November 22, 2002

New statistics report: Gap between rich and poor increases

The latest Statistics South Africa report on income distribution (Earning and Spending in SA) underlines one benefit of the transition to democracy: government's earnest effort to track developments relating to poverty and inequality.

Beyond that, however, the report makes depressing reading. Its key finding that income inequalities worsened between 1995 and 2000 underscores the need for more vigorous action to create jobs.

Perhaps the most shocking finding is that, in real terms, the average African household has seen a 19% fall in income, while the average white household has enjoyed a 15% increase. As a result, in 2000 the average white household earned six times as much as the average black household, up from four times as much in 1995.

The fall in African incomes goes hand in hand with increased income inequality overall. The share of the poorest 50% of households in the national income dropped from 11,4% to 9,7% in the period under review. The poorest 40% of all households saw a 16% drop in their share of total incomes. Meanwhile, the richest 20% of households get about 65% of all household income. The decline in incomes meant that the percentage of households earning less than R670 a month grew from 20% in 1995 to 28% in 2000. Tellingly, during the period, the poorest 80% of households increased the share of food in their total spending.

There is one obvious reason for growing inequality and poverty: the massive increase in unemployment. The rate of joblessness has soared from 16% in 1995 to almost 30% today. Unemployment has risen in large part because, in the past 15 years, both the public sector and private firms shed lower-level permanent posts on a large scale. Job losses peaked in the late 1990s, as tariff barriers fell and government reduced spending. In these circumstances, more and more people have been forced into insecure and poorly paid employment in the informal sector. Without these "jobs", the unemployment figures would have been even worse. But the shift to survival strategies is associated with falling incomes and deepening inequalities.

Statistics SA notes that despite the drop in real incomes for the poor, more households now receive basic services such as electricity, water and housing. To some extent, these services mean living conditions have not fallen as fast as household earnings. Where poor households suffer lower incomes, however, it becomes increasingly difficult to maintain the new services. This is especially true where providers have been commercialised, so that they face pressure to raise tariffs and end cross-subsidisation from the rich to the poor.

In some ways, SA risks repeating the post-liberation experience of other African countries. In many cases, the new governments lifted living standards substantially by extending basic government services and infrastructure to the poor and rural areas. They did not, however, intervene nearly as strongly in the economy, which typically remained dependent on a few raw materials exports, unable to generate jobs and highly inequitable. In these circumstances, when African economies suffered an external shock, new government services proved unsustainable. Falling revenues cut state support; and since households still had stagnant incomes, they could not afford to pay either. As a result, gains made at independence were undermined, and the new infrastructure deteriorated again.

In SA, the main reason for high unemployment remains massive inequalities in access to assets and skills. That results in part from the colonial and apartheid past. It also reflects the concentration of the economy on mining and related activities typically capital intensive.

By extension, measures to create jobs must increase the access of poor households to assets and skills, including provision of infrastructure, support for small and micro enterprise, land reform and access to financial facilities; and encourage investment in relatively labour-intensive sectors such as services, agriculture, construction and light industry.

SA is in a better position than most other African countries. Certainly the economy has some strong sectors minerals, petrochemicals, commercial agriculture, motor vehicle, and the financial sector, among others. However, we can no longer expect growth in these sectors to automatically create employment and, by extension, equity. Rather, we have to develop strategies to ensure that as they grow, they will generate sustainable, broad-based development. (Business Day, Johannesburg)

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