SA needs more savings, investment ‘to reach full potential’

2011-07-20 11:46

South Africa must increase investment and savings if it wants to grow the economy and create jobs, according to a World Bank report released today.

“Modest investment rates in South Africa despite attractive returns, and low savings rates despite favourable demographics are important impediments that need to be resolved to achieve the full potential,” World Bank economists and authors of the report Sandeep Mahajan and Fernando Im told reporters in Joburg.

Raising investment and savings rates would have a positive effect on high unemployment rates which require faster, more inclusive growth.

The The South African Economic Update finds that although South Africa is an attractive place for business, this has not translated into investment and subsequent growth.

Mahajan said two areas hold potential to improve the situation and kickstart South Africa into yearly growth of 6% to 7%.

These were the more effective integration of advanced areas in South Africa with the less developed regions, as well as integrating the country’s advanced and developing economies.

“Savings flow from the townships to Sandton, not the other way and this has gotten worse during financial crisis,” he said.

This trend needed to be reversed. Efforts to do so would include lowering the country’s transport costs, which were “exorbitant” given that a poor person paid between 20 to 30% of their salary on this, he said.

It would also mean improving youth skills and improving access to finance in poorer areas.

South Africa also needed to focus on better integration with the Southern African region.

“The regional bloc you have in place today hasn’t been used enough ... you are operating in a global environment, you need to use all the tools you have.”

This should then be combined with more effective global integration and greater efforts to attract foreign direct investment.

“When we think about moving from low equilibrium, these two directions will hold a lot of promise,” Mahajan said.

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