Personal and Corporate Saving in South Africa.

Abstract

Low domestic savings rates in South Africa run the risk of perpetuating a low growth trap. The decline in government saving, a major reason for the overall decline, is now being reversed. However, personal sector saving rates have fallen since 1993, and corporate rates since 1995, and both may decline further with lower real interest rates. It is important to understand their behaviour in order to formulate policy to raise the domestic saving rate in line with growth needs. This paper summarises our work on the household sector, emphasising the role of financial liberalisation, assets and income expectations, and it explains sectoral linkages and policy implications. Further, the paper analyses the corporate saving rate in detail. Models are developed both for the share of profits in national income, including roles for the terms of trade, tax effects and the price/unit labour cost margin; and for the share of corporate saving in profits, which we find depends on inflation, the real interest rate, dividend taxation and financial liberalisation. This area is remarkably under-researched, given the importance of corporate saving in many economies, and our research thus puts the saving and growth concerns of Kaldor into a modern empirical context.