SAVINGS AND INVESTMENT: The carrot and the stick

In the last two weeks we have been covering personal savings and investment. The principles of economics that major companies use are also applicable to personal finance. The current trend in Rwanda does not appear to be pro-saving but pro-spending The government has tried to get Rwandans to save more to no avail. This means that the measures are either not sufficient or Rwandans are not aware of the incentives of saving. Rwanda lacks financial planners and advisors, therefore banks should take a more active role in offering these services. It would be an additional revenue stream and provide a pool of capital to invest on behalf of the customer, guaranteeing a minimum dividend. Some auditing and accountancy firms are already providing these services, so probity and confidence are crucial. Tax is the best instrument that can increase our marginal propensity to save and reduce our marginal propensity to spend. A carrot and stick approach is necessary; a good compromise for instance could be to allow Rwandans to save up to 20% of their income tax-free provided they hold it in a long-term savings account. This would increase capital reserves and help reduce interest rates. This loss of revenue should be reconciled from higher import duties for conspicuous spending on luxury goods, reducing forex leakage. In order to facilitate a savings culture on a policy level, we will need to look at what the main investment vehicles and drivers are. The main vehicle for investment in Rwanda is land and property. This sector serves the role that the savings sector should. Higher land and property taxes could be better way to reduce the imbalance in savings and maintain the value of property. The psychological drivers that make people invest in land also have to be addressed. Historically, land has always been seen as a prestige investment and it is this sentimentality that drives up the value of land. We have to promote other means of investment. Secondly, our land up to now has been bought on an adhoc basis with private sales witnessed by local officials but now our land will be registered and valued and this should reduce speculation. Promoting trust in our banking sector is the key to increasing savings rate. In Rwanda most of the major banks except Bank de Kigali have gone bankrupt in the past, often under previous management or other names. It must be these previous experiences that deter some Rwandans from trusting banks with large amounts of money. Improving customer service and staff training will gradually increase consumer confidence in banks and thus increase savings. Promoting financial awareness is the only way to truly increase savings. In Rwanda, we need a concerted effort from the government, the banks and consumers to promote a saving culture and investment on a personal level. We need a special taskforce to inform and devise measures that can get us to save more and diversify our investments. We have enough money, it just needs to be channeled correctly. E-mail:ramaisibo@hotmail.com