It is no secret that South Africans are not great savers – it is also no secret that our spend-thrift ways have been a matter of debate for years. Solutions have been posed and economic models have been suggested to change the national outlook, all to no avail.
Six years ago, Dr Monde Mnyande, then advisor to the Governor and Chief Economist at the Reserve Bank, pointed out that the evolution of South African savings – instead of displaying a positive curve – was doing just the opposite when savings were expressed as a percentage of GDP.
He showed that between 1960 and 1999, gross savings in the South African economy averaged around 22%. However, the aggregate saving rate between 1985 to 1999 fell to around 18% from about 23% in the period from 1960 to 1972, and 25% in the period from 1973 to 1978. During the 1990s, the national savings performance deteriorated to about 16%. Dr Mnyande said the steady decline in savings during the 1980s and 1990s resulted from slow economic growth, rising tax and interest rate burdens. South Africans, rather than continuing to save, concentrated on maintaining their lifestyles.
During apartheid, this encouraged South African migrant workers to form stokvels, collaborative ‘safety nets’ to survive financially outside of their social settings back home, with some schemes attracting up to 50 members. But in the late 1980s, the apartheid government began to recognise the power of these collective savings schemes within black communities and tried to ban them. This became a huge barrier, because the savings were used to assist stokvel members to pay for necessities, such as burials and groceries.
In support of these collaborative savings groups, the National Stokvel Association of South Africa (NASASA) was formed in a bid to secure legal representation and protect stokvels. As a result, NASASA is today a self-regulatory body, approved by the registrar of Banks under the Banks Act of 1990.
This year, the South African Savings Institute (SASI) celebrates its 15th anniversary and looks back on the evolution of the nation’s savings during this period. Tracing back the country’s history, we can see that the household saving rate increased to -0.80% in the first quarter of 2016 from -2.40% in the fourth quarter of 2015. Personal savings in South Africa averaged 4.98% from 1960 until 2016, reaching an all-time high of 23.80% in the second quarter of 1972 and a record low of -2.70% in the fourth quarter of 2013.
Standard Bank research indicates that only 5.5% South African households potentially have the ability to save, as they have positive net-income balances. The higher-end households can potentially save 19% of their after-tax income, while affluent households have a savings potential of 65%.
The bottom line, however, is that arresting deterioration in our savings rate requires an ‘about turn’ in our behaviour. A culture of savings means examining priorities and deciding which personal expenses are acceptable and which should be avoided. Essentially, as has been pointed out by more than one expert, people can spend and then decide what portion can be saved, or they can save first and then decide what portion of what remains can be spent.
Perhaps, as a nation, we can reverse our ‘devolution’ of savings by re-examining our most successful saving mechanism and adopting some of the behaviours that make it so: Stokvels epitomise ‘the peak’ in inculcating savings habits by changing consumer behaviour.
In stokvels, the emphasis every month is on getting your contribution in by the due date. The penalties are subtle; other members are from the community and know you well. As regular meetings are held to discuss savings and the objectives of the society, the fact that you have not contributed is known by friends and neighbours. Worst of all, by not meeting obligations, you are placing the group in danger of not meeting their objectives. It is peer pressure at its best.
Related: A Savings Culture is Not Enough
Add to the mix the fact that stokvels have defined objectives for saving and you have the perfect recipe for a new attitude to savings that most South Africans could embrace. The irony, of course, is that stokvels are generally schemes that have been the preserve of lower-income groups, yet they have succeeded in mobilising billions of rands in national savings. Recent reports put their value in South Africa at and estimated R49 billion annually.
We have now reached the point where the power of stokvels combined with the need to attract more people into mainstream banking has seen them become organised: To have bank accounts, stokvels must have constitutions and office bearers. Like any business, no payments can be made without authorisation by nominated signatories.
As banks, we are already seeing savvy young professionals take on the lessons provided by their elders. There is an increase in the number of savings schemes that rely on the stokvel principles of pooling and distributing funds. However, their ambitions are loftier and the contributions significantly higher. Middleclass South Africans are saving together to invest in equities and unit trusts, or to use joint resources to acquire lifestyle purchases. The trick is finding ways to expand these changes in habits so that saving by groups becomes attractive to the majority of South Africans.
Apart from stokvels, South Africans should consider various savings and investment accounts that can help them plan for their future better – be it for retirement, that special holiday, or to cover unplanned expenses. The question each consumer should pose is, which savings account is right for me? Standard Bank’s PureSave account is, for example, an easy way to start saving and gain instant access to your money when you need it. With the MarketLink account, you gain the flexibility of being able to access your cash, in addition to competitive interest rates. Should you have a lump sum of money, consider the Tax-Free Call Account, where you can invest up to R30 000 a year and a maximum of R500 000 in your lifetime – and get tax free returns on your contributions.
Maybe the key to our national savings evolution rests on going back to our roots, and saving as a collective toward a common goal..
Top Sectors For SMEs In 2019
“As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
While the South African economy has been underperforming for a number of years, the first positive signs of turnaround started to become visible by the second quarter of 2018, and by the end of the third quarter, data supplied by Statistics South Africa showed that the economy had indeed grown by 2.2 percent, compared to the previous quarter. This uptick is expected to have a positive effect on business confidence in 2019.
This is according to Jeremy Lang, regional general manager at Business Partners Limited (BUSINESS/PARTNERS), who says that certain business sectors have already seen an increase in opportunities for small businesses and start-ups.
“While these sectors will not be without challenges, the following four industries are likely to offer the best opportunities for small and medium enterprise (SME) owners to grow their enterprises in the coming year.”
The World Travel and Tourism report 2018, revealed that the direct contribution of the travel and tourism sector to South Africa’s GDP has been projected to rise from R136bn in 2016 to R197.9bn by 2028 – set to make up a total of 3.3 percent of the country’s total GDP, says Lang.
“Although this sector experienced some setbacks in 2018, such as the drought in the Western Cape and stricter visa regulations for children entering the country, both the water restrictions and visa regulations have been relaxed and the sector is once again poised for growth,” he says.
Statistics South Africa has credited this industry with being the biggest driver of growth in the country’s GDP, having expanded by 7.5 percent in September 2018, says Lang. “To bolster this, Government has made a concerted effort to stimulate small business growth in this area with initiatives such as the Black Industrialist Programme and the SA Automotive Masterplan.”
He adds that businesses in the manufacturing sphere could therefore likely see significant opportunities in the form of outsourcing contracts and new partnerships with large corporates.
“The debate around land expropriation has occupied most of the discussions surrounding the agricultural sector in 2018, with some questioning growth prospects of this sector. However, this industry has a lot of growth ahead of it, as demonstrated by its 6.5 percent growth over the last three months of 2018,” explains Lang.
“Further to this, the industry is also already taking significant advantage of seven climatic regions in South Africa, with the export of a wide variety of high quality fruit and vegetables increasing substantially,” he points out. The recent outbreak of foot and mouth disease that has resulted in the suspension of the country’s FMD-free status will however significantly impact meat exporters.
In terms of opportunities for SMEs, he says that these may most likely be found in the rural and underdeveloped regions, where the need for resources like efficient transport, state-of-the-art cold storage, better irrigation and private power generation will be key to making agriculture projects more productive and competitive in the export market.
Data and information technology
Connectivity and information technology infrastructure are both crucial to business and employment growth in South Africa, says Lang.
“With many municipalities and the Western Cape government committing to providing all of its residents with free data as part of a plan to expand public Wi-Fi network access, it is clear that this is also becoming a high priority on a state level.”
It has also been reported that South Africa is awaiting the arrival of three international data centres, and large players in the communications sphere, including Vodacom, Telkom and Vumatel, are making huge strides in drastically growing the country’s fibre optic backbone, he adds. “As such, SMEs in the construction, communications and electrical fields are all likely to benefit from supply and sub-contracting agreements over the coming years.”
In conclusion, Lang says that as South Africa’s economic growth has started to turn around, business owners should keep their ears to the ground as 2019 is highly likely to be a year of opportunity.
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SME Insurance Checklist For New Year
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers, advises SMEs to consider the following factors when reviewing their policies.
Business owners who are planning for the year ahead should not overlook the importance of reviewing their insurance policies to ensure they are adequately covered against insurable risks.
Malesela Maupa, Head of Product and Insurer Relationships at FNB Insurance Brokers says, every year businesses face unique challenges ranging from credit and market risks, technological disruptions, compliance, operational and regulatory risks, amongst others. As a matter of precaution, insurance policies should at least be reviewed or updated once a year.
He advises SMEs to consider the following factors when reviewing their policies:
- Employee movements – if there are any employees who have left or joined the company, ensure that your policy is updated accordingly.
This type of cover normally depends on the role and contribution of the employee to the business. For instance, directors may be covered for Key Person Insurance and Directors & Officers Liability insurance.
- Protest Actions – this year is the national election year and leading up to elections we can expect to see an increase in the frequency and severity of protest actions, riots and strikes. Thus, it is essential to ensure that adequate special risks cover is in place from the South African Special Risks Insurance Association (SASRIA).
SASRIA provides cover to both individuals and businesses against special risks like civil commotion, public disorder, strikes, riots and terrorism at affordable premiums.
- Cyber risks – it is essential to communicate with your insurer or broker and find out if there are any new risks that your business should be protected against. Cyber incidents continue to be a major risk for businesses especially in the SME sector. Over the last couple of years there has been a major increase in the number of reported cyber incidences.
More businesses are now facing increased cyber threats due to their increased dependency on technology, relating to their internal and customer data being compromised by fraudsters. It is therefore essential to have some form of cyber risk insurance cover and/or enhancement of data security protocols.
- Regulatory changes – every year there are a number of regulatory changes that impact businesses directly or indirectly, which may result in fines and penalties for non-compliance.
- Natural catastrophes – the increase in the frequency and severity of extreme weather conditions, coupled with intensifying natural catastrophes will continue to have a significant impact on businesses.
Businesses should ensure they are adequately protected against these risks to avoid incurring sever financial losses.
- Business changes – should a business consider moving to a new location, purchasing new premises or venture into new business activities, these types of changes could have a major impact on its risks profile. As a result, the policy needs to be updated accordingly.
- New and Enhanced products – An innovative culture has taken over the insurance industry and ever so often we see the introduction of new products or the enhancement of existing products. Get in touch with you broker to advise you on any new products that might add value to your existing insurance portfolio.
“Reviewing your policy regularly gives you peace of mind knowing that you can focus on running your business effectively, without worrying about unforeseen risks,” concludes Maupa.
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