Last week we outlined five reasons why it’s so hard for Americans to save, predicated on the unhappy fact that most in the United States are not saving enough for retirement. Postponing gratification is always hard, especially when times are tough and excuses plentiful.
But even in extremis, it is possible. For example, saving is reportedly on the rise in Africa. An essay on Yahoo! Finance by Eliot Pence, the director of consulting firm The Whitaker Group (“Advancing Business in Africa”), argues that the growth of pension savings will define the continent’s growth and that existing growth trends will see total assets—albeit from a low base—eventually outpace some Western countries as a percentage of the local economy.
Pence offers the example of Zimbabwe, which from these shores looks like the most basket-case-y of the continent’s presumed numerous basket cases:
As a percentage of GDP, even Zimbabwe’s pension fund assets are greater than Japan’s. Considering the difference in population growth rates, this trend will continue. Japan’s dependency ratio – the number of people aged 20-64 per pensioner – will soon approach 1:1. In Zimbabwe, ten working age people will support the pension of one person well into the 2030s. Zimbabwe will have fewer future liabilities to pay out in the short term, but because there will be fewer claims on the pension assets, capital costs will be reduced substantially, opening up new investment opportunities in infrastructure.
My surprise in this comes from assuming that Africa is mostly a pit of despair. As The New York Times’ Nicholas Kristof observed last year, Americans mainly see Africa as “a quagmire of famine and genocide, a destination only for a sybaritic safari or a masochistic aid mission.” Africa has issues, of course, but Kristof went on to outline Africa’s economic dynamism.
He’s not alone. A number of investment advisers see genuine upside in Africa, and not just through commodities or Chinese investment, to name two commonly cited drivers. (Although they’ve done wonders for Australia …) The African consumer is as much the hero of this narrative as the African worker or the African miner. Goldman Sachs, in its “Africa’s Turn” research note of last March, forecast that by 2030, 10 percent of the population would be middle class (earning between $6,000 and $30,000 a year), “similar to how India is expected to look like in five years, or how China looked ten years ago. Within that, a select group including Nigeria and South Africa look more likely to enjoy faster growth in their consumer class. Supporting that consumption will be the world’s best demographics; Africa could have the world’s largest workforce by the middle of this century.”
Goldman’s upbeat findings echoed the McKinsey Global Institute’s “Lions On the Move” report of 2010, which highlighted the growth and future of the African consumer (“Consumption grew more in Africa than in India or Brazil in the last decade,” “Africa today is more urbanized than India, and just below China”). Yes, that study did identify “resources” as responsible for a quarter of the economic growth, but wholesale/retail and transport/telecom, markers of a more sophisticated economy, together equaled that share. And keep in mind that the “lions” here are consumers, but those same people are also like to be the “elephants”—African savers—of Pence’s report.
So how much saving are we talking about? Estimates are that about 7.5 percent of the continent’s population contributes to some sort of pension. Analysts looking at pension funds in the top six countries, Pence writes, expect the $200 billion under management today will triple to $600 billion by 2020 and $7 trillion by 2050. Assuming that most of this money remains invested in Africa, whether in local government bonds or as capital for local companies, you can see the bones of Pence’s argument (which includes many of the appropriate caveats).
And before we become too excited over these big numbers for Africa, they’re still pretty puny compared to even a savings-phobic USA. (Keep in mind both Africa’s much larger population, just over a billion people compared to the US’s just under 314 million, and America’s greater consumption: in the US, the bottom of the definition of a middle class income, $30,000, is the top of the African figure.) The Federal Reserve puts Americans’ retirement holdings, including individual retirement accounts and workplace-based plans, at $11.5 trillion.
While that dwarfs the African figure, it’s still about $6.6 trillion shy of where Americans should be to retain their post-working standards of living, according to the Center for Retirement Research at Boston College. Which returns us to the quandary over saving.
When it comes to saving more, perhaps we should forget that old ant-and-grasshopper axis, and adopt one pursued by Pence: lions-and-elephants.