The World Bank said on Wednesday it has started the process of elevating inequality as an essential growth measurement that should be highlighted as an economic threat and not just a moral one.
Speaking at the virtual launch of the bank’s Inequality in Southern Africa report hosted in partnership with the University of Pretoria, the bank’s country director for East Africa, Keith Hanson, said economic growth has to come with environmental goals and reducing levels of inequality.
“If a group that is famous for promoting equality says something about inequality it can sound like advocacy. But if the World Bank starts to say something about it in economic terms, it sounds like orthodoxy and it will help to motivate countries to take action on this,” said Hanson.
The report said hat SA and Namibia have the highest inequality among the Southern African Customs Union (Sacu) member countries and in the world.
Other Sacu member countries are Botswana, Lesotho and Eswatini.
According to the report, “the sharp inequality in land ownership [in SA] contributes to perpetuating the historically high levels of income inequality”. It said that 80.6% of financial assets in SA are held by the top 10% of the population.
Race and the legacy of apartheid are major country-specific risks to domestic inequality and notes that the country’s “missing middle” in wage distribution is another main driver of primary income distribution inequality, said the report.
“The analysis of SA data suggests that including characteristics such as race and parental background would yield much higher estimates of inequality of opportunity in Sacu,” said Pierella Paci, World Bank manager of the poverty and equity global practice for Eastern and Southern Africa.
Basic jobs
“Our analysis of inequality of opportunity in SA, including the role of race and parental attributes, explains almost half (47.7%) of overall inequality in consumption per capita, mostly because of race, which contributes about 38.9 % to overall inequality,” said Paci.
Paci called the inequality in domestic wage distribution “extreme”, saying that SA is one of the few countries where a very few people have highly paid jobs in large enterprises and most people work in poorly paid basic jobs.
But it is not all bad news. The World Bank report also acknowledges that Sacu countries have undertaken some of the most redistributive spending in the world, particularly on education and health.
However, “the issue remains the quality of services produced, poor targeting of deserving recipients and inefficiencies”.
For this, the report proposes four policy areas of intervention including resolving land inequality and strengthening land rights both in law and in practice, addressing the highly skewed distribution of productive assets by improving business environments through reducing business regulations that hamper domestic and foreign investment, and through strengthening competition and productivity.
The third proposed policy area requires Sacu countries to enhance the impact of fiscal policy on inequality by improving the equity and efficiency of social spending. The World Bank says this can be done in a budget-neutral way by allocating a greater share of social protection resources to children.
Social protection
The fourth proposal includes enacting measures to mitigate climate shocks and economic shocks.
Paci said Covid-19 social protection schemes in Lesotho, Namibia, and SA can help reduce the increase in poverty by half a percentage point in Lesotho, 5.7 points in Namibia and by 3.2 points in SA.
“These results suggest that nearly 2-million people can be protected from poverty by social assistance, with SA accounting for most of the gains because of the size of its population and the scope and the effectiveness of its programmes,” she said.
Hanson said the World Bank is in a position to encourage countries to start including inequality indicators as part of their main growth indicators.
“We can elevate the issue in our measurements, we can put some numbers and gross metrics about this and start building it into our country framework partnerships and strategies in how we support countries,” said Hanson.
By doing this, countries can try to build institutions that will “redistribute opportunities and resources to the extent necessary and help level the field so that circumstances at birth do not hold people back”, he said.
“And even when they come from those circumstances then confront all other ranges of obstacles.”
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