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In attempting to identify the structural ingredients that build country prosperity, we’ve looked over the last decade at the evidence and experiences of 160 countries and, in that process have found six common factors to the so-called ‘economic miracles’.
The list of ‘economic miracles’ is a diverse one and includes Chile (1985-2010), Costa Rica (1995-2010), Estonia (1995-2015), Poland (1990-2010), Taiwan (1975-2000) and South Korea (1975-2000). These are all countries that have gone from low-income and low-growth economies, to ones characterised by high levels of economic growth and social prosperity in short spaces of time. Although each country has a unique story, each one also conformed to six key ingredients that have contributed to the ‘miracle’.
These elements have worked together to produce vast gains in per capita incomes, productivity, industrial complexity and sustained improvements in developmental indicators such as life expectancy, education levels and social mobility whilst redressing economic exclusion and inequality.
So what makes up the Super Six?
A high savings rate
This provides the funding source for high levels of investment in fixed capital such as highways, harbours and hospitals which, in turn, underpins productivity gains and advances in industrial efficiency that support economic growth.
Access to quality healthcare
A population’s wellness, as well as the ongoing improvements in access to healthcare and healthcare infrastructure, support gains in socio-economic welfare.
Access to quality education
Improving education levels, alongside greater access to education and the education infrastructure, contributes to higher economic growth.
When more people are entering the workforce than leaving it, the nation’s productive capacity grows, which then has the potential to build its economic welfare.
A stable policy environment, with strong and effective institutions
The quality and stability of a country’s institutions and policies, including monetary, fiscal and industrial policies, underpin economic growth and development. Transparency in these can contribute as much to improvements in economic welfare as the policies themselves. In turn, policy stability and institutional strength support higher investment rates.
The extent to which the factors of production (goods, services, capital, people and ideas) can move freely and constructively within countries and across borders plays a vital role in economic growth and prosperity. Put simply, no country has become rich by building walls.
Just as the presence of these six factors are associated with economically successful countries, so their absence is a reliable basis for understanding why and how a country is caught in a low-growth trap. By identifying and assessing the six ingredients, a country can also know where it needs to improve.
Start with savings
Countries also need to understand which of the six factors they should prioritise. Our analysis allows us to attribute weights to each factor, according to their impact on growth and development. Of the six, the most powerful explanatory factor across countries and through time is the first-mentioned, namely the savings-investment rate.
The data for 160 countries for the period 1960-2019 suggest that as much as half of the difference in growth rates across countries, as well as within countries through time, can be explained by the level of investment which, in turn, is funded by the rate of country savings.
These six key ingredients provide a template for South Africa to achieve its growth and prosperity goals. Most importantly, they show the need to improve the savings rate and, in that way, drive the investment that underpins growth and other development goals.
The evidence shows that to achieve and sustain 5% growth, countries need savings and investment rates in the region of 30% of gross domestic product. South Africa’s savings and investment rate is significantly lower than this, ranging between 15% and 20% over the past decade, which places us squarely in a “slow growth” bracket. To achieve and sustain higher growth, South Africa needs to first achieve and sustain higher savings and investment rates.
Saving for South Africa
The Savings Index is devoted to stories of transformation and change, stories of countries, communities and families that make the journey from "poor" to "prosperous".