Poverty, Inequality and the Nature of Economic Growth in South Africa

The post-1994 period in the South African economy is characterised, perhaps most powerfully, by the fact that the economy recorded one of its longest periods of positive economic growth in the country’s history. One of the more vexing issues within the economic policy terrain in post-apartheid South Africa though, has been the impact of this consistently positive growth performance on social welfare. Many observers have highlighted the potentially harmful consequences of persistently high levels of poverty and particularly, economic inequality on the quality and sustainability of democracy. The evidence suggests, at best, six key trends which are noteworthy in terms of observing changes and challenges in South Africa’s second decade of democracy. Firstly, it is clear that both absolute and relative levels of poverty have fallen for African- and female-headed households. And it is a result invariant to the choice of poverty line. Secondly though, we continue to show that race and gender remain overwhelming determinants of this poverty profile. Thirdly, the trends in income inequality suggest that one of the world’s most unequal societies has quite possibly become the most unequal. In turn, and our fourth key deduction, it is evident that income inequality between racial groups – to all intents and purposes between Africans and Whites – is driving this overall increase. Our analysis of the nature of economic growth since 1995 suggests that despite positive economic growth, individuals at the top-end of the distribution have gained the most from the post-apartheid growth dividend. Indeed, what this suggests is that the country’s current democratic growth model is crafted around supporting incomes at the bottom-end of the distribution through an extensive social transfer programme, whilst offering few returns to those in the middle of the distribution. It is not evident, as South Africa enters its first post-1994 recession with declining tax revenues and rising fiscal deficits, whether such a growth model is indeed desirable or sustainable.