“Economic growth is a country’s capacity to increase the productivity of goods and services in comparison with a previous time period. This is done either by either increasing consumption, investment, savings and government expenditure or by growing nett exports,” Namene Kalili, Senior Manager Research and Development at FNB Namibia Holdings said this week.
Explaining the delicate balance, he said “Consequently, economic growth and savings are closely related in the sense that an increase in savings accelerates economic growth. In our case, a 4% increase in savings, can accelerate investment growth by 1%, which in turn accelerates economic growth by 0.5%. For each percentage point the economy grows, [an estimated] 2300 new jobs are created. New jobs in turn accelerate national income growth which accelerates savings – according to the theory of marginal propensity to save which states that as income increases, savings increases disproportionally faster.”
The FNB economist advised that against a backdrop of rising interest rates (FNB expected rates to increase by 125bps in 2016), a nation that saved could enjoy the benefits of higher interest income, over and above inflation, thereby encouraging a second round of accelerated savings. He said encouragingly: “Higher savings implies higher capital investment which fosters economic growth through capital accumulation and innovation. The magnitude of the capital accumulation can be estimated by the Picketty second fundamental law of capitalism, which states that the ratio of national capital to national income is defined by the savings rate net of depreciation divided by the growth rate of the economy – and which by the way, is not grounded on widely accepted economic theory.”
Employing Piketty’s second fundamental law of capitalism, it is suggested that Namibia’s future capital would accumulate by 133% over the next decade from N$259bn to N$603bn. “More importantly it will attract intellectual capital and much needed innovation into the local economy. This is most likely to occur in the mining, construction and manufacturing sectors, as these are the sectors currently enjoying the highest levels of capital accumulation. Since capital tends to be unequally distributed, this implies higher inequality,” adds Kalili.
He continues by saying that unfortunately, not many households had direct exposure to these sectors and therefore the benefits have been skewed, leading to unequal distribution of income from the capital accumulation.
When it comes to Namibia Kalili says that in our country, households typically saved and invested in livestock, which unfortunately had accumulated only at a measly 1.1% growth per annum. He states: “While it is important to protect and encourage the continuation of cultural norms, it surely makes sense to also accelerate savings in order to participate indirectly in sectors which enjoy higher levels of capital accumulation.”
In conclusion he indicated that options for smarter savings for individuals ranged from short to medium to long-term opportunities across a range of deposit-taking instruments. “In turn individual and company investments passing through financial institutions can be channeled (at a current favourable interest rate to you) to (1) Government to construct schools, hospitals, roads, dams, railway lines and ports to help build a better economy (2) businesses to expand their businesses, create jobs and grow the economy, as they lend to expand and grow according to national need. That’s your savings and investments helping to create a better Namibia, all while you earn higher interest income.”