Inequality In South Africa: An Alternative Narrative

We are often warned that inequality in South Africa will, if not addressed, result in our own “Arab Spring”.   

We all agree that the country needs to redistribute income to the poorer communities. 

Generally, we hear negative sentiments about inequality. So how in fact are we doing and can we remedy the situation?

The facts

Recently, the World Bank did an interesting study of how well South Africa redistributes wealth via fiscal policy - taxes and government expenditure such as pensions, social grants, housing, education and health care. There were some interesting statistics -
  • Extreme poverty (less than $1.25 per day) has more than halved from 34.4% of the population to 16.5%.

  • 3.6 million people have been lifted out of poverty (income of $2.50 per day).

  • In terms of our middle income peers (countries such as Brazil, Mexico and Argentina), we have the most efficient redistribution system. 

  • Inequality in SA has declined 25% as a result - from a Gini coefficient of 77 to 59 (the Gini coefficient is the globally accepted mechanism to measure inequality - the closer a country gets to 100, the higher the inequality).

That’s impressive, but …..

With a Gini coefficient at 59, South Africa still remains one of the most unequal countries in the world.  The country is also reaching its fiscal limits in terms of redistributing wealth – government debt has risen, the currency has declined and we are running a large trade deficit. In his recent Medium Term Budget, the Minister of Finance acknowledged this.

So what can we do?   

Comparing South Africa to Brazil is informative. In the 1990s, Brazil had a higher Gini coefficient than South Africa. Since 2000, it has rapidly dropped and is set to go below 50. What is interesting about Brazil is that incomes amongst the poorest sections of the community have risen five times faster than incomes of the richest category. This has been achieved by improving education and rapidly increasing semi-skilled jobs, particularly in agriculture. 

Since 2000, the standard of Brazil’s education has risen and Brazilians have leveraged this so that semi-skilled labour has often moved to skilled jobs.

With fiscal policy no longer a viable lever South Africa needs to look to creating jobs to reduce inequality, especially as unemployment is 25% (some argue 40% as this figure includes people who have given up looking for work).

We can still improve the quality of education. We can spread the beneficial impact of BEE.  This together with the relaxing of labour laws would encourage job creation.
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