Accelerating poverty and inequality reduction will require a combination of policies that promote inclusive growth through boosting access to education and skilled jobs creation, according to a recently released report produced jointly by the World Bank, South Africa Department of Planning, Monitoring and Evaluation (DPME) and Statistics South Africa (Stats SA).
The report, Overcoming Poverty and Inequality in South Africa: An assessment of Drivers, Constraints and Opportunities, documents the progress the country has made in dealing with poverty and inequality since the dawn of democracy in 1994. It provides an analysis of the different forms of poverty and inequality drivers and constraints, as well as opportunities presented particularly by the labor market. Where applicable, South Africa is compared to peers in terms of income levels.
“Government has a huge interest in finding effective and sustainable solutions to the problems of poverty and inequality in our country,” Dr. Nkosazana Dlamini-Zuma, minister in the Presidency for Planning, Monitoring and Evaluation, said during the recent report launch.
The report comes at a time where the country is facing the triple challenge of persistently high poverty, inequality and unemployment, despite much progress made by the government in tackling this challenge since 1994. In 2015, 55% of the population South Africans were poor, living below the national upper-bound poverty line of ZAR 992 per person/per month. In addition, with a per capita consumption Gini coefficient of 0.63 in 2015, South Africa is one of the most unequal countries in the world. Furthermore, unemployment reached 27.7% in the third quarter of 2017.
The report finds that although poverty in South Africa has fallen since 1994, it remains high for an upper middle-income country at 18.8% in 2015, when using the international poverty line of $1.90 per day. In contrast, per capita consumption inequality is stubbornly high and has increased since 1994. Not only does South Africa lag its peers on levels of inequality and poverty, the report notes that it also lags peers on the inclusiveness of consumption growth. The consumption expenditure growth of the bottom 40% of the population between 2006 and 2015 was lower than that of the total population and below growth in other middle-income countries.
Use of different dimensions of inequality shows that, by any measure, South Africa is one of the most unequal countries in the world. Wealth inequality is very high in South Africa, even higher than consumption inequality, and has been growing over time, the report shows. The richest top 10%account for 71% share of household wealth, while the bottom 60% account only for 7% of the net wealth, according to the report. Similar statistics for Organisation for Economic Co-operation and Development (OECD) countries suggest that, on average, the top 10% of the wealthiest households own 50% of total wealth, while the bottom 60% own only 13%. Ownership of financial assets features prominently among the factors that influence wealth inequality, the report says, and race and human capital (education) have very high returns for wealth generation, even higher than in the case of income or consumption inequality.
The report also finds that wage inequality is also very high, compounded by heavy polarization between two extremes. South Africa’s obstinately high wage gaps are associated with the skills premiums and differences between unskilled, semi-skilled, and high-skilled workers. The report argues that South Africa has a skills mismatch and a structural unemployment problem with many workers who do not possess the skills employers demand. This has resulted in high demand for high-skilled workers and the subsequent increase in their wages while the wages for semi-skilled workers has stagnated, leading to a tremendous wage polarization and the emergence of a “missing middle” which has contributed to the increase in wage inequality.
According to simulations done in this study, at the current economic growth trajectory of 0.3% in 2016/2017, South Africa will not create sufficient jobs to reach its target outlined in the National Development Plan to eliminate poverty and inequality by 2030. The report calls for interventions that simultaneously stimulate growth and reduce inequalities, arguing that they are likely to have much more impact than interventions that only stimulate growth or only reduce inequalities.
“We see from this report that improving the lives of the poor could be achieved through creating quality jobs and providing better earning opportunities through developing skills and raising labor productivity,” said Paul Noumba Um, World Bank Country Director for South Africa. “As the World Bank we stand ready to support South Africa in its efforts to tackle the triple challenge of high poverty, high inequality, and high unemployment.”
The report also shows that the nature of drivers of poverty and inequality has changed over time with the role of skills and labor market factors growing in importance while the role of gender and race, though still important, having declined. Labor market incomes were an important source of poverty reduction between 2006 and 2015 with 58.3% of the poverty falling due to the labor income increase. Furthermore, the report notes an improvement in skills and education were instrumental for poverty reduction in South Africa, although returns to education, especially to the semi-skilled occupations, have been decreasing in recent years.
Impressions from South Africa’s election
South Africa’s recent general election has bucked the international trend towards populism by consolidating its democracy at the political centre. The ruling African National Congress, led by the popular centrist, Cyril Ramaphosa, has maintained its outright majority by committing to the reform and cleaning up of the party and state.
South Africa went to the polls on May 8th to elect its sixth democratic government. Due to poor economic growth, extensive corruption and infighting in the governing African National Congress (ANC), this election had been billed to be the most consequential since the end of Apartheid, in 1994. Except for minor issues at polling stations and technical questions regarding the balloting system, South Africa’s peaceful and orderly ’s electoral process has ensured further democratic consolidation, proving itself as a bastion for free and fair elections on the continent.
With 57.5% of the national vote, the ANC has maintained its governing majority. The official opposition remains the liberal Democratic Alliance (DA), with 20.7%. Completing the Big Three is the leftwing Economic Freedom Fighters (EFF) who attained 10.8% of the vote. Eleven smaller parties captured enough votes to secure one or more seats in the sixth National Assembly. An assessment of the results illustrates several significant impressions.
The fringe fails to factor
While democracies around the world have moved to the fringes, South Africa appears to be maturing towards the middle. Though the centre-left ANC and centre-right DA shed the same number of seats gained by the leftwing EFF and rightwing Freedom Front Plus (FF+), 19 and five respectively, the threat of further splintering to an array of radical fringe parties did not materialize. None of these parties, including Black First, Land First which rejects white membership and the National Front which advances a white secessionist state, achieved traction among the electorate. Neither received a singular seat in Parliament.
The FF+ and EFF may appear to be the election’s big winners, but this analysis is superficial. The FF+ has simply captured a quadrant of the persistently mobile white conservative vote. Unlike the DA which has failed to support this group, the FF+ has offered it an unabashed home. The EFF almost doubled the bounty of its first electoral outing in 2014. It did, however, fail to make the kind of inroads it hoped for and was expected to receive. The party which calls itself the government in waiting, whose leader is referred to as the commander in chief, which dominates local social media optics, and which attracts a significant sector of the young black vote, may fill a football stadium with jubilant supporters at a pre-election rally. It could however not perform on the day that mattered. The ambitious EFF was seeking to capture a greater chunk of the ANC’s vote, thereby taking South African politics and economics further toward the radical left. Its failure to secure more votes at a time that the ANC was particularly weak points to an electorate with little appetite for populist radicalism. The EFF, with its politically astute and ambitious leadership will now be compelled to tone down its agitation and provide practical policy alternatives. It will have to move towards the middle if its goal of power is to be realised.
The centre holds
The losses of both the ANC and DA will demand introspection and clear future strategies. The DA faces an inflection point. The party which has traditionally received the overwhelming support of minority groups has actively been seeking to break this threshold by courting the majority black support. Its poor performance suggests that not only did it fail to make inroads in this sector; its attempt to reach across the aisle resulted in its traditional support feeling alienated. Furthermore, it was unable to consolidate an approach to foil the popular Cyril Ramaphosa. The DA’s 6% growth in 2014, largely taken from the ANC, was received for its campaign to Stop Zuma! – a tactic to oppose disgraced and maligned presidential incumbent, Jacob Zuma. This time around there was no boogie man to blame, leaving the DA with more questions than answers as to its future political approach and ideology. As a traditional, Western liberal party, the DA appears out of touch with South Africa’s broader socio-economic reality. 2019 may very well be the last time that the DA emerges as the official opposition.
While the ANC achieved its worst electoral result since 1994, shedding 5% from its 2014 showing, it nevertheless maintained its outright majority. It also maintained all the provinces where it governed previously. The ANC’s powerful mandate is largely thanks to President Ramaphosa’s clean image and his commitment to reform. Ramaphosa, whose popularity exceeds that of his party, replaced Zuma in a narrow victory at the party’s elective conference in late 2017. Ramaphosa, a trade unionist cum billionaire businessman who was Nelson Mandela’s preferred successor, has been the face of the ANC’s electoral drive. Contrary to the traditional advance of a manifesto, the ANC’s campaign has been centred on Ramaphosa. His accession to power indicates the commencement of reform and cleaning up, from the top.
While the ANC’s promise of renewal seems to have satisfied those deciding to cast their ballots, a significant sector of the 55 million population simply stayed away. More than nine million eligible voters did not register to vote. Another nine million registered voters did not make their cross, and more than a quarter of a million voters decided to spoil their vote. These numbers point to a frustrated populace that is tired of the cycle of politics wherein the ANC rules with impunity. Significantly, there was a clear division in voter turnout in urban and suburban districts compared to informal and rural dwellings. The former, the traditional terrain of the opposition, observed an enormous voter turnout (more than 90% of registered voters), the latter, the heartland of the ANC, experienced a considerable stay-away. While the failures of the state are collectively placed at the ANC’s door, so too are its successes. The millions of poor South Africans receiving state subsidies are clearly unwilling to trade what they have for the speculative promises of populism. Simply, 17 million subsidy beneficiaries see the ANC as the state and vice versa.
Going forward from the elections
The appearance that President Ramaphosa is now comfortably in power is, however, an illusion. Though he was able to mobilise the electorate and achieved a comfortable mandate, Ramaphosa’s greatest task was always going to commence once the elections are over. His challenges are internal to his party. He needs to effectively deal with a splintered party wherein a contingent of allies of the former president remain in senior positions. Ramaphosa will have to act swiftly to neutralise this powerful group and prove to the electorate and the markets that he can implement his promises. His first move will have to be to assemble a clean and competent cabinet that is able enact his reformist policies. Before the elections, Ramaphosa tactically delegated power to institutions that have laboured under poor and often corrupt leadership. He will have to lead from the front; he will have to act. He must capitalise on the positive sentiment across civil society and business to work together towards overcoming the perilous situation under Zuma.
Governance reform could see African economies benefit to tune of £23bn
The latest edition of PwC’s bimonthly Global Economy Watch has found that African economies could receive a windfall of £23bn if each economy applied similar governance reforms equivalent to those made by Cote d’Ivoire since 2013.
The continent-wide economic analysis modelled the performance of each country across six of the World Bank’s Worldwide Governance Indicators (2013-17), which covers aspects such as regulatory quality, rule of law and government effectiveness.
The analysis has found that if each African economy made an improvement to governance equivalent to that made by Côte d’Ivoire over the past four years, these gains would be worth around $23bn if realised across the continent.
The countries with the largest potential gains are those with a comparatively high GDP per head but a poor track record on governance. Accordingly, oil-rich Libya and Equatorial Guinea would see the greatest increase, with each person gaining an additional $400 and $200, respectively.
Those with lower GDP per capita, such as Niger and Malawi, would see a smaller improvement, despite their governance rank being below the average for the region. By contrast, economies like Rwanda, which have made similar improvements to Côte d’Ivoire, would also only realise a small benefit, with greater gains made through further diversification of their economies.
Regional differences are significant
The forecast also notes strong regional differences in economic growth across the continent. Economic growth has been particularly strong in East Africa (at around 3% a year since 2013). Central Africa, by contrast, saw annual real GDP per capita fall by an average of 1.3% over the period. North Africa and the Southern region experienced very sluggish growth (of 0.4% and 0.8% a year respectively), while West Africa saw faster growth of 1.9% a year.
Mike Jakeman, senior economist at PwC UK says,
‘Given that Africa contains more countries than any other land mass on earth, it is vital that we consider each economy in its own terms. Economic performance has varied wildly in recent years, but the correlation between strong economic growth and improvements in governance suggests a way for all of Africa to grow more quickly.
‘It is important to acknowledge the real benefits that governance reform can bring. Improved governance can also help countries identify other opportunities for growth. Although we should move away from a single narrative about the African economy, we can also acknowledge areas of mutual interest and benefit across regional economies.’
Manufacturing has driven the global slowdown
Looking at the recent performance of the global economy, the report also explores the causes of the slowdown since mid-2018. The weakness appears concentrated in the manufacturing sector, with purchasing managers indices for the US, China and the euro zone, in particular, declining.
Mike Jakeman says, ‘There are two interrelated stories here. The first is the effect of the US-China trade conflict, which is causing disruptions to supply chains suppressing appetite for trade. This is bad news for Europe, especially, which is a big exporter to both the US and China.
‘The second is the Chinese government’s attempt to deleverage its highly indebted corporate sector, which is likely to have exerted downward pressure on its own manufacturing output and those of its main suppliers. However, the cooling effect of the trade war on the economy has led the government to prioritise its GDP target of 6-6.5% over its deleveraging programme.
‘This short-term relaxation of policy, especially if combined with an armistice on trade, could be enough to re-inject some momentum into the global economy in the remainder of 2019.’
Africa: A Rich Continent and Poor Policies
Africa, the land of good, peace and natural wealth that is unparalleled, but under the circumstances, this continent have been under the yoke of foreign colonialism for long and bitter years, suffering from the problems of poverty and deprivation and being classified as “third world.” The situation is even worse with the epidemics and serious diseases that have plagued this continent, in addition to the endless wars, related to religious, political and societal divisions. This bad situation, which is unacceptable in the 21st century, urges the world to take responsibility.
The African continent has been a source of wealth for many who are “not African.” The African continent has been used for many years to build nations outside the African borders and serve the world’s people. In addition to the external hand that dominated and took over the resources of African land, the only thing that is incredible “rich land and a poor and hungry people.”
Africa is rich in gold, diamonds, chromium, cobalt, platinum and uranium. Some African countries such as Algeria, Angola, Congo Brazzaville, Gabon, Libya and Nigeria, for example, rely on the export of crude oil for about 70-95% of foreign exchange. Botswana relies on exporting diamonds for 80% of foreign exchange, as well as Zambia, which relies on copper exports for 80% of foreign exchange. Niger relies on uranium, which accounts for 96% of foreign exchange. But there is another problem: the inevitability of dependence on the outside because of the link between the economy of these countries with import and export, specifically its connection with Europe and America. Talk of full African independence will not be realistic because of the economic ties of the Great Powers.
Africa is also dependent on many foreign countries for its undeniable debt, aid and donations. Africa is not yet ready to pursue a policy of giving up foreign aid and talking about Africa, self-sustaining and not in need of other countries. The debt problem in many countries of the African continent has reached high rates. The average ratio of debt to GDP in sub-Saharan Africa increased from 51% to about 100% during 1982 and 1992.It is therefore necessary to develop an economic strategy for the African continent that makes it a fully sovereign geographical area. Since sustainable development begins with economic growth, all the problems of the continent will be resolved if a viable economic policy is pursued. A large proportion of Africa’s debt comes from the colonial powers themselves, such as France and Britain.
The endless wars in many African countries are a source of constant tension, making the African continent classified as politically and security unstable area, which threatens the tourism sector and the pace of economic growth and makes the investor prefer to invest in other areas more secure and stable. African countries are required to pursue a strict security policy that works to root out extremism and rein in terrorist and subversive groups that have brought destruction, devastation and economic decline to the country.
The extreme poverty that afflicts the African continent is due to unfair policies that do not take into account the criteria of community development in many cases, and most importantly, the accumulated external debt that hinders the process of social and economic development. As the African continent, as mentioned earlier, is a region rich in natural resources, it is therefore important to make use of these resources, and not to leave them to foreign countries, in other words, not to allow the African continent to be an open and unregulated territory.
The most serious diseases in the world today are rampant and widespread in the African region, such as malaria, kidney disease and AIDS, which plague African people. International organizations and bodies such as the World Health Organization are now required to work, move and intensify efforts to reduce the prevalence of these diseases.
The illiteracy rate is very high on the African continent and this is unacceptable nowadays. As there is no way to progress and develop except in education and the dissemination of the culture of science, International educational institutions should focus on the poor and educate them and increase the proportion of schools and universities in bilateral and collective cooperation.
This miserable situation in the African continent has long led many to think of emigration or resort to other countries. But most of them live in difficult conditions in foreign countries, and the phenomenon of asylum and intensive migration leads to the abundance of cheap labor in foreign countries and provides them with difficult jobs that are not easy for the countryman to carry out.
The African continent is rich in natural resources and has surplus labor, which is sufficient to achieve self-sufficiency if accompanied by a sound economic and social policy. Therefore, African governments and the African Union must take unified decisions and not follow the policy of dependency because such a policy will only increase the African continent deficit and economic and social decline.
The governments of the African countries should make their relations with the countries of the world friendly regardless of the financial or military power of the other side so that the African countries will not remain in the position of the weak. All this indicates that African countries are capable and need only to unite and work on sound policy. Poverty in African countries can be solved if natural resources are exploited well and in the interest of African countries and not of other countries.
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