Analysis: MAXWELL PHIRI
THE culture of saving in Africa, in general, and Zambia, in particular, is indeed a concern to the growth of our economy.
Studies have shown that a country with a reputable saving culture contributes to the growth domestic product (GDP) of the country. One will argue that there is little to save in Zambia when the income is gobbled mostly by consumption and most workers end up with a monthly deficit.
Well, I will respect that opinion but I wish to direct you to what is called the saving culture which entails that against all odds, one has to come up with a monthly budget no matter how small the income might be and prioritise the expenses, then follow the simple rule of the thumb like the one investor Warren Buffet uses, which stipulates that first save, then spend later other than doing the opposite.
I would like to reiterate that the money being saved is no one’s but your money and you have the right to it on that day when the flow of regular income disappears.
According to the latest financial survey by the Securities and Exchange Commission (SEC), it is amazing to note that in Zambia, only 32.5 percent of citizens have the knowledge about savings.
As a country, we all need financial security in order to create a culture of saving because one of the challenges we have in our economy is that our savings ratios are very low. We are below 20 percent GDP of savings. If we compare ourselves to countries like China, they are at 44 percent and United Arab Emirates 34 percent.
Further, the 2015 Zambia Information, Communication and Technology survey showed that 86 percent of Zambians did not have bank accounts, which implied that the saving culture of the country was quite poor. According to the Harrod Dollar Model of Economics, increasing the GDP saving ratio of a country can help to foster economic growth which Zambia currently needs.
This can be increased once the domestic saving culture of the ordinary people is improved.
In his book, ‘Why Africa fails: The case for growth before democracy’, Elly Kamugisha explains: One financial practice that serves us well as we grow old is the habit of savings.
It is imperative that one saves a little of whatever amount he or she makes from any economic venture that he or she is involved in. Savings is a good practice since one can never foretell what might happen in the future.
Accidents happen which can lead to long periods of hospitalisation and possibly paralysis, people are laid off from their jobs day in and day out, as well as a myriad of unforeseen circumstances that can keep people out of jobs for extended periods.
In such times where an individual does not have a job, having some savings becomes a great benefit and can financially support a person while they are unable to work.
Over the years, workers in Africa have been advised to save a portion of their wages and salaries for future use. But for some reason, this advice does not seem to resonate within the continent. Every year, there is talk of how the people of Africa have a poor savings culture, the effect of which we see in the form of underdevelopment and a consistent reliance on donor partners to come to our aid. Public and private savings is minimal, almost negligible, in most African countries.
“A higher propensity to save results in a lower propensity to consume. For most Asian countries, savings form about 20 percent of one’s income. In Japan, it is about 18 percent; and less than five percent in Africa. According to Bloomberg’s Business Week, China has one of the highest savings rates in the world, at 38 percent and India at 34.7 percent. Therefore, during the process of economic growth and poverty reduction, individuals require a culture of saving and investment, as shown by China, India and Japan.
Based on the average savings rate in Africa, it is obvious that a poor savings culture has negatively affected the economic performance of some African countries. They have, therefore, been left behind other developing countries in Asia and Latin America. Africa should therefore adopt a culture of saving for the future. Investment is facilitated by savings. A starting point is for Government to initiate an aggressive campaign to encourage locals to save and invest.
It is also worth noting that commercial banks and finance houses in Africa grow based on consumers’ deposits that sit with them, and they take a cut on the returns on these deposits by loaning it to governments in the form of treasuries and bonds.
On the other side of the coin, in order to encourage savings for the people across the nation, it is imperative that the governments in Africa, through their respective central banks, should consider introducing limits on bank charges on some category of people in the society, the determinant factor being the monthly income.
If we are to consider the lower bracket income earners to open accounts with the bank in order to encourage saving culture, there is need for the Central Bank to come up with financial policies which should be implemented by all commercial banks across the country.
The policy should aim at clustering the community according to the income they generate and the bank charges should be applied accordingly other than having bank charges which have flat figures, better still ceilings should be introduced; for instance, those workers on minimum wages and small and medium enterprises in the informal sector should not incur any bank charges though some commercial banks have this policy in place but what is desirable is to enforce it across to all commercial banks.
That way, the commercial banks will hold a lot of deposit across all clusters in the nation, other than merely concentrating or targeting deposits from the elite in the society. This will not help grow the economy if we were to follow the Harrod Dollar Model of economics.
Remember, a saving nation is a health nation. Saving starts with your first income. Start now!
The author is a human resources practitioner and pension advisor.