Address by Dr Chris Stals, Governor of the South African Reserve Bank, at the 1996 Annual Conference of the Institute of Retirement Funds (Conference Theme: "The Changing Face of Retirement Provision") Cape Town. 1. The changing South African financial sceneFrom the information published in the latest Quarterly Bulletin of the South African Reserve Bank (March 1996) the following statistics are available on the total pension and retirement fund business in South Africa: Pension fund and other life business administered by long-term insurers(end 1994) R160,6 billionOfficial pension and provident funds (Sept 1995) R121,2 billionPrivate self-administered pension and provident funds (Sept 1995) R 99,2 billionTotal R381,0 billion This may not include all provisions made by South Africans for retirement, but nevertheless provide sufficient evidence of the importance of this industry as an accumulator of contractual saving, and as an investor of funds in the South African economy. Total income earned on the investment of its funds, and the annual contributions made by both members and their employers generate a large amount of funds for investment on a regular basis. The industry provides in a service that is of great importance for the total community of South Africa, apart from its importance in the macroeconomic development of the country. Most South Africans save very little outside of contractual saving made through the institutional investors. Last year, private households in total saved only about 1 per cent of gross domestic product. Indeed, discretionary saving by private individuals outside of contractual commitments to save was negative -- made possible by substantial spending financed with additional borrowing, particularly in the form of loans from banking institutions. The ratio of the total amount of consumer credit outstanding to personal disposable income rose from 23 per cent in 1994 to 25½ per cent in 1995. On the average, every South African family has therefore already consumed about one quarter of the income it will earn over the next year.These perilous developments are taking place against the background of important changes in the South African financial situation in general. The liberalisation of financial markets, the introduction of new electronically-based trading and payment facilities, the increasing demands on resources for essential social and economic reconstruction and development, and the gradual integration of South Africa in the international financial markets are creating new situations and new challenges that will require careful management, particularly by institutions that function as trustees of the public's retirement funds. It will also require careful consideration from the authorities in deciding on directives for prudential financial requirements of these institutions, in determining guidelines for investment by these institutions and in the taxation of the cash and income flows managed by the industry. Above all, South Africa must guide against the danger of discouraging saving in a community that already over-consumes and makes an inefficient contribution to the growing demands for the funding of the development needs of the country. 2. Effects of the integration of the South African financial markets in the world economyThe turmoil in the South African foreign exchange market in recent months provided a good example of the risks involved in the integration of the South African financial markets in the global system. There are obvious advantages in it for South Africa to open up its economy to the world markets, and to compete on an equal but aggressive basis with other countries for large amounts of funds seeking investment in the global economy.Accessing the savings of other countries can supplement the low savings of South Africans, and can enable this country to develop its resources much faster for the benefit of all the people of the country. It is the only way for South Africans at this stage of the country's economic development to "live beyond their means" -- that is to