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South Africa: Post-Apartheid Poverty & Inequality

AfricaFocus Bulletin
Oct 7, 2010 (101007)
(Reposted from sources cited below)

Editor's Note

The question of how much change in social and economic conditions has followed the fall of apartheid in South Africa has provoked not also much debate but also significant research. A useful new report by Murray Leibbrant and others at the Southern Africa Labour and Development Research Unit in Cape Town provides both a summary of previous research and new analysis of household-level data between 1993 and 2008.

The unsurprising bottom line: inequality between races has decreased but is still large; within-race inequality has increased, and so has overall inequality; income poverty has diminished somewhat, particularly among the poorest, while services have increased but still fall far short of meeting the needs. And the decrease in income poverty is due primarily to child support grants and old age pensions, not to the labor market which continues to promote inequality.

This AfricaFocus Bulletin contains brief, relatively non-technical excerpts from the report. The full report, includes tables, footnotes, data annexes, and references, is available at http://www.oecd.org/els/social/inequality

Thanks to Patrick Bond's recent article in the AfricaFiles At Issue Ezine for calling my attention to this study. Bond's article is an up-to-date evaluation of the South African economic and political scene and prospects for the left, after the World Cup and the recent public sector strikes. See http://www.africafiles.org/atissueezine.asp#art2

For previous AfricaFocus Bulletins on economic issues, see http://www.africafocus.org/econexp.php

++++++++++++++++++++++end editor's note++++++++++++++++++++

Trends in South African Income Distribution and Poverty since the Fall of Apartheid

Murray Leibbrandt, Ingrid Woolard, Arden Finn and Jonathan Argent

Southern Africa Labour and Development Research Unit, School of Economics, University of Cape Town

OECD Directorate for Employment, Labour and Social Affairs http://www.oecd.org/els

OECD Social, Employment and Migration Working Papers, No. 101, OECD Publishing. doi: 10.1787/5kmms0t7p1ms-en http://www.oecd.org/els/workingpapers

[Brief excerpts only. The full paper is available at http://www.oecd.org/els/social/inequality]

Abstract

1. This report presents a detailed analysis of changes in both poverty and inequality since the fall of Apartheid, and the potential drivers of such developments. Use is made of national survey data from 1993, 2000 and 2008. These data show that South Africa's high aggregate level of income inequality increased between 1993 and 2008. The same is true of inequality within each of South Africa's four major racial groups. Income poverty has fallen slightly in the aggregate but it persists at acute levels for the African and Coloured racial groups. Poverty in urban areas has increased. There have been continual improvements in non-monetary well-being (for example, access to piped water, electricity and formal housing) over the entire post-Apartheid period up to 2008.

2. From a policy point of view it is important to flag the fact that intra-African inequality and poverty trends increasingly dominate aggregate inequality and poverty in South Africa. Race-based redistribution may become less effective over time relative to policies addressing increasing inequality within each racial group and especially within the African group. Rising inequality within the labour market - due both to rising unemployment and rising earnings inequality - lies behind rising levels of aggregate inequality. These labour market trends have prevented the labour market from playing a positive role in poverty alleviation. Social assistance grants (mainly the child support grant, the disability grant and the old-age pension) alter the levels of inequality only marginally but have been crucial in reducing poverty among the poorest households. There are still a large number of families that are ineligible for grants because of the lack of appropriate documents. This suggests that there is an important role for the Department of Home Affairs in easing the process of vital registration.

Introduction

5. In addition to high poverty levels, South Africa's inequality levels are among the highest in the world. Furthermore, levels of poverty and inequality continue to bear a persistent racial undertone. Two indicators of the post-Apartheid political economy have attracted special attention in this regard. The first indicator responds to the question whether the evolving character of the post-Apartheid economy and the policy efforts of the post-Apartheid government have been able to start to lower these very high aggregate levels of poverty and inequality. A related question is whether the racial footprint underlying poverty and inequality is starting to grey and will be replaced by new social strata and more subtle socio-economic dynamics.

6. Using the latest comparable household micro data, this report attempts to address these issues by reviewing the development of poverty and inequality levels in South Africa since the country's transition to democracy some 15 years ago. It also explores a range of social policies and their efficacy in influencing these outcomes.

7. Chapter 1 provides a background for the discussion by reviewing existing empirical work on South African inequality and poverty. Trends since 1970 are reviewed and described in the long-run, with a special focus on aggregate figures and racial shares. The very name "Apartheid" indicates the importance of race-based geography and race-based policy. While formal policies of spatial separation by race are long gone, a lingering legacy remains in the rural-urban marker of inequality and poverty. ... The most important conclusion of this chapter is that intra-African inequality and poverty trends have increasingly dominated the aggregate measures. While between-race inequality remains high and is falling only slowly, it is the increase in intra-race inequality which is preventing the aggregate measures from declining. Therefore, policy initiatives which address the increase in intra-racial inequality are recommended, rather than those focused solely on redistribution between inter-racial population groups.

8. But between-race inequality too remains a central issue. Although real incomes have been rising for all groups over the long run, many Africans in the country still live in poverty. At any poverty line, Africans are very much poorer than Coloureds, who are very much poorer than Indians/Asians, who are poorer than whites. Inequality by rural/urban ("geotype") on the other hand is changing. While rural poverty rates remain substantially higher than those in urban areas, urban poverty rates are rising and rural rates seem to be falling. Finally, access to services is shown to have improved, deeming service delivery together with asset growth as being pro-poor.

9. Chapter 2 provides new empirical analyses of poverty and inequality from three comparable national household survey data sets from 1993, 2000 and 2008. ... It is found that the high level of overall income inequality has further accentuated between 1993 and 2008, and that income has become increasingly concentrated in the top decile. Thus, the country's Gini coefficient increased by four percentage points, from 0.66 to 0.70, between 1993 and 2008. The Gini coefficient for the African population has risen most sharply.

10. Chapter 2 finds that poverty levels have decreased only slightly over the period under review. ... Government social assistance grants are found to be increasingly important in the composition of household income of low-income households. While their impact on poverty incidence remains negligible overall, they succeed in reducing the poverty gap, especially among the poorest households. That said, households without children have become relatively poorer ... The fact that better-educated young people remain poor suggests that the labour market has not been playing a successful role in alleviating poverty and that the education system is not delivering the skills needed in the labour market. Thus, it is concluded that it is not the labour market but rather social assistance grants which have driven the relative improvement in poverty levels over time.

...

12. Chapter 3 deals predominantly with social assistance grants, and shows that consolidated expenditure on welfare and social assistance has increased substantially in the post-Apartheid period. Two-thirds of income to the bottom quintile now comes from social assistance, mainly child support grants. The study finds that a high number of paternal orphans receive such grants, compared to a low number of maternal orphans. In addition, it is found that orphans are less likely to be receiving the Child Support Grant than children with both parents. Most significantly, there appear to be many eligible children in need who are not receiving the grant. The most common reason for not applying when eligible for the grant is found to be a lack of correct documentation. More than 80 percent of the elderly receive the country's Old Age Pension. More than two-thirds of the recipients are women. ... Reviewing secondary sources, it is concluded that the social grants have a positive effect on school attendance rates, health status and nutritional outcomes.

...

Chapter 1: An Introduction to the Trends in South African Income Distribution and Poverty since the Fall of Apartheid

14. This chapter provides the background for the rest of the report by reviewing the existing empirical work on South African inequality and poverty since the advent of the post-Apartheid era in 1994. This review highlights points of agreement and dispute within this empirical literature.

15. South Africa has an infamous history of high inequality with an overbearing racial stamp. The issue of inequality has continued to dominate the post-Apartheid landscape. There are two indicators of the post-Apartheid political economy that have attracted special attention in this regard. The first is whether the evolving post-Apartheid economy and especially the policy efforts of the post-Apartheid government have been able to lower inherited inequality. The second is the related question of whether the blunt racial footprint would start to fade under more subtle post-Apartheid socio-economic dynamics. Historically the profiling and measurement of poverty have formed sub-themes of this inequality discussion because of the overt relegation of the black majority to the bottom of the income and wealth distributions in the country under Apartheid. Showing this to be the case and illuminating the poverty inducing features of Apartheid policies were the central tasks of much Apartheid era social science.

...

18. An important empirical tradition in tracking longer-run South African inequality and poverty changes has made use of records of personal income collected in the national censuses of 1970, 1991, 1996 and 2001 (McGrath, 1983; Whiteford & McGrath, 1994; Whiteford & van Seventer, 2000; Leibbrandt et al., 2006; Simkins, 2005). Two important points emerge from this census-based work. First, starting in 1970 through to 2001 inequality as measured by the Gini coefficient was very high by international standards ... Whiteford & van Seventer (2000) show that national Gini coefficients for the period 1975 to 1996 remained close to 0.68. Leibbrandt et al. (2006) then show that this national inequality remained at least this high in the period 1996-2001. Second, the Gini coefficients by race show widening inequality within each group for each census from 1975 to 2001. ...

19. This picture of rising aggregate inequality and also rising inequality within each race group begs the question of the relative importance of the within-race versus the between race components of inequality. ... All of the census-based empirical work makes a consistent case that between-group inequality declined over the period 1975 to 1996. Clearly, the forces driving a widening inequality within each racial group over the last forty years have been strong enough to increase the overlap between the within-race distributions.

...

24. The poverty rankings by race are completely robust. At any poverty line, Africans are very much poorer than Coloureds, who are very much poorer than Indians/Asians, who are poorer than whites. In addition, measured poverty increased for Africans, coloureds and Indians/Asians between 1996 and 2001. However, here the choice of poverty line seems to make a difference. There were only small increases in poverty for Africans and coloureds when measured at the low poverty line (R91) but fairly large increases in poverty for these two groups and the Indian/Asian group when the higher poverty line (R250) is used.

...

29. The inequality picture can be quickly dealt with as all of this work (Simkins, 2005; Fedderke et al., 2003; Hoogeveen & ™zler, 2006; van der Berg et al., 2006; van der Berg et al., 2008) supports the picture coming out of the census data; namely that both aggregate inequality and inequality within each race group has continued to increase through the 1990s and into the 2000s. Van der Berg and Louw (2004) summarise this corpus as follows: Rising black per capita incomes over the past three decades have narrowed the interracial income gap, although increasing inequality within the black population seems to have prevented a significant decline in aggregate inequality .... (p. 568-9).

...

35. In sum, there is something of a consensus around the direction of post-Apartheid inequality and poverty trends even if there are disagreements about the precise levels at any point in time. Aggregate inequality has remained stubbornly high and perhaps even increased. This is being driven by increasing intra-race inequality.

...

The importance of the state old age pension has been recognized from the outset of the post-Apartheid period and the demonstrable impact of the child support grant in the last six years is notable. This takes the aggregate empirical picture a little closer to the real application of post-Apartheid policy in South Africa.

...

43. There is a sense in which the inequality and poverty review in this chapter up to this point has been unfair to the mechanisms and achievements of post-Apartheid policy. We have focussed on money metric poverty and inequality and largely ignored a literature (Leibbrandt et al., 2006; Bhorat et al., 2006; and Woolard & Woolard, 2007) showing substantial improvements in access to services such as housing, water and electricity over the post Apartheid period. For example, Leibbrandt et al 2006 use census data from the 1996 and 2001 to show that access to type of dwelling, water, energy for lighting, energy for cooking, sanitation and refuse removal all improved significantly over this period. The proportion of households occupying traditional dwellings has decreased while the proportion of households occupying formal dwellings has risen slightly (approximately two-thirds of households occupy formal dwellings). Access to all basic services has improved, especially with regard to access to electricity for lighting and access to telephones.

...

Chapter 2: An Empirical Description of Inequality and Poverty over the Post-Apartheid Period

...

84. Overall, the labour market is shown to play a dominant role in driving inequality. State transfers have increased their importance as an income source but in a neutral way rather than as a driver of inequality or decreased inequality. ...

grant income is shifting a substantial number of poor households up towards the poverty line and therefore has to be equalizing the distribution of income.

85. Analysis of absolute poverty involves drawing a poverty line and concerning ourselves only with the welfare of those that fall below the line. Obviously this understanding of poverty renders analyses sensitive to the choice of poverty line, and the welfare measure. ...

2.5 Conclusion

104. We end off this chapter by looking across the pieces of evidence about inequality and poverty in order to ascertain whether they suggest obvious drivers of inequality and poverty and of poverty alleviation. Measured inequality increased consistently between 1993 and 2008. In this regard, our empirical work on inequality confirms and updates the findings of others that we reviewed in Chapter 1. With regard to poverty, we showed that aggregate poverty improved marginally between 1993 and 2008. This trend accords with the analysis of others, although other data sets suggest a more marked improvement in poverty. Our non-money-metric picture of access to services (public assets) and to private assets is in line with other research which suggests large and continuing improvements in these dimensions of well-being since 1993. Poverty, when measured in terms of these dimensions has improved strongly.

105. Within the aggregate inequality picture, our analysis of the changing racial dynamics of inequality showed that the between racial group contribution to inequality fell markedly in the period between the democratic transition and 2000 while the changes between 2000 and 2008 were more muted. ...

110. If the labour market is not driving the improvements in poverty then what is? Our descriptive pictures flag the fact that individuals with very low levels of education and with no workers in the household have the highest poverty incidence but they have not become poorer over time. Rather those with no children have become poorer. This seems to be flagging the importance of social assistance. Add to this our findings that the incidence and share of poverty of those aged 60 and older has fallen markedly since 1993. As this group is not economically active, this can only be due to the support that they receive through the state old age pension. ...

Chapter 3: The Impact of Social Assistance Grants in Reducing Poverty and Inequality

112. While we briefly describe unemployment insurance, the focus of this chapter is on social assistance grants as these play a particularly important role in reducing poverty and inequality in South Africa. ...

138. Our discussion in Chapter 2 of money metric poverty and our income source decompositions highlighted the importance of social assistance grants as a source of income for many households in South Africa. The extensive network of social grants is central to anti-poverty policy in South Africa. Some aspects of this system were inherited from the pre-democratic era; however, the post-Apartheid state has been very active in reforming and adding to this system.

...

By April 2009, 13.4 million people were benefiting from social grants. Of these, 2.3 million were receiving old age pensions, 1.4 million were receiving disability grants and 9.1 million children were benefiting from Child Support Grants.

...

155. Of greater concern, there appear to be 2.5 million children in need who are not receiving the grant. Of these, 1.9 million have never applied for a grant. The reasons given for not having applied are listed in Figure 3.6 below. The most common reason for not applying when eligible was stated as a lack of correct documentation. ...

158. The State Old Age Pension was originally introduced in South Africa in 1928 to address poverty among elderly white people, but was gradually extended to other population groups. During the Apartheid years both the size of the grant and some of the conditions discriminated on the basis of race. Figure 3.9 shows how the value of the State Old Age Pension has changed over time. In 1970, the size of the State Old Age Pension for a white person was more than seven times the value of the pension for an African. This gap narrowed rapidly to a ratio of just over three in 1980, partly through a reduction in the real value of a white pension, but also through real increases in the size of the pension to Africans. The 1992 Social Assistance Act finally did away with all racially discriminatory provisions.

...

159. The State Old Age Pension is available to women at the age of 60 years and to men at the age of 61 years. (Until 2007, men only qualified for the Old Age Pension at age 65 but this gender discrimination has been gradually phased out. From April 2010, the ages will be equalised at age 60).
...

Chapter 4: Conclusion

184. Chapter 1 began by gathering the evidence to show that the long-run development trajectory in South Africa has been one that has generated a very high-inequality society with a strong racial component to this inequality. The bottom half of the income distribution was reserved for black South Africans and, at any of a wide range of poverty lines, poverty was dominated by black South Africans. Historically this was the result of active racial privileging and discrimination in state policy. Even without the direct racial interventions in the labour market such as the reservation of jobs that took place under Apartheid, the racial biases in determining where people were allowed to live and in the education, health and social services policy matrix would have created a workforce with racially skewed human capital and spatial characteristics. Such spatial and human capital legacies leave a very long-run footprint and these processes are hard to reverse. They should not have been expected to disappear at the dawning of democratic government in South Africa. In Chapter 2, we drew on the large pool of post-1993 survey data up to the just recently released data from 2008 to show that these factors have continued to exert an influence on South Africa's development path. It is not just the case that the 15 years since the democratic transition is not enough time for these factors to work their ways out of South African society: it is a much more dynamic and daunting process than this.

185. While we observe a decline in the importance of between-race inequality, within-race inequality has risen sharply and this has been strong enough to stop South Africa's aggregate inequality from falling. It should be noted that while the between-race component of inequality has fallen, it remains remarkably high by international norms and its decline has slowed since the mid 1990s. Moreover, the bottom deciles of the income distribution and the poverty profile are still dominated by Africans and racial income shares are far from proportionate with population shares. Nonetheless, South Africa's changing population shares imply that a policy focus on race-based redistribution will become increasingly limited in the future as the foundation for further broad-based social development.

186. South Africa has chosen to allocate significant resources to direct redistributive policies with the dual objectives of providing short-term income support to the poor and breaking the intergenerational transmission of poverty by encouraging households to invest in better health, education and nutrition for their children. Chapter 3 sketched out some of the key elements of South Africa's social safety net system, namely the existence of short-term unemployment insurance for those with formal labour market experience; a public works programme that seeks to provide income support and skills development to an increasing proportion of the long-term unemployed who are outside of the contributory unemployment insurance system; and an extensive arrangement of non-contributory social assistance grants that directly benefit more than one-quarter of South Africans. It needs to be emphasized however that the grants are specifically targeted at the elderly, the disabled and children. In our analysis of the Child Support Grant we highlighted the importance of improving the vital registration system in order to get children into payment sooner.

187. Most of the unemployed are unable to access unemployment benefits but are not provided for in the social assistance system which remains premised on the notion that unemployment is a temporary condition. Consequently there are many that argue that the social grant system should be extended to focus directly on the unemployed. While strong economic growth supported the growth in the grants in the first fifteen years of democracy, we would argue that it is imprudent to argue for permanent income support for the unemployed. Many of the unemployed are young school leavers and while they clearly need some sort of social safety net or temporary social insurance, the longer term goal has to be directed at assimilation into the labour market. In section 3.4 of this chapter, we presented a brief review of the body of literature which shows that the existing grant system seems to be promoting desirable education and health behaviours. This is true even though these grants are unconditional. Yet, the ultimate return to these positive human capital outcomes is an ability to become a productive citizen in the country. Again this turns on a more virtuous interaction with the labour market than we currently witness.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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