Sunday, January 16

Who really bears the burden of South Africa’s stuttering economy?

The challenges the South African economy has faced following the shutdowns implemented in response to the Covid pandemic are well documented and have put even more pressure on an already stuttering economy.

In a recent article published by Moneyweb, we looked at the current youth unemployment crisis and discussed some of the possible collateral effects that can be caused by having a disproportionately large share of young people excluded from participating in the economy, in other words, unemployed. .

Read: Youth unemployment: two side effects to expect

This article, similarly, will break down the current state of consumer prices and indicate where the heaviest load lies and how this impacts the country not only now, but also in the future.

At the time of writing, the latest headline inflation rate was 5% (September 2021). Although it is above the levels we experienced last year, it is still well within the South African Reserve Bank (Sarb) inflation target of 3% to 6%. On the surface, it appears that inflation is currently under control and the Sarb is implementing its inflation target with expert precision.

However, if we dig a little deeper into how the inflation rate affects different economic groups (such as rich and poor), we see a more worrying state of affairs.

The following figure illustrates the inflation rate per decile of spending.

Source: Stats SA – Consumer Price Index September 2021

This illustrates that the poorest spending decile (the first spending decile) currently faces a significantly higher inflation rate of 6.6%, compared to the national figure of 5%.

Expanding this even further, the first three deciles of spending (or the poorest 30%, and where unemployment is highest) face an inflation rate significantly higher than that reported for the country as a whole.

The first two deciles of spending are currently experiencing an inflation rate that is above the upper limit of Sarb’s inflation target (6%).

This is especially concerning given South Africa’s high unemployment rate (34.4% in Q2 2021), as this implies that not only do the most marginalized economic groups face the largest price increases, but these groups also have fewer and fewer opportunities to find work to support themselves, as shown below.

Highest educational level completed Unemployment rate
Secondary not completed 39%
High school completed 36.6%
Tertiary or other 19%

Source: Stats SA – Trend data from the quarterly labor force survey (second quarter 2021)

This illustrates the positive correlation between higher education levels and the chances of more educated people to find a job.

Ultimately, this will result in a greater burden on the state, as not only will it be required to provide more basic services to a growing number of unemployed people, but these goods and services are becoming increasingly expensive.

The following table illustrates the current inflation rate for a selection of goods and services that make up a significant portion of the expense items of the lowest income groups.

Inflation rate by category Percentage change: September 2021 vs. September 2020
Meal 7%
Electricity and other fuels 14%
Transportation – fuel 19.9%
Private transport operation 16.7%
Public transport 6.7%

Source: Stats SA – Consumer Price Index, September 2021

This constitutes a gloomy reading, as it shows the severity of the negative impact on the purchasing power of the poorest people in society (given the large part that food, household fuels / electricity and transport constitute the spending of the deciles lowest spending).

Many people not only have less, but their basic goods and services cost more.

Answering the question of who is bearing the burden of South Africa’s stuttering economy, the evidence unfortunately points to those who require the most help: the poor, the less educated and the young.

This is unsustainable in the long term, since in the absence of elevating the poorest economic groups and giving them more access to meaningful opportunities to participate in the economy, the social welfare needs of these groups will grow at a rate that cannot be supported by the economy. current tax base.

This article indicates that the most marginalized groups are currently suffering the brunt of the underperforming economy.

Those fortunate enough to have the opportunity to participate should pay attention to the difficulties these less fortunate groups endure.

Unless a plan is drawn up to reduce the country’s social welfare needs (by providing more opportunities for marginalized groups) and increase its tax base, the compound effect of long years of budget deficits will be felt throughout the economy, rich and poor. poor.

Bryden Morton is CEO and Chris Blair is CEO of 21st Century.

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