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Poverty trends since the transition: What we know

Servaas van der Berg, Megan Louw, Leon du Toit

Department of Economics, Stellenbosch University

August 2007

SARPN acknowledges Servaas van der Berg as a source of this document.
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More than a decade after South Africa’s transition to democracy, it is not clear to which extent the country achieved the objective of reducing poverty and inequality. The uncertainty is the result of an absence of good and comparable data that is relevant and up to date. This publication aims to fill the gap by reporting on the progress with poverty reduction, but also on the poor record with service delivery. It draws together insights from two decades of research on Poverty, Affluence and Mobility, a research programme at Stellenbosch University instituted to create a coherent picture of the progress and setbacks in fighting poverty. The research draws on scores of data sets and many economists were involved in the analysis. The report aims to present, in a non-academic and reader-friendly format, main conclusions from recent research in this programme, making the results accessible to the policy community.

The transition to democracy marked a turning point in the history of South Africa by extending full social participation to groups who used to be systemically excluded. At the heart of meaningful social participation and, therefore, meaningful democracy, lies the reduction of poverty and income inequality. Throughout the post-transition period, spanning the implementation of the RDP (Reconstruction and Development Programme), GEAR (Growth, Employment and Redistribution) and now ASGISA (Accelerated and Shared Growth Initiative for South Africa), a consistent policy priority was to reduce poverty and inequality. This requires measuring and monitoring trends in policy-making to understand the role and effect of different policies and indicate further directions and actions for policy intervention.

Section 2 briefly reviews economic trends. It highlights the connection between trends in economic growth, the labour market and the income of households and individuals. Section 3 presents the main findings on poverty. Poverty in terms of headcount, depth and severity seems to have increased slightly from 1993 to 2001, but decreased substantially from 2001 to 2006. We expect this downward trend to continue.

Section 4 finds that inequality has remained stubbornly high, mainly because of rising inequality within race groups. There is evidence of a large and growing black middle class. Section 5 studies shifts in state expenditure and service delivery. South African public spending is currently well-targeted, but inefficient social delivery is still widespread due to ineffective managerial skills. Section 6 concludes with a look at future prospects and a policy discussion. Poverty is likely to decline and inequality to remain high, while the deracialisation of the middle class will continue.

Some central conclusions emerge. Firstly, money-metric poverty declined substantially since the turn of the century. The reduction is to a large extent due to a dramatic expansion in social grants expenditure from 2002 onwards. This improvement is mirrored in access to basic services – a rapid decline in asset poverty even preceded the decline in money-metric poverty. Secondly, although the reductions in poverty have been substantial, aggregate inequality increased during the 1990s. Thirdly, the dynamics underlying the poverty and inequality trends determine the broad policy outlook. We show that poverty has decreased since the transition, but that inequality has not improved. These trends are likely to continue.

Many government efforts, such as the extension of social grants, the roll-out of housing and various categories of fiscal expenditure, have contributed to the reduction of poverty. Wage inequality remains the main driver of overall inequality. Relating to the former, there is little scope for more grant expenditure and achieving better targeting of public spending is very difficult. As in health and in education, the problem is converting the fiscal resources into changes in social outcomes. The key to improving the real resources provided to the poor and the non-poor is managerial efficiency. With the limited scope for further government intervention, and with very little room for increased state expenditure, improving the managerial skills of government is a highly attainable goal. This is the best way that government can contribute meaningfully to poverty alleviation in the future.

Related to inequality are the educational backlogs. Backlogs in education among the poor leave them with less education and poorer in terms of quantity as well as quality of education. This means they have a significant disadvantage in the labour market. More specifically, they cannot find jobs, and if they manage to get employment, the wages tend to be low. In this way the educational backlog of the poor reinforce inequality (and poverty) through the labour market. The demand for labour is unlikely to change in favour of unskilled labour, which means the situation is likely to persist unless educational quality is improved. The best option in the long term reduction of inequality, from a policy perspective, does not prescribe any spending behaviour at all. Rather, it prescribes an improvement in managerial skills – in converting fiscal resources into social outcomes.

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