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SA must fight inequality - World Bank

Jul 24 2012 15:54 Sapa

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Johannesburg - South Africa must tackle economic inequality in order to create jobs and bring down unemployment statistics, according to a World Bank report released on Tuesday.

South Africa is one of the most unequal countries in the world, with a Gini coefficient of 0.7 in 2008, the bank noted in its South Africa Economic Update: Focus on inequality of opportunity.

The Gini coefficient is an internationally used measure of income inequality.

The top 10% of the population accounted for 58% of South Africa's income.

The bottom 10% accounted for just 0.5% of income, and the bottom 50% less than 8%, said the bank.

"At the heart of high inequality lies the inability to create employment opportunities on a large enough scale," said the report.

Unemployment of 25.2% (or 33% if discouraged workers were included) was among the world's highest.

Social grants made up 70% of the income of the poorest 20% of South Africans.

If these grants were excluded, 40% of South Africans would have seen their income decline in the first decade after apartheid.

"Even after accounting for the equalising role of social assistance, income inequality remains extraordinarily high," said the bank.

"To reduce it to more reasonable levels over the long run, social assistance is clearly not enough and needs to be complemented by other initiatives."

South Africa should thus focus on human capital development, particularly among children and youth.

Children should have the same opportunities regardless of family circumstances, race, gender or location.

Access to a basic set of goods and services during childhood could be an important predictor of future outcomes, including educational achievements and earnings.

These basic services included education, healthcare, essential infrastructure such as water, sanitation and electricity, and early childhood development programmes.

Several factors affected access to these services in South Africa, including gender, ethnicity, household composition, the total number of children in the household, parents' education, the gender and age of the household head, orphan status, and location of the household.

There was near universal access to schooling for children under the age of 16, as well as telecommunications.

But access to other services was below 60%, including health insurance, a safe water supply, improved sanitation, adequate space without overcrowding, and finishing primary school.

Other opportunities, such as access to early childhood development programmes, safety in the neighbourhood and access to electricity, carried low to moderate inequality.

South Africa fared well on school attendance when compared to other countries, but ranked below them for the number of children completing primary school on time, and access to water, sanitation and electricity.

"Trends suggest improvements, but the gaps with other countries are generally not closing," the bank warned.

Children's inequality was shaped by circumstance.

Children living in townships, informal settlements or rural areas, as well as parents' education, contributed the most to inequality.

Race- and gender-based disparities were not the most important factors in determining inequality.

South Africa's near universal access to primary education was a necessary first step for equalising opportunities among children. Access to telecommunications and electricity had also improved.

Water and sanitation access still presented a challenge.

The country needed to give children the opportunity to finish primary school on time and be exposed to early childhood development programmes, and improve physical safety.

South Africa's inequitable access to opportunities also affected the labour market.

With chronically high unemployment, even those who have jobs face sharp disparities in wage earnings based on race, gender, location and union membership.

There was persistent inequality between different groups in their access to the few jobs available.

Causes of this inequality had changed over the past four years. Education and location had become more important than previously. This had increased the consequences of unequal opportunities to education earlier in life.

Education now accounted for more than half the inequality in employment, with a high and rising skills premium.

Wage inequality as a result of the skills premium was a key driver of income inequality in South Africa.

Young workers and residents of townships, informal settlements and rural areas found education particularly challenging.

"An individual's age is an unusually large contributor to inequality in employment in South Africa," the report stated.

Odds were increasingly stacked against the youngest workers.

"A young person's chances of having a job, a full-time job or formal sector job, seem to depend more on circumstances beyond their control than the skills they have acquired," the report said.

Adverse circumstances could compound inequalities over multiple stages of life and across generations.

To break this cycle of inequality, South Africa would need to ensure children accessed education which met the same quality standards and allowed equal access to employment opportunities.

Water, sanitation, healthcare, and overcrowding would also need attention.

"Policy design needs to recognise that children of certain circumstances are vulnerable to deprivations in multiple dimensions simultaneously," it said.

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