The importance of domestic savings in narrowing down the gap between domestic savings and investments is indispensable. It is obvious that without saving, local investment will not be growing rapidly. But the major task has to be identifying the obstacles that are hindering the development of the country’s saving system in a sustainable manner?
Dr. Debebe Atnafu is a lecturer at Addis Ababa University’s Department of Economics. He told The Ethiopian Herald that in Ethiopia not only the progress but the volume of saving is also very minimal. “Our national savings has not yet reached 25 percent of the GDP. In other words, the remaining 75 percent is going to consumption.” As to him, though there is sufficient manpower in Ethiopia, scarcity of capital is widely observed and increasing the national savings is imperative so as to create capital.
Debebe noted the recent economic growth can’t be seen as an achievement because of two reasons. Firstly, it could not meet basic needs and hence what is produced is consumed. Though there is a tendency in saving among the people, only a few are able to do so. In this case, it is imperative to increase productivity. The second point is the culture of saving has not been well-promoted. Then again, this is due to the fact that there is a significant dissipation of resources. For instance, he said, a given road project has to be dismantled and reconstructed for the sake of developing other infrastructure such as electric power, water and etc.
And this is simply wasting resources because of lack of coordination. Second, the inefficient utilization of public resources in government offices is also another challenge. It has been witnessed that some government offices spend a huge amount of public finance in buying luxuries office equipment.
This is not the case even in prestigious international corporations. For instance, the Office Administrator in TOYOTA – one of Japan’s biggest car manufacturing company – has no carpet for his office. Moreover, the budget is not spent in an efficient and planned manner. Most often than not, the purchases are conducted at the end of the budget year. Thus, the government should be able to minimize spending so as to increase the savings rate.
And again, there is also the case of corruption. “Because of this and other related factors, the economy is losing a significant amount of resources instead of generating capital,” the lecturer underlined. It is also vital to develop a strong culture of saving at an individual level. “Farmers have to be supported to reduce waste/dissipation during production and harvesting. They should also spend more time at their farms than taking repeated breaks because of religious holidays and festivities.
They have to be encouraged to work to increase productivity.” Dissipation of the country’s resources is also observed in electric power supply and consumption. “In Germany, the people switch off electric light for an hour to save electric power. After an hour, the responsible government body announces the amount of power saved during the one hour. Sometimes, the saved power might be equal to the power generated from a new power dam. If we adopt such strategies in raising awareness, we would be able to save a significant amount of power,” Debebe said referring to various studies. “Traditions, poverty, and inflation are the major factors that resulted in the low level of national savings, said, Nuredin Juhar, PhD candidate at AAU. As to him, traditional savings such as “Equb” do not provide interest but are essential to creating capital. However, modernizing the traditional saving mechanisms is necessary if national saving is to increase. For this to happen, encouraging the public to participate in low-cost housing programs and bond purchase could be an effective instrument. “
If someone is very sure about getting his own house through saving and if the interest rate is fair, he/she would be willing to save.” The second reason that is attributed to the low saving rate is low-interest rate and inflation, which are not proportional. “First of all, the high cost of living has not given a chance for the people to save. In addition, the interest rate is not also attractive.
The rate of interest now is 7 percent but the inflation rate is double digit. In this case, if you save, the purchasing power of your money will decline,” Nuredin said adding “Thus, in order to control the price inflation, the government should devise various options to control the price of consumable goods and stabilize the market.” In relation to this, he said, though there is tangible progress, following the shortage of foreign currency, the purchasing power of the money is in decline, and it is a challenge to increase the national saving.
Black market foreign currency exchange is also directly or indirectly affecting the saving rate. It is also vital to establish independent interest-free banks besides the existing services to encourage people whose religious teaching forbid them to accept interest. According to the document from Plan Commission, in 2018 budget year, local investment covers 34.1 percent of the gross domestic product. This is far behind the target set to achieve by the end of the reported period (which has a difference of 5 percent) The experts agree that since the savings rate cannot cover the domestic investment demand, the government has to minimize expenditure, encourage savings and modernize traditional saving mechanisms.
Herald January 24/2019
BY GIRMACHEW GASHAW
