Business Maverick

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IMF highlights South African inequality in graphic detail

An unemployed man begs for work in Johannesburg. (Photo: EPA / Jon Hrusa)

The International Monetary Fund has produced six charts to illustrate South Africa’s shocking economic disparities. It makes for graphic reading.

Twenty-five years after the end of apartheid rule, South Africa remains one of the most unequal countries in the world. The International Monetary Fund (IMF) recently produced six charts to explain this journey. You can download it here.

“Efforts to reduce inequality have focused on higher social spending, targeted government transfers, and affirmative action to diversify wealth ownership and promote entrepreneurship among the previously marginalised. These measures need to be complemented with reforms that promote private investment, jobs, and inclusive growth,” the IMF notes. 

The first chart is downright depressing. It looks at the Gini, a widely used measure of inequality, to show that inequality rose in the early 2000s and has remained high ever since, bucking the wider trend in emerging markets. This feeds the flames of EFF-style populism and fuels the narrative that economic opportunity in South Africa remains open only to the privileged few. 

The second chart looks at income distribution and also gives an instructive comparison with other emerging markets.

“The top 20% of the population holds over 68% of income (compared to a median of 47% for similar emerging markets). The bottom 40% of the population holds 7% of income (compared to 16% for other emerging markets),” the IMF notes.

The third chart highlights the regional divide. Basically, your income is probably much higher if you live in Johannesburg than, say, if you reside in rural Limpopo or the Eastern Cape. This also reflects the historic divisions between the industrial centres and the islands of rural deprivation that were the former homelands, whose residents remain deprived of things such as full property rights.

In chart number four, one sees the relationship between slowing rates of economic growth and declining GDP per capita.

“With growth stagnating over the past decade, the economy has not created enough jobs to absorb the unemployed and new entrants to the labour market,” the IMF says. This also highlights the simple fact that if population growth exceeds GDP growth, then everyone gets poorer on a per capita basis.

Chart five points out the rather obvious fact that high levels of unemployment are a major factor behind persistent inequality.

Finally, chart six notes that fiscal policy has helped to take the edge off inequality by employing a progressive tax system with social spending, for example, the social grants that help keep the indigent from falling into absolute destitution. But South Africa now has limited fiscal space in the face of sluggish growth and rising debt levels. So its effectiveness as a tool is on the wane. 

“In the future, South Africa will need further fundamental reforms for more robust and inclusive growth. The focus needs to be on creating a business environment more conducive to private investment and job creation. This requires improved governance, reducing the cost of doing business, making goods and services markets more open to competition, allowing firms to compensate workers in line with their skills and productivity, and making state-owned service providers more efficient,” the IMF says. 

None of this is new, of course, but it does serve as a useful illustration of the crippling disparities that still haunt this land. Releasing it ahead of President Cyril Ramaphosa’s SONA address and Finance Minister Tito Mboweni’s Budget speech certainly gives policymakers something else to ponder, and in a visible way. BM

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