Critical challenges in reducing inequality – Learning from South Africa

What can the international development community learn from South Africa’s efforts to overcome inequality?

South Africa has one of the world’s highest levels of inequality. At the same time, South Africa is one of the most redistributive middle-income countries. Why then is inequality in South Africa so persistent? Major increases in social safety nets for the most vulnerable populations reduces inequality. However, extended low growth, poor educational outcomes and structurally high unemployment means that living conditions for many South Africans have remained unchanged in recent years. What can the international development community learn from South Africa’s efforts to overcome inequality? What works and what must change? This session will bring together leading expertise on South African and global inequality with policymakers and others to discuss lessons and future trajectories.  

Key points

  • South Africa has some of the world’s highest levels of inequality.
  • Major increases in social safety nets for the most vulnerable in the population have reduced disparities.
  • Living conditions for many South Africans still remain unchanged in recent years.
  • A significant proportion of the current middle class are at risk of falling into poverty.

Synopsis

South Africa is one of the most redistributive middle-income countries, but it also has some of the world’s highest levels of inequalities. Major increases in social safety provision for the most vulnerable in the population has reduced disparities. However, extended low economic growth, poor educational outcomes and structurally high unemployment mean that living conditions for many South Africans remain persistently unchanged. The first democratic elections in South Africa in 1994 brought about the prospect of equal opportunity and an overall improvement in living standards for the majority of South Africa’s population. But well over 20 years after the country’s return to democracy, inequality remains remarkably high largely due to the labour market. Currently, 16 million people are employed in South Africa but 6 million are out of work. The overall unemployment rate is 27 % but this rises to 55 % for the 15-54 age group. The average 40 % employment rate compares with a global mean of 60 %. Perhaps most damning, more than 50 % of those of a working age are out of work. There has been significant and impressive progress in improving access to essential services, such as water and electricity, but even here inequalities remain, not least along racial lines. The fact remains that while whites are a minority in the population, they still control wealth in South Africa. Another key driver of high levels of inequality is low economic growth. In the mid-2000s it was about 4-5 % but this has steadily declined to 1.5 % today. The relative failure of government policy is also a factor. For instance, 52 % of government expenditure goes on education and health but data shows that a high proportion, over 70 %, of youngsters leave school unable to read or do even basic maths. Large disparities in earnings are yet another cause of inequality. Top earners have done well both in absolute and relative terms in the past 20 years, but this has merely served to increase inequality. The good news is that efforts are being taken to address these assorted problems which other African countries could possibly learn from. They include the introduction of a minimum living wage, equivalent to about € 200 a month. The distribution of social grants and the Income Guarantee Scheme, which guarantees anyone of working age one day’s work a week, have helped cut poverty levels. South Africa also has an impressive social welfare system which means that one in three of the population, about 16 million people, receive some form of welfare. The country is also credited with an efficient, equitable, progressive and well-administered taxation system. Innovative projects like Africa Unite, which promote social cohesion, are also working with the country’s youth to fight inequality. Despite this, 25 years after democratisation, economic inequality persists and South Africa is a deeply unequal society with a significant proportion of the current middle class now also considered at risk of falling into poverty.

Insight

South Africa deserves credit for progress in reducing poverty rates but, today, the super poor remain super poor. This is still a deeply unequal society so the need for action is now, not tomorrow.

Organised by

Speakers

Moderator
Bernard Rey
Head of cooperation
European Commission - DG for International Cooperation and Development
Rudi Dicks
Deputy Director-General
Department of Planning, Monitoring and Evaluation
Ingrid Woolard
Professor
Stellenbosch University
Catherine Macleod
Chief Director: Macroeconomic Analysis
Republic of South Africa, Department: National Treasury