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..
Improve Your Cash Flow: Manage Your VAT
Viresh Harduth, Vice President: New Customer Acquisition (Small & Medium Businesses) for Sage Africa & Middle East on the increase in VAT in South Africa and how it affects your business.
If you went shopping on 1 April, you likely encountered aisles and aisles of products with no price tags as retailers updated their shelf pricing to reflect the new VAT rate. As a consumer, this was probably a slight inconvenience because you didn’t know how much something cost until you had to pay.
Yet, as a small business owner, the VAT increase was more than a slight inconvenience. Not only did you have to update your systems and train your teams but you likely had to spend money printing new price tags and ensuring you were compliant – this was, after all, the biggest tax change in 25 years.
The VAT increase will also impact your cash flow because you will need to pay more money to SARS. But now that the dust has settled, Small & Medium Businesses have an opportunity to review their operations and uncover ways to improve their cash flow and offset the higher VAT payments.
Here are five ideas to free up cash that are easy to implement and don’t require major changes to your business:
- Negotiate extended payment terms with suppliers. When you receive an invoice, you generally have 30 days to pay. Try to negotiate longer payment terms with your suppliers – like 60 days – so that you have cash in the bank for longer.
- Enforce your own payment terms for customers. The time between issuing invoices and waiting to get paid is a danger zone for small businesses, especially when you need to pay VAT to SARS. Reduce your payment terms for customers from one month to 14 days, for example, and stick to it. Send regular reminders on overdue accounts and follow up on the phone.
- Incentivise customers to pay earlier. Offer various payment methods that make it easier for customers to settle their accounts sooner. Issue invoices promptly and offer discounts for early – and full – payment. This will also increase loyalty.
- Reduce stock on hand. If you have surplus stock, it means you haven’t aligned your stock with your sales, which ties up available cash. Stock management is as important as financial management. Knowing what’s in your stock room – and bank account – at all times, is crucial to maximise cash flow.
- Work with an accountant. While cloud-based accounting solutions like Sage can help you keep track of your cash flow and stay compliant, an accountant can identify areas to save money and cut costs, freeing up working and investment capital.
When you improve your cash flow, you reduce the need to rely on bank overdrafts and loans. The key to the success of any business is to free up as much cash as possible. And, with the VAT increase, you need more cash than you did yesterday.
*Remember, you have until 31 May to reflect the VAT increase in your product and service prices. Until then, you can apply the additional 1% at the till point, as long as you put up signs informing customers that you will be doing this.
R350 000 Worth Prizes To Help Boost Entrepreneurs’ Businesses
Find out more here.
Even more prizes to help entrepreneurs grow their businesses have boosted the entrepreneur competition being run by The Workspace and MiWay. These include communications strategy, responsive design website, a share portfolio worth R10 000 and estate planning.
The competition, launched in March to celebrate the collaboration between co-working and serviced office solutions company, The Workspace, and MiWay business insurance, is open to entrepreneurs based in South Africa, who have valid identification documents, who run a business with four or less employees and are making an impact in their industry.
The Workspace and MiWay have joined forces to launch an entrepreneurial hub and business development programme at the newly developed Village Road premises in Selby in Johannesburg’s central business district. MiWay’s presence at Village Road will afford The Workspace members the convenience of having business insurance and a host of other requirements fulfilled at their place of work whenever it suits them.
Entrepreneurship key to SA’s future
Mari Schourie, chief executive officer of The Workspace, says President Cyril Ramaphosa’s recent SONA reflected on how important small businesses and entrepreneurship is to South Africa’s future.
“I was thrilled that President Ramaphosa recognised how vitally important it is for everyone – business, government and citizens – to support entrepreneurs and small businesses. It is something that as a company, we’ve made a core part of our business. Being in the co-working and serviced office industry, we work with entrepreneurs and small businesses every day. They are the backbone of our business,” she said.
Schourie emphasised how the company had developed in-house programmes to support them. “When we can utilise their services ourselves, we do. We run workshops and knowledge hubs to encourage ongoing skills development and the joy of learning. We’ve even put some of our entrepreneurs at the centre of our marketing campaigns; we live and breathe the business lives of our entrepreneur members. And we learn from them too.”
Schourie said recognising entrepreneurs and small businesses sometimes means changing our thinking and looking a little bit further than our immediate surroundings. For this reason she believes the entrepreneur competition is so important to help give businesses a leg up.
Related: Register A Company In South Africa
The prizes – worth R350 000
The winning business will not only receive 12 months free office space for up to four people, free Wi-Fi, free phone rental, free business insurance and business advice, as well as all risk equipment insurance, free tea and coffee, free usage of meeting and board rooms, free security and 24-hour access, free parking and a new laptop, but even more valuable business prizes have been added too.
These include a brand new responsive design website and content management system, logo and corporate identity design, SEO and social media set up as well as training in how to keep digital collateral up to date worth R24 500.00 from Webartist.
Opulentus Wealth are offering the winner a bespoke share portfolio for the business worth R10 000, business life stage Risk Assessment, Estate plan for the Directors and shareholders valued at R15 000 per plan, Advice on managing and improving cash flow with the business (R10 000) and Tax advice for the business (R5000) Oxigen Communications will build the company a compelling brand communication strategy as well as offer two strategic sessions worth over R50 000.
“The entrepreneur competition is a call to action to those vibrant entrepreneurs out there. Start-ups always need a bit of a hand and the winner of this competition will have a serious advantage once the it has gone through its paces,” said Morné Stoltz, Head of Business Insurance at MiWay.
“We are looking for an entrepreneur who has created or is busy creating a special environment where employees can flourish, and in the process, potentially create more jobs. Stoltz adds, “An entrepreneur who makes an impression on the judges due to aspects such as the business’ social impact, attitude, positive entrepreneurial outlook and a good business mind will definitely stand a good chance of walking away with the prize.”.
The prize on offer – worth over R350 000 – will help set-up the winning entrepreneur for a period of 12 months, giving them a boost to help build their business.
Closing date: 15 May 2018
For details, click here.
For queries, please email email@example.com
Entries can be uploaded to the website, or delivered to One Chadwick Avenue, Wynberg, Sandton
Why Is It Important To Grow Manufacturing?
Manufacturing Indaba will take place at the Sandton Convention Centre in Johannesburg on the 19th and 20th of June, 2018 and will be facilitated with the collaborative backing and strategic partnership of the Department of Trade and Industry (the dti) and the Manufacturing Circle, a corporate association of manufacturers.
One of the aspects of the conference will be to focus on South Africa’s manufacturing as a fundamental driver of GDP growth and associated with direct employment, as many services sectors are likely to increase their employment capacity on the basis of an increased GDP.
Newly elected President Cyril Ramaphosa delivered his maiden State of the Nation Address (SONA 2018) and alluded to addressing the decline over many years of South Africa’s manufacturing capacity, which has deeply affected employment and exports. As a result, poverty levels have risen, economic growth has weakened, with the President stating that it has become imperative to re-industrialise on a scale and at a pace that draws millions of job seekers into the economy. Unemployment levels have risen due to looming investment downgrades; hence he emphasised the need for a focus on local manufacturing and production.
Nicholas Kaldor (Zalk, 2014) developed a set of hypotheses to explain the central role of manufacturing in the process of economic development. He contended that manufacturing reveals a unique characteristic: The capacity to generate ‘dynamic increasing returns’, displaying a positive correlation with GDP growth while other primary and tertiary sectors generally do not. That is, indicating that the faster the rate of growth of output in manufacturing, the faster the rate of growth of both manufacturing and economy-wide productivity (Thirlwall, 1983, as cited in Zalk, 2014). Thus, clarifying that manufacturing is the core driver of GDP growth and employment while other sectors, particularly many services sectors are only likely to grow on the basis of the growing demand derived and resulting from an increasing GDP. Therefore, growth and employment in most services sectors follow rather than lead growth in GDP (Zalk, 2014).
In accordance with the vital importance of this sector’s encouraged growth, the President undertook to promote greater investment in key manufacturing sectors through the strategic use of incentives and other measures. Accordingly, and further stimulating manufacturing by forging ahead with the localisation programme, through which products like textile, clothing, furniture, rail rolling stock and water meters will be designated for local procurement. Ramaphosa also reiterated that the country had spent more than R57 billion on locally-produced goods that otherwise might have been imported from other countries.
The Industrial Policy Action Plan (IPAP) 2017/18 – 2019/20 report as part of the National Development Plan (NDP) 2030 outlines sector specific goals and a vision for South Africa to be achieved by the year 2030 and referred to inherent structural challenges within the economy that remain difficult to overcome. These challenges include weak growth and domestic demand reflecting and contributing to persistent unemployment, resulting in unsustainable race and gender-based inequality and rural marginalisation. Value-add in manufacturing lagged behind the economy as a whole from 2008, and investment in manufacturing has declined since the global credit crisis. The IPAP report also indicated that investment as a share of GDP is also below the 25% level required for sustained economic expansion.
In light of this aspect, Ramaphosa at SONA referred to the special economic zones that will remain important instruments that SA will use to attract strategic foreign and domestic direct investment and build targeted industrial capabilities in order to establish new industrial hubs. He also emphasised that the process of industrialisation must be underpinned by transformation, and that through measures like preferential procurement and the black industrialists programme, a new generation of black and women producers will be able to build enterprises of significant scale and capability.
The objective industrial financing and incentive support has played a key role in supporting private sector investment and black economic empowerment in critical industrial areas. Another example and a high point of 2016/7 has been the Automotive Investment Scheme with R8.7bn on investment leveraged through 2 new projects with an estimated investment value of R548.9m, projected to create 1 140 jobs. Included in this buoyant mix is the Manufacturing Competitiveness Enhancement Programme (MCEP) which has reopened a R1bn loan component with 270 projects supported, and R8.24m disbursed thereby supporting R3.38b of investments & 62 2353 jobs.
Bearing these examples in mind, and Ramaphosa’s affirmation at SONA that, “…at the centre of our national agenda in 2018 is the creation of jobs, especially for the youth”, Philippa Rodseth, executive director, Manufacturing Circle (2016, in The importance of Manufacturing for SA’s economic growth), stated that in order to promote a resilient, sustainable manufacturing environment, three goals were identified in order to secure the long-term sustainability of South Africa’s manufacturing industry.
Hence, these following aspects will ultimately contribute to the economic growth of the country-: the achievement of a competitive manufacturing environment, the attainment of a supportive international trade position and the advancement of the reputation of SA manufactured goods.
These issues and other pertinent topics relating to Manufacturing in South Africa and the continent will be considered, evaluated and debated at the upcoming prestigious Manufacturing Indaba conference in June, in this year of “hope and renewal.”
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