“A decent Standard of Living is possible and doable,” Isobel Frye, Studies in Poverty and Inequality Institute.
An article from Bloomberg, Businessweek:
The trip from Pretoria to Mabopane starts on a six-lane highway lined with malls and office parks, passes verdant gated communities featuring pools and gardens, and ends in the dusty township north of South Africa’s capital where the trees, shops, and sumptuous homes make way for stark, single-story cinder-block structures in dirt yards. Inside one of them—the Katekani Community Development Project, a collection of brick buildings behind a barbed-wire fence—Beauty Mokubung and a handful of other women sit at sewing machines, hoping for orders from local schools for uniforms to augment their meager incomes.
The end of apartheid has done little to improve the lot of the 71-year-old, who is among the 18 million South Africans on welfare. Those people—about a third of the population—are now reeling from the first real erosion in social payments in more than a quarter-century. As inflation ticks up, Mokubung’s government pension hasn’t kept pace, leaving her with just 1,890 rand ($131) a month to support herself and three grown, unemployed grandchildren, whose parents died of AIDS.
“There’s electricity to buy, basic things like maize meal and sugar,” says Mokubung. “It’s too little.”
As many countries pursue expansionary policies, South Africa—grappling with depleted coffers and the biggest economic contraction in a century—is dialing back one of the broadest social assistance systems in the developing world. Over the past two decades, pension payments have risen at an average of 5.4% annually, but this year the increase is just 1.6%, well under half the inflation rate. The National Treasury says it’s planning several years of restrained increases to shake South Africa’s economy out of a decade of stagnation.
The move risks exacerbating one of the world’s starkest divides between haves and have-nots, which has turned the country into a tinderbox. Riots and looting in the two most populous provinces in July were evidence of the increasingly frayed social fabric. Ignited by the imprisonment of former President Jacob Zuma, the protests quickly became a catch-all for a litany of frustrations, from record-high unemployment—almost 80% of 18- to 24-year-olds are without jobs—to the strain of repeated pandemic lockdowns. Thousands of people descended on malls and warehouses in a frenzy of pilfering and unrest that left at least 337 dead, caused 50 billion rand in lost output, and imperiled 150,000 jobs.
More than a quarter-century after the end of apartheid, South Africa is the globe’s most unequal nation, according to the World Bank. Presidents from Nelson Mandela on have expanded the welfare system and undertaken affirmative-action policies to create a substantial Black middle class and lift millions out of poverty. But they haven’t narrowed an inequality gap aggravated by rampant corruption and ineffective spending on one of the world’s poorest education systems.
Since 1993, the last year under White rule, the pretax income of the top 1% has grown by half, while for the bottom 50% it has shrunk by a third, according to the World Inequality Lab, and the wealthiest 3,500 South Africans have more assets than the poorest 27 million. Although Blacks have outnumbered Whites in the richest 10% of the population since about 2014, three-quarters of South African households—almost all of them Black—have no savings in case of an emergency.
“The bottom 50% has virtually no wealth,” says Leo Czajka, a research fellow for the World Inequality Lab at the Université Catholique de Louvain in Belgium. “You have literally millions of people with no assets. You have a shock like Covid, no income left for them to buy food.”
South African Unemployment Rate
In Q2 2020, virus restrictions meant fewer people could look for jobs. *Includes discouraged job seekers and those not searching for jobs.
Data: Statistics South Africa
After the end of apartheid, with the economy expanding at a rate of about 5% a year, the government largess was sustainable, and national debt was kept in check. But since the 2008 financial crisis and the ascension of Zuma as president in 2009, growth has stalled while expenditures continued to rise.
For the past eight years, growth hasn’t topped 2% even as state payrolls have continued to swell and corruption has flourished. The government estimates that 500 billion rand was stolen during Zuma’s tenure as state companies became vessels for ruling party patronage. The now-bankrupt national airline hasn’t posted a profit since 2011, and the state power utility Eskom Holding SOC Ltd. amassed 400 billion rand in debt as the cost of new power plants busted budgets amid allegations of kickbacks.
Black economic empowerment programs, particularly in the crucial mining sector, created millionaires and billionaires such as current President Cyril Ramaphosa and his brother-in-law, Patrice Motsepe. But at the same time, the labor-intensive gold industry contracted, shedding tens of thousands of low-wage jobs. And regular power outages, attributable to a lack of government foresight and dysfunctional management at the power company, stymied new investment.
So South Africa finds itself facing some sobering realities: The number of welfare recipients has grown sixfold since 1998. And while racial inequality has declined, that shift was driven by the fortunes accumulated by the country’s wealthiest Black citizens. By 2019 the richest 10% of the population accounted for about 65% of income, more than in Brazil, India, or the U.S., according to the World Inequality Lab.
Social Welfare Beneficiaries in South Africa
Data: South African Social Security Agency
Given that evidence, the Ramaphosa government’s decision to rein in social spending confounds some observers.
“To cut back just doesn’t make any sense,” says Murray Leibbrandt, director of the Southern Africa Labour and Development Research Unit at the University of Cape Town. “It seems that nobody, including the rating agencies, are pushing for that sort of thing. They are acutely aware of the inequalities in the country. For the bottom two or three deciles of the population, the dominant source of income is not labor, it’s social grants. They’ve been left out of the South African growth story.”
The welfare pullback will make matters worse, says Isobel Frye, director of Johannesburg’s Studies in Poverty and Inequality Institute. A survey in Vosloorus, a poor area south of Johannesburg, showed that half the local economy was driven by welfare payments.
“The implications are going to be a shrinking economy, growth in poverty, and inequality,” Frye says. “The Treasury sees social spending as only a cost, and not an investment. It’s going to create levels of misery that we have not seen yet. We are not building a strong society.”
Cost to Service South Africa’s Debt
Share of GDP
Figures are for fiscal years ended March 31.
Data: National Treasury, Bloomberg
The government says it has little choice. National debt is forecast to rise to about 89% of gross domestic product in 2026, and the budget deficit was 14% in the most recent fiscal year. The government aims to boost investment in everything from telecommunications to renewable energy while restoring the ailing finances of state companies. And that costs money.
“Our approach has really been, how do we get growth back?” says Duncan Pieterse, head of economic policy at the National Treasury. “How does one strike the right balance between a very effective social support safety net as well as this very important priority to support job creation?”
While the end of apartheid lifted many constraints on Black lives—like where to live and whom to love—and left South Africa with one of the world’s most progressive constitutions, enshrining everything from racial equality to the right to self-identity and sexual preference, that can’t be taken to the bank. “The money only lasts until the 10th of the month,” says Tebatso Matshukudu, an unemployed 28-year-old single mother who receives handouts for her two children and a sister. “Grants help us get by.”
So for welfare recipients like Matshukudu, Mokubung, and Alice Modukanela, a 60-year-old who sews at the Katekani center, the belt-tightening is hard to fathom.
“We are doomed,” says Modukanela. —With Rene Vollgraaff and Prinesha Naidoo
Source: Bloomberg Businessweek + Equality, written by Antony Sguazzin and Leah Wilson
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