CID Working Paper No. 038, January 2000

Saving in Sub-Saharan Africa

Ernest Aryeetey and Christopher Udry

Abstract

Gross domestic savings in Africa averaged only 8 percent of GDP in the 1980s, compared to 23 percent for Southeast Asia and 35 percent in the Newly Industrialized Economies. Aside from being generally low, saving rates in most of Africa have shown consistent decline over the last thirty years. These savings figures must be considered tentative, because they are derived as a residual in the national accounts from expenditure and production data that are themselves quite unreliable. Notwithstanding the problems of measurement, it is clear that savings are dominated by household savings. Survey evidence in turn shows that household savings are primarily in the form of non-financial assets. Financial savings are predominantly directed to informal markets and institutions. The paper documents these trends and provides a simple model of portfolio allocation to guide future research. It is suggested that an array of transaction costs associated with formal financial markets, coupled with the risk management strategies and production activities of households in Africa account for the patterns of saving and portfolio allocation observed in the data.

Keywords: saving, Africa, household savings, transaction costs, risk management

JEL codes: O16, O55, O17 and D12

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*An earlier version of this paper, as a background paper, was presented at the Workshop on "Explaining African Economic Growth Performance," held at Harvard University, March 26-27, 1999. The workshop was sponsored by the African Economic Research Consortium and the Weatherhead Center for International Affairs.

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