18 October 2001
By Blade Nzimande General Secretary South African Communist Party
Is Saving Discouraged by the Large Financial Institutions?
As the South African Communist Party (SACP), we wish to congratulate the South African Savings Institute for holding this Symposium and focusing the attention of our country to the question of the importance of mobilising savings as part of economic growth and development.
As the SACP we also thank the Institute for the opportunity of sharing our opinions and perspectives on how the financial sector in our country contributes or rather fails to contribute to economic growth and development through, amongst other things, creating a suitable environment for savings and productive investment.
We believe that the issue of savings and whether large financial institutions encourage savings is linked to the key challenge facing South Africa - the challenge of developing a coherent economic policy to drive a developmental path aimed at job creation, infra-structure development and the eradication of poverty. Such a path, we argue, needs to dynamically link the power of the people with that of our national democratic state in order to build what we refer to as a people's economy.
The imperative for building a people's economy is the massive socio-economic crisis we confront. This crisis is characterised by:
From an SACP perspective, a way out of this crisis is a major reconstruction and development programme directed at infra-structural development, harnessing, to begin with, public, parastatal and domestic capital, not least domestic savings, to drive the process.
In other words, economic growth and development must be based on the mobilisation, in the first place, of domestic capital resources (including public, parastatal, social and private domestic capital) around a coherent industrial strategy.
It is in this context therefore that we have to locate the challenge of mobilising savings and by ordinary people, government, communities, labour and business. In other words, we have to begin to think about savings in a way which relates to the challenges posed by our socio-economic crisis as briefly outlined above. If we do not think of savings in this manner, then we may as well mobilise for and actually achieve increasing savings but with no economic growth and development.
SAVINGS AND POVERTY
The question of savings is very central in economic development and transformation in our country. According to the government's Poverty and Inequality Report of May 1998 the poorest 40% of households is equal to about 19 million people - about half of South Africa's population. Poor is defined as monthly household expenditure per month, per equivalent adult of about R353-00. In racial terms, 61% of Africans are poor and only 1% of white South Africans are regarded as poor. In gender terms, the poverty rate among female-headed households is 60%, compared with the 31% for male-headed households. In spatial terms, the rural areas contain 72% of those members of the population who are poor.
It is estimated that more than one-third of the economically active population in our country is unemployed. Of the employed, 5,5 million are men, which is 48% of all men of working age. But of the 3,5 million women, who had jobs in 1996, this was an equivalent of only 29% of all women of working age.
Of much more significance to us is that the Poverty and Inequality Report implies very strongly a correlation between employment, poverty and levels of savings. For instance, if 19 million people can only have R353 to spend a month how can they start to save? Even more, if they are not banked or encouraged by low premiums how can they save through bank accounts, insurance and pension contributions? Thus poverty excludes the majority of our people from savings. The behaviour of financial institutions in our country locks them even further in this cruel cycle of exclusive poverty and thus alienates them from savings and the mainstream of the economy.
Indeed it sounds obvious when we say that this is as a result of apartheid. This is instructive, particularly in the present period, where we are now told that a free market economy and that the private sector is the best engine for the socio-economic development of our country. Yet, it was as a direct result of the logic of a society dominated by the private sector, that such a large army of people with no real and objective ability to save was created.
According to the Savings Barometer developed by ipac South Africa and the IDC, savings by households declined during the year 2000 despite a positive nominal growth in household income and a decline in real prime interest rates. This is partly explained by the high levels of household debt, poverty, increasing unemployment and a real decrease in wages and salaries paid to workers in the formal sector and thus a decreasing ability to save. And thus the need to cultivate a resilient, responsive and transformative savings culture and consciousness within South African households linked to increasing the ability of households to save through economic growth and development, employment and productive investment.
The following statistics provide some pointers about how the ability to save has decreased for the majority of South African households.
According to the same ipac/IDC Savings Barometer is the fact that corporate savings have followed similar trends to that of the household barometer since the 3rd quarter of 1998 to the end of 2000 insofar as a positive savings environment has been created through a rise in corporate incomes, a decline in inflation, reduced corporate taxes and a declining prime interest rate. But unlike household savings the corporate sector has been much more responsive to changes in the savings environment and thus since 1998 corporate savings have followed a positive trend which has not necessarily benefited our economy.
In other words, ordinary people are still not able to save for their own development and future whilst the private sector has been able to save. But its savings have not necessarily benefited our economy. We believe that these trends underline just how difficult it is to implement a thorough-going and transformative savings culture and behaviour on the terrain of a capitalist economy. Above all, they underline the need for clear analysis, and for much greater clarity around our strategic location of savings in economic transformation in our country.
According to a report of the Portfolio Committee on Trade and Industry on the hearings on the Promotion of the SMME sector and the Role of Banks held in June 2000, it is estimated that black entrepreneurs received less than 2% of total bank credit under the previous government.
The National Enterprise Survey presented to these hearings, commissioned by the President's Office and the support of the Ministry of Trade and Industry had reported that black-owned firms find it more difficult to access finance than their white counterparts. The same Survey found that while access to finance was not a major problem for South African companies generally, it was for black-owned SMMEs.
The survey highlighted the following problems experienced by SMMEs in accessing finance: lack of collateral and equity finance, effectiveness of affirmative procurement, perception of risk, failure rate of start-ups, management support systems, high costs of operating SMMEs and the adequacy of credit guarantees.
In addition to these examples quoted above, many of our people experience the following when it comes to banks, insurance industry, provident funds, pension funds and the rest of the financial sector in our country:
We refer to all these examples, experiences and conclusions to say one thing - large financial institutions in our country are not encouraging a suitable environment for transformative savings and productive investment.
Therefore savings in South Africa is a challenge of democratic transformation; a challenge of economic empowerment; a challenge of transforming gender relations; a challenge of combating and eradicating the legacy of racism; and, most fundamentally, a challenge of the eradication of poverty.
BUILDING A TRANSFORMATIVE SAVINGS CULTURE IS PART OF BUILDING SOCIAL CAPITAL
The dominant paradigm of economic development in our country and globally - neo liberalism - which gets articulated through calls for labour market flexibility, privatisation, liberalisation and enrichment of a black few, does not provide the climate, the environment and prioritisation needed to effectively tackle the challenge of building a transformative savings environment.
The majority of our people are disempowered even to realise their own creative means to try and make ends meet not least because they cannot save. High levels of savings would also provide a stronger basis for new forms of collective economic ownership and investment. And it is our belief therefore that the state and communities should have a strong and leading role to play in tackling the poor savings culture and disinvestment.
There is an international history of cooperative ownership and activity associated with poor and working people. The cooperative as a model or enterprise and development is a potential or embryonic alternative to our low savings and unbridled capitalism. In the short to medium term it represents the best opportunity for the creation of employment and economic opportunities that the majority of South Africans can benefit from. Building the cooperative sector is therefore a key task in building social capital through collective savings. A national effort is needed to mobilise the necessary resources in this area. The role of the South African Savings Institute and other organisations is important in this regard. For example, Banking/financial services, Housing, Health, Transport, Furniture, Groceries, Media, Holidays and Leisure are just some of the areas in which co-operative savings and co-operatives can be built in a transformative manner.
Substantial benefits, in the form of reduction of costs, reduced prices and returned dividends can be reaped if these areas are focussed on. For example according to calculations made by some commentators, in terms of banking and financial services, almost 2/3 or 66% could be cut off current interest rate charges if banking were done through a cooperative. Insurance charges would be reduced and so would administration costs. For the average worker who currently spends close to R100 on servicing agreements with various financial services companies this could mean a saving of R50 per month. If they currently have a loan of R1000 and a repaying a total of R1800 at R150 per month, these figures would fall to R1300 and R109 respectively. This is without taking any consideration for savings generated by economies of scale, for example. This is an example of what we mean by transformative savings linked to economic transformation which favours poor and working people.
Such cooperatives would be formed primarily for job creation as opposed to passing on any benefits to consumers and thus could objectively increase the ability and capacity of poor and working people to save and invest productively. Adding the dynamic of co-operative banks here means that such co-operatives will also lay the basis for challenging financial institutions and offering alternatives. Co-op banks essentially would represent democratic collective savings and investment institutions.
THE CHALLENGES FOR THE SAVING MOVEMENT: THE CASE FOR THE TRANSFORMATION OF THE FINANCIAL SECTOR
Given the issues outlined above, let me outline what I see as key concrete challenges and possible measures that needs to be taken to take forward the savings movement in our country.
It is important that in tackling the challenge of building a savings culture we simultaneously challenge neo-liberal ideology and deliberately seek to crowd out a market-dominated approach to savings and investment.
Flowing from the above this means seeking to create a viable and durable partnership between the democratic state, the NGO sector and communities. Of course I am not saying that the private sector does not have a role to play in savings and investment. But the role of the private sector should be located within and guided by a strategy that is driven by the state in partnership with workers and communities. It cannot be a market-driven strategy, as this would exacerbate rather than tackle the problem.
I would like to end by perhaps proposing a possible strategy and route to accelerate the building of a savings culture linked to broader economic transformation.
In closing, we repeat our message above by emphasising how savings must continue to contribute to substantial changes and improvements in ordinary people's lives. But this will not happen until we connect savings to mobilised mass power.
This means that in our work, we must develop organic and sustainable links with our people - organised workers, hawkers, the unemployed, farm and domestic workers. As activists for savings, we must be part of our people's struggles for a better life for all. In this way we will make savings movement building work relevant and to meet the needs of a changing and democratic South Africa.
The financial sector campaign is part of people's struggles aimed at unlocking some of the barriers to a conducive savings environment we have referred to above. What could be the role of the Savings Institute in this campaign and particularly the NEDLAC Summit due in January? This campaign is part of the main challenge we are putting forward to the Savings Institute - unleashing an integrated mass movement for fundamental transformation. In other words, the struggles for a better savings culture and fundamental transformation will ultimately not be resolved in the boardrooms but through the strategic and integrated deployment of the mass power of our people.
Thank you.
BLADE NZIMANDE
GENERAL SECRETARY
SOUTH AFRICAN COMMUNIST PARTY