A growing economy needs access to capital and in Zimbabwe the savings rate is low, so capital is scarce and thus expensive, and even when money is raised there are the problems with the balance of payments which makes using local capital to buy foreign equipment or raw materials difficult.
The low savings rate is a matter of concern to the authorities and to even the most vaguely orthodox economists. Most Zimbabweans on regular incomes carry consumer debt, preferring to borrow to buy everything from couches through clothes to mobile phones on credit rather than save up and pay the usually lower cash prices.
While this has always been a trend in this country it became entrenched with the hyperinflation era. Zimbabweans who were regular savers saw their savings effectively vanish, a year’s salary when saved, for example, turning into a small fraction of a US cent. Obviously there are very few Zimbabweans who want to even think about long-term savings; even the younger people who entered employment after dollarization have childhood memories. We are now using the US dollar in practice but no one has certainty.
The second set of adverse memories is over security of savings. We all remember banks closing and depositors being left high and dry. Some of these banks are still being liquidated and while deposits are now insured, the level of insurance is little more than the last salary payment, adequate to allow people to buy food and pay rent but not enough to cover high savings levels. We agree that the surviving banks are now safe but bad memories still make people uneasy.
Finally there is the debate on disposable incomes. Many feel these have declined, yet the problem is more likely to be greater demands on income. Twenty years ago many middle income families were worried about bus fares, finding coins to use a phone box, had good medical aid at low cost with access to low-levy Government schools and cheap State health care.
Thanks to the influx of affordable second-hand cars these same families worry about petrol prices and repairs; smart phones start off at around $100 and are already ubiquitous in urban areas, but absorb cash for airtime; most middle income families have a home computer; and medical and education costs have risen sharply in Zimbabwe as indeed they have done in many parts of the world, simply because there is more on offer.
To rebuild a savings culture banks and financial institutions are going to have to be creative. They need to offer products that allow people to save for something, to have a stated sum in say one year or even six months. This would help transfer monthly payments from debt redemption to savings.
Secondly they must offer security. It is all very well for people to try selling bonds and savings deposits but bad memories suggest that these need to be tied to real assets.
So preference shares and debentures might be more sensible than bonds. And even then, for the smaller savers, these need to be bundled into reputable unit trusts that at least spread risk.
In other words those trying to raise capital need to put themselves in the shoes of ordinary Zimbabweans and work out what they want from the capital gatherers and consolidators, rather than simply offer old-fashioned products that few want and many are scared of.
Only when we have proper products that are attractive and secure, will it be possible to try the public relations and start converting Zimbabweans from all-out consumers to at the very least partial savers.
We are unlikely to ever generate the sort of savings cultures that have driven economic development in East Asia, but we can probably develop a culture that will at least drive much of our needed development using our money, rather than foreign money, and will benefit producers and job-creators by bringing down the costs of capital.
But for that to happen banks and finance houses are going to have to return to their core businesses of offering attractive deposit schemes that mobilise savings and then consolidating these and lending them out with a modest mark-up. Relying on income from services as all banks now do is not the way to create a modern economy.