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Beating poverty and unemployment: are we on track?

Beating poverty and unemployment: are we on track?

Used with permission of the author:
Author: Steuart Pennington
Co-founder and Partner

SOUTH AFRICA - The Good News project
http://www.sagoodnews.co.za
20 November 2007
This article appeared in SOUTH AFRICA - The Good News, 27 July 2007.


In 2004 the South African government committed to halving poverty and unemployment by 2014 under the Accelerated and Shared Growth Initiative for South Africa (AsgiSA). This is a realistic challenge but it is going take a great deal of hard work and effort on the part of the government to achieve this goal. So where are we now, three years into the challenge?

Last month a set of key development indicators were released by the government in a report called the "Development Indicators Mid-Term Review". The report provides pointers to the evolution of our society up to the middle of this government's term, two-and-half years after the April 2004 elections. It reveals statistics on various challenges facing South Africa and according to the report we are on our way to winning the war on poverty and unemployment and achieving the 2014 goal.

 

Poverty

The report indicates that since 2000 there has been a considerable decrease in poverty in the country, with the poorest citizens seeing a notable improvement in their income. Since 2002, strong overall income growth, including the expansion of social grants, has resulted in a rise in income of the poorest 10 and 20 percent of the population. At present, nearly 12 million people receive social grants, and 3.2% of gross domestic product (GDP) is spent on social grant assistance.

Possibly the most significant indication that poverty is decreasing at a steady pace is the decline in the percentage of population living under R3000 per annum. Since 2001 the headcount poverty rate has decreased from 51% to 43%. This has largely been attributed to the expansion of social grants, and more jobs created in the economy.

Using Excel’s forecast function based on the trend between 2001 and 2006, it appears that the percentage of South Africans living in poverty will be drop to around 30% by 2014 – not quite half, but a significant dent!

Further statistics show that the number of people in Living Standards Measures (LSMs) 1 to 3 has decreased and those in higher LSMs have increased. Between 2000 and 2005, the LSM data shows a significant decrease in the number of people in the poorest categories (LSM 1-3), with a marked reduction in the number of people living in LSM 1. The growth in number of people living in LSM 4-10 can be considered a good indication of the growing middle class in the country.

Despite a definite decrease in poverty, the indicators show that inequality on the other hand has not decreased in recent years. The report reveals that while the number of people living below the poverty line has decreased, the increase in income for the poor has not matched that of the better off. It was noted in the findings that inequality has changed in nature over the last few years.

Inequality between races has declined. In 1993, 61% of inequality was between race groups; however, by 2006 inequality between race groups had declined to 40%. However, over the same period, inequality within race groups has become much more prominent.

Given what the report reveals about the definite decline in poverty it is not a case of the rich getting richer while the poor get poorer. Yes, the rich are getting richer but the poor are getting less poor, but at a slower pace.

So it would appear that despite the increase in inequality within race groups, the percentage of South Africans living in poverty could drop from 47% in 2004 to around 30% in 2014. Obviously there are many, many variables in this but it is an indication of a fairly successful poverty reduction programme that is moving in the right direction.

But what about the other goal the Government has set out for the next six years? Will we be able to halve the amount of unemployment that existed in 2004?

Employment

The "Development Indicators Mid-Term Review" indicates that in terms of employment we are on track to reaching our goal. The target is to have 16 million people employed by 2014. The report states that if the employment creation performance achieved since March 2004 is maintained, the target will be met.

However, this is granted that the growth rate continues to improve, especially in areas with higher rates of labour absorption. A particularly strong growth in the number of employed was seen in the two years to September 2006 when over one million additional people were employed. Since 2004 the number of people employed has increased from 11.39 million to 12.8 million people.

The government’s goal is to decrease the unemployment rate to 14% by 2014. Since 2003 unemployment has been falling at a steady rate. The report shows that if unemployment continues to fall at the rate achieved since January 2003, we could halve unemployment by 2014. This is however, dependant on a further acceleration of the rate of economic growth to 6% between 2010 and 2014, increased investment in labour-intensive sectors, as well as further expansion of public works programmes and other second economy interventions. Narrow definitions of unemployment have decreased from 31% to 25% while broad definitions have decreased from 42% to 37% since 2003.

It is clear that if changes in poverty and employment continue at the current rate, we could get close to meeting the goals set out by AsgiSA. Furthermore, from what was found in the mid-term review, we should be able to meet the AsgiSA target that has been set for the economy. The economy has been growing continuously for the last eight years and at a faster rate than the country's population. The goal is GDP growth of 4.5% per annum from 2005 to 2009 and then 6% per annum until 2014.

Since 1999, the economy has grown continuously and growth continues to tend towards a higher level. Since 2004, growth has averaged at over 4.5%, which means we are on target so far to reach our goal for 2009. Furthermore, if economic growth continues to grow at the current pace, we will reach the 2014 target. However, faster growth is putting new strains on the economy, including shortages of material and skilled labour.

Another goal for the economy for 2014 that seems to be on track is that of capital investment. Not only is this increasing, it is also creating a platform for further growth. The AsgiSA target for capital investment is to reach 25 percent of GDP per year by 2014. The report indicates that since 2002 fixed investment has been rising and that since 2004 it has begun to accelerate. This lays the basis for strong GDP growth as long as funds are efficiently invested. The statistics show that in 2000 we were at a gross fixed capital formation of 15% while 2006 saw a gross fixed capital formation of 19%.

However, it is pointed out that while private-sector and state-owned enterprise investments are strong, the rate of government investment remains relatively slow. The report states that to continue the strong upward trend in investment, capacity to invest must improve urgently in all spheres of government.

The “Development Indicators Mid-Term Review” evidently shows that we are heading in the right direction in terms of reaching our 2014 targets. The current rates of progress will however have to continue in all sectors and the government will have to address those areas, such as inequality, that are in need of improvement.

It is not impossible to reach these targets and events such as the 2010 FIFA World Cup and Government’s R400bn infrastructure investment programme will help to speed up our progress.

Please note that the forecasting was performed by South Africa: The Good News and was not included in the 'Development Indicators Mid-Term Review'

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Short summary
Statistics indicate that South Africa could be on track in eradicating poverty and unemployment.

Keywords and relevant phrases
Accelerated and Shared Growth Initiative for South Africa, AsgiSA, development, economy, employment, equality, GDP, goal, government, gross domestic job creation, growth, income, investment, labour, middle class, objective, poverty, private sector, product, public works, race, skilled labour, skills shortage, social grants, society, state-owned enterprise, unemployment,

Gary Watkins

Gary Watkins

Managing Director

BA LLB

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