Since Gross National Savings (GNS) plunged from 23 percent in 2009, Nigeria has been at a loss on ways to increase its domestic capital mobilisation and assist debt-ridden government in financing its much needed development projects.
GNS, which is the difference between gross national disposable income and final consumption expenditure, when bench marked against Gross Domestic Product, slightly increased to 11.8 percent in 2018, according to Central Bank of Nigeria Statistical Bulletin. The uptick hardly calls for cheer as Nigeria grossly lags emerging peers in aggregating domestic savings.
Analysts say data sourced from World Bank, which show South Africa’s GNS at 20 percent, China (47%), India (30%) and Brazil (16%) reflects the woes of the Nigerian economy characterised by high poverty levels, declining income per head and high unemployment rate.
“The major reason why savings ratio is low in Nigeria is because per capita income is low,” Johnson Chukwu, CEO, Cowry Asset Management Limited, says.
Chukwu positions that with “44 percent of Nigerians in abject poverty, living on less than $1.9 a day” households in Nigeria are struggling to meet the basic essentials of life, leaving them with little to save.
Nigeria’s per capital income has been declining steadily since it rose to $2,563 in 2014. Latest figure from World Bank shows $2,412 per head compared with South Africa’s $7,525, China’s $7,329 and Brazil‘s $10,889.
Ayo Teriba, CEO, Economic Associates, explains that the nation’s high unemployment rate compounds its savings mobilisation dilemma, as there is a high rate of dis-saving in the economy with a large fraction of the population living without income. “You cannot expect a high savings rate in a high poverty and unemployment environment,” Teriba says.
GNS comprises personal, business and government savings. When savings rate is low in an economy, it results in lower funds for investment purpose, which constrains expansion of businesses and ultimately slows down overall growth. It also reflects limited access on the part of government and corporates to access funds to execute key projects.
This matters for Africa’s biggest economy, which has a huge infrastructure gap requiring at a minimum of $3 trillion in bridging the deficit in the next three decades. Nigeria’s low savings rate can also be attributed to the absence of institutionalised means of saving. In many developing countries, people are mandated to save for retirement, mortgage, insurance policies, education and the likes, all of which supports domestic savings.
Wale Okunrinboye, head of research at Sigma Pensions, asserts that the improvement in the Nigeria’s Pension Funds from 2003, where it was zero to over N9 trillion in Q1 2019, is testament that government policy in making certain savings scheme compulsory can yield better results.
Okunrinboye also points out that Nigeria’s large informal sector remains largely excluded from the country’s formal banking system and does not save effectively. “People save in wooden boxes, under the pillow and all. The result is that their savings do not grow. They still have the same amount after a long period of time,” he states.
Total savings in Nigeria increased to N15.1 trillion in 2018, indicating 16 percent uptick over N12.9 billion in the previous year. Breakdown shows that savings and time deposit with commercial banks accounted for 98 percent of national savings in Nigeria. Time savings with Merchant Bank stood at N244.9 billion last year.
Analysts hinge the improvement in saving rate on restructuring savings structure in Nigeria and creating friendly schemes that would enable low-income people to part a portion of their income for future needs.
