South Africa has widest gap between rich and poor

Study finds SA now falls below Brazil

By Donwald Pressly

South Africa has overtaken Brazil as the country with the widest gap between rich and poor, according to figures put together by a leading South African academic.

Haroon Bhorat, an economics professor at UCT, told a briefing at Parliament on Friday that South Africa was now "the most unequal society in the world" with a significant increase in income inequality.

"In the long run it is bad for growth. It is a threat to social stability and to growth itself. The long-run trend is a worrying one," he warned.

Bhorat said South Africa's Gini coefficient index - which shows the level of income inequality - stood at 0.679.

This figure is drawn from figures collated by Bhorat using Statistics SA's income and expenditure survey. The figures are based on household income in the 2005/06 year.

The coefficient has risen from the All Media and Products Survey figure of 0.66 in 2007, but is down from an uncomfortably high 0.685 in 2006.

He argued that South Africa had enjoyed a long period of growth which had sustained a growing social security bill, but the country was now in "a high deficit" environment and its ability to maintain these payments was being challenged.

But the news may not be as bad it seems.

According to presidential policy adviser Joel Netshitenzhe, the figure may not necessarily be accurate because state benefits targeted at the poor - and particularly the unemployed - of free basic water and electricity, access to health care and the social welfare grants which now go to over 13 million of the poorest of the poor may not be adequately reflected in the Gini coefficient.

In the 2009 Development Indicators report, issued by the Presidency's deputy director-general, Alan Hirsch, the Gini coefficient reached 0.666 in 2008. Bhorat puts the figure at a higher 0.679.

A value of one reflects complete inequality while a value of zero reflects complete equality. A Gini coefficient above 0.5 "is unacceptably high", according to the report.

Bhorat's office pointed to World Bank figures for 2007/08 which give South Africa a slightly lower 0.578 and Brazil at a wee bit lower - but still unacceptably high - 0.57. While other countries such as Bolivia at 0.601 and Botswana at 0.605 are higher, the figures are based on old household income figures - 2002 and 1993 respectively. Colombia's figure of 0.586 is also based on 2003 data.

Netshitenzhe's view is backed by National Planning Minister Trevor Manuel, who said even French President Nicolas Sarkhozy had asked for a review of the manner in which gross domestic product was measured "and what it tells us about anything".

Manuel said he was not sure how relevant the Gini coefficient data was "any longer".

Manuel, indicating that the indicators were presented "warts and all", gave the assurance that social welfare policies would continue.

While the indicators showed more and more people were moving out of the very poor bracket - ascribed largely to the welfare grants - Manuel said the country would not retract its welfare policies.

Bhorat made the point that Brazil might have improved its position because it had allied upliftment grants to educating children. Thus a parent received a grant on condition that a child was sent to school and attended regularly.

Hirsch attributed Brazil's success in moving down the inequality ladder "to more successful industrial policies" than South Africa. Brazil had implemented "a greater variety of industrial development programmes and small business support programmes".

The indicator document noted that the living standards measure in South Africa showed that those households earning the equivalent of just R1 080 a month had dropped to about 1 million. This was down from 3.4 million households earning the equivalent in 2000/01, when the comparable income was R742 a month.

The document noted that this could be ascribed to economic growth, expanding employment as well as the government's poverty alleviation initiatives.

Published on the web by Business Report on September 27, 2009.

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