Despite South Africa having made significant strides in narrowing inequality in the last two decades, the country remains the world’s most unequal state.
The findings are contained in a National Planning Commission’s (NPC) report on the country’s Economic Progress towards the National Development Plan (NDP) Vision 2030.
NPC Commissioner Mariam Altman represented the report during a webinar on Thursday.
The report notes that while those living below the poverty line fell from 51% of the population in 2006 to 36.4% in 2011, this regressed to 40% in 2016.
In this regard, social wages were playing an important role, but also a diminishing one.
“This will be addressed with rising employment, stronger service delivery and reduced cost of living. Asset poverty is deep. Central concerns are related to land redistribution, low-income housing, the deeds registry system, limited pension contributions and high indebtedness,” notes the report.
Altman said among contributors to poor performance was weak institutions and a lack of investment in people.
“We know that the economy is shrinking; it was falling even before COVID-19. There have been areas of good performance but the reality is that we are not moving at the pace we need to and we need to attend to those issues,” she said.
Investing in people
Resilient institutions and an investment in people, she said, were critical differentiators between countries that progress and those that do not.
“The strength of institutions and investment is people are where we need a national discourse. These are the most important things that can be said about the economy. So this is an economic paper but the over-arching emphasis is on how we strengthen institutional delivery and how we strengthen the investment in people. It can’t be overstated – because we have been weak on these fronts,” she said.
Altman said South Africa’s challenge was that it escaped the clutches of apartheid where development was not delivered to a large population.
“[We] were building our institutions over the 2000s and unfortunately the character of state capture was that it destroyed state capability,” she said.
It was for this reason, she said, the document was largely focused on these areas.
“The essentials to square this transformation from high unemployment, marginalisation and poverty and inequality to that is inclusive requires… financial resources. These are huge transformative trends – to transform infrastructure, to transform education – over generations to do that is inclusive requires.
The report concedes that while employment had grown between 2010 and 2019, NDP targets were still not met. During this period, 2.5 million jobs were created.
Among the worrying trends was that by 2019, the employment shortfall was 1.5m – 60% of the target. This was anticipated to be much lower from 2020.
According to the report, the country will not meet its 2030 NDP employment targets.
“COVID-19 will make it even harder,” states the report. However, the NPC says it is still imperative to commit to full employment as the top priority even if the timing changes.
Asset poverty is also in the abyss, with concerns largely centred on the slow land redistribution, low-income housing, the deeds registry system, limited pension contributions and high indebtedness.
Altman and her colleagues in the report also indicate that the progress on inequality is too slow, with income inequality still rampant and worst in the world.
In this regard, the report states that 90%-95% of wealth was concentrated in top decile, as compared to global average of 55-60%.
“About 5% of wealth is in the bottom 40% of the population,” reads the report.
The NPC in the report urges government to prioritise getting public finances under control. South Africa is said to be already walking a macro-economic tight-rope, with low savings rates, poor export diversification and growth, and a small base of taxpayers.
“Structural improvements leading to a virtuous circle of growth should enable more space to use macro-policy as a stimulus. The economy is not yet on a footing that would respond sufficiently to macro-stimulus, so such actions would have inflationary impact,” reads the report.
National Treasury has indicated that macro-projections are uncertain, mainly due to domestic risks. The NPC warns that this deeply undermines the ability of creditors and businesses to make investment decisions in SA.
“It undermines certainty in sustained spending for service delivery and social protection needed for structural change,” reads the report.
Financially sustainable pathway
The NPC says a financially sustainable pathway would be “critical” to the significant redistribution and transformation agenda for decades to come.
These include restoring confidence in the budget process and commitment to a fiscal framework; restore and modernise revenue collection capability; and restore governance in top infrastructure state-owned entities.
The pathway should also see municipal management and finances strengthened as well as the charting of public sector bargaining to sustainable results. Also, a credible action should be taken against corruption.
Public infrastructure development and maintenance
Turning its attention to public infrastructure development and maintenance, the NPC said this aspect was hampered by insufficient spend in GDP.
Central to this was massive underspending, budget shrinkages, rampant cost over-runs, poor quality of infrastructure and a lack of impact.
In this regard, the NPC calls for a drive of the implementation of top priority public infrastructure programmes, a reduction of the infrastructure maintenance backlog.
Beyond this, the NPC says the state should professionalise capacity to drive and oversee infrastructure. State-Owned Enteprises (SOEs) performance, says the report, should also be strengthened while capacity is also deepened in local government. The document also said appropriate procurement processes and capacity should be developed as should the private civil construction sector be rebuilt.
“Enable private participation in public infrastructure delivery & management,” reads the document.
Trudi Makhaya, President Cyril Ramaphosa’s economic advisor, acknowledged the report, saying: “There are some hard questions that are to be asked if we are to be honest with ourselves in a meaningful way”.
She commended the paper for identifying the country’s challenges.
“The vision is set out in the constitution but also talks about the backdrop where the default position of our economy is exclusionary and would therefore require substantial transformation. That’s a diagnosis many of us would agree with,” she said.