Every economics student is taught that one of the simplest economic identities is the global current account summing to zero. After all, we do not trade with Mars. Every country running a current account surplus must be matched by another running a deficit. Likewise, on a global scale, savings must equal investment.
Yet this neat accounting identity hides a highly fractured economic reality. Capital is not distributed evenly across the globe. Some countries consistently generate more savings than they can invest productively at home, while others rely heavily on foreign capital to finance their growth. In an increasingly fragmented global landscape where capital is becoming as highly politicised as physical goods, this divide is reshaping how countries finance growth.
The traditional textbook model held that capital would flow downhill from wealthy nations to poorer economies where it was scarce and the potential returns on investment were highest. In reality, the opposite often happens. A phenomenon known as the Lucas paradox explains why capital frequently flows uphill instead. China and Germany became persistent exporters of capital alongside oil-producing economies during periods of high energy revenues. Their domestic savings exceeded the investment opportunities available at home.
The structural drivers vary across countries. Germany’s export engine, Singapore’s compulsory pension system and China’s exceptionally high household and corporate saving rates all generate excess domestic capital that must be lent to the rest of the world.
At the other end of the spectrum is the US. Despite running huge, unprecedented peacetime fiscal deficits of about 6% of GDP, the US continues to act as a giant vacuum for global capital. This ability to borrow more easily and at a lower cost is sustained because the dollar remains the world’s primary reserve asset, while the country’s treasury market offers unmatched depth and liquidity.
However, this privilege is becoming less secure. As global fragmentation deepens and geopolitical alliances increasingly shape global capital allocation, nonaligned central banks are diversifying into alternative reserves such as gold, raising questions about the durability of the US financing model.
For the past two decades, global macroeconomics was dominated by former Federal Reserve chair Ben Bernanke’s diagnosis of a “global savings glut”. An abundance of capital relative to productive investment opportunities kept global real interest rates persistently low.
The willingness of the rest of the world to finance US deficits can no longer be taken for granted. The world may not be running out of savings, but capital is becoming more contested, more selective and more expensive to attract. Governments are running deeper structural deficits as populations age and defence spending rises, while the energy transition and AI build-out compete for the same global savings. This scramble for capital prompted the Bank for International Settlements to caution that rapid AI investment could pose macrofinancial stability risks, reinforcing the need for more disciplined allocation.
If global savings are commanding a higher premium, the case for building domestic savings becomes even stronger. As South Africa marked National Savings Month in July, it is a fitting reminder that stronger domestic savings remain the foundation for higher investment, greater resilience and stronger long-term growth.
National Savings Month is usually framed around household finances. Yet national savings are also a macroeconomic asset, determining how much investment a country can finance itself and how vulnerable it remains to swings in global capital flows.
South Africa’s gross national savings rate has long been structurally low, pulled down by years of aggressive public sector dissaving. Consequently, the country relies on importing foreign capital to bridge the gap between domestic savings and investment. While this arrangement works well when global financial conditions are supportive, it leaves South Africa highly vulnerable to sudden stops. When international investors become risk-averse or flee towards safe havens, the rand depreciates, domestic bond yields spike and capital retreats precisely when local investment is needed most.
For all South Africa’s financing constraints, capital itself is not in particularly short supply. The country has one of the deepest institutional investor bases in the developing world, while Reserve Bank data shows that nonfinancial companies are holding about R1.8-trillion in bank deposits, illustrating the considerable liquidity available in the corporate sector. Persistent logistics failures, weakening municipal capacity and policy uncertainty have encouraged firms to hold liquidity rather than commit to fixed investment. The challenge is converting infrastructure needs into investment-ready projects with credible governance, predictable regulation and commercially viable returns.
The era of cheap global capital is drawing to a close. In this environment, countries that can finance more of their own investment will enjoy a growing advantage. South Africa already has much of the capital it needs. Unlocking it is the harder task.
Packirisamy is group economist at Momentum Group