Open Letter to Ms Sisisi Tolashe – Minister of Social Development

By Steuart Pennington

The Global Wealth Report – How is SA doing?

https://www.allianz.com-global-wealth-report/2024/

Dear Minister, I listened to Arne Holzhausen, Head of Insurance, Wealth & ESG Research at Allianz. Mr Holzhausen is responsible for compiling the Annual Global Wealth Report which measures, amongst other things, income disparities in both the developed and developing world.

He had this to say, ‘there has been no progress in the distribution of income in SA over the past 20 years. SA remains amongst the most unequal countries in the world in terms of income distribution.’

Can that be true?

Then, I looked up our GINI co-efficient defined as ‘measuring the extent to which the distribution of income or consumption among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 1 implies perfect inequality.’

Our score, which hasn’t changed over 30 years, is between .61 and .65 and confirms what Holzhausen claims, that our income inequality is amongst the ‘worst in the world.’

Can’t be true I thought, so I did some thinking and some research.

Definitions

Firstly, I would argue that the distribution of ‘income or consumption’ includes all the income a household receives no matter the source, both earned and unearned; and that consumption is of all that is used by the household whether as a result of government transfers and free services, or personal choice.

SA over the past 30 years

According to the 2024 South Africa Survey published by the Institute of Race Relations, expenditure on social services has risen from R63.1billion (1995) to R1267.4 billion (2023), by my reckoning, a 1900 % increase in nominal terms (At 5% inflation over 30 years R63b would have risen to R272bn – a 330% increase). The bulk of which is:

  • 34.8% on education (basic education, university transfers, NSFAS, admin and training)
  • 20.2% on health (district, provincial, and central services, and facility management and maintenance)
  • 28.9% on social protection (social grants, social development, oversight and administration)
  • 15% on housing and community amenities (human settlements, water and electrification programmes, public transport and municipal infrastructure)

My interest in this article is in the allocation to social protection and housing because I will argue that changes in this regard have fundamentally shifted the needle in terms of income and wealth inequality.

1)     Social Protection Expenditure 1996 – 2023: the rising ‘distribution’ numbers.

As can be seen from the above table the increase in the number of recipients of social grants, in one form or another, is 680% over 30 years. There are 18.8 million citizens, as opposed to 2.4 million in 1996, receiving grants to the value of R214 billion, crudely, that have a value of R12 000 per beneficiary per annum. And not to forget the R12 billion CSI contribution from the private sector and the R16 billion from civil society via 275 000 registered NGOs as part of wealth ‘distribution’ which covers education, housing, health, community development, sports, disaster relief, food security, social justice and SMME’s.

Nor have I included as integral to ‘consumption distribution’ the monetary value of:

    • free schooling
    • free food at school
    • subsidised school transport
    • subsidised water
    • subsidised electricity
    • subsidised housing for the poor.

Example: If you were to estimate the monetary value of the distributed ‘income and consumption’ of the above for a family of 2 parents/or guardians, one pensioner, and two children it would be as follows:

    • Child grant at R530 x2= R1060
    • Pensioner foster care x 1 = R1180
    • Old age pension x 1= R2080
    • Free schooling x 2 = R1200*
    • Free food at school x 2 = R1000*
    • Subsidised school transport x 2 = R400
    • Subsidised water = R300*
    • Subsidised electricity = R300*
    • Subsidised housing = R1200*

TOTAL R8 720 per month per household, BEFORE any earned income is added!

*My estimates of the monetary value of these benefits/subsidies as consumption

2)     Housing – Changes in Living Conditions 1996 – 2022

In broad terms, these numbers reveal as follows (assuming population stats of 2022):

  • There has been a 100% increase in the number of households in SA over the past 26 years
  • 52 million South African live in formal houses (86%) in 1996 this was +/- 55%
  • 10.4 million homes are fully paid off. 1.4 million are being paid off (Total 64% owned)
  • 7.5 million live in informal housing (12.5%) in 1996 this was +/- 35%
  • 88% of all households have access to water, availability has more than doubled since 1996
  • 94% of all households have access to electricity, availability has more than trebled since 1996.

The BIG question:

If over the past 26 years social grant recipients have grown from 2.4 million in 1996 to 18.8 million in 2023, AND 64% of our 15 million formal housing structures are owned…….

HOW CAN INEQUALITY HAVE REMAINED THE SAME?

MINISTER, this public view that not much has changed in the life of South Africans over the past 26 years must be challenged, we need to set the record straight.

My first request; disabuse those who calculate our GINI co-efficient at .63; their calculation is based on earned income only and does not reflect government’s transfers at ‘distributing’ to the poor, possibly valued at +/- R8000 for the average household, nor does it reflect growing property ownership. Research indicates that if government transfers and property ownership were factored in our GINI co-efficient would fall to below .4.

Please write to Mr. Arne Holzhausen and disabuse him of ‘nothing has changed in 20 years in respect of income and consumption distribution in SA’.

My second request; disabuse those who constantly quote ‘50% of South Africans live in poverty.’ I’d be interested to know what category of poverty they refer to.

There are three categories of poverty, a loosely used term:

Abject poverty: defined as “a wretched life where people lack education, healthcare, proper clothing, hygiene, access to fresh water and shelter, and enough food for physical and mental health.” (The Economist) How many people live in that space in SA? I’d guess 5-8%.

Moderate poverty: A measure of being poor, many of our people are in this space (I’d guess 35%?), but ‘poor’ is very different from abject poverty

Relative poverty: A measure of inequality, what the GINI co-efficient sets out to do, and often gets wrong.

If a household owns its own home, has access to subsidised water and electricity, has children attending school free, has a cell phone and a TV, and accesses a wide array of government transfers and free services – that family is NOT living in poverty.

My third request; disabuse those who talk of 32% unemployment and 52% of youth unemployment. This number is an ‘official’ StatsSA measure based on PAYE submissions and UIF returns, it takes inaccurate account of people who work, hustle, barter and trade in the informal sector, estimated to at 8 million citizens who contribute about R900 billion per annum, close on 25% of GDP. Real unemployment, people with no work I’d guess at +/- 12-15%

My Fourth request: Arrange a gathering of all Radio talk show hosts, TV news readers, newspaper editors, prominent political commentators, hosted by yourself. Invite a few knowledgeable commentators like John Endres from the Institute of Race Relations, Paul Hoffman from the Institute of Accountability, JP Landman – Independent Researcher, Frans Cronje – Independent Political Analyst. Ask them to debate the numbers above.

We need to gather to debate and talk about the truth of South Africa.

We need to have a South African narrative that is based on current facts, not past prejudices, not Zimbabwean predictions, not a failed state scenario, not the inevitability of constant crises.

Minister, for me the numbers above reflect what has been achieved in relieving the plight of the poor, and they are well researched and substantial. I urge you to challenge those commentators out there who continue with this conventional wisdom madness that ‘nothing has changed’ as Holzhausen and others will have it. Of course we have deep challenges in respect of the troika of poverty, unemployment and inequality but please urge these people to use the facts of our progress over the past 30 years and finger those who rubbish the country based on their uninformed opinion. As Pres. Moynihan reminds, ‘Everyone is entitled to their own opinion, but not their own facts’

In conclusion.

The Global Wealth Report informs;

International perspective: Concentration at the top:

The concentration of financial assets on a global scale remains extremely high. This becomes clear when the total population of the countries we analyse is broken down by population decile on the basis of net financial assets. This shows that the richest 10% of the world‘s population – around 570mn people in the countries under consideration with average net financial assets of around EUR273,850 – together owned 85.7% of total net financial assets in 2023.

The number of the members of the global middle wealth class has risen sharply by +78% to around 850mn over the past two decades. In this process, the share of emerging economies has climbed from 43% to almost two-thirds. As has happened in SA to an extent.

The increasing participation of poorer countries in global prosperity is reflected even more clearly in the composition of the global high wealth class: last year, the share of emerging economies amounted to 34%; 20 years ago, these countries had virtually no presence in this class, with a share of 1%. True for South Africa as well.

The rich are getting richer, but this is not accompanied by a crumbling of the middle; there is no evidence of a social decline of broad sections of the population in the wealth data of recent years.

Baby boomers, generally defined as those born between 1946 and 1964, are often considered the wealthiest generation in history. A unique historical situation – strong economic growth, affordable housing markets and booming equity markets – allowed them to build-up a handsome fortune.

In anticipation

 

 

 

 

www.sagoodnews.co.za

Information sourced form SA Institute of Race Relations 2024 Annual Survey