1. Economic and Development Problems in South Africa and Africa Poverty and Inequality in SA

2. Aims for these lectures…
Absolute vs Relative poverty
Measuring Poverty – FGT
+ understand complexities
Lorenz curves
Gini coefficient
Understand the nature of poverty/inequality in SA
Reading – not all information is of equal value

3. Poverty What is poverty?
“Poverty is the inability of an individual or a family to command sufficient resources to satisfy basic needs” (Fields Ch4)
Money-metric or multi-dimensional framework?
We are looking at money-metric, but MDF in brief:
Income and expenditure justified as poverty measure partly because of presumed correlation with well-being and empowerment.
Important to understand that money is not end in itself, but means to an end
$ correlated with food, shelter, nutrition etc but not well correlated with access to public services, safety, human rights etc
Amartya Sen = Godfather

4. Poverty Absolute vs Relative measure of poverty?
Focus axiom: The only thing we need to know about the non-poor are how many there are (poverty not inequality!).
Tony Blair was “intensely relaxed” about the millions earned by David Beckham (a footballer) provided that child poverty fell.
Absolute vs Relative measure of poverty?
$1/day or 30% mean income?

5. Poverty Measuring poverty? Why do we need to measure it?
How do we measure it?
Foster Greer Thorbecke (FGT)
Poverty Headcount ratio (α = 0)
Poverty Gap ratio (α = 1)
Poverty Severity ratio (α = 2)
Alpha is the coefficient of inequality aversion

6. If poverty line was at $10, what is P0 ?

7. Poverty What would a more ‘severe’ distribution look like?
P1 ? P2 ? Person A?
What would a more ‘severe’ distribution look like?
0.12

8. Poverty
Coudouel, Hentschel & Wodon

9. Poverty - SA
(Leibbrandt et al, 2010)

10. Poverty-SA
(Leibbrandt et al, 2010)

11. Poverty - SA
The average poor South African is a 1) young 2) black 3) girl with 4) little education, 5) living in a large, 6) female-headed, 7) rural household which has 8) low-education 9) no employment and 10) has been affected by AIDS.

12. South African poverty at a glance
Ch4 Transformation Audit 2013
Chapter 4 of the 2013 Transformation Audit

14. Poverty - SA Impact of social grants on poverty?
Labour market – focus for solving inequality? (SVDB).brief explanation of Human Capital Model
Growing contribution of G grants 15% (1993) to 29% (2000) 73% (2008)
Help break the intergenerational transfer of poverty so decrease in inequality in the future

16. Poverty - SA Impact of social grants on poverty?
“Wage inequality, deeply rooted in South Africa’s history, plays a central role in overall income distribution, and patterns of human capital development are fundamental to the future growth path and therefore to poverty and income distribution. The paper therefore concludes that reducing inequality substantially is currently unlikely without a massive increase in the human capital of those presently poor, but that prospects in this regard are inauspicious” (Van der Berg, 2010)
Impact of social grants on poverty?
Labour market – focus for solving inequality? (SVDB)
Growing contribution of G grants 15% (1993) to 29% (2000) 73% (2008)
Help break the intergenerational transfer of poverty so decrease in inequality in the future

17. Poverty SA Has poverty in SA declined? It depends who you ask
Survey method vs National accounts
Which poverty line?
Which distribution?
Anchoring to the national accounts
Which poverty line to use?
Which distribution to use
Under-reporting in surveys – rich underreport their income and poor consume non-market goods which aren’t reported

18. Poverty measurement - sidebar

19. Poverty - SA

20. Poverty – SA, the gist Back to Beckham…
Poverty has not gone up since the transition
Differing views on when and how much it came down
Depends which surveys you use, also which method (Survey-method or national accounts anchoring)
Common-sense methods are helpful
Hunger decreased
Back to Beckham…

21. Inequality

22. Inequality Calculating the Gini coeficient Gini = (Blue) / (Red)
Total equality? Total inequality?

23. Inequality
(Leibbrandt et al, 2010)

25. Poverty and Inequality
(Coudouel, Hentschel & Wodon)

26. Inequality - SA

27. Inequality at a glance…
Ch4 Transformation Audit 2013

28. Inequality - SA Between-race inequality has declined <
Within-race inequality has grown (especially amongst Africans)
<
African population important!!

29. Poverty & Inequality - questions
Measurement issues – how to move forward?
How to reduce poverty?
Economic growth? / Trade?
Social transfers?
Education?
Inequality
Is inequality a ‘national’ poverty?
Implications for social/economic/political stability?