Why it will take banks far more time to increase available credit lines (2014-03-25) According to a report published by the Mozambican Central Bank, Banco de Moçambique (BM), in January 2014, only an estimated 2% of family account holders have savings. This alarmingly low figure presents a bleak short-term outlook which reduces the chances of any significant new credit lines becoming accessible, despite the current positive economic progress. The overall conclusions of the report titled ´Determinantes da Poupança em Moçambique´ was that despite the Mozambican economy displaying a positive performance, characterised by robust economic growth, price stability, a reduction in its fiscal deficit and external dependency, this was not translating itself into increased amounts of savings and that the culture of saving is something which will need to be developed. Why is this not good for the economy as a whole? States with low national savings become highly dependent on external funds for investment and are therefore more at risk of external shocks, like the global financial crisis. However, in contrast to 20 years ago there has been a slight improvement in the national savings rate, contributing 4.1 % more to the GDP today that in 1996. Thus when the percentage of internal savings is compared to GDP it continues to show positive growth, especially considering the sharp national savings rate drop in 2002 (when it reached 0% of the total GDP, a direct result of the 2001 floods). Nonetheless, today it is only slightly higher that the peak it made in 2001, contributing 15% of the national GDP. Despite the recent mild positive trend, 98% of families have negative savings. Companies and businesses are the biggest contributors to the slight but sustained improvements illustrated in recent data from 1996-2012. An increase in real wages, measured in terms of real GDP, contributed positively to the growth and accumulation of national savings but its elasticity with respect to pay rates remained low. Other detrimental factors included economic agents demobilizing reserves, when they anticipated the metical value decreasing. Often during such instances economic agents would opt for increasing reserves in foreign currencies rather keep the money in national accounts. Mozambique´s Central Bank has attempted to stimulate increased saving by taking various steps to promote saving. For example, they have continuously worked to keep interest rates as low and as stable as possible. How does this affect businesses? Firstly, the push to gain greater national savings is primarily driven by the desire to reduce the risks of external shocks hitting the Mozambican economy. The probability of shocks is greatly increased when economies rely on external savings. In regard to businesses the current circumstances present an unfavourable financial outlook in the short-term, as despite indicators pointing towards the possibility of greater credit availability soon, this will not be the case until greater savings are achieved. As such, gaining credit lines with competitive interest rates or other affordable financial support from the banks does not look like it will happen for quite some time. Additionally, it is obvious that economically Mozambique is reliant on independent enterprises and that this is the basis for its economic growth. Despite the push to see more Mozambican investment, it is difficult to see how small to medium-sized enterprises could participate in boom without greater access to finance, which ultimately has to come from savings. Consequently, the development of local enterprise and the proportion of national content in new industries will be slower to realize and harder to achieve. Family accounts representing those aged 17 to 30 years saved on average more than those aged 31 to 45, as was the case between 31 to 45 years olds in comparison to those aged 45 and above. Thus it seems that slowly the value of saving is making its mark on the new generations. Nonetheless, a net national weight of 98% dissavings is a heavy burden which will take a significant time to arrest.
Posted on: Wed, 26 Mar 2014 06:35:33 +0000
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