An investigation into the determinants, problems and consequences of low savings in developing countries: A case study on Ghana

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Sub-Saharan African(SSA) countries, havehistoricallyrecorded low levels of savings. These countries have also experiencedthe lowesteconomic growth rates around the world. Economists such as Solowidentified a strong positive link between savings and economic growth:Countries that save more grow fastest. Ghana, like other SSA countries isfaced with this problem: levels of savings in Ghana are low with a bulk of savers being educated and from the formal sector of the economy. However the economy of Ghana is made up of mostlyindividuals in the informal sector, which holds about 85% of the total workforce. It is therefore a major concern since most Ghanaians that fall in the informal sector of the economy have low savings habits.This study therefore sought to identify the determinants of savings for individuals in both the formal and informal sector of the economy.The study was conducted separately in Accra (with easy access to formal banking services) and Berekuso (with little access to formal banking services). The research employed mainly qualitative analysis in the form of questionnaires, interviews and a focus group of experts. The research concluded that individuals in Berekuso did not save because of extremely low monthly incomes. Individuals in Accra however claimed that even though they did save they were not motivated to save because interest on savings was quite low although.The research results imply that the government should step up efforts to reduce interest rate spread for example through the enactment of antitrust laws which foster competition. The government should also engage in pro poor policies that generate jobs for rural dwellers and raise their incomes in order to help increase savings among Ghanaians.
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, May 2012
Ghana, savings, developing countries, banking