Do Zimbabweans save?

The question of whether there is a savings culture in Zimbabwe or not is quite an interesting one and has been thrown around, but perhaps much justice hasn’t been done in trying to answer it. One of the most common answers to this question is that yes we save, we just do not save using the formal banking channels. Is this claim true, if you want to know the answer, then you are reading the right article.

Saving in simplest terms means that an economic agent spends less than they earn. Following this logic, we can also discover that saving or investment is pretty much the same thing. So, in answering whether Zimbabweans have a savings culture or survive from hand to mouth, we will look at a few data points. The data points will give us clues and the sum of those clues will help us to come to a conclusion.

Although mostly we think of savings in monetary terms, it stretches beyond that, especially when we want to assess it we have it as a culture. Given that at least two-thirds of Zimbabweans live in rural areas and rely heavily on agriculture as a source of livelihood, perhaps this is a good data point to start.

Zimbabwe has been vulnerable to the effects of droughts, with at least 4 droughts since the turn of the century. However, it has also had seasons where she experienced above-average rains and good harvests. Naturally one expects that in seasons of bumper harvests, a buffer is kept for the rainy day. I hate the fact that I used “rainy day” to describe a drought.

However, a quick survey into the historical records will show that despite an impressive 2021/22 agriculture season and an average 2022/23 season, Zimbabweans in general were not ready for the 2023/24 drought. In fact, the president declared a state of national disaster with 6 million people in rural areas and 1.7 million in urban areas requiring food aid according to the Zimbabwe Livelihoods Assessment Committee. If Zimbabweans had a savings culture, even informally wouldn’t they have a buffer to protect them from the effects of these droughts?

As explained earlier, the savings become future consumption or investment. Building upon this thought, if Zimbabweans have a savings culture even if they are saving under the pillow, there should be enough capital for investments. Basically, the surplus economic units would finance the deficit financial units, and this doesn’t even need to be through formal banking channels, but whichever channel the economic agents trust.

This then follows that a high savings culture translates to abundant cash for investments and a relatively lower cost of capital. However, this is not the case in Zimbabwe. I would argue that the proliferation of microfinance institutions, which extend very hot and expensive money, is because there is no savings culture and economic agents are surviving from hand to mouth. Any shock in the hand-to-mouth sequence, they don’t have savings to tap into and hence borrow from microfinance institutions, which are charging between 10 -20% per month.

Although the pension contributions datapoint is a tricky and debatable one, nevertheless we should look at it for what it is worth. The Insurance and Pension Commission (IPEC) in its quarterly pension reports have heightened declining pension contributions as a major issue which needs to be addressed. Given the historical pretext where pension contributors lost their life savings, it is reasonable to understand why there is an unwillingness to save through pension contributions, however, it also explains that there is no savings culture.

In economics there is a term called marginal propensity to consume, trust me, it's not my intention to turn this article into an economics tutorial. However, the concept examines how willing are you to consume or spend the additional dollar you make.? I believe that episodes of hyperinflation that Zimbabweans have experienced have subconsciously propelled their propensity to spend since tomorrow is never promised.

The balance of trade is another data point of interest, especially after we have understood the marginal propensity concept. The balance of trade basically tells us about the exports versus imports of the country, and a saving culture is consistent with having more exports than imports.

?

However, despite the exports which depict the country’s earning capacity increasing, the imports which represent the spending patterns have also increased, and the gap continues to increase. This explains the overall culture that economic agents have, and it is not that of saving, but instead spending any additional income earned. Perhaps it explains why the biggest contributor to the country’s gross domestic product is the wholesale and trade sector.

Proponents of the notion that savings are informal also point to the fact that construction, especially residential in Zimbabwe is cash-based and that’s basically how economic agents save. This is a strong argument and possibly explains the savings culture, especially considering that the mortgage market is almost non-existent. However, I would argue that diaspora remittances which have grown at an average of 14% per year over the past decade, explain the construction boom.

In conclusion, although admitting that there is no savings through the formal banking channels, I also extend the argument that there is no saving culture in Zimbabwe overall. Unfortunately, this is not something to brag about because savings are critical in financing growth and considering the riskiness of the country, local capital will be key in financing that growth.