South Africa would be wise to increase household savings in the current economic climate, helping to ease pressure on financing of the current-account deficit, Finance Minister Trevor Manuel said on Tuesday.
Manuel said at a business meeting to promote government retail bonds that the country’s savings rate was not adequate at just under 14% of gross domestic product (GDP).
”The rate of credit is high and savings are low. We have interest in lifting our savings rate. The more we can do domestically, the better it will be for the current-account deficit,” he said.
South Africa’s current-account deficit stood at 7,5% of GDP in the fourth quarter of 2007 and hit a 36-year high of 7,3% for the whole year.
Manuel said the current global environment of heightened risk aversion put emerging countries with high current-account deficits in a vulnerable position.
”We’ve seen that in the first quarter there has been some [foreign investor capital] outflows,” he said.
”In this environment where you see risk appetite change, you are not going to see investors stick around to turn off the lights. Skittishness will be the order of the day and we will be wise to build our savings.”
Foreign investors have so far this year sold R8,824-billion worth of local shares and investors are worried that a severe power shortage could slow economic growth.
The National Treasury introduced retail bonds in 2004 to encourage a savings culture. Investors have so far put R2,3-billion into the retail bonds.
‘Very scary issue’
Meanwhile, Manuel on Tuesday also highlighted ”huge supply constraints” in the food market as one of the key crisis factors in the world right now. He added that food-importing countries were the worst affected.
Manuel, who has just returned from a World Bank and International Monetary Fund meeting in Washington, said one of the stories he heard there that struck him was that the food situation is so bad in some places that countries had to engage intelligence services to do ”quiet deals” to secure supplies.
”It’s a very scary issue,” said Manuel.
Manuel said the two other crisis issues right now were fuel and the financing crisis.
As to fuel, he said: ”There is unlikely to be a change in the medium term on prices.”
And on financing: ”It started as a subprime crisis but has knocked on across the United States. The entire real-estate market has taken a huge knock and there are knock-on effects.”
”It is probably unprecedented in our lived experience to have the confluence of three crises coming from different routes,” said Manuel.
He concluded that ”the one message that comes out very strongly is that the world is not a very happy place right now”. — Reuters, I-Net Bridge