Rising inequality and slowing economic growth are at the heart of South Africa’s economic and social crises. (Photo: iStock) 
At the heart of South Africa’s economic and social crises are two worrying trends: slowing economic growth and rising inequality.
In its biannual Financial Stability Review published on 5 June, the South African Reserve Bank illustrated this starkly in three charts.
“A long period of low growth can have a slow-burning effect on financial stability through various channels.
“These include, among other channels, higher risk premiums and funding costs, lower capital inflows and foreign investment, a greater probability of social unrest with spillover effects on the financial system, higher levels of risk taking by financial institutions as they try to maintain profitability and a reduced offering of less-profitable products,” the review says.
In other words, everything tends to go pear-shaped. “Since 2009, South Africa’s economic growth has lagged behind that of the world, emerging market and developing economies, and sub-Saharan Africa,” the review says.
This can be seen graphically in the Figure above. By all comparisons, South Africa has simply been a laggard when it comes to economic growth.
Such slow rates of growth help to explain South Africa’s glaring disparities of wealth and income, as illustrated in the Figure below.
“South Africa remains one of the most unequal countries in the world as measured by wealth and income distribution,” the review says.
“In 2022, the wealthiest 10% of South Africans owned more than 85% of household wealth, 5% lower than in 2010. However, income inequality deteriorated over the same period, with the top 10% of households earning more than 65% of total income in 2022, up from 61.4% in 2010.
“A sizeable share of the country’s population remains dependent on the government for basic income, putting a structural burden on an already strained fiscal position and relatively narrow tax base.”
One factor that perpetuates such disparities is the ability of those with assets and income to widen their investment options – a sensible response to South Africa’s mounting economic, social and political woes.
“At the end of 2023, total offshore asset allocations of domestic institutional investors were almost the size of South Africa’s nominal GDP, having more than doubled since 2012,” the review says, and it’s illustrated in Figure the Figure below.
Domestic investors with the means are increasingly directing their capital offshore, seeking higher returns and protection from the rand’s relentless depreciation. Meanwhile, those at the bottom of the wealth and income pyramids are increasingly relying on social grants, the value of which has been evaporating in the light of high inflation.
It’s worth noting that this malaise really set in when Jacob Zuma became president of South Africa, in 2009.
Ironically, slow growth, high unemployment and grotesque inequality – all legacies of Zuma’s scandal-ridden administration that President Cyril Ramaphosa has been unable to address – probably help to explain the shock showing of the MK party in the 29 May elections.
This is all fertile soil for political populism and extremism, and South Africa is reaping a bitter harvest as a result. DM
This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
