South Africa's current economic conditions mean it will only get harder to save for the future – but at the same time, South Africans need to save more than before.
This is according to Old Mutual Investment Group Economic Strategist Rian le Roux, who says the stagnant economy, with rising dependency ratios, means saving for the long term is becoming ever more challenging.
Speaking at the 2018 Old Mutual Savings and Investment Monitor Results Briefing on Wednesday, Le Roux said people often made their worst investment decisions when emotions were running high.
"Look at the money that was taken offshore in December 2001 and January 2016 and the rate that investors sold out of equities in 1998 and 2009, when the chips were down," he said.
According to Le Roux, 'Ramaphoria' rose quickly and faded quickly.
"Business just didn’t share the same surge of optimism as consumers in early 2018 following the election of Cyril Ramaphosa as president of the country," he said.
Against this backdrop, he believes, SA's economic growth remains weak, cementing economic and social problems.
"The economic contraction in Quarter 1 of 2018 was a huge shock and there is no evidence of any material improvement in the second quarter," he argues. "The consensus GDP forecast for 2017 is 1.5%, with the past five-year average growth being 1.3% and a potential growth figure of 1.3% too."
Le Roux believes it will be "extremely hard", in the absence of a higher actual and potential growth pace, to consolidate the fiscal situation, with sustained weak tax revenue growth amid heavy spending pressure.
"This will entrench weak investment and growth in the country, as savings will remain depressed."
'Junk territory, rand slump'
Ultimately, Le Roux believes, these factors will "sustain our already bad unemployment situation, and dependency of people on family and government will rise further".
He added: "Sustained slow growth also poses the risks of losing our last investment grade rating, falling deeper into junk territory, potentially triggering a rand slump.
"SA could, in such an outcome, increasingly fall off global investor radar screens, rather than attracting higher levels of investment needed for faster growth, more jobs, more savings and more investment."
Reviving confidence is crucial to improving the country's longer-term prospects, he argues.
This is "a crucial outcome for a healthier fiscus, more job creation and overall better standards of living for all".
All the factors above will make it harder for South Africans to save, Le Roux believes.
"Saving depends on the ability to save, which, in turn, crucially depends on more jobs being created – it all comes back to reviving confidence and growth.
"Already the ‘Sandwich Generation’ is getting more sandwiched, as demonstrated by children staying dependent on parents for longer and parents often also having to care for their own elderly parents."
Adding to the burden is the fact that government is "delving ever deeper into people's pockets by taking a significant amount more tax", he added.
This could "increase even further unless faster growth, and hence tax revenue growth, eases the pressure on the fiscus".
However, despite the increased saving difficulties, Le Roux says it's more important than ever to save. Investment returns will be lower for the foreseeable future, he says, and life expectancy is increasing – meaning savings for retirement have to go further.
Meanwhile, South Africans also retire too early, he says. "The average retirement age is about 60 in SA compared to the global norm of around 65."
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