with a 2.9% drop from the previous quarter (Q3 2022) and a 2.1% decrease between 2021 and 2022 when examined on a yearly basis.

According to the South African Reserve Bank’s (SARB) latest quarterly bulletin, the annual national saving rate experienced fluctuations throughout 2022, reaching a high of 16.4% in Q1 and dropping to a low of 13.0% in Q4. Ultimately, the rate decreased to 14.6% in 2022, down from 16.5% in 2021. These figures highlight a concerning trend for the nation’s financial stability, further exacerbated by increasing reliance on credit and challenging economic conditions.

Household savings, measured as a ratio to GDP, fell to 2.2% in Q4 2022, down from 2.3% in Q3. The SARB attributes this decline to a rise in seasonally adjusted nominal consumption expenditure, which surpassed the increase in seasonally adjusted disposable incomes. Consequently, the annual saving rate for households dipped from 2.8% in 2021 to 2.4% in 2022.

The demand for credit continued to soar, reaching approximately R38 billion in Q3 2022, with mortgage loans accounting for R22.2 billion. The SARB revealed that throughout 2022, households were acquiring financial assets, including loans, at a rate faster than their net incurrence of financial liabilities. Data from the Eighty20 Credit Stress Report indicates that individuals turned to credit in the final quarter of 2022 to cope with the mounting cost-of-living increases.

Debt Rescue CEO, Neil Roets, warned that consumers are trapped in a debt spiral due to relentless economic pressures. Similarly, businesses in South Africa have struggled to save, with the corporate sector’s percentage of nominal GDP falling from 16.3% in Q3 2022 to 13% in the last three months of the year. The central bank attributes this decline to a subdued seasonally adjusted operating surplus and increased seasonally adjusted tax payments. Over the course of 2022, corporate savings shrank to 14.1% from 15.8% in 2021.

Government dissaving also decreased in Q4 2022, dropping from 2.7% in Q3 to 2.3%. The SARB reported that the dissaving rate of general government dipped from 2.1% in 2021 to 1.9% in 2022.

South Africa’s GDP has faced multiple challenges, with growth expectations consistently being revised downward. SARB Deputy Governor Rashad Cassim warned that the country is currently experiencing its lowest growth episode in modern history, with living standards predicted to decline even further.

The central bank cited load shedding and logistical constraints related to Transnet as key factors in the decrease of economic activity throughout Q4 2022. Real GDP contracted by 1.3% in the fourth quarter after a revised expansion of 1.8% in Q3, as output declined across primary, secondary, and tertiary sectors. Annual growth in real GDP decelerated from 4.9% in 2021 to 2.0% in 2022, with the level of real GDP only 0.3% higher than in 2019 before the COVID-19 pandemic began.

The SARB emphasized that the ongoing challenges in South Africa’s economy have been significantly impacted by the COVID-19 pandemic, load shedding, and logistical issues, which have hampered growth and contributed to a decline in living standards. In response to these challenges, many South Africans have resorted to borrowing and breaking into their piggy banks to make ends meet, further exacerbating the downward trend in national savings rates.

To address the current economic situation, the South African government and financial institutions must focus on implementing policy measures to promote savings and reduce the reliance on credit. These measures may include financial literacy campaigns, incentivizing savings through tax benefits, and promoting responsible borrowing practices among consumers and businesses.

Furthermore, it is essential for the government to invest in infrastructure improvements to address the ongoing challenges with load shedding and logistics, as well as support industries that drive economic growth and job creation. By fostering a more stable and growth-oriented environment, South Africa can work towards reversing the current trend of declining savings rates and improve overall financial stability for households, businesses, and the government alike.

In conclusion, South Africa’s plummeting savings rates serve as a warning sign for the nation’s financial health, as households, businesses, and the government struggle to cope with economic challenges. Addressing these issues through targeted policy measures, infrastructure improvements, and promoting financial responsibility will be crucial in reversing the downward trend and ensuring a more secure financial future for South Africans.

Table 1: Savings and Dissaving Rates Across Sectors

SectorSavings as % of Nominal GDPQ3 2022Q4 202220212022
National (Annual)16.514.6
Households (Quarterly)2.32.2
Households (Annual)2.82.4
Corporate (Quarterly)16.313.0
Corporate (Annual)15.814.1
Government (Dissaving)2.72.3
Government (Dissaving Annual)2.11.9
A comparison of savings and dissaving rates as a percentage of nominal GDP for households, corporate, and government sectors in South Africa in Q3 and Q4 2022, as well as annual rates for 2021 and 2022.

Table 2: Real GDP Growth in South Africa

YearReal GDP Growth
Annual real GDP growth rates in South Africa for 2021 and 2022.

Credit Demand in Q3 2022

Credit DemandQ3 2022
TotalR38 billion
Mortgage LoansR22.2 billion
Total demand for credit and mortgage loans in South Africa during Q3 2022.

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