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The impact of growth and redistribution on poverty and inequality in South Africa

Kalie Pauw and Liberty Mncube

International Poverty Centre
United Nations Development Programme

Country Study number 7, June 2007

SARPN acknowledges the International Poverty Centre as the source of this document: www.undp-povertycentre.org
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Introduction

South Africa is officially classified as an upper middle-income country. Certainly, as measured by its per capita income, the average South African citizen appears to be fairly well-off compared to international standards for developing countries. However, the country is also characterised by extreme degrees of inequality in the distribution of income, assets and opportunities. Past discriminatory policies have left a large proportion of the population outside the economic mainstream and relatively poor compared to an elite minority. Since the transition to democracy in 1994, various redistributive policies have been put in place, specially focusing on labour and capital markets, and including affirmative action and broadbased black economic empowerment. However, even with these policies in place, it appears that overall inequality has increased further, albeit not necessarily along racial lines.

Many analysts, however, share the sentiment that this high degree of relative poverty (or inequality) should not overshadow the high incidence of absolute poverty that persists in the country. Depending on how ‘absolute poverty’ is defined, rates between 45 and 55 per cent of the population are often quoted in the literature (see for example Hoogeveen and Özler, 2004; May, 1998; Taylor, 2002; Woolard and Leibbrandt, 2001). While most policymakers agree that the underlying structural causes of poverty are best addressed by long-term strategies designed to give people access to opportunities and income-generating assets, there is also a widespread realisation that certain temporary relief measures are necessary in order to assist the "particularly vulnerable" in society (Taylor, 2002:43). As a result, the last few years have seen a significant rise in expenditure on social security programmes as a direct measure to reduce poverty. However, state resources are limited, and the issue whether social security provisioning can be sustained or expanded further keeps being hotly debated in the policy arena today.

This paper is structured as follows: Section 2 reviews poverty and inequality trends during the last ten years. In section 3, more attention is focused on the nature of the economic growth experienced in South Africa during this period, in an attempt to determine whether such growth was in fact pro-poor or not. Also reviewed in this section is some of the important labour market trends observable in the last decade, and how these have impacted on poverty and inequality. Section 4 explores the role of cash transfers – including pensions, disability grants and various child care grants – in relieving poverty. Some conclusions are then drawn in section 5.1


Footnote:
  1. This paper forms part of a broader country study on cash transfers in South Africa. In a second paper, the authors consider in more depth the opportunities, challenges and constraints to expanding the social security net in South Africa.


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