Nigerians and declining savings culture

For Nigeria to achieve and sustain high investment and output, boosting the level of savings is of great importance, writes EHIME ALEX

Nigeria’s Gross Domestic Savings continues to decline. In fact, record shows that the 21st century is the worst hit. This has not only created concern for stakeholders but has also hindered the role of savings in national development.

According to World Bank data, the country’s GDS has continued to fall, from 57.16 per cent in 2000 to 21.66 per cent in 2020. Calculated as Gross Domestic Product less final consumption expenditure or total consumption, the GDS is expressed as a percentage of GDP, consisting of household, private corporate and public sectors savings.

Scholars have argued that the two most important issues in development economics, and for developing countries, were how to stimulate investment and increase savings to fund increased investment. To them, generally, growth in output depends on capital accumulation, which, in turn, depends on the marginal propensity to save.

Savings bottleneck

To enhance Nigerians’ savings culture, quite a number of issues can be pointed to have undermined the efforts of successive governments. These include financial sector distress, high inflationary expectation, low yield on investments and inappropriate institutional structures, which have remained the fundamental issues militating against effective savings, and, by extension investment, culture in Nigeria.

The latest report by the Nigerian Bureau of Statistics showed that the country’s inflation rate rose further to a five-month high at 15.92 per cent in March 2022. 

While the economic sectors are challenged generally, McKinsey, in a report, ‘Nigeria’s Banking Sector: Thriving in the Face of Crisis,’ asserted that the banking sector in Nigeria faces a challenging road ahead.

“Already under pressure coming into the crisis as a result of a sluggish economy, a challenging operating environment and increased competitive intensity – the ongoing pandemic, currency devaluation and other macro challenges continue to place roadblocks in the sector’s path,” it added.

Throwback on savings schemes

One of the efforts made to enhance savings and investment culture in Nigeria was the introduction of the National Savings Certificate, a key investment window for the low-income group with attractive yield as well as a strong alternative to bank deposits. According to the Central Bank of Nigeria, the scheme was expected to serve three major purposes of harnessing the idle funds in the informal sector/outside the banking system, to complement liquidity management; serving as a sustainable process of long-term savings mobilisation; and inculcating savings culture, particularly to low-income earners and the un-banked.

There is also the pension scheme, which is expected to enhance savings for increased investment, if well implemented. However, the far cry has been worrisome.

At its 2021 workshop for Finance Correspondents and Business Editors, the Managing Director/Chief Executive of Nigeria Deposit Insurance Corporation, Mr Bello Hassan, raised the concern that 99.4 per cent of bank accounts contain less than N500,000 Maximum Insured Limit recommended by the corporation.

The corporation had in June 2016 decried that only two per cent of Nigerians own 90 per cent of total deposits in Nigerian banks, a position regrettably posing a major socio-economic development challenge to the nation.

“What we found is that these two per cent Nigerians have 90 per cent of banks’ total deposits. Look at that – two per cent of Nigerians own 90 per cent of total bank deposits, while the remaining 98 per cent have just 10 per cent of total deposits. What that tells you is that the gap between the rich and the poor has continued in this country,” NDIC’s Director of Research and International Relations, Alhaji Mohammed Umar, lamented at the Businessday Capital Market Development conference.

New trend

To address the gap in funding for startups, the Nigerian government and some private institutions have developed various options for young entrepreneurs. These include loan facilities from the Bank of Industry; Lagos State Employment Trust Fund, believed to be operated at more favourable rates than the deposit money banks; the Tony Elumelu Fund initiative; National Economic Summit Group Pitch Competition, in partnership with Sterling Bank, and the Venture Garden Group, through its accelerator, GreenHouse Capital, to fund and mentor startups.

“For a young unemployed Nigerian with a brilliant business idea and no funding, this is the end of the road. However, this does not have to be the case, if such an individual cultivates a habit of saving as defined earlier,” said the President of Consumer Awareness and Financial Enlightenment Initiative, Debola Osibogun.