01 rising inequality in south africa

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Inequality in post-apartheid South Africa From Wikipedia, the free encyclopedia

President Nelson Mandela's democratic election in 1994 marked the end of political apartheid in South Africa. [1] Under apartheid, South Africans were classified into four different races: white, black, coloured, and Indian/Asian. [2] About 80% of the South African population is classified as black, about 9% as white, 9% as coloured, and 2% as Indian/Asian. [3] Under apartheid, whites held political power, and other races were barred from voting. While the end of apartheid opened the door for equal opportunity of all South Africans regardless of race, today’s South Africa struggles to correct the inequalities created by decades of apartheid. Despite a rising GDP, poverty, unemployment, income inequality, life expectancy, land ownership, and educational achievement have worsened since the end of apartheid and the election of the African National Congress. The end of the apartheid system in South Africa left the country socio-economically divided by race. Subsequent government policies have sought to correct the imbalances through state intervention with varying success.

Contents ◾ 1 Rising economic inequality in South Africa ◾ 1.1 Income distribution ◾ 1.2 Poverty levels ◾ 1.3 Land ownership ◾ 2 Causes of post-apartheid inequality ◾ 2.1 Unemployment ◾ 2.2 Economics ◾ 3 Solutions and policies ◾ 3.1 The Freedom Charter ◾ 3.2 Land reform ◾ 3.3 The Reconstruction and Development Programme ◾ 3.4 Black Economic Empowerment ◾ 3.5 Education Reform

Nelson Mandela votes in the 1994 presidential elections, which included non-white South Africans and marked the end of apartheid

◾ 4 See also ◾ 5 References

Rising economic inequality in South Africa Many of the inequalities created and maintained by apartheid still remain in South Africa. Income inequality has worsened since the end of apartheid, but it has begun to deracialize somewhat [4] Between 1991 and 1996, the white middle class grew by 15% while the black middle class grew by 78% [5] The country has one of the most unequal income distribution patterns in the world: approximately 60% of the population earns less than R42,000 per annum (about US$7,000), whereas 2.2% of the population has an income exceeding R360,000 per annum (about US$50,000). Poverty in South Africa is still largely defined by skin color, with blacks constituting the poorest layer. Despite many ANC policies aimed at closing the poverty gap, blacks make up over 90% of the country's poor at the same time they are 79.5% of the population.[6][7]

Income distribution A comparison of data from the 2008 National Income Dynamics Study (NIDS) and the 1993 Project for Statistics on Living Standards and Development (PSLSD) found that income inequality had increased both aggregately and between racial groups.[8] In 2008, the wealthiest 10% earned 58% of the total income, and the top 5% earned 43% of the total income.[8] This is a worsened situation from 1993, when the top 5% earned 38% of the total income.[8]

Poverty levels

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Under the national poverty line of $43 per month, 47% of South Africans are impoverished.[9] The number of people living on less than $1 a day has doubled from 2 million in 1994 to 4 million in 2006.[10] In 2005, 63% of black children lived in households earned less than 800 rands, compared to only 4% of white children.[4] The spatial segregation of black Africans to poor, rural areas is correlated with higher levels of poverty.[11]

Land ownership In 2006, 70% of South Africa’s land was still owned by whites.[10] This is despite the promises of the African National Congress to redistribute

A map showing severity of income inequality by country as measured by the Gini coefficient. South Africa has one of the highest levels of income inequality in the world.

30% of the land from whites to blacks.[12] Whites hold much of South Africa’s land, secured through freehold type regimes.[13] More than one-third of the population occupies 13% of the land, often in insecure or secondary ways.[13]

Causes of post-apartheid inequality Unemployment South Africa has extremely high unemployment rates. The overall unemployment rate was 26% in 2004, but historically disadvantaged groups like rural populations, women, and blacks experience higher rates of unemployment.[14] Unemployment is mainly concentrated among unskilled blacks, who comprise 90% of the unemployed.[14] [15]

The ANC government has pledged to cut overall unemployment to 14% by 2014, but so far, their efforts have not caused dramatic

drops in unemployment.[16] Much of the high unemployment rate is Soweto township

due to the declining manufacturing industry.[16] The unemployment rate for black South Africans has increased from 23% in 1991 to

48% in 2002.[17] Unemployment continues to rise despite robust economic growth, suggesting structural factors that may be constraining the labor market.[15]

Economics President Mandela’s advisor and successor Thabo Mbeki called for privatization, government spending cuts, freer trade, and looser restrictions of money flows.[17] Modern South Africa relies on wealth and foreign investors to fuel its economy, spurring policies that favor these groups.[18] The early ANC envisioned a more socialist South Africa, but this was unpopular with businessmen, foreign politicians, and the established media.[19] For example, Mandela strongly supported nationalizing banking, mining, and monopolies, but was forced to change this goal due to pressures from stock traders and international economic entities like the World Bank.[19] The World Bank encouraged the new South African government to promote the growth of the private sector, which trickle-down economics theory proposes will create jobs that will alleviate poverty.[19] The Growth, Employment, and Redistribution report (GEAR), prepared by the Department of Finance, the Development Bank of Southern Africa, the South Africa Reserve Bank, and representatives from the World Bank, further linked economic growth rates and social objectives. In order to create a business climate attractive for foreign investors, GEAR argued that South Africa must enact neoliberal policies.[19] GEAR recommended policies that promoted globally oriented industrial growth and called for measures such as wage moderation to encourage economic growth.[19] South Africa’s unions heavily criticized GEAR, arguing that it reinforced the economic conditions of apartheid.[19]

Solutions and policies

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The Freedom Charter In 1955, The African National Congress dispatched 50,000 volunteers into the townships and countryside to collect “freedom demands” from South Africans.[17] Freedoms included free public education for all races, living wages, land ownership, etc.[17] The demands were then compiled into the Freedom Charter.[17] The Charter was adopted on June 26, 1955 by a vote held in Kliptown, a border township between white Johannesburg and black Soweto.[17] But on the second day of the vote, the police charged the Congress with treason.[17] The Charter then circulated for three decades in the revolutionary underground and now remains a revered symbol of equality and freedom for South Africans, yet its promised economic equality has not been realized in the wake of neoliberalist state policies.[17]

Land reform In 1994, the newly elected African National Congress began to develop a program of land reform. This includes three primary means of reform: redistribution, restitution, and land tenure reform.[13] Redistribution aims to transfer white-owned commercial farms to black Africans.[13] Restitution involves giving compensation to land lost to whites due to apartheid, racism, and discrimination.[13] Land tenure reform strives to provide more secure access to land.[13] Several laws have been enacted to facilitate redistribution, restitution, and land tenure reform. Section 25 of the new South African Constitution, adopted in 1994, promised land reform to blacks in exchange for giving property titles to whites who acquired the property under prior regimes.[18] But while the titles were given out, the land reform was never implemented [18] The Provision of Certain Land of Settlement Act of 1996 designates land for settlement Kliptown Freedom Charter Memorial

purposes and ensures financial assistance to those seeking to acquire land.[13] The Restitution of Land Rights Act of 1994 guided the implementation of restitution and

gave it a legal basis.[13] The Extension of Security of Tenure Act of 1996 helps rural populations obtain stronger rights to their land and regulates the relationships between owners of rural land and those living on it.[13] So far, these land-reform measures have been semi-effective. By 1998, over 250,000 black South Africans received land as a result of the Land Redistribution Programme.[13] Very few restitution claims have been resolved.[13] In the five years after the land reform programs were instituted, only 1% of land changed hands, despite the African National Congress’s goal of 30%.[13]

The Reconstruction and Development Programme The Reconstruction and Development Programme (RDP)was a socio-economic program aimed at addressing racial inequalities by creating business and employment opportunities for blacks.[20] However, the RDP was a short-lived policy, mainly due to protest by investors and stakeholders who did not have any voice in the creation of the RDP.[20] Critics of the RDP argue that it emphasized macro-economic stability rather than social stability.[20]

Black Economic Empowerment The Broad Based Black Economic Empowerment Act of 2003 aimed to offer new economic opportunities to disadvantaged communities.[20] Its goals include achieving the Constitutional right of equality, increasing broad-based participation of blacks in the economy, protecting the common economic market, and securing equal access to government services.[20] Many scholars see BBBEE as capable of advancing economic growth, promoting new enterprises, and creating sustainable job opportunities for the previously disenfranchised.[20] Issues surrounding monitoring and enforcement are persistent obstacles to the success of BBBEE.[20] Also of note is that BEE allows the beneficiaries to come exclusively from wealthy previously disadvantaged groups. When this happens the inequality between white and black will improve but the inequality between rich and poor will get worse.

Education Reform South Africa’s Constitution mandates that the government make education accessible to all South Africans.[21] Under apartheid, black South Africans received only Bantu Education, while white South Africans received a quality free public education.[21] Today, South Africa spends over 20% of its budget on education, more than any other sector.[21] Educational

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investment accounts for a full 7% of the GDP.[21] Since the ANC instituted widespread accessible education, the total number of years the average South African completes has increased.[22] The structure of the national educational system gives power to individual provinces to choose how their schools run, while maintaining a streamlined national curriculum.

[21]

This significant investment in education has slowly closed the educational gap between black and white South Africans.

Since 1994 and the end of apartheid, black African enrollment in higher education has nearly doubled, and continues to grow

faster than overall higher education growth, at about 4.4% a year.[21] Key strategies of the educational reform include offering free meals to students during the school day, providing free schools to the poorest areas, improving teacher training programs, standardizing progress assessments, and improving school infrastructure and management.[21] However, 27% of 6th grade students are functionally illiterate.[23] However, only 4% of the wealthiest students are functionally illiterate, indicating a stark divide in literacy between income quartiles [23] The spatial segregation of apartheid continues to affect educational opportunities. Black and low-income students face geographic barriers to good schools, which are usually located in expensive neighborhoods [23] While South Africans enter higher education in increasing numbers, there is still a stark difference in the racial distribution of these students. Currently, about 58.5% of whites 51% of Indians enter some form of higher education, compared to only 14.3% of coloureds and 12% of blacks.[21] As of 2013, the global competitiveness survey [24] ranked South Africa last out of 148 for the quality of maths and science education and 146th out of 148 for the quality of general education, behind almost all African countries despite one of the largest budgets for education on the African continent. The same report lists the biggest obstacle in doing business as an "Inadequately educated workforce". Education therefore remains one of the poorest areas of performance in post-apartheid South Africa and one of the biggest causes of continued inequality and poverty.

See also ◾ Apartheid in South Africa ◾ Negotiations to end apartheid in South Africa ◾ Crime of apartheid ◾ Sexual violence in South Africa

References 1. ^ U.S Department of State. "The End of Apartheid" (http://2001-2009.state.gov/r/pa/ho/time/pcw/98678.htm). usa.gov. Retrieved 25 November 2013.

2. ^ "Race in South Africa: Still an Issue" (http://www.economist.com/node/21546062). The Economist. 4 February 2012. Retrieved 25 November 2013.

3. ^ "South Africa's Population" (http://www.southafrica.info/about/people/population.htm#.UpT3x2RDuoU). southafrica.info.

Retrieved 25 November 2013.

4. ^ a b Durrheim, K (2011). "Race Trouble: Identity and Inequality in Post-Apartheid South Africa". Theory and Psychology 22 (5).

5. ^ Durrheim, K (2011). "Race Trouble: Race, Identity, and Inequality in Post-Apartheid South Africa". Theory and Psychology 22 (5).

6. ^ "United Nations report highlights growing inequality in South Africa" (http://www.wsws.org/articles/2004/may2004/safrm21.shtml). World Socialist Website. 21 May 2004. Retrieved 2007-02-07.

7. ^ "Mid-year population estimates, South Africa" (http://www.statssa.gov.za/publications/P0302/P03022006.pdf) (PDF). Statistics South Africa. 2006.

8. ^ a b c Leibbrand, M; Finn & Woolard (2012). "Describing and decomposing post-apartheid income inequality in South Africa".

Development in Southern Africa. 1 29: 19–34. doi:10.1080/0376835x.2012.645639 (https://dx.doi.org/10.1080% 2F0376835x.2012.645639).

9. ^ Bhorat, H (19 July 2013). "Economic inequality is a major obstacle" (http://www.nytimes.com/roomfordebate/2013/07/28/thefuture-of-south-africa/economic-inequality-is-a-major-obstacle-to-growth-in-south-africa). The New York Times. Retrieved 20 October 2013.

10. ^ a b Klein, Naomi (2007). Democracy Born In Chains: South Africa's Constricted Freedom. Henry Holt and Company.

11. ^ Gradin, C (2013). "Race, Poverty and Deprivation in South Africa". Journal of African Economies 22 (2): 187–238. doi:10.1093/jae/ejs019 (https://dx.doi.org/10.1093%2Fjae%2Fejs019).

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12. ^ Atauhene, B (2011). "South Africa's Land Reform Crisis: Eliminating the Legacy of Apartheid". Foreign Affairs 90 (4): 121–129.

13. ^ a b c d e f g h i j k l Cliffe, Lionel (2000). "Land Reform in South Africa". Review of African Political Economy 27 (84): 273–286. doi:10.1080/03056240008704459 (https://dx.doi.org/10.1080%2F03056240008704459).

14. ^ a b Akora, V. and Ricci, L.A. "Unemployment and the Labor Market" (http://www.imf.org/external/pubs/nft/2006/soafrica/eng/pasoafr/sach3.pdf). International Monetary Fund. Retrieved 4 November 2013.

15. ^ a b "Economic Assessment of South Africa 2008: Realising South Africa's employment potential" (http://www.oecd.org/southafrica/economicassessmentofsouthafrica2008realisingsouthafricasemploymentpotential.htm).

OECD. Retrieved 4 November 2013.

16. ^ a b Seria, Nasreen; Cohen, Mike (5 May 2009). "South Africa's Unemployment Rate Increases to 23.5%" (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aoB7RbcZCRfU). Bloomberg. Retrieved 4 November 2013.

17. ^ a b c d e f g h Klein, Naomi (2007). Democracy Born in Chains: South Africa's Constricting Freedom. Henry Holt and Company.

18. ^ a b c Atuahene, B (2011). "South Africa's Land Reform Crisis: Eliminating the Legacy of Apartheid". Foreign Affairs 90 (4): 121 –129.

19. ^ a b c d e f Peet, Richard (2002). "Ideology, Discourse, and the Geography of Hegemony: From Socialist to Neoliberal Development in Postapartheid South Africa". Antipode 34 (1): 54–84. doi:10.1111/1467-8330.00226 (https://dx.doi.org/10.1111%2F14678330.00226).

20. ^ a b c d e f g Mpehle, Z (September 2011). "Black Economic Empowerment in South Africa: Reality or Illusion?". Administration Publication 19 (3): 140–153.

21. ^ a b c d e f g h "Education in South Africa" (http://www.southafrica.info/about/education/education.htm#.Unl_WJTk_5Y). southafrica.info. Retrieved 4 November 2013.

22. ^ "Human Development Report 2013: South Africa" (http://hdrstats.undp.org/images/explanations/ZAF.pdf). United Nations Development Programme. Retrieved 4 November 2013.

23. ^ a b c Spaull, N (2013). "Poverty & privilege: Primary school inequality in South Africa.". International Journal Of Educational Development 33 (5): 436–447. doi:10.1016/j.ijedudev.2012.09.009 (https://dx.doi.org/10.1016%2Fj.ijedudev.2012.09.009).

24. ^ "World competitiveness survey 2013" (http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf).

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Rising Inequality in South Africa: Drivers, Trends and Policy Responses Written by Sudhanshu Sharma (1) Tuesday, 16 October 2012 08:10

In the 1998 Parliamentary debate on reconciliation and nation-building, then Deputy President Thabo Mbeki famously argued that South Africa comprised ‘two-nations’ divided by poverty and inequality. He declared that: “[o]ne of these nations is white, relatively prosperous, regardless of gender or geographic dispersal. It has ready access to a developed economic, physical, educational, communication and other infrastructure. The second and larger nation of South Africa is black and poor, with the worst affected being women in the rural areas, the black rural population in general and the disabled. This nation lives under conditions of a grossly underdeveloped economic, physical, educational, communication and other infrastructure. It has virtually no possibility to exercise what in reality amounts to a theoretical right to equal opportunity.”(2) This CAI paper delves into the phenomenon of inequality in South Africa - its causes, contemporary trends and policy responses. The South African economy is witnessing positive growth, declining poverty and increasing inequality. The paper argues that the labour market sits centre-stage as the driver of South African income inequality and that the policy initiatives by the South African Government to address inequality have been, at the most, only modestly successful. The paper also argues that fiscal policy interventions, especially social grants, are untenable in the long run and suggests a ‘human opportunity approach’ as an alternative to address inequality.

Apartheid’s legacy South Africa’s highly unegalitarian 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 selfemployment, 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. Poverty did not exist alongside affluence, because segregation kept the rich and poor apart, but they certainly coexisted in the same country.(3)

Contemporary trends Post-apartheid democratisation was accompanied by high hopes that income poverty and inequality would decrease. Though absolute, relative and income poverty have decreased in the 2000s, income inequality has actually increased. Other development indicators like access to sanitation, electricity, gross enrolment rates and immunisation coverage have shown more optimistic trends. Ironically, the rise in inequality has cooccurred 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%,(4) whereas its Gini coefficient (5) (an internationally used measure of inequality) has increased from 0.66 in 1993 to 0.70 in 2008.(6) Economic growth has been highly uneven in its distribution, perpetuating inequality and exclusion. With an income Gini coefficient of around 0.70 in 2008 and a consumption Gini coefficient of 0.63 in 2009,(7) South Africa stands as one of the most unequal countries in the world. The top decile of the population accounts for 58% of the country’s income, while the bottom decile accounts for only 0.5% and the bottom half less than 8%.(8)

Racial analysis of inequality Inequality in South Africa has strong racial underpinnings. Significant differences between the population and income shares exist. While Africans accounted for 79% of the population in 2008, they captured only 44% of income and 41% of total expenditure.(9) Whites, who accounted for only 9.2% of the population, captured 40.3% of income and 40.9% of total expenditure.(10) The income decile composition for each raceshows 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%.(11) Another popular measure of inequality is the Theil index. A useful property of this measure is that it is decomposable into a share of the total measured 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. 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 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.(12)

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, finance, skills, education or social networks. At the heart of high inequality lies the inability to create employment opportunities on a large enough scale. In the first quarter of 2012, unemployment in South Africa stood at 25.2% (33.0% including ‘discouraged’ workers); among the world’s highest.(13)

Figure 1: Income components by decile, 2008 (14) The decomposition of income sources has key implications for assessing inequality. The above figure shows that earnings from the labour market make up the bulk of total income for higher deciles, while the contribution of Government grants is particularly important for poor households. From 1993 to 2008, the contribution of remittances to total income has steadily decreased for the lowest deciles, suggesting a crowding out of private transfers by public transfers. Capital incomes (like dividends and interest) remain small for all except the top deciles.

Contemporary research in the field of inequality further decomposes the ‘income’ into four sources: Remittances, wage income (including self-employment), social assistance (‘grants’) and capital income (such as dividends, interest, rental income and private pensions). Research shows that wage incomes account for around 70% of total income and make an even larger contribution to inequality (around 85%).(15) The reason for this is the high correlation between wage income and total household income (a rank correlation of over 0.9), implying that a household's rank in the distribution of wage income is strongly correlated with that household’s rank in the distribution of total income.(16) Thus, the labour market sits centre-stage as the driver of South African income inequality.

Human opportunity: Alternative perspective to inequality The access to opportunities is an important predictor of future outcomes.(17) Access to quality basic services such as education, health care, essential infrastructure (like water, sanitation and electricity) and early childhood development provides an individual, irrespective of background, the opportunity to advance and reach his or her human potential.

Interestingly, analysing such opportunities for children in South Africa can help better understand the nature and causes of inequality of outcomes observed among adults. Opportunities among children can also be reliable predictors of economic mobility across generations and over time. For instance, if access to economic

opportunities, in the form of jobs (and earnings), credit, and ownership of land and financial assets, is correlated with an individual’s circumstances (such as race and location of residence), it reinforces the link between children’s circumstances and their opportunities in life.

The World Bank has devised the Human Opportunities Index (HOI) to assess society’s progress toward the equitable provision of opportunities for all children.(18) The HOI could also be applied to labour markets. In a recent study, the World Bank applied the HOI to South African children. It aimed to answer, among other questions, what circumstances shape inequality of opportunity in South Africa. Location of the household (whether a child lives in a township and informal settlement or a rural area as opposed to other urban area) and education of the household head (a broad proxy for the socioeconomic status of the household) contribute most to inequality of opportunity.(19) Race and gender are other secondary factors affecting the inequality of opportunity. Many of the apparent racial and gender gaps in opportunities for children in South Africa today could therefore be narrowed if opportunities could be equalised across groups differentiated by socioeconomic status and, above all, location.(20) A human opportunities perspective has critical implications for policy aimed at reducing inequality. Academic research has found interventions that equalise opportunities earlier in life to be much more cost-effective and successful in reducing inequality than those later in life.(21)

Inequality and Government intervention The apartheid policy of institutional and racial segregation is at the root of current inequalities. Coupled with the neoliberal free market policy of post-apartheid South Africa, it accentuated the range of inequalities. Postdemocratisation, a number of Government policies have been designed to address the often interrelated problems of inequality, poverty and unemployment. 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.(22) By April 2009, 13.4 million people were benefiting from social grants. Of these, 2.3 million were receiving old age pensions, 1.4 million were receiving disability grants and 9.1 million children were benefiting from child support grants.(23) For the population at the lowest deciles of the income spectrum, social grants serve as the main source of income.(24) A key aspect of post-apartheid fiscal expenditure patterns has therefore been a widening and deepening of South Africa’s social security system.

Altough 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. 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.”(25) 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 so as to contribute to halving unemployment by 2014, through the delivery of public and community services.(26)

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.(27) 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.(28) 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’ (29) (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.

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 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, which is not a sustainable solution in the long run. 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.

NOTES: (1) Contact Sudhanshu Sharma through Consultancy Africa Intelligence’s Finance and Economy Unit ( finance.economy@consultancyafrica.com ).

(2) Everatt, D., ‘The politics of poverty’, Southern African Regional Poverty Network (SARPN), November 2003, http://www.sarpn.org.

(3) Seekings, J. and Nattrass, N., ‘The post-apartheid distributional regime’, Centre for Social Science Research Working Paper no.76, 2004, http://www.cssr.uct.ac.za.

(4) ‘South Africa GDP growth rate’, Trading Economics, http://www.tradingeconomics.com.

(5) The Gini Coefficient is a measure of statistical dispersion which measures inequality among the values of a frequency distribution. It is commonly used as a measure of inequality of income or wealth. A Gini coefficient of 0 expresses perfect equality whereas that of 1 expresses maximal inequality among values.

(6) Woolard, I., Leibbrandt, M. and McEwen, H., 2009. “Poverty and inequality”, in Hofmyr, J. (ed.). Recession and recovery. African Minds/IJR: Cape Town.

(7) ‘Focus on inequality of opportunities’, South Africa Economic Update, The World Bank, 24 July 2012.

(8) Bastagali, F., Coady, C. and Gupta, S., ‘Income inequality and fiscal policy’, IMF Staff Discussion Notes, 28 June 2012, http://www.imf.org.

(9) Woolard, I., Leibbrandt, M. and McEwen, H., 2009. “Poverty and inequality”, in Hofmyr, J. (ed.). Recession and recovery. African Minds/IJR: Cape Town.

(10) Ibid.

(11) Ibid.

(12) Ibid.

(13) ‘Focus on inequality of opportunities’, South Africa Economic Update, The World Bank, 24 July 2012.

(14) Woolard, I., Leibbrandt, M. and McEwen, H., 2009. “Poverty and inequality”, in Hofmyr, J. (ed.). Recession and recovery. African Minds/IJ: Cape Town.

(15) Ibid.

(16) Ibid.

(17) Chetty, R., et al., ‘How does your kindergarten classroom affect your earnings? Evidence from Project STAR’, National Bureau of Economic Research (NBER) Working Paper 16381, 2010.

(18) Barros, R., et al., ‘Measuring inequality of opportunities in Latin America and the Caribbean’, The World Bank, 2009, http://siteresources.worldbank.org.

(19) ‘Focus on inequality of opportunities’, South Africa Economic Update, The World Bank, 24 July 2012.

(20) Ibid.

(21) Ibid.

(22) Bhorat, H. and van der Westhuizen, C., ‘Pro-poor growth and social protection in South Africa: Exploring the interactions’, Input paper prepared for the National Planning Commission, 2011.

(23) Woolard, I., Leibbrandt, M. and McEwen, H., 2009. “Poverty and inequality”, in Hofmyr, J. (ed.). Recession and recovery. African Minds/IJR: Cape Town.

(24) Ibid.

(25) Republic of South Africa’s Department of Public Works website, http://www.epwp.gov.za.

(26) Ibid.

(27) ‘Conditional Cash Transfers, Safety Nets and Transfers’, The World Bank, 10 February 2009, http://web.worldbank.org.

(28) Rawlings, L. and Rubio, G., ‘Evaluating the impact of conditional cash transfer programs’, The World Bank Research Observer, vol. 20, no. 1, spring 2005, http://www.crin.org.

(29) ‘Bolsa Familia programme’, Global Extension of Social Security (GESS), http://www.social-protection.org.

SALDRU RESEARCH BRIEF | NOVEMBER 2013

THE MIDDLE CLASS AND INEQUALITY IN SOUTH AFRICA Arden Finn, Murray Leibbrandt and Ingrid Woolard The high level of inequality in South Africa has added fuel to the debate surrounding the extent to which an African middle class has emerged in South Africa in the past 20 years. This paper analyses changes in income inequality and the composition of the middle class over a 15 year period using data from the 1993 PSLSD and NIDS Waves 1 and 2. The high level of inequality in South Africa makes defining the middle class difficult. In this study we use income decile groups four to seven to define the middle class, groups eight and nine to define the upper class and decile ten describes the top income group.

Average income across race groups rose between 1993 and 2008, with the government providing increasing support to the poor through its social grant system. In 2008, individuals in the lowest income decile received around 64% of their income from grants, up from only 7% in 1993. On the other hand, the majority of the top decile’s income comes from labour market earnings.

Despite government support and rising average income, deep racial disparities still exist and income inequality has increased over the postApartheid period, both within and between racial groups.

Figure 1: Shares of Total Income by Decile, 1993 and 2008 60 50 40 30 20 10 0 1 2 3 4 Income Deciles

5 6 7 1993 Income

8 9 10 2008 Income

Source: 1993 PSLSD data and 2008 NIDS data. Own calculations.

Southern Africa Labour and Development Research Unit, UCT

Figure 1 gives the share of total income accruing to each decile group in 1993 and 2008. It is apparent that the income of the top decile increased over the period, with the wealthiest 10% of the population receiving 54% of total income in 2008. Even within the top decile, the wealthiest 5% of individuals have increased their share from 33% to 40% of total income. All other deciles received declining shares of total income over this period. In particular, the share of the middle class decreased from 32% in 1993 to 27% in 2008.

Decomposing the middle and upper classes by race, geographical type and education highlights both the structure and the sources of movement in and out of the classes. Although the middle class differs significantly from the rest of the population, these differences are fairly consistent over the period. Africans accounted for the majority of the middle class in 1993 (89%) while whites accounted for less than 1%. This share had decreased slightly by 2008 but was still greater than the proportion of Africans making up the population as a whole. The urban-rural divide in the middle class was fairly consistent over the period, ranging between 57-58%. Individuals with little or no education are overrepresented in the middle class, although their share of the total middle class population had dropped by more than 7 percentage points by 2008. Conversely, individuals with a matric or tertiary education are far less likely to be found in the middle class but increased their population share significantly in 2008. Male-female shares in the middle class closely reflect those of the total population, as expected.

Turning to the top decile, the African share remains less than half the population share, but increased from 14% to 31% between 1993 and 2008. The white share dropped from just over three quarters to just over half of the top decile, while the shares for coloured and Asian/Indian

Data: NIDS Waves 1 and 2; PSLSD

November 2013

Table 1: Composition of the Middle Class, Upper Class and Top Decile, 1993 and 2008 Middle 1993

Middle 2008

Upper 1993

Upper 2008

Top 1993

Top 2008

89.68 8.36 1.09 0.87 100

86.37 9.85 1.74 2.04 100

43.86 12.61 5.95 37.58 100

53.58 13.01 5.91 27.50 100

13.87 4.05 4.95 77.13 100

30.79 7.13 8.13 53.95 100

58.17 41.83 100

56.74 43.26 100

78.76 21.24 100

86.37 13.63 100

90.14 9.86 100

94.31 5.69 100

26.60 42.00 25.33 5.10 0.97 100

19.23 35.77 31.69 10.83 2.48 100

13.80 25.75 32.61 16.08 11.76 100

9.24 18.97 27.75 23.36 20.69 100

10.15 16.68 24.49 23.43 25.25 100

5.85 12.44 19.63 23.98 38.10 100

Race African Coloured Asian/Indian White Total Geo-type Urban Rural Total Education No Education Primary Incomplete Secondary Matric Tertiary Total

Source: 1993 PSLSD data and 2008 NIDS data. Own calculations.

South Africans increased. As one would expect, the vast majority of the top decile come from urban areas, comprising 94% in 2008.

On the whole, it is clear that the middle and upper classes have become more representative of the population as a whole, although the top decile still has some way to go.

Movements between income classes can be evaluated more comprehensively by collapsing income into quintiles and evaluating the relative income mobility between quintiles. This is done using NIDS panel data from 2008 (Wave 1) and 2010 (Wave 2). Table 2 illustrates which quintiles had the lowest mobility, or in other words, which quintiles individuals were most likely to remain in during the period.

Wave 1 Income Quintiles

Table 2: Relative Income Mobility: Quintile Transition Matrix Wave 2 Income Quintiles 1

2

3

4

5

1

46

26

17

8

3

2

27

33

24

13

3

3

18

25

31

22

4

4

7

14

22

40

17

The highlighted diagonal gives the percentage of individuals in 2008 which remained in the same quintile between 2008 and 2010. This shows that the richest 20% of the sample, or the fifth quintile, show particularly strong persistence, with 73% of these individuals still in this quintile in 2010.

Persistence is significantly weaker in quintiles 2, 3 and 4. Most of the movement between quintiles was restricted to relatively ‘small distances’, unsurprising given the short time period over which this is evaluated. Overall, the inter-wave correlation of income is 61%.

These data show that South Africa’s high aggregate level of income inequality increased between 1993 and 2008. The same is true of inequality within each of South Africa’s four major racial groups.

From a policy point of view, it is important to flag the fact that intra-race, and in particular intraAfrican, inequality trends play an increasingly influential role in driving aggregate inequality in South Africa. While the government has provided substantial support to the poor through an expanded system of social grants, it appears that there is still work to be done to stop and hopefully reverse the increasing inequality within each race group and especially within the African group.

Contact the authors for further information:

5

1

3

5

18

73

Note: Own calculations using NIDS wave 1 and wave 2 data.

Sample restricted to balanced panel members.

Arden Finn: aj.finn@uct.ac.za Prof. Murray Leibbrandt: Murray.Leibbrandt@uct.ac.za Assoc. Prof. Ingrid Woolard: Ingrid.Woolard@uct.ac.za

The authors acknowledge financial support from the Programme to Support Pro-poor Development in the South African Presidency.

Southern Africa Labour and Development Research Unit, UCT

Data: NIDS Waves 1 and 2; PSLSD

November 2013