Mlondi Mdluli | SA needs a new model of economic empowerment - City Press

Mlondi Mdluli

There is no doubt that apartheid is one of the main reasons South Africa continues to be the most unequal country in the world.

However, the race-based policies of the democratic era have dismally failed to correct the economic injustice caused by colonialism and the apartheid regime.

While it would be unfair to expect the post-1994 government to have completely solved the problems of poverty and inequality by now, one would have imagined that significant improvement had been made since then. Instead, those problems persist.

Before examining the failure of raced-based polices such as broad-based BEE and affirmative action, it is important to consider why such policies were introduced.

When the ANC assumed power in 1994, it vowed to address inequality in the political, social and economic spheres that made up the everyday experience of previously disadvantaged groups – black, coloured and Indian people.

Policies such as broad-based BEE and affirmative action were introduced to address the country’s racial economic inequality.

However, data from Stats SA and the World Bank show that little progress has been made in addressing the country’s racial economic inequality.

The World Bank’s Inequality in Southern Africa:

An Assessment of the Southern African Customs Union report, published in March last year, analysed poverty and inequality in the Southern African Customs Union. Its region comprises Botswana, Eswatini, Lesotho, Namibia and South Africa.
The report found that South Africa was not only the most unequal country in the Southern African Customs Union region, but – measured against the World Bank’s global poverty database, which analyses poverty and inequality trends in 164 countries – was also the most unequal country in the world.

The report stressed that the legacy of colonialism and apartheid, rooted in racial and spatial segregation, was the main driver of residual inequality and the cycle of poverty in the country.

GINI COEFFICIENT

The Gini coefficient is an index that measures the degree of inequality in the distribution of income or wealth in a country, where 1 represents perfect equality and 100 represents perfect inequality. South Africa’s Gini coefficient has significantly increased since 1994 and remains above 60, which is very concerning and shows that race-based policies are failing to reduce inequality, despite being in place for decades.

The World Bank report explained that South Africa faced significant wealth inequalities and economic polarisation, specifically across labour markets. It emphasised the facts that wealth inequality was higher than income inequality and that the top 10% of the population held 71% of its wealth, whereas the bottom 60% held only 7%.

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Another finding worth noting was that the contribution of race to income inequality amounted to 41%, while education was reduced to 30%. This indicated that race remained a key driver of South Africa’s inequality.

The University of Cape Town’s Unilever Institute found that the black middle class numbered 5.81 million in 2015.

However, the 2022 Black Middle Class Report by the same university’s Liberty Marketing Institute found that there are currently 3.4 million black middle class people in South Africa, making up 7% of the black population.
This means that the black middle class has actually shrunk by 2.41 million over the past eight years.

The report further found that the average monthly household income of the white middle class was R56 310, while the equivalent figure for the black middle class was R40 574 – a monthly household income difference of R15 736.

In addition, it found that the average net worth of white middle-class households was R4.5 million, which greatly exceeded the net worth of black middle-class households – R1.7 million.

These findings further demonstrate the ineffectiveness of race-based polices.

UNEMPLOYMENT

The unemployment numbers across racial lines, which have been presented in Stats SA’s 2022 fourth quarter labour force survey, are another example of race-based policies failing to succeed.

In the fourth quarter, 36.8% of black Africans were unemployed, compared with 21.1% of coloured, 14.4% of Indian/Asian and 8.2% of white people.

The SA Institute of Race Relations (IRR) has long called for the scrapping of race-based policies because they do not work.

In 2017, it published a paper titled Economic Empowerment for the Disadvantaged: A Better Way to Empower South Africa’s Poor. The paper outlined an alternative approach to addressing the country’s poverty and inequality.

In contrast to policies such as broad-based BEE, the IRR’s economic empowerment for the disadvantaged model focused on rapid economic growth, excellent education, more employment and the promotion of vibrant and successful entrepreneurship.

Under this policy, an economic empowerment for the disadvantaged scorecard would replace the current BEE scorecard. This revised scorecard would see businesses earning points for contributions of different kinds: the investments they make, the profits they generate, the jobs they sustain or create, the goods and services they buy from other suppliers, the innovations they help foster, and the contributions they make to tax revenues, export earnings and foreign currency inflows.
The economic empowerment for the disadvantaged approach would encourage investment, which – in turn – would increase employment and stimulate growth. It would create opportunities for all South Africans, rather than a politically connected few.

VOUCHERS

A system of tax-funded vouchers would also be introduced under the economic empowerment for the disadvantaged approach. Such government-funded vouchers would be available to means-tested South Africans earning below a certain amount to use in accessing education, healthcare and housing. The vouchers would be funded by redirecting – not increasing – the budgets of the affected departments.

Tax-funded education vouchers, for example, would give all parents a choice of schools for their children, rather than having to rely on government services. Schools would then have to compete for the custom of voucher-bearing parents, which would give them a real incentive to improve the quality of the education they provide.

A similar approach would also be applied to healthcare and housing.

Given the failure of race-based policies such as broad-based BEE and affirmative action to benefit their intended beneficiaries by reducing the country’s high rate of poverty and inequality, there is no justification for retaining them.

South Africa needs policies which, like the IRR’s economic empowerment for the disadvantaged approach, aim to directly address poverty across racial lines and the economic inequality faced by many South Africans, rather than simply benefiting some of them.

Mdluli is campaigns manager at the IRR. He holds a master’s degree in economics from the University of KwaZulu-Natal

https://www.news24.com/citypress/voices/mlondi-mdluli-sa-needs-a-new-model-of-economic-empowerment-20230409