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Something's gotta give! Inequality in South Africa affects everyone

Globally, as a result of the Covid-19 pandemic, you can feel that things are going to be forever changed and one of those things, in my opinion, is the economic world order. Think about it, the government and central banks the world over are printing trillions of dollars and it is them – not the free market – deciding where it is allocated. This will lead to a lot of friction surrounding who gets what and who pays for it. Inequality in South Africa is going to be more prevalent.

Capitalism Is the best system … but it is flawed

History has shown that the best system for increasing productivity and allocating resources is capitalism. At its very essence is the simple fact that a capitalist economy rewards efficiency – if a business can produce a good or service at a lower cost than consumers are willing to pay for it, it will succeed. If it can’t, it will fail.  Simple.  But capitalism, in my opinion, is not without major flaws.  Especially when it comes to providing equal opportunity to those who have the inherent ability to be productive, and to take care of the basic needs of those who don’t. It pays no heed to the living conditions of the poor, and turns a blind eye to the extreme, decadent spending of the super wealthy. It places no limits on these two extremes. Mix the ensuing social and economic impact, and you have the perfect recipe for a social revolution. There is a global social storm brewing. 

SA faces an even bigger challenge than wealthier nations do

If wealthy nations are grappling with these challenges, what about South Africa where the situation is even more dire? For starters, we have the most inequitable income distribution of any country … in the world. Consider this: South African Research Institute data indicates that South African households with an average income per household member of R1,166 per month, earn at least 50% more than the rest of the country’s households.

The top 10% comprises households where the average monthly income is R7,417 per person. And to qualify for the top 1%, households need to earn an average of R49,447 per member per month.  These numbers are extremely telling. 

Wealth distribution in South Africa is extremely unequal

Accurate figures were not available until April 2020, when the Southern African Centre for Inequality Studies and the World Inequality Database published a mind-blowing report with regard to wealth distribution in South Africa. The inequality in South Africa is substantial.

If one looks at “wealth” to mean the value of a person’s assets (excluding durable assets such as cars, furniture, personal effects, etc.) less the value of any debt owing, the results are even more staggering. The average per-person-wealth in South Africa is estimated at R326,000. The average for the bottom 90% is R94,100; and for the bottom 50% it’s -R16,000. That’s right, half our country, on average, has negative wealth. 

The top 10% of South Africa has an average wealth-per-person of R2,790,000, and controls 86% of total wealth. The contrast is stark, but even more staggering is when you break down the top 10%. The top 1% has an average per-person-wealth of R17,830,000 (55% of the country’s total wealth!); the top 0,1% has an average per-person-wealth of R96,970,000 (30% of SA’s total wealth!); and the top 0,01% (approximately 3,500 people) has an average per-person-wealth of R486,200,000 – making up a staggering 15% of South Africa’s total wealth! Yes, one hundredth of 1% (approximately 3,500 people) are exceedingly more wealthy than the bottom 90% of South Africans (32 million people)! 

The pandemic is amplifying the inequality

As a result of the Covid-19 pandemic, the difference between the “haves” and “have nots” is only going to increase. When the value of assets takes a material knock in an economic crisis, only the wealthy are able to take advantage of acquiring additional assets at the resulting lower prices.  While people severely impacted economically are forced to sell their assets at these reduced prices (think of forced home sales), making them even poorer. Perversely, this is a classic form of wealth redistribution, in reverse – from the poor to the already wealthy. 

Furthermore, the World Bank estimates that an additional 1 million South Africans will move into “severe poverty” (living on under R35 per day) in the next 12-18 months as a result of the pandemic-fueled economic crisis. In my opinion, inequity in our beautiful country is a way, way bigger threat to our children and their children, than climate change (and that is saying something.) Morality aside, if the economic situation goes unchecked, it will make matters far worse for everyone living in this country, to the point of untenable extremes. 

What is needed

We desperately need effective policies that can create a positive impact on influencing income and wealth distribution – rightfully positioned as a means of making our collective future brighter, rather than an individual threat or burden. The cost of having so many unproductive people hugely outweighs the benefit of having a small percentage of extremely productive people. 

Any real change is going to require the buy-in of all South Africans, but such buy-in can only occur if we truly understand the situation we are facing, and fully grasp the magnitude of the time-bomb currently ticking.  And why the purpose of this article is not to start the usual blame-game and finger-pointing (from both sides of the political spectrum); or provide potential answers. The only intention is to get the conversation going as to how totally unsustainable the current economic reality in South Africa actually is. 

Did you know things were this bad?

About the Author: Steve Doidge

Besides being a proud member of the Red & Yellow Economics team, Steve is also the Founder of the RealFin Group – a specialist financial services provider – with over 25 years’ experience in global financial markets. His formal qualifications include a BCom, Advanced Taxation Certificate, MCom, MPhil and a Chartered Alternative Investment Analyst. He’s passionately involved in providing educational support – directly and indirectly – to some of the most impoverished areas of the Western Cape, and is a firm believer in “paying things forward”. 

Steve loves all and anything Economics-related, is an avid book reader, and serial traveller to weird and wonderful places. He laughs at things most people don’t find funny, and has an obscure fear of pigeons.

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