Disparities in SA steadfastly narrowing, say the numbers - Business Day, 5th July 2012.

The Institute's Research Manager, Lucy Holborn, says that radical policies and increased state involvement in the economy are not the answers to narrowing the wealth disparities between white and black people in South Africa.

THE African National Congress (ANC) policy conference has raised an issue that comes to the fore frequently in policy debate in South Africa. This is the question of ownership or control of the economy.  

President Jacob Zuma and Finance Minister Pravin Gordhan have declared that the economy "is still primarily in the hands of white males".

As is often the case with political rhetoric, the reality is much more complex. In suggesting that white South Africans are on the whole more economically empowered than their black compatriots, they are absolutely right. But the overall message that nothing has changed — and that we therefore need to adopt more radical policies — is wrong.

Part of the problem is that too often the debate about ownership of the economy rages on without anyone stopping to define what they mean by ownership or control.

Does it mean ownership of the JSE?

What about ownership of unlisted companies? What about other forms of economic advantage, such as home ownership, ownership of land, income levels and senior management positions?

If we look at all of these, the picture is mixed, but it is generally one of continuing, yet narrowing, disparities between white and black.

In 2000, if state and foreign ownership of the JSE is excluded, 23% of individual ownership was in the hands of black (African, coloured and Indian) South Africans, against 77% owned by whites. By 2010, this had gone up to 34% black ownership and 66% white ownership, according to data from economists.co.za. The JSE’s own research puts the figure at a slightly more conservative 28% for black ownership.

Ownership of shares in JSE retirement funds has gone from 23% black and 77% white in 1995, to 37% black and 63% white in 2010. However, these statistics capture ownership of listed shares only. Economists.co.za estimates that 47% of unlisted businesses are owned by black South Africans and 53% by whites, although this does not capture the value of such businesses. Estimates of net private ownership of assets (the value of assets minus debt) suggest that the net value of white-owned assets stands at about one-and-a-half times that of black-owned assets, although if this is calculated on a per-capita basis, the ratio rises to 13:1, white to black.

Home ownership statistics from Statistics S A show 91% of homes that are owned and fully paid off are owned by black people, compared with 9% by whites. If value is taken into account, economists.co.za estimates that 57% of the value of all property is in black hands compared with 43% in white. Based on land-reform data published by the government, the South African Institute of Race Relations has calculated that as much as 44% of privately owned land (therefore excluding land owned by the state) is in black hands.

As far as incomes are concerned, IHS Global Insight suggests that per-capita incomes of whites were seven times higher than those of Africans in 2010, although their data show African incomes have been rising at a faster rate than those of other race groups since 1996.

Data from the Commission for Employment Equity show the proportion of top managers who are black has gone up from 13% in 2000 to 24% in 2010.

In some way, these statistics prove the likes of Zuma right; there are still significant inequalities in income, wealth and general economic empowerment between races.

In saying so, he is admitting the ANC’s policies aimed at rectifying apartheid-era inequalities have failed.

However, Zuma could be doing his party and government a disservice. The trends do show some positive changes in patterns of ownership and incomes.

Yet it seems the ANC is not arguing this, because it — along with many outside the party — recognises that much more progress could have been made.

Policies put in place after 1994 have failed to sufficiently transform patterns of wealth and income and have left nearly 20-million black South Africans living in relative poverty, and up to 2,5-million people living in absolute poverty on less than $2 a day.

The policies have failed for a number of reasons. One is that employment equity and black economic empowerment legislation have pushed whites into entrepreneurial activity, which might explain why the growth of white incomes has largely kept pace with that of previously disadvantaged groups that are supposed to have benefited from this legislation. At the same time, affirmative action in its various forms has created a disincentive for black people to set up and own businesses that could have raised their share of the productive parts of the economy.

The second reason is that the government has used social grants, and not rising employment, to lift millions out of the worst poverty. While it is a good thing that so many people who otherwise might not have an income have some means of basic survival, it has not significantly changed opportunities for that large mass of people to participate in economic activity and benefit from it.

In fact, some would argue it has created dependency among poor black people and has been a disincentive to a culture of entrepreneurial activity and self-help that has been witnessed among similar classes in other postcolonial economies.

Indeed, the failure to address high unemployment is the third reason there has not been a significant shift in patterns of income and ownership. The unemployment rate among Africans has risen from 24,7% in 1994 to 29,1% this year. The unemployment rate among whites, while it has gone up from 3% in 1994, remains below those of many developed economies, at 6,1%.

Strict labour regulation and powerful unions have led many businesses to replace low-skilled labour with greater mechanisation or to avoid hiring extra workers, with the greatest effect being on historically lower-skilled black workers.

The state of the education system is the fourth reason the government has failed to do more to transform patterns of ownership and wealth. While it has succeeded in improving access and attendance, the quality of education provided in the vast majority of public schools upon which millions of relatively poor black pupils rely means another generation of black youth is entering the economy (if they ever manage to do so) with a significant disadvantage compared with their white peers.

Matric pass rates sum this up: 63% of African pupils passed matric compared with 79% of white pupils in 2010. In 2008, only 13% of African pupils passed well enough to gain admission to university. The number of black graduates from university has started to outstrip the number of white, but this has been only fairly recently.

These four reasons present four relatively straightforward solutions to the problem Zuma and the ANC have rightly identified. The problem is not exactly that control of the economy is still in white hands, it is rather that still too few people have the necessary education, skills and opportunities to take part in and benefit from the economy.

Therefore, the solution is not to shift greater control of the economy to the state — which is what policies such as nationalisation and land expropriation without compensation aim to do, and which recent history elsewhere tells us will harm the poorest even more.

 

- Lucy Holborn

 

(To read the article on the Business Day website please click here.)

 

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