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How socio-economic realities in South Africa impact on growth and investment

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By Professor Imraan Valodia and David Francis, Southern Centre for Inequality Studies, University of the Witwatersrand

The international evidence on the relationship between economic growth, stability and levels of inequality among the citizens of a country is quite clear – the more equal a society, the more likely it is to be stable and the more likely the society is to have higher levels of economic growth (Wilkinson and Pickett, 2009). Conversely, high levels of inequality are a barrier to economic growth and social stability (Francis, Valodia and Webster, 2020).

Prior to the Covid-19 pandemic, which has had devastating impacts on the country, the socio-economic situation in South Africa was already precarious. South Africa is one of the most unequal countries in the world. The Gini co-efficient is the most common measurement of levels of inequality. The Gini is an index between 0 and 1 which measures the distribution of income in a country and shows how the distribution of income differs from total equality, measured as zero and total inequality, measures as 1, where only the top income earner would get all of the income in that country.

SA has possibly the highest levels of income inequality across the globe

South Africa’s Gini co-efficient is estimated to be 0.63, which makes us one of the highest in the world (for countries that have such data) (Sulla and Zikhali, 2018). This means that South Africa has possibly the highest levels of income inequality across the globe. It also has the highest inequalities in wealth.

Recent research by Aroop Chatterjee, Léo Czajka and Amory Gethin of the Southern Centre for Inequality Studies and the World Inequality Lab finds that the poorest 50% of South Africans have an average net wealth of negative R16 000. That means their assets are less than their liabilities; they are deeply in debt. The richest 10% of South Africans, by comparison, have an average net wealth of R2.8 million per person (the top 1% have an average net wealth of R17.8 million per person) (Chatterjee, Czajka and Gethin, 2020).

Furthermore, progress on poverty reduction in South Africa has stalled in recent years. A continual decline in poverty was one of the successes of the post-Apartheid state. But since 2011, poverty rates have started to increase, and per capita incomes have fallen for several years (Sulla and Zikhali, 2018).

Large number of jobs permanently destroyed by the pandemic

These alarming statistics have been made much worse by the way in which the pandemic has impacted on our economy and society. The graph below shows employment in South Africa. In essence, South Africa has lost all of the, admittedly limited, growth that we have seen over the 2010-2020 period. While we are likely in the short term to see some recovery in employment numbers, what is quite clear is that a large number of jobs have been permanently destroyed by the pandemic and its associated lockdowns.

The country’s inequality crisis has been compounded by the distribution of these job losses. Recent research has found that job losses have disproportionately affected women and those working in the informal sector (Casale and Posel, 2020; Francis, Ramburuth-Hurt and Valodia, 2020). Both these groups are already among the most vulnerable in the labour market, disproportionately occupying low-paid and precarious positions.

Figure 1: Employment in South Africa 2008-2021

Source: (Statistics South Africa, 2021)

It is clear that, even before the pandemic, South Africa faced formidable socio-economic challenges in the form of the often-cited triple challenge of poverty, inequality and unemployment. The Covid pandemic has exacerbated all three aspects, and it has also highlighted the macro-economic conundrum which faces South Africa (Sachs, 2021).

SA needs higher rates of investment to achieve necessary growth

Briefly, the conundrum is that South Africa needs higher rates of investment in order to achieve the growth necessary to address these challenges. Both private sector and public sector investment has dropped precipitously over the last decade or so. It is very worrying that this has happened while government expenditure was actually increasing and debt levels have been rising. Some would argue that in order to increase investment, the debt trajectory needs to be stabilised, but the reduction in government consumption required to do this is in itself bad for growth (Joffe, 2021).

Furthermore, the country’s socio-economic challenges themselves are a constraint: the high levels of inequality and socio-economic disparities are part of the reason why we have very little consensus on how to get out of the economic and social mess.

A new social pact is imperative

What is urgently needed is a new social pact, but this will not be possible unless all parts of society recognise the need to bargain and make concessions (Francis, Valodia and Webster, 2020). The costs of such a social pact need to be shared equitably, not equally, and should not fall disproportionately on the poor and marginalised.

A new social pact will need to be ambitious if it is to address the multiple crises we face. Perhaps most importantly it would need to generate growth in a pattern which benefits lower income groups and does not exacerbate inequality, as we have seen in the post-Covid recovery in much of the world.

The upheaval of the pandemic makes it possible for a new social pact to be realised. Doing so, however, will require a more inclusive approach to social dialogue, which includes the unemployed and the informally employed, who are currently excluded from the tripartite alliance at NEDLAC (Francis, Valodia and Webster, 2020). The magnitude of our socio-economic challenges mean that this is now an imperative.

References

Casale, D. and Posel, D. (2020) Gender and the early effects of the Covid-19 crisis in the paid and unpaid economies in South Africa. Working Paper 4. Cape Town, p. 25. Available at: https://cramsurvey.org/wp-content/uploads/2020/07/Casale-Gender-the-early-effects-of-the-COVID-19-crisis-in-the-paid-unpaid-economies-in-South-Africa.pdf (Accessed: 3 November 2020).

Chatterjee, A., Czajka, L. and Gethin, A. (2020) Estimating the Distribution of Household Wealth in South Africa. SCIS Working Paper 3. Johannesburg, South Africa: Southern Centre for Inequality Studies, Wits University. Available at: https://www.wits.ac.za/media/wits-university/faculties-and-schools/commerce-law-and-management/research-entities/scis/documents/Estimating%20the%20Distribution%20of%20Household%20Wealth%20in%20South%20Africa.pdf (Accessed: 7 June 2020).

Francis, D., Ramburuth-Hurt, K. and Valodia, I. (2020) ‘South Africa needs to focus urgently on how COVID-19 will reshape its labour market’, The Conversation, 20 June. Available at: https://www.wiego.org/blog/informal-employment-and-global-financial-crisis-middle-income-country (Accessed: 7 July 2020).

Francis, D., Valodia, I. and Webster, E. (2020) ‘Politics, Policy and Inequality in South Africa under Covid-19’, Agrarian South: Journal of Political Economy, 9(3).

Joffe, H. (2021) ‘Godongwana’s policy statement leaves many questions’, BusinessDay, 15 November. Available at: https://www.businesslive.co.za/bd/opinion/columnists/2021-11-15-hilary-joffe-godongwanas-policy-statement-leaves-many-questions/ (Accessed: 16 November 2021).

Sachs, M. (2021) Fiscal Dimensions of South Africa’s Crisis. Working Paper Number 15. Johannesburg: Southern Centre for Inequality Studies, Wits University. Available at: https://www.wits.ac.za/media/wits-university/faculties-and-schools/commerce-law-and-management/research-entities/scis/documents/Sachs-2021-Fiscal%20dimensions%20Working%20Paper%2015.pdf.

Statistics South Africa (2021) Quarterly Labour Force Survey Quarter 1: 2021. Statistical Release P0211. Pretoria, South Africa: Statistics South Africa. Available at: http://www.statssa.gov.za/?page_id=1854&PPN=P0211&SCH=72943 (Accessed: 12 July 2020).

Sulla, V. and Zikhali, P. (2018) Overcoming Poverty and Inequality in South Africa: An Assessment of Drivers, Constraints and Opportunities. Washington: International Bank for Reconstruction and Development/The World Bank. Available at: http://documents.worldbank.org/curated/en/530481521735906534/pdf/124521-REV-OUO-South-Africa-Poverty-and-Inequality-Assessment-Report-2018-FINAL-WEB.pdf.

Wilkinson, R.G. and Pickett, K. (2009) The spirit level: why more equal societies almost always do better. London: Allen Lane.

  1. Mr David Campbell Francis: Deputy Director at the Southern Centre for Inequality Studies
  2. Professor ImraanValodia: Dean of the Faculty of Commerce, Law and Management at University of the Witwatersrand, and Director of the Southern Centre for Inequality Studies
Mr David Campbell Francis: Deputy Director at the Southern Centre for Inequality Studies
Professor Imraan Valodia: Dean of the Faculty of Commerce, Law and Management at University of the Witwatersrand, and Director of the Southern Centre for Inequality Studies

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