Breaking the Grip of Poverty and Inequality in SA

7/30/2019 Breaking the Grip of Poverty and Inequality in SA

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Paul Sunganani Chimenya

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Public Finance

Presentation [Ecumenical Foundation of Southern Africa].

Title: Breaking the grip of Poverty and Inequality in South Africa 2004-2014: Current trends, issues and

future policy options

Author: J P Landman

Introduction

South Africa is currently facing two distinct problems namely poverty and inequality. It should be noted

that these problems are very different thus requiring different policies.

Inequality

Inequality is measured by the Gini coefficient, which can vary between 0 and 1. The closer to 1, the more

unequal a society, and the closer to 0 the more equal a society. The Gini score for South Africa is 0.6.

Which means that South Africa has one of the highest levels of inequality in the world? It should be noted

that this is a general figure for the whole South African population because the Gini coefficient for

African households is higher than that of non African households.

Poverty

Measuring poverty is not a straightforward task, as it depends on what level of income constitutes the

poverty line.

Although $1 a day level has gained a lot of prominence in measuring the poverty line, it is not necessarily

an accurate indicator. This is because firstly a $1 in the U.S is not the same as a $1 in South Africa, it

buys very different quantities of goods and services in those countries. Secondly, a change in the strength

of the dollar does not mean that the level of poverty around the world has changed for example anappreciation of the dollar does not mean that poverty levels word wide have increased.

For South African purposes the paper uses the minimum living level as the cutoff point below which

people live in poverty. In 2003 this point was taken as R1, 871 for a household of 4.7 people.


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Differences between poverty and inequality

Firstly, even a society with a low level of poverty may still be a society with a high level of inequality.

Secondly, a fairly equal society may still have a high level of poverty. Many developing countries have a

lower Gini coefficient than South Africa, but poverty is much worse. It should be noted that inequality

with less poverty is more attractive than equality with more poverty, that is why people migrate to South

Africa. Thirdly, a society in Economic takeoff will, whilst in the transition from poor to less poor,

experience rising inequality. Finally, poverty and inequality will respond differently to growth. High

growth may reduce one and yet exacerbate the other.

Trends around the two problem areas

Taking the long view the proportion of people living in poverty has declined between 1970 and 2000.

However as a result of a growing population more people are living in poverty.

As stated by the United Nations, lower population growth would to promote economic growth and reduce

poverty, while high population growth rates would increase poverty.

Demographics leave policy makers with no choice more wealth has to be created in order to reduce

poverty and inequality. Therefore the best policy for a growing population is creation of new resources to

meet growing demands.

Another reason for lack of progress in reducing poverty within South Africa is poor economic growth.

The idea behind reducing poverty and inequality is to get the economic to growth rate to be higher than

the population growth rate.

The main driver of inequality currently within South Africa is no longer the black white divide but the

intra group divide between rich blacks and poor blacks. It should be noted that the intra black divide had

already started to open up by before 1995, thus giving credence to the conclusion that economic take-off

will leave some inequality in its wake.

Importance of labour markets

The only way to counter poverty and inequality is to create more jobs, and they need to be sustainable.

The labour market moves in tandem with the economy, it is therefore not really possible to have an

expanding labour market with a shrinking economy. And an ever expanding economy will definitely

create more jobs, even if one allows for the normal lags between growth and job creation.


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Of particular importance to the South African labour market is the relentless drive by higher skill levels

required by employers. While this is wonderful for productivity and export competiveness, it does have

the effect of putting formal employment out of the reach of many who are not suitably qualified. This

places the issue of education and skills on the agenda of labour market strategies.

The role of redistribution

There is room to reduce poverty through addressing inequality. This is done through state expenditure,

financed through taxes and some borrowing.

A growing economy also requires expenditure primarily on infrastructure and an enabling environment

which is created by lower taxes, lower interest rates, more skills training and the like. And these all cost

money either directly or in tax income sacrificed and borrowings not made.

The fact that needs always exceed resources brings another issue to the forefront: how efficient is state

spending and can available resources are stretched further through enhanced efficiencies? To what extent

can churches, NGOs, development organizations and the like be used to enhance the quality of state

spending? There is considerable scope for private-public-partnerships to enhance the efficiency of public

spending.

If public and private spending are linked, this can help to leverage existing resources and help to enhance

efficiencies. An example of stretching limited resources further would be a school being built by a

corporation, while the same money put into an existing church school would have rendered a better

outcome for everybody concerned.

What needs to be achieved

To roll poverty back to 2003 levels, the economy needs to achieve an annual growth rate of 4%. Such

growth will require careful management of macro variables as well as growth inducing measures. This

will have to include fiscal discipline, monetary stability, enhanced productivity, restructuring to removeto remove obstacles to investment and growth, reduced transaction costs and many other measures.

Some of the poor will be absorbed into the formal or the informal economy. This necessitates the need for

a safety net to alleviate the worst poverty. This should be done in a manner consistent with the macro-

constraints and multiple priorities of the South African society.


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Conclusion

Demography is important, but so is growth, sustainable redistribution, a leverage of private and public

resources off each other, and improved efficiencies on spending by both sectors. All these elements need

to be integrated into a holistic approach that will grow the economy sustainably, create jobs and ensure a

safety net for the poor.

Documents

Breaking the Grip of Poverty and Inequality in SA