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Analysis: Income inequality in South Africa
Page 2 of 21
T A B L E O F C O N T E N T S
1. INTRODUCTION .................................................................................................................................................... 3
2. GLOBAL OUTLOOK ............................................................................................................................................. 4
3. CAUSES OF INEQUALITIES ............................................................................................................................... 5
3.1 WEALTH CONCENTRATION ............................................................................................................................. 6
3.2 LABOUR MARKET INEQUALITIES ................................................................................................................. 6
3.3 TAXES ...................................................................................................................................................................... 7
3.4 EDUCATION ........................................................................................................................................................... 8
3.5 GLOBALISATION .................................................................................................................................................. 8
4. MEASURES OF INCOME INEQUALITY .......................................................................................................... 8
5. INCOME INEQUALITY IN SOUTH AFRICA ........................................................................................................ 9
5. 1 DRIVERS OF INEQUALITY IN SOUTH AFRICA ............................................................................................. 9
2. 5. 1.1 APARTHEID LEGACY ............................................................... ERROR! BOOKMARK NOT DEFINED.
3. 5.2 CONTEMPORARY TRENDS ....................................................................................................................... 10
4. EDUCATIONAL INEQUALITIES IN SOUTH AFRICA ................................................................................. 12
6. BRAZIL EXPERIENCE ....................................................................................................................................... 14
7. POLICIES FOR ADDRESSING INCOME INEQUALITY .............................................................................. 16
8. CONCLUSION ...................................................................................................................................................... 19
9. REFERENCES ....................................................................................................................................................... 20
Analysis: Income inequality in South Africa
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1. Introduction
Economic inequality can be referred to as the gap between rich and poor, income
inequality, wealth disparity, or wealth and income differences comprises disparities in the
distribution of economicassets (wealth) and income within or between populations or
individuals. The term typically refers to inequality among individuals and groups within a
society. The widening income gap between the rich and poor has highlighted the need to
understand the causes of relative inequality and to construct suitable policies to reduce
and narrow the income gap.
The last decade has witnessed positive GDP growth rates in South Africa but the impact
on income inequality gap has been inadequate. This has acted as a constraint into
ensuring that South Africa's economic growth results in significant declines in poverty
levels.South Africa has largely failed to provide equal opportunities to all citizens since the
advent of the democracy in 1994.There is a widespread concern that the "rich are getting
richer and the poor are getting poorer", it is important note that this can result in negative
social outcomes such as criminal and social exclusion. It has been observed in the country
lately that there has been a lot of social unrest among various members of the society.
This is indicated by continued service delivery protest, high unemployment rate marches
and many strikes perpetrated the income gap between senior management and workers.
The recent incident of Marikana Mine violent strike which lead to deaths of people of
wages and to Credit agencies downgrading South Africa’s credit rating, is one example of
results of the negative impact of income inequality. Income inequality should be of great
concern to the government of the country as it is has detrimental impact on the country's
social, economic and business environment.
The main aim of this study is to provide an overview of income inequalities in South Africa.
Also to evaluate policies directed at addressing the income inequality challenge. Section 2
provides a global outlook and trends on income inequality. Section 3 discusses income
inequality in South Africa while section 4 provides an overview of educational inequalities
in South Africa. Section 5 brief discusses the link between income inequality and
migration. The Brazil experience is documented in section 6 and finally an overview of
policies aimed at addressing income inequality.
Analysis: Income inequality in South Africa
4 | P a g e
2. Global Outlook
The disparities that occur in income distribution of the countries are not only a
phenomenon in South Africa, but also happen in both advanced and developing countries.
Whether in advanced or developing economies, reducing inequality and poverty, and
promoting equity, are important macro-economic objectives.
Income inequality has been a rising concern in economies over the recent decades. This
has been driven by rising unemployment levels, government spending cuts in advanced
economies and skills divide in developing countries. Sub-Saharan Africa is the region that
increased the most over past two decades, with most significant increase being between
2005 and 2010. Latin America has been increasing over the past years but in 2010 the
income inequality was lower and it was not the most unequal region. Although inequality
has been slightly increasing, advanced economies are the least unequal economies in the
world. Their sustained growth levels, low inflation rates, low unemployment rates and
progressive tax systems enable developed countries to be the least unequal economies in
the world. Advanced economies also tend to have effective income redistributive policies.
In spite of developing Asia's great success in raising the living standards and reducing
poverty, swelling income inequality threatens to undermine the pace of the progress. Latin
America has a level of income inequality that is substantially higher than other regions in
the world, but it is expected to decrease .However the limited effect of redistribution from
the tax system in that region might threaten the progress to bridge the inequality gap.In the
US the income inequality gap is expected to widen as the country recovers from the
financial crisis. Income inequality is expected to increase in Europe as the region is
affected by the sovereign debt crisis. In Africa with particular reference to Southern Africa
income inequality is expected to remain as the country tries has also been negatively
affected by the global financial crises and the recent crises in the Eurozone.
Africa is one of the poorest regions in the world and it is also the world's most inequitable
region in the world after Latin America. In 2010 six out of ten most unequal countries
worldwide were in Sub-Saharan Africa and more specifically in Southern Africa(South
Africa, Angola, Botswana and Zimbabwe). Rising income inequality is a growing concern
in South Africa. Figure 1 below indicated the different trends in income inequality across
different regions.
Analysis: Income inequality in South Africa
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Figure 1: Trends in income inequality across region
Source: World Development Indicators, World Bank 2010
According World bank the Gini coefficient of South Africa currently stands at 0.70 and is
one of the highest in the world along with Namibia 0.69, Lesotho 0.63, Botswana 0.63,
Sierra Leone 0.62, Central African Republic 0.61, and Brazil 0.58. Countries with the
lowest Gini coefficients (less than 0.2) include Afghanistan, Angola, Chad, Bahrain, Cuba,
Iraq and others. Countries that have Gini coefficients between 0.30 and 0.48 are
Cameroon, United States, Iran, Nigeria, China, Switzerland and Sweden. From this, it is
clear that countries with similar Gini coefficients have many economic differences which
include a vast range of GDP growth rates, per capita incomes and levels of
unemployment. For example, Cameroon, which has been awarded the humiliating status
of a Highly Indebted and Poor Country by the IMF in a bid to get part of its debts
cancelled, has a Gini coefficient close to that of advanced countries like the United States.
3. Causes of inequalities
0
0.1
0.2
0.3
0.4
0.5
0.6
1980 1985 1990 1995 2000 2005 2010
Advanced Economies Asia
Emerging Europe Latin America
Middle East and North Africa Sub-Saharan Africa
Analysis: Income inequality in South Africa
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There are many reasons for economic inequalities within different societies. The single
most important driver has been greater inequality in incomes (wages and salaries). Apart
from income inequalities, there are other acknowledged factors that have an impact on
economic inequality and poses serious threats of disparities within different societies. This
has been mainly attributable to a range of factors including globalisation and technological
change. This has resulted in the widening of the gap between the rich and poor in the
world.Other inequalities apart from income inequality of wages and salaries (highly skilled
workers who earn more than others; includes among others, the wealth concentration;
labour markets, increasing education costs racial inequality, the gender pay gap, and
nepotism. For this analysis the following section will only focus on wealth concentration,
labour market inequalities, taxes, education and globalisation.
3.1 Wealth concentration
This is the case where one section of the population has more wealth as compared to the
other section. The distribution of wealth in South Africa is more unequal than what it was a
decade ago, according to the South African Institute of Race Relations (SAIRR) report
2009. This may have been as a result of an unintended consequence of the country's
Black Economic Empowerment (BEE) and employment equity policies.
3.2 Labour Market inequalities
One of the major causes of economic inequality within modern market economies is the
determination of wages by the market. Some small part of economic inequality is caused
by the differences in the supply and demand for different types of work. However, where
competition is imperfect; information unevenly distributed; opportunities to acquire
education and skills unequal; and since many such imperfect conditions exist in virtually
every market, there is in fact little presumption that markets are in general efficient. This
means that there is an enormous potential role for government to correct these market
failures.
In a purely capitalist mode of production (i.e. where professional and labour organizations
cannot limit the number of workers) the workers’ wages will not be controlled by these
organizations, or by the employer, but rather by the market. Wages work in the same way
as prices for any other good. Thus, wages can be considered as a function of market price
Analysis: Income inequality in South Africa
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of skill. And therefore, inequality is driven by this price. Under the law of supply and
demand, the price of skill is determined by a race between the demand for the skilled
worker and the supply of the skilled worker. On the other hand, markets can also
concentrate wealth; pass environmental costs on to society, and abuse workers and
consumers. Markets, by themselves, even when they are stable, often lead to high levels
of inequality, outcomes that are widely viewed as unfair.
Employers who offer a below market wage will find that their business is chronically
understaffed. Their competitors will take advantage of the situation by offering a higher
wage to snatch up the best of their labour. For a businessman who has the profit motive as
the prime interest, it is a losing proposition to offer below or above market wages to
workers. These supply and demand interactions result in a gradation of wage levels within
society that significantly influence economic inequality. Polarization of wages does not
explain the accumulation of wealth and very high incomes among the 1%. It is plain that
markets must be tamed and tempered to make sure they work to the benefit of most
citizens.
3.3 Taxes
Another cause is the rate at which income is taxed coupled with the progressivity of the tax
system. A progressive tax is a tax by which the tax rate increases as the taxable base
amount increases. In a progressive tax system, the level of the top tax rate will have a
direct impact on the level of inequality within a society, either increasing it or decreasing it.
Additionally, a steeper progressivity results in a more equal distribution of income across
the board. The difference between the Gini index for an income distribution before taxation
and the Gini index after taxation is an indicator for the effects of such taxation.
There is debate between politicians and economists over the role of tax policy in mitigating
or exacerbating wealth inequality. Economists argue that tax policy in the post World War
II era has indeed increased income inequality by enabling the wealthiest workers far
greater access to capital than lower-income earners.
Analysis: Income inequality in South Africa
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3.4 Education
One important factor in the creation of inequality is variation in individuals' access to
education. Education, especially in areas where there is a high demand for workers,
creates high wages for those with this education. As a result, those who are unable to
afford an education, or choose not to pursue optional education, generally receive much
lower wages. Unequal levels of education also have direct impact on income inequalities.
3.5 Globalisation
Globalisation is often blamed for growing inequality. The increased productivity and
opportunities for trade and foreign direct investment (FDI) that globalisation brings in its
wake have contributed to raising the growth potential in both advanced and emerging
economies. But the benefits of greater trade and FDI integration and economic growth
have often not been distributed equally. High-skilled, highly-educated workers in
developing countries such as South Africa and some of the emerging economies have
gained the most.
Economic globalisation has many facets, however, such as greater openness of markets,
integration of financial markets, relocation of production, and international migration. Each
of these facets has a potential impact on inequality and needs to be taken into account
when assessing the overall effect. Trade liberalization may shift economic inequality from
a global to a domestic scale. When rich countries trade with poor countries, the low-skilled
workers in the rich countries may see reduced wages as a result of the competition, while
low-skilled workers in the poor countries may see increased wages.
4. Measures of income inequality
The main measure of income distribution is the Gini coefficient. It calculates the extent to
which the distribution of income among individuals within a country deviates from a
perfectly equal distribution. The coefficient varies between zero, which reflects complete
equality and one, which indicates complete inequality. Theil-index is another measure of
income inequality. While its less commonly used than the Gini coefficient, it has the
advantage of being additive across different subgroups or regions in the country.A useful
property of this measure is that it is decomposable into a share of the total measured
Analysis: Income inequality in South Africa
9 | P a g e
inequality that is attributable to inequality within each of the racial groups (Gini coefficient
is not decomposable over groups) and a share that is attributable to inequality between
racial groups.
In terms of the Gini co-efficient measure, which has increased over the past decade from
0,64 and 0,66 in South Africa. The Gini scale measures the level of wealth distribution.
Zero represents perfect equality, while a score of one represents perfect inequality. Most
developed countries have scores of between 0,20 and 0,40. In South Africa, most racial
groups saw their Gini scores increase over the past ten years, meaning that the
distribution of wealth has become more unequal.
In South Africa, the Gini co-efficient among whites, decreased from 0,50 in 1998 to 0,46 in
2008, according to Statistics South Africa Survey 2009. The Gini increased among
Africans by 7%, and among Indians and coloureds by nearly 4%. The Gini was above 0,6
in all provinces in South Africa, with the gap between the richest and poorest being the
widest in KwaZulu-Natal and Mpumalanga and the lowest in the Western Cape in 2009. (
does not correspond to global insight)
5. Income inequality in South Africa
South Africa’s inequality has become a fundamental part that defines it. The country has a
very high Gini coefficient, which has always served as the complete indicator of the
country inequality. The racial legacy is a major variable in explaining inequality in the
country. The slow economic growth, unequal income and wealth distribution are also
epidemic in the country.
5. 1 Drivers of inequality in South Africa
In large part, inequality is an enduring legacy of the apartheid system, which denied the
non-whites (especially Africans) the chance to accumulate capital in any form - land,
Analysis: Income inequality in South Africa
10 | P a g e
finance, skills, education or social networks. At the heart of high inequality lies the inability
to create employment opportunities on a large enough scale. South Africa’s highly unequal
economy is, in many aspects, a legacy of apartheid. The previous regime perpetuated
income poverty and exacerbated income inequality in very obvious ways. Africans,
Coloureds and Asians were dispossessed of most of their land, faced restricted
opportunities for employment or self-employment, were limited to low-quality public
education and health care, and were physically confined to impoverished parts of the
countryside or cities. At the same time, the white minority benefited from discriminatory
public policies. It was hardly surprising that South Africa competed with Brazil and a
handful of other countries for the indignity of having the most unequal distribution of
income.
5.2 Contemporary trends
Post-apartheid democratisation was accompanied by high hopes that income poverty and
inequality would decrease especially among the black population. Though absolute,
relative and income poverty have decreased in the 2000s, income inequality has actually
increased. Other development indicators like type of dwelling, access to sanitation,
electricity, gross enrolment rates and immunisation coverage have shown more optimistic
trends. Ironically, the rise in inequality has co-occurred with the rise in economic growth in
South Africa. South Africa’s average gross domestic product (GDP) growth rate over the
period 1993-2011 has been 3.26%, whereas its Gini coefficient has increased from 0.66 in
1993 to 0.70 in 2008. Economic growth has been highly uneven in its distribution,
perpetuating inequality and exclusion. With an income Gini coefficient of around 0.66 in
2007 and Gini coefficient of 0.631 in 2010, South Africa stands as one of the most unequal
countries in the world.
5.3 Racial and gender analysis of inequality
1Data from Global Insight 2012
Analysis: Income inequality in South Africa
11 | P a g e
Inequality in South Africa has strong racial underpinnings. Significant differences between
the population and income shares exist. While Africans accounted for 79.2% of the
population in 2008, they captured only 42.7% of income. Whites, who accounted for only
8.9% of the population, captured 43.4% of income.
The income decile composition for each race shows the position of the different groups in
the income distribution. Africans are spread relatively evenly across the lower deciles,
while the other racial groups are concentrated around the upper deciles. Almost 60% of
Asians/Indians and 25% of Coloured people are in the top two deciles whereas the
corresponding share for the white population stands at over 80%.
The result of the 2011 census indicates high income inequality levels by race and gender.
White headed households have the highest average income at R365 134 per annum
compared to the black-African headed households who have an average income of R60
613 per annum .The disparity is also visible in comparison by gender as average female
headed households earn at R67 330 which is just above half of the annual income in 2011
of their male counterparts who earned an average of at least R128 329.The biggest
challenge is that income inequality positively correlates with racial divide thereby dividing
the nation further.
Recent studies have found an increase in the contribution of within-group inequality to total
inequality, driven to a large extent by the increase in inequality amongst Africans. The
rising inequality amongst Africans has been driven by high African unemployment on the
one hand and increasing incomes concentration on the few at the very top of the
distribution on the other. In 2008, 59% of overall income inequality was driven by
differences within races, while the remaining 41% resulted from income inequality between
racial groups.
Income inequalities among race
In South Africa, blacks earn significantly less than their coloured, Indian, and white
counterparts. The average household income in South Africa has more than doubled the
past decade. In 2001, South African households earned on average R48,000, which had
increased to R103,204 by October 2011 according to census report 2011. The report
Analysis: Income inequality in South Africa
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further revealed that black African-headed households were found to have an average
annual income of R60,613 in 2011. White households earned on average about six times
more than blacks. White-headed households had the highest average household income
at R365,134 per annum. The average coloured household made about R112,000 a year,
and Indian households just over R250,000.
Households in Gauteng earned more than those in the rest of the country, raking in about
R156,243 a year on average, followed by the Western Cape with R143,460. Census 2011
found that Limpopo remained the province with the lowest average annual household
income at R56,844, followed by the Eastern Cape, where the average was R64,539 (
Census Report 2011).
2. Educational inequalities in South Africa
Investing is children's education is associated with future high-income levels, (Birdshall, 2000). It
has been shown that among individuals with equal abilities, those with higher income and wealth
may be able to become more educated while the poor cannot, thus condemning the children of the
poor to limited education and low future income and a self perpetuating poverty trap. Birdshall &
Londono, 1997, showed that inequality of education limits the poor's future income and leads to
continuous poverty vicious circle, thus the poor were previously too poor to invest in education
which might lift them out of the poverty levels.
In the case of South Africa, more than 90% of children of all race groups remain at school till
obtaining matric according to the Statistics SA census 2011 report, educational access is no longer
a major problem in the country. Also the racial gaps in educational attainment have been
substantially reduced over the past decades.
Table 2: Percentage distribution of persons aged 20 years and older by level of education and
population group
Variable
Black
African
Black
African Coloured Coloured India/Asia India/Asia White White
2001 2011 2001 2011 2001 2011 2001 2011
No Schooling 22.3 10.5 8.3 4.2 5.3 2.9 1.4 0.6
Some Primary 18.5 13.9 18.4 13.8 7.7 6.6 1.2 1.3
Analysis: Income inequality in South Africa
13 | P a g e
Sou
rce:
Stati
stic
s
Sout
h
Africa Census 2012
Table 2 above clearly illustrates the improvement of education level across all population groups in
the country. Black African with no schooling declined by 11.8%, while the Coloured, India/Asia
declined by 4.1% and 2.4% respectively. The white race has the lowest number of people with no
education. Table 2 also indicates a significant decline in the number of black Africans without post
matric. However, there are severe problems with the quality of education in our country's school
system, as reflected by matriculants results in the previous years. The deficient performance
particularly from black schools is a source of concern as education enhances the earnings
potential, ability to compete for jobs and as it’s also a source of growth. Education is a major factor
in reducing income inequality.
Acquiring post matric education isa predictor of potential highincome, as individuals with low or
incomplete secondary will most likely earn less. The table 2 above, also illustrate that 37.8% of the
white population have post matric qualification, while blacks Africans, coloured and India/Asia only
have 8.6%, 7.7%, 22% respectively for the year 2011. Black Africans account for 79% of the
population in the country while the whites only account for 8.9% the lowest is the India/Asia
population with 2.5%. The education level of the previously disadvantage groups is improving but
not at a significant rate to reduce the inequality level.
The importance of acquiring higher education to increase one’s chances getting employed and
earning high income has been highlighted in the paragraphs above. High unemployment is
associated with low education level (Visa-visa), The diagram below clearly illustrate the
relationship between education and unemployment. Figure 2, shows that a large percentage of
unemployed South Africans have lower than matric education level and this number has been
decreasing from 63.8% in 2008 to 60% in the year 2012.The decrease in the share of unemployed
people with lower than matric qualifications is correlated to the improvement of people with matric
as it moved from 30.6% in 2008 to 33.3 in the year 2012. Tertiary education has shown significant
improvements for 4.8% of 2008 to 6.1% of 2012. The rise in the unemployment rate has been
increased by the mismatch been what people study at tertiary level and what the labour markets
requires.
Figure 2 :Share of the unemployed by education level
Completed
Primary 6.9 4.9 9.8 7.4 4.2 2.8 0.8 0.7
Some Secondary 30.4 35.3 40.1 41.8 33 25.7 25.9 20
Grade
12/Std10/matric 16.8 26.9 18.5 25.2 34.9 40 40.9 39.5
Higher 5.2 8.6 4.9 7.7 14.9 22 29.8 37.8
Analysis: Income inequality in South Africa
14 | P a g e
Source: Quarterly labour Force survey 2012
At the heart of high inequalities lies the inability to create employment opportunities on a larger
scale. The country is currently at 25.5% unemployment rate. Unemployment is linked to issues
such as crime and has a potential to hurt investment and growth. Unemployment is also a
determining factor in inequality outcome of the country, the issue of wage disparity is crucial in this
context. The recent labour challenges by the mining, agricultural and transport logistics sector have
articulated the need for effective policy implementations to ensure income equality is achieved and
several structural socio-economic issues are addressed.
6. Brazil experience
Much research years has sought to explain why inequality in Brazil has decreased sharply in a
decade while South Africa's level of inequality has remained stubbornly high. Brazil and South
Africa have similarities as they are the largest economies in Latin America and Africa
respectively.They both have high inequality and have historically competed for the highest index
for most unequal in the world. South Africa has surpassed Brazil which had previously uphold the
title of the country with the greatest inequality. Much of the narrowing in Brazil has been
attributable to the buying power of the minimum wage, which has been steadily increasing since
1994.
2008 2009 2010 2011 2012
Lower than matric 63.8 61.6 60.1 59.7 60.0
Matric 30.6 32.2 33.3 33.7 33.3
Tertiary 4.8 5.4 5.8 5.8 6.1
Other 0.7 0.7 0.8 0.7 0.6
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
%
Analysis: Income inequality in South Africa
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Figure 3. Comparison between Brazil and South Africa's Gini coefficients
Source: World Bank database 2010
The figure above provides a comparison between South Africa and Brazil’s gini coefficient (the
measure of inequality) over the past decade. The graph illustrates that South Africa's inequality
has been on the rise while Brazil has been able to narrow the income inequality divide;
Factors that lead to the declined in income inequality in Brazil
Expansion in the provision of education, mainly elementary and secondary changed the
schooling profile of the labour force, closing the earning gap between different education
levels.
Strong economic growth and social policies that reach out to the poor communities,
lessening the proportion of the poor population.
High social spending as a percentage of GDP.
Rural development
Increase in the minimum wage policies between 1997 and 2009 the real value of the
minimum wage increased by 70%.This resulted in a reduction of earnings gap between the
low -skilled and the highly skilled workers.
In advanced economies and in the case of Brazil fiscal policy has played a significant role in
reducing income inequality, especially on the expenditure side but also through progressive
taxation. South Africa has a progressive income taxation system which is based on the premise
that the wealthy should contribute a greater proportion towards supporting the state than the poor.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1996 2000 2002 2005 2007 2009
South Africa
Brazil
Analysis: Income inequality in South Africa
16 | P a g e
7. Policies for addressing income inequality
Social, labour-market and fiscal policies play a major role in redistributing income. On
average, cash transfers and income taxes reduce inequality by one third and reduce
poverty by about 60% in OECD countries. Policies to address the causes of growing
inequality could be made more efficient, for example, by making more use of in-work
benefits which encourage people to take up work and give additional income support to
low-income households. Another important policy challenge is to improve equal access
and quality of education and training which will enable workers to take up better-paid jobs
and thus reduce inequality.
Inequality is not only about income but includes other dimensions which policies have to
address. Publicly-provided services, such as health, education, housing or care services
also reduce inequality. Public services such as high-quality education furthermore
constitute a longer-term investment to foster upward social mobility and create higher
equality of opportunities in the long run. Redistributive policies are more difficult to
implement in emerging economies due to their large informal sectors.
Therefore, targeted benefit programmes, such as conditional cash transfers, may be more
effective in reducing inequality while at the same time serving other objectives, such as
increasing the use of health and education services. Universal basic pensions and
unconditional child grants with higher rates for poorer households can also be powerful
tools in reducing poverty, as the example of South Africa shows. In the medium term,
however, the most effective route to reducing poverty and inequality is to promote the
creation of better jobs in the formal sector and increase the coverage of social protection
systems. Policies to improve the business environment may be expensive for the South
African government but can support the creation and expansion of firms, and thus jobs, in
the formal sector.
Inequality and Government intervention
Analysis: Income inequality in South Africa
17 | P a g e
The South African government has developed a number of policies to reduce the level of
inequalities in the country. One of the policies to effectively deal with inequality is the
National Development Plan (NDP). South Africa's National Development Plan (NDP)
seeks to eliminate poverty and reduce inequality by 2030 by drawing on the energies of
the country's people, growing an inclusive economy, enhancing the capacity of the state,
and promoting leadership and partnerships throughout society.
The plan focuses on the elimination of poverty - reducing the proportion of households with
a monthly income below R419 per person from 39 percent to zero - and reduction of
inequality in South Africa. Other goals include increasing employment from 13-million in
2010 to 24-million by 2030; broadening the country's ownership of assets to historically
disadvantaged groups; ensuring that all children have at least two years of pre-school
education and that all children can read and write by grade 3; providing affordable access
to healthcare; and ensuring effective public transport.
Apart from the NDP, a number of Government policies have been designed to address the
often interrelated problems of inequality, poverty and unemployment. Other government
initiatives have included the Growth, Employment and Redistribution (GEAR) programme,
the Reconstruction and Development Programme (RDP), the Broad-Based Black
Economic Empowerment (BBBEE) policy and the land reform strategy. The fiscal policy
leg of economic policy becomes increasingly important when the Government aims to
address the problem of inequality by trying to redistribute gains from economic growth.
On the fiscal front, one of the policies that the South African Government has implemented
quite successfully is the provision of social grants. These grants are generally well
targeted and mostly reach the poorest of the poor. Grants are targeted at the most
vulnerable members of society, specifically the disabled, the aged and children. These
grants include: Disability grant, old age pension and Child Support Grant (CSG). Grant
income has been found to make a substantial contribution to total income, and is often
used to support an entire household.
Not only has the share of social grant expenditure in GDP increased significantly, but the
number of social grant recipients has also increased meaningfully. By April 2011, about 15
Analysis: Income inequality in South Africa
18 | P a g e
million people were receiving social grants in South Africa, which is more than a quarter of
the population and over six times the number of grant beneficiaries in 1998. Social
assistance contributed R97.6 billion to household income in 2011/12, representing a
substantial and enduring programme of poverty alleviation. Of this 15 million, more than 10
million people received child support grant, nearly 440 000 caregivers received care
dependency or foster care grants and about 2.6 million received older people received a
non-contributory pension. For the population at the lowest deciles of the income spectrum,
social grants serve as the main source of income. A key aspect of post-apartheid fiscal
expenditure patterns has therefore been a widening and deepening of South Africa’s social
security system.
Although social grants have proven to be an effective policy measure; they do not
constitute a sustainable solution in the long run. The large scale expansion of the social
security net implies a considerable increase in fiscal expenditure, which can threaten the
country’s macroeconomic stability. It should be noted that its implementation has reduced
income inequality in the country but not significantly to have an impact on the overall gini-
coefficient. Thus, the Basic Income Grant Coalition (BIGC)’s proposal of a ‘fixed minimum
income for everyone’ (synonym of a universal income support grant for all South African
citizens) has been met with stiff resistance. Opponents have argued that it would create a
‘habit of dependency’ amongst the citizens and that the cost of such a programme is not
tenable.
This emphasises the need to consider other policy options. One alternative is policy
interventions aimed at creating employment on a large scale. The South African
Government has initiated the Expanded Public Works Programme (EPWP) in 2004 and
the EPWP Phase 2 in 2009 aimed at “providing poverty and income relief through
temporary work for the unemployed to carry out socially useful activities. Given that most
of the unemployed are unskilled, the focus is on relatively unskilled work opportunities. All
work opportunities generated by the EPWP are therefore combined with training,
education or skills development, with the aim of increasing people’s ability to earn an
income once they leave the programme. The goal of the second phase of EPWP is to
create 2 million full-time-equivalent jobs for poor and unemployed people in South Africa
Analysis: Income inequality in South Africa
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so as to contribute to halving unemployment by 2014, through the delivery of public and
community services.
Another possible policy intervention is ‘Conditional Cash Transfers’ (CCT). CCTs aim to
reduce poverty and inequality by making welfare programmes conditioned upon the
receiver’s actions. Thus CCT is a form of social grant which requires reciprocity of
responsibility from the beneficiary. Under CCTs, the Government only transfers the money
to persons who meet certain criteria. These criteria may include enrolling children into
public schools, getting regular check-ups at the doctor's office, receiving vaccinations, or
the like. CCTs are unique in seeking to help the current generation in poverty, as well as
breaking the cycle of poverty for the next through the development of human capital.
Considerable literature has studied the impact and effectiveness of CCTs. Results have
been generally positive and the effectiveness of CCTs was found to be strongly linked to
the conditionality of cash transfer. The experience of other developing countries which
have comparable economic structure to South Africa can be instructive. For example,
Brazil has successfully implemented the ‘Bolsa Familia’ (formerly Bolsa Escola) which
provides monthly cash payments to poor households if their children (between the ages of
6 and 15) are enrolled in school. One of the important features of CCTs is that they could
be designed to address more than one policy issue simultaneously like poverty and
education or poverty and health. South Africa should seek to experiment the CCTs as a
part of its fiscal policy interventions to address inequality.
Another factor for addressing income inequality by government has been the
implementation of minimum wage salary in different sectors, such as retail, private
household and agricultural among others. The challenge with this has been that not all
participants in the set sectors adhered to the set minimum wage. To ensure that this is
implemented so that it can address income inequality gap government should ensure that
the is compliance and enforce it in the sectors that do not comply.
8. Conclusion
Inequality in South Africa is a pressing concern. It has a complex relationship with
economic growth, poverty and race. Though the South African economy is witnessing
positive growth and poverty is showing a declining trend, gains from economic growth
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have not been equitably redistributed. The South African economy is increasingly
becoming more unegalitarian. It is one of the most unequal societies in the world with a
Gini coefficient of 0.7. More worrisome is the fact that inequality has shown an increasing
trend.
Inequality in South Africa has historical and structural causes; it is also deeply intertwined
with issues of unemployment and poverty. Inequality entrenched in the economic structure
of a society is often difficult to reverse. Addressing the issue of inequality in South Africa
needs an integrated and multi-pronged approach. The Government has been
implementing various policies, especially fiscal policies, to address the problem of
inequalities. However, these policies have mostly taken the form of social grants. These
grants have increased significantly since 1998, with about 15 million people or a quarter of
the population receiving these grants by 2011. However, these grants seem to be not
providing a sustainable solution in the long run and not having significant impact on closing
the inequality gap. In addition, policies aimed to create jobs, like the EPWP, have only
seen moderate success.
Social safety net, providing employment and increasing the people’s skills so as to
increase their employability are some of the dimensions which have to be integrated in the
policy response. Fiscal policy interventions could be useful to address inequality in the
short and medium term, whereas a human opportunities approach could be used to target
inequality and poverty in the long run. There are no easy answers to South Africa’s
inequality. South Africa’s pro-growth economic model has produced highly skewed returns.
It is time South Africa shifted its economic model from pro-growth to pro-poor growth.
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