Why Nigeria suffers from low savings-to-GDP ratio, by FSDH

A combination of high unemployment, weak purchasing power and inadequate knowledge of investment products that are available and how they work for the benefit of investors are major facilitators of Nigeria’s low savings and investments when benchmarked against the Gross Domestic Product (GDP).

FSDH Merchant Bank Limited, in its Economic and Financial Markets Outlook for May, said that despite the observed growth in the savings and investment products in Nigeria, the country still records low savings and investments.

According to the bank, the nation’s ratio of Gross National Savings to the Gross Domestic Products (GDP) is now one of the lowest among some select countries, including Kenya, South Africa, India, Malaysia, China, United Kingdom, and USA

The bank’s Head of Research, Ayodele Akinwunmi, noted that despite the impressive growth in the mutual fund in Nigeria in the last five years, the ratio of mutual fund assets to the GDP estimated at 0.5 per cent as at December 2018, is still very low.

While these numbers show that there are a lot of growth opportunities for saving and investment in Nigeria, the current development is limiting system’s liquidity, while the available funds will command high interest rate.“Low savings and investment also limit the ability of a country to create wealth and lift its people from poverty. It also means that government at all levels will have limited access to taxable revenue to embark on development purposes.

“FSDH Research, therefore, dedicated this edition of our Monthly Report to discussions on some investment products in the Nigerian financial market and how Nigerians can create wealth from them,” he said.

Meanwhile, the bank has said there is good news for consumers and the Nigerian economy, its research forecasts inflation rate for the month of April 2019 to drop further to 11.23 per cent from 11.25 per cent recorded in March 2019.

The drop in the inflation rate would come observed slow-paced increase in Consumer Price Index (CPI) in April 2019, than it increased in the corresponding period of last year. Akinwunmi noted that the harsh macroeconomic environment, which put pressure on the value of the Naira, was responsible for the hike in inflation, adding that the economy has now recorded relative improvements in the last few months.

“The increase in the price of crude oil above $70 per barrel, relative accretion to the external reserves above $44 billion, stability in the value of the currency, successful conduct of general elections, and efforts to improve infrastructure in the country are responsible for the improvement in the economy.

“FSDH Research however notes that this growth is fragile and highly susceptible to developments in the international market. Although the declining inflation rate is still higher than the 6-9 per cent target of the CBN, it has supported the low yields currently available in the fixed income market,” he said.