High cost of living erodes households’ ability to save

 

The Central Bank of Kenya headquarters in Nairobi. CBK data shows that the proportion of insured customer deposits has been dropping as savings grew to Sh1.7trn by the end of last year. FILE 

By JOHN GACHIRI

High cost of living cut deeply into Kenyans’ disposable income which diminished their ability to save.

The Economic Survey 2013 shows that national savings dropped marginally, while incomes increased at a slower pace in 2012 than in 2011.

The Gross National Disposable Income (GNDI) was Sh3.66 trillion in 2012 from Sh3.28 trillion in 2011, a 12 per cent increase against a 20 per cent increase registered between 2011 and 2010 when the GNDI stood at Sh2.73 trillion.

Overall there was a reduction in gross national savings which stood at Sh419 billion, a marginal 2 per cent drop from Sh427 billion over same period.

Economists say that in general Kenya has a low level of savings mainly because there are very few people who have steady incomes that are large enough to allow for more income other than for survival.

The salaries of these few workers also have to be shared with other dependants, which further reduces savings.

“It is a factor of employment and dependency ratio,” said Kwame Owino, chief executive of the Institute of Economic Affairs.

The increase in the cost of food, which is the major expenditure item for Kenyan households, puts more pressure on incomes.

Mr Owino said that Kenya will find it hard to achieve economic growth rates of 10 per cent per year as envisaged in Vision 2030, Kenya’s blueprint to move the country to a middle-income economy. Savings ordinarily provide capital to finance projects.

High interest rates and taxation also diverted money that could have gone to savings to consumption. Analysts said that the drop in savings could also mean that Kenyans are purchasing more goods or consumer prices are rising faster as a result of increased costs of production.

“People are over-consuming or the government is over-taxing or both,” said Johnson Nderi, head of research at Suntra Investment Bank.

Mr Nderi said that one factor that can explain a drop in savings is a drop in interest rates which triggers spending over saving, arguing that when interest rates were high and corresponding deposit rates were in double-digits, and the the situation could have acted as incentive for consumers to forego consumption and save.