I have read a number of articles that lament about Kenyans lacking a savings culture. To crystallize this point, most people quote the savings ratio, measured as gross national savings as a percentage of GDP. The savings ratio has hovered at about the 12% mark. Compared to other countries, this seems to be rather low when you compare it to countries like China and Botswana whose savings rate has historically been in the 20-40% range. Closer to home, Tanzania has enjoyed savings rates of about 21% with Uganda coming second with 18%. So we do not save, and our East African counterparts save more of their wealth than we do. In essence the savings rate measures how much of our wealth that we save, simply calculated as our wealth less what we consume. The result is that from a national income identity perspective, we get to invest only 12% of our wealth. 

Moreover, if we invest more than we save, then by national income accounting identities then the surplus i.e gross savings less gross investments will be equal to the current account balance. In our case, we have a negative current account balance meaning that we invest more than we save. We can only do this by borrowing money. Therefore, we have established two clear factors;

  1. Kenyans don't save nearly enough of their wealth.
  2. Given that we do not save, we have to borrow and thus end up with current account deficits.
So to analyse this matter, one has to be cognisant of the way national savings are calculated. In the economy there are three players, firms and households, government and foreigners. Therefore, our GDP is a function of how much is spent by firms and households, governments and foreigners.  It thus follows that our national savings is a function of firms and households, governments and to some extent foreigners,with the only change being that foreigners are not included in the calculation of national savings. 

Therefore, savings are a function of how much our firms and households save and how much our government saves. If the latter actually save, or have ever heard of the concept. 

Do our firms and households save, the answer to this is a resounding YES! In 1998, the external debt stock i.e. the percentage of national debt owed to foreigners was 87%. In 2010, the external debt stock stood at 50%. The debt stock grew by a compounded rate of 23% during that period to stand at KShs 1.06 trillion shillings from a total of KShs 252 billion. If the composition of external debt has shown such a precipitous decline, all the while the total debt has been growing, it only suggests one thing. The government has been tapping the local market for their debt requirements. As such, the government can only tap into our "savings" to fund their deficits. Our pension funds, unit trusts and banks have lent more of our "savings" to the government.

The conclusion is simple, when analysing national income statistics, it is good to have an innate understanding of how those parameters are calculated. The national savings is low, not because Kenyans don't save, but because the government is constantly running budget deficits. They can only bridge these deficits by borrowing from us or from foreigners. Therefore, Kenyans do save, in fact they are great savers, they just save for the government.