Economic development literature is abound with strongly held view that, no country has ever development without sufficient national savings to spur investments, and thus growth. It is known that, capital accumulation in poor countries is constrained by low national savings as well as limited access to foreign capital.
Almost all research done on various development paradigms pursued by various countries at different times are all conclusive on the significant correlation between savings, investments, and growth.
There is no substitute for such a relationship now, or in near future, with regard to growth and development pursuits of nations.
Recent research points out that, South East Asia’s unprecedented accumulation episodes have been a virtuous growth cycle, where the underlying causation process was at work.
Such a process then meant that, rapid growth raised savings rates, which then fed back into the system, yielding faster growth by financing more capital accumulation.
Economists and financial specialists now concede that, such a process has to be maintained for at least two decades if is to be sustainable, so as to ensure sustained growth and thus development.
Research done by Kim (2001) on growth and development of South East Asian countries found out that, high savings rates in these countries, were considered one of the most important factors, leading to fast economic development of these economies. He maintains that “large domestic savings, coupled with substantial foreign savings, has financed active domestic investments, contributing to high growth, employment creation, poverty reduction, productivity gains, and trade expansion”.
Africa’s tragic savings Rates.
Although most African countries posted better rates of growth than Asian economies after independence, there was no savings strategy to sustain such growth rates through the savings-investments-growth virtuous cycle as was with the case with Asian Tigers.
With time, African growth rates regressed owing mainly to poor governance issues, as well as void growth strategies. The persistent low growth and savings rates in Africa is due to the vicious cycle of poverty, a trap in which low incomes, and thus low savings, reinforce each other, to the extent that, growth can only be anticipated if, and only if, this trap is broken.
The question that has baffled many development economists is, how the Asian Tigers managed to latch onto a virtuous growth cycle (than African economies), and whether the high rates of their capital accumulation was exogenous driven by structural factors, or whether there was a critical policy path to that end.
One thing is certain. Whereas Asian Tigers followed a consistent policy path in all development fundamentals, including savings mobilisation (where some countries even used forced savings to ensure capital formation), African economies on the other hand, settled for foreign savings ‘policy’, a policy that is now seriously questioned for it has not on the whole, induced growth and thus development as anticipated.
Rwanda’s Recent Savings Mobilisation Strategy.
Recently Rwanda celebrated UN World Savings day on October, 31st. A day the entire world takes stock of savings initiatives in place, and a day that nations sensitises their populations on the need to save for tomorrow.
Ministry of Finance, launched the savings day week, a time to show case savings strategies the government has put in place to boost private savings. However, we have to bear in mind that, Rwanda is coming from far with regard to savings mobilisation.
Available statistics indicate that, as a country we have been dis-savings for long. Our saving rates stood between -1% to 3% of our GDP, for the last five years. This is against African average savings rate of approximately 18%.
Economic theory holds that, for a country to accumulate savings sufficient to induce growth and thus development, these have to be above 23% mark of the GDP.
This indicate the monumental task we have to over come as a nation, if we are latch into sustainable development cycle and break the poverty trap.
Given our negative savings rate for some time now, our recent impressive growth rates, can only be attributed to other factors both endogenous and exogenous factors, especially a combination of prudent economic management and foreign savings (read donor funds), foreign direct investments, and more so efficient and effective utilisation of these resources and our human capital to spur of growth.
Nevertheless, some of these fundamentals are not in our control as country, and cannot therefore be substitutes to national efforts. Our biggest asset that has worked for the interest of this country, is our political will.
A will to over come even what seems monumental amidst hostile multi-faceted environment. This is the same will that we need to marshal, to reverse our negative saving rates we have registered for some time now, and which may negate our efforts to graduate from dependency on foreign savings.
The government has put in place a number of strategic initiatives to boost our national savings including; grass-root savings schemes (Umurenge SACCOs), development of Kigali Securities Market, pension schemes, Micro Finance Institutions (MFIs) Collective Investment Scheme (CIS) and the awaited Provident Fund Scheme, all of which will certainly ensure savings mobilisation.
The myth that, low incomes negate savings culture has been demystified by various strategies in many countries that pooled small savings to huge pool of savings from which investments can be generated.
Thus for instance, Japan used its Post Office Savings schemes to boost its domestic savings, a strategy that worked well in early 1950s and one that is a kin to our Umurenge SACCOs.
The notion that, the poor can not save is invalid, for even smallest of savings adds to a huge pool of savings if pooled together. An example of our successful military savings scheme (CSS) and Umwalimu SACCO annuls the notion that, small earnings can not be saved. All we need is the political will to ensure that, these schemes are up and running.
This will is and has been our greatest asset. We need it most to realise savings mobilisation strategies, and ensure sustainable growth.