Poverty and inequality in South Africa

Today, almost half of South Africans are living below the poverty line, surviving on just over R500 a month — an improvement from 1993, where this was the case for the majority of the population.

Yes, poverty has gone down over time — but clearly not enough. And this is only part of the dilemma we face in South Africa, because while poverty levels decline, inequality has increased and the gap between the haves and have-nots continues to grow.

A recent conference entitled Being Poor Matters was held by the Programme to Support Pro-poor Policy Development (PSPPD), a partnership between the Presidency of South Africa and the European Union (EU). The conference served as a platform for policy-makers, academics and development practitioners to interrogate the dynamics of poverty and inequality and explore why we are faced with such high levels of both — and what we can do about it.

Riots
Widespread poverty and inequality have left many countries in crisis. Speaking at the conference, Kuben Naidoo, Acting Head of the Secretariat of the National Planning Commission, said that in the case of the recent London riots, for example, budget cuts, high levels of youth unemployment, mistrust of the police, and low morale among the youth — who feel they can’t get jobs and can’t get heard — have been blamed. He pointed out that these reasons are not unique to the UK or South Africa.

Globalisation has also had an impact on poverty and inequality levels and “while it has increased market size and allowed certain countries to ‘export their way out of poverty’ in a sense, it has also significantly contributed to the increase in inequality,” Naidoo said. This was partly because of the expansion of low-skilled workers entering the labour market and partly because wages had dropped in these sectors. At the same time, salaries of higher skilled workers went up as a result of the global skills shortage and also because capital was mobile.

“Capital chases the highest return and can invest anywhere, whether it’s a small factory in Vietnam or an IT shop in America,” he said. “These factors have contributed to an unprecedented rise of inequality globally. What is interesting is that the two countries that have recorded the fastest growth in inequality, China and India, have also made the fastest progress in reducing the number of people living in poverty. This highlights the complexity of the debate and how important it is to understand the linkages between poverty and inequality.”

Challenges
In South Africa, the National Planning Commission’s Diagnostic Overview released in June this year sets out the key challenges that we confront in fighting poverty and inequality and in achieving the objectives set out in our Constitution. It found that, over and above the historical disadvantages which continue to dominate, two of the most pressing challenges facing the country are employment and education. Too few South Africans work (only 41% of adults are employed), and in spite of the significant improvement of access to education, the quality of education remains very poor.

The PSPPD conference showcased the latest research on employment and education. It also highlighted other critical issues related to poverty­ and inequality (which is considered to be structural in nature because of systems, like apartheid, that have inherently created different opportunities for people based on gender, race or class), including child poverty, social cohesion, and health.

Research collaboration
This research came out of 13 research projects which were funded by the EU through the PSPPD with the aim of gaining a deeper understanding of how economic and social policies impact on people’s lives. The research grants were awarded to the Human Sciences Research Council and nine universi­ties. Many of the studies drew on the data from a complementary programme to the PSPPD, the National Income Dynamic Study (Nids), a national panel study which was implemented by the Southern African Labour and Development Research Unit (Saldru) at the University of Cape Town’s School of Economics. Although a number of national level surveys had been conducted previously, there was very little information available about changes in communities at the household and individual level — how they respond to poverty, how it influences the choices they make, what effect government policies have on them, and who is getting ahead or falling behind in contemporary South Africa.

To fill this research gap — and examine critical issues like migration, birth and death, health, education and household spending patterns — NIDS was conceived. The survey was first carried out in 2008 in about 7 300 households across the country and will be repeated with the same households every two years. By tracking changes in living standards and social mobility, the study hopes to be able to analyse whether households are consistently poor or are going through a temporary setback and, very importantly, whether government policies are effective or not. Crucially, research like this not only answers questions about the nature of issues related to poverty and inequality in South Africa, but also draws out lessons from how they have been addressed elsewhere in the world, and the cost, benefit and effectiveness of the interventions that were used to address them. The goal is that by providing government with this kind of evidence, policy-makers will be given the tools they need to develop appropriate policies and revisit existing ones to effect positive change.

Progress
One key feature emerging from the research evidence is that South Africa has made progress in reducing poverty since 1993, with real earnings at the lower end income groups increasing. But, as the diagnostic overview explains, “per capita income growth is only one indicator of a country’s wellbeing. It tells us how much income there is to share, but does not communicate the distribution of that income.” In South Africa, as Murray Leibbrandt from Saldru points out, income shares are stacked towards the top 10%, with the lowest 5% of the population getting hardly any of the income. This is a major sign of the growing inequality in our country. Despite this widening gap between the rich and the poor, social grants like the child support grant have undeniably had a significant impact on the lower and middle income groups.

Using a policy scenario in which the grants are removed overnight, research by Leibbrandt and Ingrid Woolard, his partner at the head of the Nids project, demonstrates how the inequality would be much higher without social grants. But while social grants may well have been key in lowering poverty, as long as inequality continues to rise — driven largely by the labour market, through large gaps in wages and alarming unemployment rates — the grants system cannot get its full return, and won’t necessarily translate into better opportunities for children who have, for example, been able to afford better schooling using the grant income. Even addressing the labour market will not alone solve the problem.

“Labour and financial markets, and the way in which they conducted themselves during the economic crisis, have certainly demonstrated that while they have a role to play, they are insufficient to reduce poverty and inequality on their own,” said Naidoo. “Nor can the welfarist model, which says that the state should provide certain services, from education and health to social protection, single-handedly come to the rescue. “As budget deficits have spiralled, governments are just not able to sustain those programmes. The knowledge economy model, which believes that improving educational standards and increasing knowledge can be leveraged to generate income and wealth, can also only work if the labour markets function and the economy creates jobs,” explained Naidoo.
“The bottom line is, none of these models work on their own.”

And this is exactly why studies like the Nids and the 13 research projects are so important. As PSPPD Programme Manager Mastoera Sadan reiterated, “they contribute to a more nuanced understanding of the complex social and economic challenges we face. It reminds us that there are no simple solutions and that an engagement between researchers, policy-makers and broader society is imperative so that we can all make a contribution to improving the lives of all South Africans — because being poor should matter to everyone.”