SA encouraged to save and invest more

The comments were contained in an economic report on South Africa and forecasts that the economy will grow by 3,5% this year and 4,1% next year. It says that risk perceptions and structural barriers to investment contributed to a low rate of private investment in this country.

The World Bank report...

As South Africa's economic recovery strengthens, policy focus shifts back to faster inclusive growth

South Africa's strengthening recovery, with growth projected at 3.5 percent in 2011, is placing the spotlight back on the critical long-term challenge of tackling high unemployment rates, which, in turn, requires faster, more inclusive growth. Raising the investment and savings rates is crucial to achieving these important national objectives, says a new World Bank report released yesterday, 20 July 2011.

"The World Bank is pleased to launch a new, biannual series of economic reports - the South Africa Economic Update" said Ruth Kagia, World Bank country director for South Africa. "This genre of economic reports constitutes an important aspect of the World Bank's analytical program in a number of large middle-income countries. We offer this first issue with a view to contributing to the national debate on a consequential topic and help shape informed policy decisions for sustainable economic recovery in South Africa."

The report finds that a sub-optimal economic equilibrium triggered by low rates of savings and investment, low employment- intensity production, and slow productivity growth is making difficult the achievement of inclusive growth. It argues that a stimulus to any of these elements can unleash a virtuous cycle marked by faster capital accumulation, job creation, and technological advancement.

"Our results show South Africa as being an attractive place for business, which has not translated into investment and growth commensurately," said Sandeep Mahajan and Fernando Im, World Bank economists and co-authors of the report. "Modest investment rates in South Africa despite attractive returns and low savings rates despite favorable demographics are important impediments that need to be resolved to achieve the full potential."

Bold thinking needed

The report calls for bold and creative thinking to secure broad-based growth and cautions that quick fixes will not produce the dramatic results required. It urges better integration of South Africa's advanced and less-developed economy that is characterized by spatially-separated townships and informal settlements, home to the bulk of unemployed people. It calls for a big push on public transport and programs to enhance the technical skills of youth and it calls for improving the access to finance of small enterprises and rural and township residents.

The report also calls for "smarter regional integration" that capitalizes on South Africa's comparative advantages, particularly its two surplus endowments in natural resources and a large pool of unemployed labor. The report argues that dynamic and nimble "regional production supply chains are needed, backed by a greater push to attract foreign direct investment.

In Pretoria: Sarwat Hussain (gro.knabdlrow@niassuhs, +27 12 742 3124)
Mmenyane Seoposengwe (gro.knabdlrow@ewgnesopoesm, tel: 073 888 4598)
In Washington: Francois Gouahinga, (202) 473-0696, gro.knabdlrow@agnihauogf

Old Mutual reports

The World Bank report comes at a time when Old Mutual says that savings rates across all income groups have declined primarily because people are trying to pay off their debts and cut living costs.

Read Decline in savings across all groups