The low level of savings in Kenya is reducing the amount of investment in the country, which holds back economic growth.
The World Bank says savings in Kenyan households are not only low and declining, but are also lagging behind other economies in the region, which are less economically endowed. In the 1980s, the saving rate was higher than in Senegal, Ghana, Uganda and Tanzania, but Kenya has stagnated in the last three decades, allowing the rest to catch up and surpass it.
In Kenya’s case, however, the rate of domestic savings has been going down, which spells doom for the country as traditional levels of foreign direct investment dry up and the account deficit widens.
“The high current account deficit is not sustainable in the long term and the total external debt is projected to increase from 27 per cent of GDP in 2010 to 37 per cent of GDP in 2018, which puts a question mark on the long-term sustainability of the savings-investment gap,” says the World Bank in its latest report on Kenya.
According to the Kenya Deposit Insurance Corporation (KDIC), more than nine in ten account holders in the country hold less than Sh100,000 in their bank accounts.
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KDIC, which was recently hived off the Central Bank of Kenya (CBK) and charged with safeguarding the interest of all account holders in the country, further states that 96 per cent of Kenya’s 31 million bank accounts hold deposits that can be withdrawn at any time.
Developmental economist Anzetse Were said the Government should tackle Kenya’s social security system, which has weaknesses that affect the ability of Kenyans to save. “Kenya’s social security system is partly to blame because most Kenyans, particularly those in the middle class, often find they have extra pressures like school fees for siblings, hospital expenses, and harambees, which eat into their incomes and affect their ability to save,” she explained.
Savings in the corporate sector have, however, been said to be on an upward trend, with the financial sector and construction leading in the amount of savings across the sectors. The World Bank further argues that the dip in household savings is as a result of increased values of property that attract monies that would traditionally be saved with the promise of higher returns.
“International experience has shown that individuals prefer saving in non-monetary assets in an environment of low returns to saving in financial assets,” states the World Bank. “If property values are continuously growing as has been the case in Kenya, owners expect such trends to continue and in turn generate future income, thus lowering their need to save.”