Haroon Bhorat & Carlene van der Westhuizen Development Policy Research Unit University of Cape Town October 2009 P OVERTY, I NEQUALITY AND THE N ATURE OF E CONOMIC G ROWTH IN S OUTH A FRICA

Introduction Consistent positive economic growth post-1994 BUT what has the impact of this positive growth been on social welfare? Evidence from 1995 – 2000: no major shifts in poverty levels, but increase in inequality Release of the 2005 IES enables a 10 yr overview AIM: 1.Poverty and Inequality Shifts: 1995 – Impact of economic growth on poverty & inequality: Exploring the interactions

Data and Methodology 1995 and 2005 Income and Expenditure Surveys All measures are individual poverty and inequality measures, calculated using per capita total household expenditure Based on the standard FGT class of poverty measures and two standard poverty lines (R322/”cost of basic needs” and R174/2$ a day in 2000 prices) Poverty shifts without poverty lines (Cumulative Distribution Functions) Inequality measures: Gini Coefficients, Theil-index, Lorenz Curves

CategoryHeadcount IndexPoverty Gap Ratio Year R322 a month poverty line African Coloured Asian White Total R174 a month poverty line African Coloured Asian White Total Poverty Shifts by Race of HH Head Source:Statistics South Africa (1995 and 2008) and Own Calculations Notes: 1. Poverty lines are in 2000 prices 2.At both poverty lines, the changes in the headcount rate are statistically significant at the 5 percent level at the aggregate and for Africans (indicated by the shaded cells) 3.The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Poverty Shifts by Gender of HH Head CategoryHeadcount IndexPoverty Gap Ratio Year R322 a month poverty line Male Female Total R174 a month poverty line Male Female Total Source:Statistics South Africa (1995 and 2008) and Own Calculations Notes: 1. Poverty lines are in 2000 prices 2.At both poverty lines, the changes in the headcount rate are statistically significant at the 5 percent level at the aggregate and for Africans (indicated by the shaded cells) 3.The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Poverty Shifts without Poverty Lines Cumulative Distribution Functions for SA Source:Statistics South Africa (1995 and 2008) and own calculations Notes: 1. Per capita expenditure as converted to real per capita expenditure (expressed in 2000 prices) using the Consumer Price Index 2.The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Cumulative Distribution Functions for African Headed HHs Source:Statistics South Africa (1995 and 2008) and own calculations Notes: 1. Per capita expenditure as converted to real per capita expenditure (expressed in 2000 prices) using the Consumer Price Index 2.The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Cumulative Distribution Functions by Gender of HH Head Source:Statistics South Africa (1995 and 2008) and own calculations Notes: 1. Per capita expenditure as converted to real per capita expenditure (expressed in 2000 prices) using the Consumer Price Index 2.The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Inequality Shifts by Race: Gini Coefficients Category African Coloured Asian White Total Source:Statistics South Africa (1995 and 2008) and own calculations Notes:1.The changes in the values of the Gini coefficients between 1995 and 2005 are statistically significant at the 5 percent level, with the exception of Africans (indicated by the shaded cells) 2.The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Lorenz Curves for Africans and Whites Source:Statistics South Africa (1995 and 2008) and own calculations Notes:The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Inequality within and between Race Groups, using the Theil Index By Race Within-group component (53.15%)(50.35%) Between-group component (46.85%)(49.65%) Total Inequality (Theil-T) (100%) Source:Statistics South Africa (1995 and 2008) and own calculations Notes:The population in 1995 has been weighted by population weights according to the 1996 Census. The population in 2005 has been weighted by the household weight multiplied by the household size. The 2005 weights are based on the 2001 Census

Relationship between Growth, Poverty and Inequality Growth a necessary but not sufficient condition for poverty reduction What is the role of inequality in the growth process Utilise GIC methodology to examine GPI interactions

Source:Statistics South Africa (1995 & 2008), own calculations Notes:1.Frequency weights are assumed with the population in 1995 weighted according to the 1996 Census and the population in 2005 weighted according to the 2001 Census 2.Figures are annualised growth rates GIC: South Africa,

Source:Statistics South Africa (1995 & 2008), own calculations Notes:1.Frequency weights are assumed with the population in 1995 weighted according to the 1996 Census and the population in 2005 weighted according to the 2001 Census 2.Figures are annualised growth rates GIC: African Headed Households,

TotalAfricanColouredAsianWhite Growth rate in mean Growth rate in median Mean percentile growth rate Mean Growth Rate of the Poorest Percentiles of the Populations Measures of Pro-poor Growth by Race, Source:Statistics South Africa (1995 & 2008), own calculations Notes:1.Frequency weights are assumed with the population in 1995 weighted according to the 1996 Census and the population in 2005 weighted according to the 2001 Census 2.Figures are annualised growth rates

Expenditure at the Top of the Distribution, Average Annual Growth Rates, Source:Statistics South Africa (1995 & 2008), own calculations Notes:1.Frequency weights are assumed with the population in 1995 weighted according to the 1996 Census and the population in 2005 weighted according to the 2001 Census 2.Figures are annualised growth rates

Determinants of Growth in Expenditure of the Poor since 1995 Impact of Social Grants Number of beneficiaries has increased from about 3 million in Aug 1997 to 9.4 million in April 2005 Driven by the extension of the Child Support Grant (< 1 million in 2001 to 5.6 million in 2005)

HH Access to Social Grants per Household Income Deciles, 1995 and 2005 Source:Statistics South Africa (1995 and 2008) and own calculations Notes:The population in 1995 has been weighted according to the 1996 Census, while the population in 2005 has been weighted according to the 2001 Census. In both datasets, the population has been weighted by the household weight multiplied by the household size.

PC Grant Income as Proportion of Total HH Income, 1995 and 2005 Source:Statistics South Africa (1995 and 2008) and own calculations Notes:The population in 1995 has been weighted according to the 1996 Census, while the population in 2005 has been weighted according to the 2001 Census. In both datasets, the population has been weighted by the household weight multiplied by the household size.

Conclusions Poverty: Significant (at 5 % level) decline in absolute and relative poverty at the aggregate, for African- and female-headed HHs: Shift is invariant to choice of any feasible poverty line Inequality: Income Inequality: Significant increase (at 5 % level) in Gini coefficient at national level Theil results suggest that inequality between race group component has become more important in explaining inequality shift.

Growth Incidence: Absolute pro-poor growth evident Large changes at the top end....the “missing middle”? Rise in incomes at the bottom end of the distribution Nature of the Growth Path: The incomes of those at the bottom of the distribution are supported through social transfers: is this a desirable and/or sustainable growth and development trajectory? Conclusions