Issue: December 2006/ January 2007
The culture we lack
South Africa is getting into an embrace with China, which practises the three most important things we don’t. They’re savings, savings and savings. When our Labour Minister wants local trade unionists to share the “brilliant experience” of his visit there, the differentiator of savings is the point he’s missed.
China this, China that. We hear until we’re blue in the face about China. It’s inescapable. Never before has a developing economy had such a profound effect on the global economy. South Africa included, naturally. On a narrow example, the flood of product from Chinese sweatshops has decimated the local textile manufacturing industry. On a broader front, the Reserve Bank recently increased interest rates – and will surely do so again over coming months – partly to dampen the national spending splurge fuelled by consumption of cheap imports, Chinese semi-durables such as clothing and footwear prominent among them.
Paradoxically, interest-rate rises serve to keep the rand relatively strong and hence to keep these imports relatively cheap. Thus the upward movement in interest rates would curb household and corporate borrowings, as they become more expensive, but need not necessarily have the corollary of promoting savings. For people to spend less does not axiomatically imply they will be able, or will want, to save more.
Here’s the rub. When we look at China as a threat to local jobs, we look at puny defences such as import quotas. And we’re inclined to overlook totally a factor that makes China so awesome a competitor in world markets. It’s that the Chinese have a deeply ingrained savings culture. South Africa, put bluntly, has nothing of the sort (see graph).
During the six years to 2005, it’s been calculated, China’s gross savings rate rose from 38 percent to almost 50 percent of gross domestic product (gdp). Its household savings increased from 12,9 percent to 16,8 percent of gdp, representing 32 percent of household disposable income.
By contrast, according to the Reserve Bank, in the second quarter of this year South Africa’s ratio of gross saving to gdp was under 14 percent. Gross saving by the corporate sector increased modestly to 11,75 percent. Most worrying was that household saving had fallen to a paltry 1,5 percent of gdp, while at the same time an average 70 percent of households’ disposable income was needed to service their debts. And because this was on the lower interest rates then prevailing, it doesn’t take much imagination to predict the likely impact of escalating rates.
China severely restricts direct foreign investment to 49 percent of company ownership. South Africa busts a gut to entice as much as it can get. Our low level of gross domestic saving, says the Bank, “implies that almost 31 percent of South Africa’s capital formation was financed by foreign capital”.
Returning from a recent visit to China, Labour Minister Membathisi Mdladlana hoped that South Africa’s trade unionists also went there “to see for themselves the brilliant experience that country has had in achieving its integration on its own terms into the global economy”.
He didn’t identify those aspects of the “brilliant experience” that so impressed him, and implicitly for South Africa’s unionists to admire. Not only are smart buildings being constructed and skilled jobs created at an astonishing rate, but it’s reckoned that by 2010 China will graduate more PhDs in science and engineering than the United States. Crime rates are low (there’s a death penalty) and respect for workers’ rights even lower (China is Mugabe’s big chum). A bedrock of the “brilliant experience”, which Mdlanladla omitted to mention or perhaps to notice, is the Chinese propensity to save.
What does any of this have to do with retirement funds? Plenty, because they are the bedrock of South Africa’s savings industry. Domestic savings are the engine of domestic investment, and domestic investment is the engine of job creation. Growth that relies on debt, the consumption of imports and the vagaries of foreign capital is artificial and ultimately painful, as we have previously learned to no obviously useful effect.
Because retirement funds represent a huge chunk of the nation’s contractual savings, they have a much greater role in economic life than standing between individuals’ penury and self-sufficiency in old age. Yet simply to achieve this latter basic purpose, they’re wobbly. Not nearly enough South Africans have saved enough for long enough to satisfy even personal needs, let alone national needs.
The Chinese save; we don’t. They create jobs; we don’t. They’re piling on skills; we aren’t. They’re on course for prosperity; we’re at odds on counteracting poverty. Bully for the Minister that he’s bedazzled by the “brilliant experience” he wants unionists to see. But it’s really about savings, stupid.