by Piet Coetzer

South African inequalities

Unfulfilled hopes of the majority are fuelling frustration

Unfulfilled hopes of the majority are fuelling frustration
The big South African divide.JPG

Since the end of apartheid, South Africa has made progress toward establishing a more equitable society, but there have also been failings. Prominent among these is the inability to reduce income inequality. While there is still a strong overall ethnic bias, within-race inequalities are also substantial and, in fact, have widened since 1993. 

This was among the key findings of the very recently released Economic Survey of South Africa by the Organisation for Economic Co-operation and Development (OECD), of which South Africa is an associate member.

Quoting various sources, the report states that South Africa’s Gini co-efficient, at around 0.70, is among the highest in the world. Income differences appear to be even starker within South Africa than at the global level, as the world income inequality Gini – pooling all incomes across all countries – was estimated at 0.62 in 2008.  

In comparison, in 2009 the Gini index was equal to 54.7 in Brazil and 40.1 in the Russian Federation.

Although advances in areas such as electrification and access to education have increased equality of opportunities, according to the World Bank, no progress toward income equality has been made since the end of apartheid. In the 2010 Income and Expenditure Survey, the income ratio between the top and bottom deciles was around 20 – far above the level of 5 in the United States, one of the most unequal countries in the OECD.

As a consequence of South Africa’s legacy of discrimination, ethnicity accounts for a large part of income inequality. The within-race inequality component, however, is substantial and has increased tremendously. The Gini co-efficient for Africans has increased from 0.55 to 0.62 between 1993 and 2008, and from 0.42 to 0.50 for whites.

Inequality is tightly bound up with outcomes of the labour market, which contributed 85% of income inequality in 2008.

Much of that is driven by the large number of individuals with no labour income, given the high incidence of unemployment and inactivity.

However, inequality among households with labour market earnings is also high, as real earnings in the bottom deciles have not risen in the post-apartheid period and have fallen markedly relative to earnings in the top deciles.

Apart from equity considerations, reducing inequality may have a positive economic payoff per se, as negative externalities such as crime appear to be causally linked to inequality in South Africa.

Government interventions

The government has used the tax and benefit system to alleviate inequality, and these efforts have had some impact. One source in 2010 estimated that redistributive policies have undone about 40% of the increase in the market-income inequality, with the expansion of social transfers being particularly important.

Even so, many South Africans of working age have no labour earnings, no income on assets and no unemployment benefits or other transfers. They survive only with support from their family.

Despite an increase in the progressivity of taxes since 1993 and the expansion of social transfers, the reduction of inequality attributable to taxes and transfers remains well below OECD levels.

Limited administrative capacity, especially at the sub-national government level, is one of the constraints to building a more inclusive society.

While provincial administrations have received adequate budgets to solve specific problems (e.g. the supply of textbooks to schools), little change has occurred on the ground in some provinces.

Given limited capacity, the report states it is generally advisable to formulate more modest development plans and focus on implementation and outcomes.

The former housing policy, the 1994 Reconstruction and Development Programme, is an example of an overly ambitious plan that failed to eliminate precarious settlements and the housing deficit affecting 2.1-million households by 2010.

Thanks to a proper assessment of this failure and a shift in approach, a new National Upgrading Support Programme was established in 2010, with the objective of endowing informal settlements with basic infrastructure, including schools, in an incremental way, the report states.

But even when state intervention is put in place effectively, informational problems arise, especially when engaging households with poor literacy in bureaucratic processes. This is particularly relevant for social grants – for instance, the take-up rate for the child support grant is only 60%.

Overcoming informational problems should be prioritised, as they can be resolved relatively cheaply, and because improving the coverage of existing grants should complement other public objectives such as better education and health.

Corruption and service delivery

On the subject of inequalities, the report finally points out that corruption appears to be an increasingly important barrier to improved public service delivery.

South Africa’s relative standing on Transparency International’s Corruption Perception Index has deteriorated in recent years.

“Also, voices have been raised both inside and outside South Africa against the recent law on the protection of state information, which was deemed a setback for press freedom. At the same time, South Africa still ranks well in the areas of budget openness and judicial independence – two public assets that should be safeguarded,” the report states on this subject.

 

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