INEQUALITY had become a "corrosive" reality threatening growth in South Africa, and without social grants, 40% of the population would have seen incomes decline in the first decade after apartheid, the World Bank said yesterday.
The Washington-based lender revised its growth forecast for South Africa this year down to 2,5% from a 3,1% estimate in November — well below the latest estimates from the Reserve Bank, which sees the economy expanding by 2,7% this year and 3,8% next year. The pace was expected to quicken to 3,2% next year and 3,5% in 2014, the World Bank said yesterday, but it warned that the economy would not be able to achieve a faster pace of growth unless it became more inclusive.
Sandeep Mahajan, the World Bank’s lead economist on South Africa, said the economy would have to grow faster than 3,5% in order to tackle the country’s unemployment rate of 25,2% — one of the highest in the world. "Growth has been mediocre … and it’s been inequitably distributed. In South Africa’s case, high growth can only come from inclusive growth," he said at the launch of the report, titled Focus on Inequality of Opportunity. "South Africa is a complete global outlier in terms of inequality … it has been persistent over time and that has been a very corrosive reality."
Global rating agencies have repeatedly highlighted the risks to social and political stability in South Africa posed by high unemployment, huge income disparities and widespread poverty. These issues have constrained its credit ratings, which determine a country’s cost of borrowing and investor appetite for local assets.
South Africa is one of the most unequal countries in the world, with the top 10% of the population accounting for 58% of its income and the bottom half less than 8%, the World Bank said in its report. Poverty reduction had been modest since the late 1990s and would have been "untenable" without the growing level of social grants, it noted.
The Treasury allocated R105bn this year to social grants for the elderly, disabled and poor children, which will reach more than 16-million people, up from 2,5-million in 1998. "Even after accounting for the equalising role of social assistance, income inequality remains extraordinarily high," the World Bank said in the report. "To reduce it to more reasonable levels over the long run, social assistance is clearly not enough and needs to be complemented by other initiatives."
Nomura economist Peter Attard Montalto said it was important to distinguish between equality and poverty. "There is plenty of evidence that South Africa has done a lot to meaningfully increase the standards of living of its poorest. But the development payoffs have been directed more towards the rich and a certain segment of the population," he said yesterday. "You need to have a larger amount of social stability for a proper investment climate."
The World Bank said nearly 70% of the poorest 20% of South Africans were jobless in 2008 — a warning bell for social cohesion. The causes of inequality in labour markets had changed over the past four years, with the contribution of education increasing and the effect of circumstances of gender and race falling slightly, the report said. "Where a person seeking employment lives, however, matters more now than it did four years ago," it noted.
Employment was "particularly challenging" for young workers and residents of townships, rural areas and informal settlements. This is not out of step with the global trend, as the jobless rates for young people in countries such as Greece and Spain are similar to the levels in South Africa — about 50%. But the World Bank said that age was an "unusually large" contributor to inequality in employment in South Africa compared with other middle-income countries, with the "odds extremely stacked" against the youngest workers.
In analysing the reasons for high inequality in South Africa, the World Bank said it would be useful to focus on equity — a reference to access to opportunities — rather than equality. Basic opportunities included access to education, health insurance, safe water, sanitation and electricity. "Except for electricity, where South Africa’s average annual progress has been exceptional, the progress on the other four dimensions puts it in the bottom half of international comparators," the bank said.
Location was particularly important, while the level of education of a household head contributed most to finishing primary school.
Source: Business Day
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