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It's True – South Africans are better off

Annabel Bishop

02-Jul-2012

The good news is that South Africans have become more affluent (on average) since the ANC came to power in 1994. This cheering fact may appear at odds with the bearish views sometimes dispersed on SA, but the hard data confirms it.

Rising Incomes

On average South Africans have seen their incomes rise from R27 521 per person in 1993, to R38 734 in 2011 and this is in real terms. In other words, the distorting impact of inflation has been removed to give a picture of whether South Africans have really become better-off.

Figure 1: Gross national income per capita (per person) vs household consumption, in real terms

And if inflation is included then the estimated income per person in South Africa has risen almost four times since 1993.

This explains the proliferation of shopping centres and upmarket housing estates, the rise in property prices and the ongoing good performance of the retail sector over this period.

Indeed, the SA economy has virtually doubled (excluding the impact of inflation) in the last eighteen years - a compounding effect where growth begets growth.

While GDP growth has only run around a very modest 3.3% year on year over the ANC’s tenure of 1994 to date (still an improvement on the average growth of around 1.6% year on year from 1976 to 1993), the net effect of the last 18 years of virtually uninterrupted economic expansion has been to substantially raise incomes, and the size of the economy, to the point where not only has inflation been consistently combated but South Africans have typically experienced a continuously higher standard of living each year.

The Living Standard Measure

The poor have benefited from welfare payments and a massive rollout of services under the ANC’s tenure (although further rollout and improved quality is outstanding in areas) which has been responsible for lifting most out of the lowest living standard and income measures.

Living standard measures (LSM), as calculated by SAARF (South African Advertising Research Foundation), look at whether the individual owns certain items/has certain services and not what the different income levels are, although incomes have been matched to LSM groups in later years.

The items/services range from motor vehicle, TV and fridge/freezer ownership to whether the household is connected to running water and electricity, has a domestic worker and uses the internet. Changes in technology/services have been updated through the years and additional items/services included.

Figure 3: Breakdown of LSM, with corresponding monthly income estimates for 2011

Prior to the global recession of 2009, SA experienced its longest recorded expansion in the business cycle beginning in 1999. However, individuals continued to move to higher living standard measures during the recession and income per person only fell by R141 in real terms. Including inflation meant income per person actually rose in 2009.

Falling Population Growth

It should be noted that part of this marked rise in incomes has been due to the significant downward trend in population growth, to only 1% year on year in 2011, as fertility levels fell back noticeably (from 5.8 children per woman in 1970 to 2.3 children), while life expectancy has declined on the back of Aids.

Population growth is likely to remain at less than 1% (excluding cross border migrant labour and illegal immigrants) over the next 10 years, meaning that real economic growth faster than population growth will push real income per person noticeably higher.

South Africans are therefore expected to become even better off, on the back of a real economic growth rate of 4.5% over the next five years.

Unemployment and Poverty

Stubbornly high levels of unemployment in SA and attendant poverty do seem to belie this positive income story. However, one should remember that income per capita is an artificial measure: it is total income divided by the total population for any one year.

A large proportion of the population earn below R38 734 a year in real terms, or R57 234 if the impact of inflation is not removed, in SA. They survive instead on welfare grants funded by tax payers, along with the provision of other social services ranging from housing and electricity, running water and sanitation to health care and education.

Rising incomes in SA mean government tax revenues are expanding as well, allowing for a deepening of the welfare net. Arguments against the welfare payments include the sustainability of such expenditure, but such arguments are difficult when confronted both by the huge need of many destitute people, particularly young children and the elderly, and the clearly very significant growth that has occurred in gross national income per capita in SA. SA’s unemployment rate is high for structural reasons, particularly the skills mismatch.

How can the poor become self-supporting?

Continued significant real growth in incomes will very slowly reduce unemployment, but achieving low, single digit unemployment (currently above 20%) in the next 20 to 30 years will require a number of factors.

Key is education: SA cannot rectify the skills deficit if the standard of education from start to finish is inadequate, nor can it be done if children are not sufficiently housed, fed and supported, which is why child welfare grants are vital.

In the interim, the proper implementation of government’s proposed R3 trillion infrastructure rollout is essential to create jobs for the multitude of unskilled, or severely under skilled.

Labour market inflexibility needs to be urgently reduced, not escalated, to encourage youth employment, while uncertainty over property rights must be resolved and the proliferation of wastage and inefficiency in service and infrastructure provision eradicated.

Enabling the business environment will enable job creation (and raise government revenue). Effective implementation of government’s planned infrastructure rollout has the potential to become a virtuous cycle, doubling GDP and lifting living standards for all, if effectively and consistently implemented, as corruption is eliminated along with other wastages of state resources.

The triple challenges (of poverty, inequality and unemployment) can essentially be removed within 30 years.

In the meantime, rising incomes benefit all either directly, or indirectly through rising tax revenues.  There will continue to be a broadening of the social welfare net, and hopefully also an improvement in the quality of social services, where necessary.

However, the funds accruing from tax revenues need to be wisely spent; any wastage of government revenues will impact the poor most substantially and will slow the growth potential of the economy, and hence the potential for incomes to rise faster than currently.

The opinions and views expressed are for information purposes only and are subject to change without notice. They should not be viewed as independent research, recommendations or investment advice of any nature.