Only yesterday did I publish this article stating my scepticism on South Africa; one of my arguments is the complete lack of private saving rate in South Africa; something where the government cannot easily act upon. Still South Africans believe they can spend themselves out of trouble and the economic prospects that finance minister Manuel Trevor announced last week are called "heroic" (an ephemism for 'naive').
And just today did I discover this new report which the IMF just published on South Africa, titled: "Why Isn’t South Africa Growing Faster? A Comparative Approach", 25 pages long and a must-read.
Bear with me for the conclusions:
Over the last decade the main constraints on growth in South Africa have been the low investment rate, insufficient labor productivity gains, lower openness to trade, and slower technical progress relative to faster-growing countries. Underinvestment, a common factor in the three growth decompositions, has significantly slowed growth since 1996. Despite a pickup in recent years, the investment rate is low compared to faster-growing countries. Boosting investment is therefore critical for accelerating growth.
Low saving has been constraining the expansion of investment, but the scope to increase private saving seems limited by structural considerations. The low level of private saving in South Africa mainly results from structural factors like shifts in demographics, urbanization, and financial sector deepening that are not easily affected by public policies. The two factors that most explain the difference in the private saving rate between South Africa and the panel of comparators (apart from the persistence term) are both demographic: the young dependency ratio and the urbanization rate.
Despite the importance of structural factors, some macroeconomic variables do impact private saving, but their effect may be detrimental to national saving (for example, decreasing public saving26) or may have macroeconomic costs (for example, increasing inflation).
The best way to increase national saving in South Africa therefore seems to be to continue raising public saving, preferably by containing the growth of public consumption. An increase in public saving would have a positive effect on national saving even if it were partially offset by the private sector. An increase in the tax take (whether through higher tax rates or a broader base) is likely to be less effective in boosting national saving than a slowdown in public consumption, because the offset by the private sector is likely to be higher.
