Strategy& calls for Saudi government to incentivise personal savings

The Saudi government needs to create more demand for savings say Strategy& partners Fadi Adra and Jorge Camarate, with a number of suggestions on the table.

In an article for the Saudi Gazette, Strategy& partners Fadi Adra and Jorge Camarate have highlighted the sorry state of personal savings in Saudi Arabia, suggesting the local government needs to do more to create greater demand – including by rejigging the generous pension system so that it supports those who need it the most, and to communicate such a change as a form of social solidarity.

Citing a survey conducted by the Riyali Financial Literacy Program and Souqalmal.com, Adra and Camarate, who respectively serve in the strategy consulting firm’s public services and financial services practices, highlight that as of last year some 45 percent of Saudi citizens had no savings and more than 80 percent had no investment plans in place. On top of this, Saudi banks have outstanding everyday consumer loans worth nearly $100 billion.

Meanwhile, the Saudi Vision 2030 has set a goal of increasing personal savings from 6 percent to 10 percent of total household income. Yet this prevailing low savings and high borrowing culture, they say, is in part to a local pension and social benefits scheme described by the pair as generous by even GCC standards. Here, they forward several levers the government can pull in an effort to create greater demand.

Such methods could include; a switch to a more needs-based pension system, to encourage the rest of the population to save more; raising financial awareness among workers and offering financial education for those still in school, the latter in an effort to foster cultural change toward savings via the younger generation; the offer of fiscal incentives for people to save, potentially through a government matching-programme; or by way of automatic employee contributions.

Another action the government can take, say Adra and Camarate, is to put in place a regulatory framework to can support Saudi Arabia’s asset management and capital markets sector, with at present a fairly limited array of investment products available locally. As an added bonus: “Even if much of the expatriate population’s savings eventually leave the country, in the meantime these funds will go into Saudi Arabia’s asset management and capital markets sectors.”

More broadly, more savings will have wide-reaching fiscal effects contend the Strategy& partners, granting individuals greater income security over the long-term and more control over their finances for major decisions such as buying a house and retirement. Society will also benefit from a more sustainable social welfare model, and there will also be additional capital for economic investment.  

“Altering people’s deeply ingrained spending and savings habits is a gradual process,” they conclude. “Nonetheless, change is necessary for the long-term economic prospects of Saudi Arabia. With the right mixture of demand and supply policies, a focus on changing the attitudes of the young, and pension reform, the country can move away from its current low savings habits toward a future with more savings, deeper capital markets, and a sustainable pension system.”