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.
Seize the opportunity offered by Africa’s continental free trade area
Since the turn of the millennium, Africa has experienced a steady and unprecedented economic growth.
However, poverty continues for people across the continent, especially in the sub-Saharan region. Unemployment and inequality have remained high. The rural population and the urban poor, women and youth, have not benefited from economic growth.
African policymakers realize that, for the benefits of growth to be shared by all, there needs to be a structural transformation of the economy. Specifically, there is an acknowledgement that its composition should change, with increased shares of manufacturing and agro-related industry in national investment, output, and trade.
Manufacturing, thanks to its multiplier effect on other sectors of the economy, has always been one of the most important drivers of economic development and structural change, especially in developing countries. Manufacturing is an “engine of growth” that enhances higher levels of productivity and greater technical change, thus creating more jobs with higher wages for both women and men.
Recognizing this, the United Nations has proclaimed the period 2016-2025 as the Third Industrial Development Decade for Africa (IDDA III) in order to increase global awareness and encourage partnerships to achieve inclusive and sustainable industrialization.
Today, Africa has exceptional opportunities for industrialization.
In the next few decades, Africa will become the youngest and most populous continent in the world with a working age population expected to grow by 450 million people. or close to 70 per cent of the total, by 2035.
With a rapidly growing population, and one of the world’s highest rates of urbanization, the middle class is on the rise too. This will drive consumption of consumer goods, creating a market worth USD 250 billion, set to grow at an annual rate of 5 per cent over the next eight years.
Industrialization, diversification and job creation in Africa, however, cannot happen without continental economic integration. The recent signing of the historic agreement for an African Continental Free Trade Area (AfCFTA) by 49 out of 55 countries creates an opportunity for inclusive and sustainable economic development, moving away from structural stagnation and commodity-based economics. The AfCFTA agreement will create the world’s largest single, integrated market for goods and services, and a customs union that will enable free movement of capital and business travelers in Africa.
This will provide great business opportunities for trading enterprises, businesses and consumers, unlocking trade and manufacturing potential and further enhancing industrialization in Africa. With the AfCFTA agreement, exports of processed or intermediate goods will increase rapidly, further opening the way to Africa’s economic transformation to dynamically-diversified economies and globally competitive industrial production locations.
Higher trade among African countries will also strengthen African regional value chains, making it easier for local small and medium-sized enterprises, which account for around 80 per cent of Africa’s businesses, to build competitiveness, supply inputs to larger regional companies, and participate in and upgrade to global value chains.
This will give unprecedented opportunities to exploit the full agri-business potential of the continent. Strengthening the continent’s agro-industries can generate high social and economic returns, create jobs in rural areas and for young women and men, as well as responding to the urgent need to ensure food security and poverty reduction.
By taking bold actions in advancing the agenda of the AfCFTA, using it as one of the best means of promoting industrialization, African countries are well-positioned to build an Africa that can become a strong link in today’s interdependent global economy.
Structural transformation, however, is never automatic. Political goodwill and commitments are a first important step; but a multi-pronged, action-based approach with partnerships at the heart, along with concrete industrial policies, is needed for this to become a reality.
That is why UNIDO has developed an innovative country-owned, multi-stakeholder partnership model to provide governments with a platform to bring together various stakeholders, including development finance institutions and the private sector, to mobilize large-scale resources, accelerate industrialization and achieve a greater development impact.
Using this Programme for Country Partnership (PCP) approach, and helping governments to identify priority sectors based on prospects for job creation, strong links to the agricultural sector, high export potential and capacity to attract investment, UNIDO has already started assisting Ethiopia, Senegal, Morocco and other countries in Asia and Latin America in achieving their export goals and enabling the manufacturing sector to compete on the increasingly globalized market.
Now more than ever, such innovative schemes and mechanisms for enabling partnership building and resource mobilization for sustainable industrial development are needed to address the urgent need for structural transformation in Africa and seize the opportunities offered by the AfCFTA.
Kofi Annan will remain a firm moral hero
Interestingly, six letters were delivered and only 42 Russian and foreign sympathizers have signed the book of condolence for former UN Secretary General, Kofi Annan, that closed end of August at the Embassy of the Republic of Ghana in Moscow.
The “few sympathizers” who signed the book came from the Russian political institutions and Diplomatic Representations of the United States and Canada, Europe, Asia, Africa and Latin America in the Russian Federation.
Undoubtedly, Moscow is the seat of the Russian government. Federation Council and State Duma, ministries and departments, many international organizations, diplomatic offices and academic institutions are located here.
On August 18, at 15:00, President Vladimir Putin sent an official message to UN Secretary-General Antonio Guterres. The text of the message reads: “This remarkable man and great politician dedicated many years of his life to serving the United Nations. He served at the helm of the UN during a complicated period and did a great deal to achieve the goals and tasks of the Organization, enhancing its central role in global affairs.”
Especially significant was his personal contribution to building up the peacemaking potential of the UN and settling a number of regional conflicts, he continued.
“The world community did justice to Kofi Annan’s efforts as evidenced by the Nobel Prize awarded to him. I was fortunate to have had the opportunity to speak with Kofi Annan personally. I sincerely admired his wisdom and courage, and his ability to make balanced decisions even in the most complicated and critical situations,” he wrote.
Putin concluded: “The memory of Kofi Annan will remain in the hearts of Russians forever. Please relate my words of heartfelt sympathy and support to Annan’s family and friends, the staff of the UN Secretariat, and the government and people of Ghana.”
In my view, there are people who slept peaceful because they did what in their opinion served humanity best. Kofi Annan will remain a firm moral hero because of his wisdom and sense of purpose. UN is supposed to be a unifying point and Annan tried the best he could to run and manage it effectively.
As Aristotle said, “Even God cannot change the past” – and/or in simple literature William Shakespeare wrote, “what is done can never be undone” and so, Kofi Annan admirably and firmly remains a global diplomat with something worth saying. Sad indeed, he is irreplaceable and his life irreversible. RIP the best diplomat and face of Africa.
Kofi Annan, former UN Secretary-General, passed away after a short illness on August 18, 2018, at the age of 80, in Switzerland. He was born in 1938.
The family has kindly asked that no flowers be sent. For those still wishing to have their thoughts and support reflected in a gift, they suggest a contribution to the Kofi Annan Foundation: www.kofiannanfoundation.org/donate, according to the family.
The Government of Ghana has announced details of all arrangements for a State ceremony and burial, proposed to take place Thursday, Sept 13, in Accra, capital of Ghana.
Djibouti’s “International” Free Trade Zone is really just for one country
For the past quarter century, Djibouti has flourished as the Horn of Africa’s most strategic port, serving as a lifeline for landlocked Ethiopia’s $3.13 billion in exports at the mouth of the Red Sea and Gulf of Aden. So on the face of it, the Phase 1 opening last month of the Chinese funded, multi-billion dollar Djibouti International Free Trade Zone (DIFTZ) appears to position the tiny nation as a growing trading hub for the entire East African region. But is that just wishful thinking?
The DIFTZ is a sprawling complex meant to house four industrial clusters specializing in trade and logistics, export processing, business and financial support services, as well as manufacturing and duty-free merchandise retail. It’s touted to provide employment for tens of thousands and solidify Djibouti’s reputation as a business-friendly place.
The geopolitical calculations behind China’s generous financing in Djibouti are part of its Belt and Road Initiative, an aggressive economic plan designed to open up and create new markets for Chinese goods and technology by strengthening the traditional Silk Road trade route. That rationale is rooted in the fact that Ethiopia uses ports in Djibouti for about 95 percent of its external trade and pays around $1.5-2 billion in port fees. With the Ethiopian economy growing fast, obtaining better access to Addis Ababa is a crucial objective for the Chinese leadership.
But Djibouti should hold the champagne for now. Despite the glowing press releases, there are at least three major partners who have serious reasons for doubting the trustworthiness of the country’s leaders and its viability as a new axis for regional trade.
First, many U.S. analysts are expressing concern that the DIFTZ is financed by loans from state-backed financial institutions from China, dulling Djibouti’s triumphant expansion as a critical line between the export-rich Ethiopia and vital shipping lanes. In East Africa, the Export-Import Bank of China is the major investor in at least eight infrastructure projects, including an ongoing $322 million water pipeline project from Ethiopia and the $490 million Addis Ababa-Djibouti railway. Yet critics have described the Belt and Road Initiative as a method of entrapping poor countries to Beijing as “economic vassals.” For instance, a major report from the Washington-based Center for Global Development released in March cautions that the Chinese iniatives raise “serious concerns about sovereign debt sustainability in eight countries it funds,” including Djibouti.
Even more worrisome, Chinese commercial investment in Djibouti has been paralleled by the construction of a major Chinese military base, a mere six miles from the United States’ long-established Camp Lemonnier — the only permanent U.S. military base in Africa. The Chinese base is the first outside its borders and gives Beijing a military foothold on the African continent, an outcome that previously led to American political and military leaders pressuring the Djibouti government to block the construction of the base. U.S. military experts have expressed concern that a Chinese presence would hinder U.S. interests and its counter-terrorism missions, tensions that remain as American allies France, Japan and Italy also have bases of various sizes and capabilities in Djibouti.
The second reason: Ethiopia. Until a few months ago, Djibouti represented the country’s only way to access the sea and, as a stable partner, reaped the benefits of a near-monopoly on thriving Ethiopian trade. While ports exist in Sudan, Somaliland, and Eritrea, Djibouti’s developed facilities, political stability and investment-friendly atmosphere have proven more attractive than anywhere else in the region.
Now, however, a new player is coming to town: according to reports from Bloomberg, Eritrea is now mulling building a port on its coastline to export potash from its own mines as well as from Ethiopia. The port will be based at the Bay of Anfile, close to Eritrea’s potash mine at Colluli, which contains large quantities of potash that can be used as fertilizers for fruits, vegetables, and coffee trees. Most significantly, the development follows a historic rapprochement between Ethiopia and its former province of Eritrea in July, which has left Djibouti scrambling to protect its market share.
The third issue: the United Arab Emirates (UAE). Djibouti illegally seized a leased port container terminal from the UAE-based DP World company over a dispute dating back to at least 2012. Earlier this month, Dubai successfully sued the Djibouti government in a London-based international arbitration court over the seizure. Eyebrows were raised when Djibouti issued a statement dismissing the ruling as inconsequential, and the country is now trying to negotiate damages. But the scandal has already cast a shadow over Djibouti with potential foreign investors, as large shipping clients such as DP World publicly advocate for an additional 10 to 12 ports from Sudan to Somalia and continue to make a number of investments in East Africa, including in Somaliland.
The Emiratis also have close ties to Eritrea, where they established a naval base in 2015 that has been used to support the Saudi-led war against Houthi rebels in Yemen. And it was the UAE that helped broker a peace deal between Eritrea and Ethiopia, a further indicator that UAE businesses may favor Eritrean ports over those in Djibouti.
Is Chinese investment in the DIFTZ and other infrastructure projects enough to make up for all of this disruption? Perhaps not. Beijing had already started to cool on Ethiopia as an investment destination, and if the Ethiopian market finds multiple alternative ports in Eritrea or Somaliland, the promises of a thriving DIFTZ may end up being little more than hype.
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