Harsh South African realities about which the World Bank dare not speak
Patrick Bond (SAST) 10 February 2016

Sometimes silences speak volumes.
In his seminal book The Anti-Politics Machine Stanford University anthropologist James Ferguson criticised the World Bank’s 1980s understanding of Lesotho as a “traditional subsistence peasant society.” Apartheid’s migrant labour system was explicitly ignored by the bank, yet remittances from Basotho workers toiling in mines, factories and farms across the Caledon River accounted for 60% of rural people’s income:

Acknowledging the extent of Lesotho’s long-standing involvement in the modern capitalist economy of South Africa would not provide a convincing justification for the “development” agencies to “introduce” roads, markets and credit.

Using Michel Foucault’s discourse theory, Ferguson showed why some things cannot be named. To do so would violate the bank’s foundational dogma, that the central problems of poverty can be solved by applying market logic. Yet the most important of Lesotho’s market relationships – exploited labour – was what caused so much misery.

Three decades on, not much has changed. Today, the bank’s main South Africa research team reveals a similar ‘Voldemort’ problem.

Like the wicked villain whose name Harry Potter dared not utter, some hard-to-hear facts evaporate into pregnant silences within the bank’s new South African Poverty and Inequality Assessment Discussion Note. Bank staff and consultants are resorting to extreme evasion tactics worthy of Harry, Ron and Hermione.

The bank’s point of view
South Africa spent more than other countries on its social programs, with this expenditure successfully lifting around 3.6 million individuals out of poverty (based on US$2.5 a day on a purchasing power parity basis) and reducing the Gini coefficient from 0.76 to 0.596 in 2011.
This is worth unpacking.

1) “Spent more than other countries”? Of the world’s 40 largest countries, only four – South Korea, China, Mexico and India – had lower social spending than South Africa, measured in 2011 as a share of Gross Domestic Product (GDP).

2) “Millions lifted out of poverty?” In fact many millions have been pushed down into poverty since 1994. Unmentioned is poverty that can be traced to neoliberal policies such as the failed 1996-2001 Growth, Employment and Distribution plan co-authored by two bank economists. This made South Africa far more vulnerable to global capitalist criss.

The bank’s South Africa poverty line is $2.5/day, which was R15.75/day (R473/month) in 2011, the date of the last poverty census. In contrast, StatsSA found that food plus survival essentials cost R779/month that year, and the percentage of South Africans below that line was 53%. University of Cape Town economists led by Josh Budlender argue that StatsSA was too conservative and the ratio of poor South Africans is actually 63%.

For a net 3.6 million people, more than 7% of South Africans, to have been “lifted out of poverty” is plausible only if the bank’s much lower R473/month line is used. But by local standards, the number of poor people has soared by around 10 million given the 15 million population rise since 1994.

3) The bank adjusts the Gini Coefficient (measuring income inequality on a 0-to-1 scale) “from 0.76 to 0.596” by including state social spending that benefits poor households. But here another silence screams out. The bank dare not calculate pro-corporate subsidies and other state spending that raise rich people’s effective income through capital gains.

Such wealth accruing through rising corporate share prices is enjoyed mainly by richer people when companies benefit from new, state-built infrastructure in their vicinity. Also ignored by the bank, radically lower corporate taxes mainly benefit the rich in the same way. South Africa’s after-tax profits have been among the world’s highest, according to the International Monetary Fund in 2013.

Indeed the Treasury’s single biggest fiscal policy choice has been to condone “illicit financial flows.” These escape through bogus invoicing and other tax avoidance strategies. The Washington NGO Global Financial Integrity estimates they cost South Africa an annual $21 billion from 2004-13, peaking in 2009 at $29 billion. The bank dare not mention these flows or the resulting capital gains enjoyed by South African shareholders.

4) The Bank was most impressed by government’s provision of free basic services (mainly water, sanitation, electricity, and refuse removal), and social protection mainly in the form of social grants, primary health care, education (specifically no-fee paying schools), enhancing access to productive assets by the poor (e.g. housing and land), as well as job creation through the Expanded Public Works Program.

But the bank evades vital details, such as how “free basic water” was piloted in Durban in 1999 before becoming national policy in 2001. After a tokenistic 6 free kiloliters (kl) per month, the price of the second block of the water within the tariff increased dramatically. Overall by 2004 the price had doubled. In response, the lowest-income third of households lowered monthly consumption from 22kl to 15kl, while the highest-income third cut back by just 3kl/month, from 35kl to 32kl.

5) Another unmentionable concerns the bank’s largest-ever project loan: $3.75 billion granted in 2010 for the corruption-riddled, oft-delayed Medupi coal-fired power plant. Eskom’s repayment of that loan plus other financing has hiked the price of electricity to poor people by more than 250% since 2007. But neither the loan, the borrower, the project nor the soaring price of electricity are mentioned. Nor are Eskom’s special pricing agreements with BHP Billiton and Anglo that lower electricity prices to a tenth as much as poor households pay.

6) The bank applauds a grant that now reaches 11.7 million children. Grant payments have risen from 2.9% of GDP and now amount to 3.1%.

But a meagre 0.2% of GDP suggests the amounts provided are tokenistic. The child grant of just R340/month is about a third of today’s StatsSA after-inflation poverty line.

The South Africans who cannot be named
The bank endorses government’s “apparently sound policy” on redistribution because its researchers cannot grapple with the core problem that best explains why South African capitalism causes poverty and inequality: extreme exploitation systems amplified after apartheid by neoliberal policies. The most cited scholarly research about post-apartheid exploitation is by local political economists like Sampie Terreblanche, Hein Marais, William Gumede and Gillian Hart – but the bank dare not reference these books.

To truly tackle poverty and inequality, only one force in society has unequivocally succeeded since 1994. That force is the social activist.

Their successes include raising life expectancy from 52 to 62 over the past decade, reversing municipal services privatisation, cutting pollution and raising apartheid wages. But the organisations responsible – such as the Treatment Action Campaign, Anti-Privatisation Forum, South Durban Community Environmental Alliance and trade unions – are also, from the bank’s viewpoint, South Africans who cannot be named.
https://theconversation.com/the-harsh-realities-about-south-africa-that-the-world-bank-dare-not-speak-54349

About the Author
Patrick Bond is a Professor of Political Economy, University of the Witwatersrand. Patrick Bond is affiliated with the National Union of Metalworkers Research and Policy Institute as a volunteer advisory board member. Through April 2016 he also directs the University of KwaZulu-Natal Centre for Civil Society.

Do government spending and taxation really reduce inequality, or do we need more thorough measurements?

A response to the World Bank researchers

Patrick Bond 10 February 2016

World Bank staff and consultants claim that South Africa’s progressive taxation and pro-poor social spending reduce the Gini inequality coefficient from 0.77 to 0.59. But their data and methodology are deficient: their research ignores large areas of government spending and taxation that may significantly increase inequality. Thus their conclusion that fiscal policy is redistributive is overhasty and unfounded – whilst it is prone to be used, or misused, to promote a budget-cutting political agenda.

Introduction
‘South Africa can claim to have one of the world’s most redistributive public purses,’ claims Business Day associate editor Hilary Joffe (2015), drawing upon World Bank research findings (Inchauste et al. 2014, Inchauste et al. 2015, World Bank 2014), which were recently reiterated by Woolard et al. (Econ 3×3, October 2015). In response to the question: ‘How much is inequality reduced by progressive taxation and government spending?,’ their answer is that, when they adjust household incomes ‘comprehensively’ for the impact of government revenue and expenditure, the Gini coefficient (which measures income inequality) is reduced from 0.77 to 0.59.[1] This claim is regularly repeated by economists and high-profile commentators, often in support of fiscal austerity (see Bond 2015).

Although I have no easy answer in rebuttal, there is a significant problem. The research ignores large areas of state spending that would probably raise the Gini if included. As a brief glance at the national budget shows, the types of expenditure that the World Bank researchers took into account ignore other categories of expenditure that also have strong distributional effects. Likewise, their selection of taxes omits important components of corporate taxation – including the plethora of tax allowances, credits, loopholes and incentives embedded therein, all of which increase capital gains to holders of company shares. There also are other problems, e.g. regarding the quality of services (see below).

The Bank’s research on this vital matter is not only deficient due to its incompleteness, but is politically biased in a way that largely supports the status quo’s perspective on inequality, namely that there is little fiscal space for further redistribution. Although a key member of the research team has acknowledged the validity of my critical questions and the limitations of the methodology (Lustig 2015), World Bank staff and consultants go on repeating their findings, as in the Econ3x3 article – and most recently in a draft document for a collaborative World Bank project (2016: 22) to assess poverty and inequality in SA.[2]
World Bank researchers acknowledge weaknesses, but . . .

The fiscal tools examined by the Bank researchers (i.e. Inchauste et al.) were only those related to household taxation, social spending, and municipal services – and even there they made assumptions that are dubious in the South African context. To be sure, while repeatedly claiming ‘comprehensive’ coverage, the Bank’s staff and consultants have felt compelled to admit the following data and methodological ‘limitations’:

• the analysis does not take into account the quality of services delivered by the government;

• the analysis excludes some important taxes and spending such as taxes (and tax expenditures/subsidies) on corporate income, international trade and property, and spending such as infrastructure investments, apparently due to the lack of an established methodology for assigning the impact of these outlays across households;

• it does not capture how asset accumulation and returns to capital affect income inequality; and

• there are questions about the lack of adequate information on the income of households at the top of the income distribution (World Bank, 2014: 26; Inchauste et al. 2015: 15).

However, if they fail to address the biases implicit in these shortcomings, it is impossible to conclude that ‘(n)ot only are South Africa’s main fiscal instruments progressive overall, the degree and structure of progressiveness is such that these instruments achieve significant reductions in income inequality’ (Woolard et al., Econ3x3, October 2015: 7). Consider some of these drawbacks (for more detail, see Bond, forthcoming).

Ignoring quality in state spending: the case of education
Education, the single largest budgetary commitment, illustrates how dubious the alleged social spending benefits for recipients can be. Most public schools produce extremely low-quality education, thus locking in inequality with regard to life chances.

The World Economic Forum’s (2015) Global Competitiveness Report 2015–16 rated South African education as the worst of 140 countries in terms of science and mathematics training, and 138th in overall quality. As Spaull (2013: 10) remarks after studying the 1994–2011 outcomes: ‘South Africa has the worst education system of all middle-income countries that participate in cross-national assessments of educational achievement.’ The OECD (2010: 248) notes that ‘in 2008, only 1.4% of working-age Africans held a [university] degree, compared to almost 20% of working-age Whites. This proportion for Africans has hardly increased since 1993, while the proportion for Whites has grown by 5.4%.’
Given these outcomes, it could just as easily be argued that inequality is amplified by the manner in which public education is provided to the low-income majority. This story is fairly typical of maldistributed state resources; similar concerns have been raised regarding the quality of health services to the poor.

As National Treasury senior official Andrew Donaldson acknowledges (in a 2014 Econ3x3 article): ‘In areas such as education, health care and urban transport, service provision tends to evolve in differentiated ways […] the result is a fragmented, unequal structure in which the allocation of resources and the quality of services diverge.’ Combined with semi-privatised systems, such public spending, he admits, ‘entrenches inequality between rich and poor.’

Spending ignored by the World Bank analysts
The social spending items taken into account by the World Bank researchers account for 43% of total government spending (for fiscal year 2010/11). The October 2015 medium-term budget statement anticipates R1.45 trillion in 2016–17 spending, of which R219 billion (15%) is allocated to basic public education subsidies and R170 billion (12%) to public health (with the quality variances across income groups a main caveat for both these types of spending, as discussed above).

But other major areas were not analysed by the Bank researchers, though they have vital distributional implications:

• R184 billion (13%) for ‘Defence, public order and safety,’ which is likely to have a strong bias towards protecting the lives and property of wealthier classes;

• R143 billion (10%) for debt servicing, for which wealthy financiers and other bondholders are the main beneficiaries, taking their gains in deferred income (although a fraction of the working class who are fortunate to have a retirement fund also invests indirectly in debt securities); and

• R129 billion (9%) for aspects of ‘Economic affairs’ – economic infrastructure at R76 billion, industrial development and trade at R32 billion, and science, technology innovation and the environment at R21 billion – items that, arguably, disproportionately benefit corporations and the higher-income groups that own their shares.

No one (myself included) has done the difficult work required to put numbers to the distributive effect of the biases within these spending categories. But, without having done so, Bank staff and consultants should not make expansive claims about a ‘post-fiscal’ Gini coefficient improvement.

Likely regressive state spending: a first look
Although the World Bank (2014: 21) claims to ‘comprehensively assess the distributional impact of government taxation and spending’ using a ‘comprehensive fiscal incidence analysis’ (Inchauste et al, 2015: 9), its researchers ignore major items that appear to subsidise the accumulation of capital gains to wealthier households. Consider the following:

1. State subsidies to capital/corporations/corporate shareholders (‘corporate welfare’):

• Indirect subsidies are enormous, because most of the economic infrastructure created through taxation and user fees – roads and other transport, industrial districts, the world’s cheapest electricity during most of the post-apartheid era, R&D subsidies – is likely to overwhelmingly benefit geographically-proximate corporations and their shareholders. (There may be some job creation, but mega-projects tend to have very low long-term employment multipliers).

• Direct subsidies occur in the form of overt grants or, more often, tax provisions that business can utilise, e.g. accelerated write-offs of capital expenditure, incentives for capital-intensive industry, intended or unintended tax benefits/loopholes (e.g. export processing zones), motor vehicle industry schemes and other industrial development incentives. The direct employment benefits of these schemes are quite limited (as Black showed on Econ3x3).

• To illustrate, the highly-subsidised Medupi and Kusile power plants provide benefits that mainly go to construction companies and subsequent corporate users (three dozen companies consume around 45% of national electricity, at much lower rates than those paid by ordinary firms and households). The same applies to the coal export line from Limpopo to Richards Bay and the Durban dig-out port. The hundreds of billions of rands going to these projects probably have a major distributional effect in favour of upper-income South Africans (and foreign shareholders).
As would be required in properly assessing the value of education and healthcare investment, the Bank and other researchers could estimate the distribution of the benefits from these investments across the income and wealth spectrum.

It is vital for researchers who investigate inequality to assess how much such state subsidies (corporate welfare) add to firms’ longer-term asset bases. This translates into capital gains on shares, a benefit accruing mainly to the rich.[3] Shares on the JSE represent a vast component of household wealth.

2. Other state spending (superficially) considered by the Bank’s researchers includes the provision of household water and electricity, whether by an Eskom or municipalities.

• First, these continue to exhibit serious problems of quality and under-provision, signified by widespread service delivery protests and high levels of disconnection. In 2003, some 275 000 of all households attributed the interruptions of the water supply to cut-offs for non-payment (Muller 2004); this extrapolates to more than 1.5 million people affected that year. Today, while a notional 95% of South Africans have ‘access’ to water, the state concedes that only 65% of households enjoy an actual supply in their taps (Kings 2014).

• Secondly, the 1998 national electricity policy called for the parastatal agency, Eskom, to apply ‘cost-reflective’ tariffs in order to make profits or at least break even. This led to much higher charges for poor people. By the early 2010s, households faced much higher prices and new technologies for disciplining non-paying people, notably the prepaid meter system (which prevents cross-subsidisation). These approaches went counter to the explicit redistributive intentions of the 1994 RDP’s pursuit of ‘lifeline’ electricity and water, based on the progressive principle of cross-subsidisation through block tariffs.[4]

3. Treasury regulations also have significant distributional effects. For example, its deregulatory attitude to transnational corporate profit expatriation has allowed a great deal of income to flow to firms’ overseas financial headquarters (thus supporting future capital gains for wealthy households). Global Financial Integrity estimates the average annual illicit outflows at $21 billion for 2004–2013 (Kar & Spanjers 2015). Such tax laxity towards ‘base erosion and profit shifting’ by multinational corporates is a most important negative-redistributive aspect of fiscal policy not measured by the Bank.

4. Whether fiscal policy favours the wealthy as opposed to the (long-term) interests of the poor also depends on ‘natural capital accounting’, i.e. putting a value on non-renewable resource depletion associated with corporate extraction of minerals. The World Bank (2011: 193) estimated the impact of natural capital shrinkage on South African gross national income in 2005 to be negative 9%. Not to tax mineral wealth is a distributional fiscal policy choice which allows the proceeds of the depletion of non-renewable resources to shift from society as a whole to wealthier shareholders (even though workers in mines, smelters, transport and other downstream beneficiation industries also benefit).[5]

Conclusion
The World Bank researchers have meticulously measured something. But what they have measured is not the whole picture. While selected elements of state taxation and spending have an inequality-reducing effect on a selected component of well-being (household income) – as measured using a selected quantitative measure, the Gini coefficient – this is not a satisfactory basis from which to draw overarching distributional conclusions.
Bank staff and researchers have ignored systemic state-induced inequalities that shape distributions of income and of wealth (including capital gains) and broad human welfare. Indeed, the so-called ‘market distribution’ or ‘pre-fiscal’ distribution of income is already the systemic outcome of an inequality-producing economy that is substantially shaped and supported by state action that has long favoured wealthier people and the corporations in which they invest.

As the influence of the World Bank researchers’ project grew in the past year, I queried the work and received a series of (ultimately bureaucratic) emails from its officials (Bond 2015). Fortunately, upon asking the main consultant, Nora Lustig of Tulane University, why more accurate assessments of the state’s pro-corporate fiscal benefits were not attempted so as to offset the bias from only considering social spending, she took up the challenge with honesty: ‘Your questions are very valid. Regretfully, we have yet to figure out a solid methodological approach to allocate the burden/benefit to households of the list of interventions you list’ (Lustig 2015).

The question is: should Bank staff and allied researchers have been so hasty to publish research findings that had major implications for fiscal and budgetary policy when the methodology is evidently too limited to thoroughly answer the question they have posed? This is especially important in 2016 when even more pressure has risen from financial markets and credit rating agencies to reduce social spending – following the 2015 Budget of Finance Minister Nhlanhla Nene that cut the real value of welfare grants.

Beyond the critical flaws in measurement, the main risk of the World Bank research on ‘post-fiscal’ South African inequality is political bias: it promotes, or can be misused to promote, the budget-cutting agenda of the most regressive faction of corporate capital, i.e. financiers.
To mitigate this damage, the research task ahead for the World Bank and other inequality researchers is surely to attempt to properly measure the distributive impact of all government spending and all taxation (including allowances). That would make a real contribution to the battle against inequality and could inform appropriate tax and expenditure policies and projects (including planned ‘white-elephant’ mega-projects).

Until that research has been accomplished, would it not be better for economists, when asked about the distributional effect of fiscal policy in South Africa, to simply say: we do not yet know enough to answer that question?
http://econ3x3.org/article/do-government-spending-and-taxation-really-reduce-inequality-or-do-we-need-more-thorough#sthash.KeNSi2BK.dpuf

References
Bond P. 2015. Bretton Woods Institution narratives about inequality and economic vulnerability on the eve of South African austerity. International Journal of Health Services 45, 3: 415–42.

http://joh.sagepub.com/content/45/3/415.long
——— forthcoming. South Africa’s pseudo social democracy: Tokenistic nuances within neoliberal nationalism. In: Globalizing Social Democracy: Expectations, Experiences and Alternatives, edited by Ingo Schmidt. London, Pluto Press.

Inchauste G, Lustig N, Maboshe M & Purfield C. & Woolard I. 2014. South Africa Economic Update: Fiscal Policy and Redistribution in an Unequal Society. Presentation, World Bank Group, Pretoria. 6 November.

Inchauste G, Lustig N, Maboshe M & Purfield C. & Woolard I. 2015. The Distributional Impact of Fiscal Policy in South Africa. Policy Research Working Paper 7194. World Bank Group.

Joffe H. 2015. Piketty’s wealth tax fails to solve SA’s inequality riddle. Business Day, 7 October.
Kar, D & J Spanjers 2015. Illicit Financial Flows from Developing Countries: 2004–2013. Washington DC, Global Financial Integrity.

http://www.gfintegrity.org/report/illicit-financial-flows-from-developing-countries-2004-2013/
Kings S. 2014. Our water troubles still run deep. Mail & Guardian, 13 February.

Lustig N. 2015. Email correspondence with P. Bond. 20 January.

McDonald D & Pape J eds. 2002. Cost Recovery and the Crisis of Service Delivery in South Africa. London, Zed Books.

Muller M. 2004. Turning off the taps. Mail & Guardian, 26 June.

OECD 2010. Tackling Inequalities in Brazil, China, India and South Africa: The Role of Labour Market and Social Policies. Paris, OECD.
Spaull N. 2013. South Africa’s Education Crisis:

The quality of education in South Africa 1994–2011. Centre for Development and Enterprise Working Paper, October.

Van der Berg S. 2009. Fiscal incidence of social spending in South Africa. 2006. Working Paper 10/2009, Department of Economics, Stellenbosch University.

Woolard I, Metz R, Inchauste G, Lustig N, Maboshe M & Purfield C. 2015. How much is inequality reduced by progressive taxation and government spending? Econ3x3, 28 October.

World Bank 2011. The Changing Wealth of Nations. Washington, DC.

World Bank 2014. Fiscal policy and redistribution in an unequal society. South Africa Economic Update 6. Washington DC.

World Bank 2016. South African Poverty and Inequality Assessment. Draft discussion note, Pretoria, January.

World Economic Forum 2015. Global Competitiveness Report 2015–16. Davos.

[1] The estimate of Van der Berg (2009) for the fall in Gini is even larger: from 0.69 to 0.47.

[2] A World Bank Group consultation workshop to initiate this project is being held at the University of Johannesburg on 15 February, 2016.

[3] Capital gains are extremely important in raising the wealth levels of those who are already wealthy. For example, the United States Congressional Budget Office calculated that, in 2011, the share of total income from capital gains enjoyed by that country’s top 1% of earners was 36%; for the bottom 95% it was only 4%. Shares on the Johannesburg Stock Exchange constitute much of household wealth. For aggregate South African households in 2011, wealth was composed of an extremely high 77% in the form of financial assets and 23% non-financial assets (in contrast to India where the ratio was 12% financial to 88% non-financial assets).

[4] For example, even though minister Ronnie Kasrils decided to implement a free basic water policy in 2001, by that time the commercialisation instinct was thoroughly accepted by municipalities (based in part on World Bank recommendations inordinately hostile to cross-subsidisation). As a result, the right to water ended up being delivered in a tokenistic way, i.e. free for merely the first 6 kilolitres per household per month, with huge price increases beyond 6 kilolitres very common. In the Durban pilot, this led to a doubling of the real price from R2 to R4/kl and in turn, the lowest-income third of the metered customer base cut back their demand from 22 to 15 kl/hh/m from 1997–2004: i.e. a price elasticity of 0.55, compared to 0.11 for the wealthiest third of customers.

[5] It is the extractive-industry corporations which, by the end of the commodity price super-cycle, were the world’s most profitable firms, according to the UN Conference on Trade and Development. And the intergenerational distribution of mineral wealth – from future low-income South African citizens who no longer have access to such (now-depleted) natural capital – must also be considered, just as the damage from climate change is also now being calculated with more temporal sophistication.
Tags: Gini coefficient, Taxation, Government spending

Topics: Inequality and income distribution
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Reducing poverty and inequality has been the cornerstone of development policy in South Africa since the advent of democracy. Such goals gave impetus to the Reconstruction and Development Program (RDP), guiding government’s policy framework in 1994; they are the inspiration behind the National Development Plan of 2012. The government’s commitment to eliminate poverty is also reflected in fiscal policy: the equitable share formula, which is used to determine transfers to the different spheres of government, contains a poverty component as a redistributive measure.

South Africa has made significant strides towards enhancing the wellbeing of its citizens by reversing the adverse effects of apartheid and broadening opportunities for all.
This has, however, been challenged by variable economic growth prospects which have specifically been quite modest in recent years. The relatively high and consistent growth experienced following the end of apartheid began to taper off when structural constraints and bottlenecks dampened growth; reaching a historical low in 2009 when the global financial crisis led to the country plunging into its first recession in 17 years. GDP growth rose to 3.6 percent in 2011. Persistent structural weaknesses and new vulnerabilities such as those observed in the mining sector over the past two years, compromised the economy’s ability to sustain such growth, so that the growth reading was a paltry 1.9 percent in 2013, 1.5 percent in 2014, and the economy was projected to grow by only 1.4 percent in 2015.

The economic gains made since the end of apartheid have enabled the government to use a variety of mechanisms through which it aims to reduce poverty and inequality.
These are reflected in what is broadly termed the social wage which basically refers to the redistributive elements of the government budget. Notable gains have been made as a result of these interventions: these measures have been argued to be the drivers of the observed reduction in poverty in South Africa, with recent statistics showing that the poverty headcount rate reduced significantly between 2006 and 2011. However and despite its upper middle income status, the country still faces persistent socio-economic challenges which the South African government describes as its triple challenge (poverty, unemployment and inequality), a triple epidemic (malnutrition, HIV/AIDS, tuberculosis), and a triple burden of malnutrition (under-nutrition, hidden hunger and over-nutrition).

The persistence of these challenges, 22 years after the advent of democracy, calls for a comprehensive assessment of trends, dynamics, policy, impact and monitoring. This is especially pertinent given that the last comprehensive national poverty and inequality assessment was published in 1998 and commissioned by the Government of South Africa with assistance from the UK Department for International Development, UNDP, World Bank and the Dutch Government. The proposed Poverty and Inequality Assessment will document South Africa’s progress in reducing poverty from 1994 to 2015. It aims to contribute towards South Africa’s realization of its national targets of eliminating extreme poverty and reducing inequality. This is important given that although South Africa has achieved significant transformation in terms of improving access to services, education, health care and economic opportunities, the reduction of the prevalence and depth of poverty has met the aspirations of neither the government nor South Africans. This is despite the recognized success of fiscal policies for redistribution through a social wage of free basic services and access to facilities, expenditure on health and education that exceeds that of many similar countries, and the provision of comprehensive social protection. The co-existence of apparently sound policy, significant government expenditure but slender returns in terms of impact suggests the potential that greater efficiencies can be achieved.

The objectives of the proposed Poverty and Inequality Assessment are twofold:

First, the proposed report aims to contribute to an enhanced understanding of how the government can achieve greater efficiencies in its efforts to tackle the problem of
poverty and inequality.
This way, the report will contribute to policy dialogues towards the attainment of the NDP vision of eliminating poverty and reducing inequality. The Assessment will do this not only by providing poverty trends but also by examining the drivers of changes in poverty and inequality since the end of apartheid in 1994; investigating the extent to which economic growth has been pro-poor; and dissecting and proposing possible solutions to the challenges that South Africa faces in the fight against poverty and inequality. In addition, a forward looking forecasting exercise will be undertaken and is envisaged to inform policy discussions, formulation and planning.

Second, in April 2013, the World Bank set two goals to end extreme poverty and promote shared prosperity (World Bank, 2013). This implies a focus not only on the pace of economic growth but also on its pattern. Promotion of shared prosperity means working towards increasing the incomes and welfare of the poor. For the World Bank, monitoring progress made towards shared prosperity implies measuring and tracking the income or consumption growth amongst a country’s bottom 40 percent. It is an indicator of economic growth with equity and inclusion and can thus be used to measure the impact of policies targeted at reducing poverty and inequality. Growth is said to lack inclusiveness if the income or expenditure growth of the bottom 40 percent is consistently lower than the average income or consumption growth of the total population. The objective to “foster income growth of the bottom 40 percent of the population” includes most of those categorized by two of the national poverty lines used in South Africa even though levels of extreme poverty as defined by the World Bank are comparatively low. The proposed Assessment will both guide the Bank’s future transformational engagement with South Africa and provide a peer reviewed and independent assessment of the policy/implementation nexus that can be used by the South African government and civil society.

Overall, the assessment will identify key knowledge and policy gaps and provide new analysis that addresses selected gaps or complements existing work on these topics.
It will build on substantial existing work and knowledge base that includes large sample surveys, panel data, detailed evaluations and impact assessments, as well as qualitative studies undertaken by South African universities. Data from the recently completed Living Conditions Survey 2015 by Statistics South Africa create an opportunity for providing an up to date picture on poverty and inequality in the country. Data from the four waves of the National Income Dynamics Study (NIDS) permit the analysis of poverty dynamics. The Assessment will feed into national planning and poverty monitoring activities. This discussion paper outlines the context for the Assessment, provides suggestions for the content of the report, the process to be followed in its preparation, and identifies existing key studies and possible data sources.
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