Poverty and Inequality in South Africa

Report prepared for the Office of the Executive Deputy President and the Inter-Ministerial Committee for Poverty and Inequality

Summary Report

13 May, 1998

Editor and Project Leader Julian May
Assistant Project Leader Juby Govender
Lead Researchers Debbie Budlender
Julian May
Renosi Mokate
Chris Rogerson
Aki Stavrou
Summary Report Editor Nick Wilkins
Funding Organisations The Government of South Africa
UK Department for International Development
United Nations Development Programme
World Bank
Dutch Government


Table of Contents

1 Growth, development, poverty and inequality

1.1 Introduction
1.2 The approach to reducing poverty and inequality
1.3 An overview of the tools used for analysis
1.4 Assessment criteria

2 The nature and measurement of poverty and inequality

2.1 Introduction
2.2 Measures of poverty and inequality in South Africa
2.3 The extent and distribution of poverty
2.4 Poverty and human development
2.5 The experience and perceptions of poverty

3 Macroeconomic Context

3.1 Introduction
3.2 Past performance of the South African economy
3.3 The macroeconomic policy response
3.4 Reprioritisation of the budget
3.5 Conclusion

4 Employment Creation

4.1 Introduction
4.2 Poverty and employment
4.3 The informal sector
4.4 Poverty and unemployment
4.5 Trends in demand for low-paid labour
4.6 The impact of government policy upon poverty

5 Human Development

5.1 Introduction
5.2 Education and training
5.3 Health care
5.5 Malnutrition
5.6 Welfare
5.7 Crime

6 Infrastructural Services

6.1 Introduction
6.2 Water supply and sanitation
6.3 Irrigation
6.4 Energy
6.5 Transport
6.6 Communications

7 Institutional Context

7.1 Introduction
7.2 Framework
7.3 The Constitution
7.4 National government
7.5 Provinces
7.6 Local government
7.7 Non-governmental organisations (NGOs) and civil society
7.8 Integrative and regulatory structures
7.9 Corruption
7.10 Conclusion

8 The Spatial Context

8.1 Introduction
8.2 The spatial context of poverty and inequality
8.3 Rethinking spatial policy and spatial poverty issues
8.4 Restructuring the apartheid space economy
8.5 The spatial distribution of infrastructure
8.6 Conclusion

9 Livelihoods and assets

9.1 Introduction
9.2 SMME development
9.3 Small-scale agriculture
9.4 Housing
9.5 Land reform and redistribution
9.6 Micro finance
9.7 Sustainable livelihoods
9.8 Social assets
9.9 Conclusion

10 A Strategy for the Reduction of Poverty and Inequality

10.1 Introduction
10.2 The Elements of a strategy for the reduction of poverty and inequality
10.3 Linking Growth and Human Development
10.4 Redistribution of assets and opportunities
10.5 Market reforms
10.6 Spatial development
10.7 Institutional reforms
10.8 Monitoring and evaluation
10.9 Conclusion


1: Growth, development, poverty and inequality


In per capita terms South Africa is an upper-middle-income country, but despite this relative wealth, the experience of most South African households is of outright poverty or of continuing vulnerability to being poor. In addition, the distribution of income and wealth in South Africa is among the most unequal in the world, and many households still have unsatisfactory access to education, health care, energy and clean water. This situation is likely to affect not only the country’s social and political stability, but also the development path it follows: countries with less equal distributions of income and wealth tend not to grow as rapidly as those with more equitable distributions. This Poverty and Inequality Report (PIR) reviews the extent and nature of poverty and inequality in South Africa, and assesses the current policy framework for the reduction of both. It attempts to provide clear conceptual and practical guidelines concerning the issues which need to be taken into consideration in the formulation of policy, its implementation, and when monitoring its impact.

The approach to reducing poverty and inequality

The approach adopted by the PIR is based on breaking the forces that have perpetuated poverty, while promoting income, wealth and opportunity. It is based on the following assumptions:

Expansion of capabilities focuses on the relationship of people to the resources they have and the commodities they require when meeting their basic sustenance requirements. The important elements in this are: (1) the assets, claims and resources that are available to people; (2) the activities they have to undertake in order to generate a sustainable livelihood; and (3) the commodities and services they require for an acceptable standard of living. Different policy options can impact on different elements within this system: for example, land reform could increase the availability of land for small-scale farming, while reforming financial markets could facilitate the actions required to produce a crop.

Experience has shown that unqualified reliance on market forces to allow the benefits of economic growth to ‘trickle down’ to the poor is not effective where the underlying institutional context has remained the same. In South Africa, while many of the institutional requirements for efficient markets are present, institutional discrimination has meant that many markets remain strongly influenced by existing positions of power and influence. Policy to reduce poverty and inequality therefore has to take into account the complementarity between different kinds of assets and the nature of the markets in which they are exchanged.

While economic growth contributes to poverty reduction, it may not necessarily reduce inequality. Further, there is evidence that countries starting off with significant inequality experience lower growth rates than others because lack of access to physical, financial and human assets constrains poor people from participating effectively and efficiently in the economy. By contrast, the Newly-industrialised Countries (NICs) of East Asia experienced rapid economic growth which was associated with interventionist government policies to achieve more equitable human resource development. In South Africa, it seems likely that the perpetuation of extreme inequality will constrain achievement of government’s ambitious economic growth targets.

Several areas of government action are relevant to the relationship between economic growth and the reduction of poverty and inequality, including: the allocation of state expenditure on social services and infrastructure; the provision of social safety nets; the promotion of social equity through redistributive policies involving taxation, market reform or reprioritising expenditure; and the development of good governance and administrative capacity.

An overview of the tools used for analysis

Poverty is characterised by the inability of individuals, households or communities to command sufficient resources to satisfy a socially acceptable minimum standard of living. Poverty is perceived by poor South Africans themselves to include alienation from the community, food insecurity, crowded homes, usage of unsafe and inefficient forms of energy, lack of jobs that are adequately paid and/or secure, and fragmentation of the family. In contrast, wealth is perceived to be characterised by good housing, the use of gas or electricity, and ownership of a major durable good such as a television set or fridge.

‘Inequality’ can be defined in terms of being the opposite of ‘equality’, a state of social organisation that enables or gives equal access to resources and opportunities to all members. However, there are a number of possible objectives for policy aimed at reducing inequality, such as increasing the relative income share of the least well-off, lowering the income ‘ceiling’ (the income earned by the most well-off), facilitating upward mobility, promoting economic inclusion, avoiding perpetuation of the advantages conferred by wealth, and achieving more favourable comparisons against international yardsticks. For the purposes of measurement, the PIR focuses on income inequality, because there is little reliable and readily accessible data on wealth in South Africa.

Poverty is not a static condition; individuals, households or communities may be vulnerable to poverty as a result of shocks and crises (uncontrollable events which harm livelihoods and food security) and long-term trends (such as racial and gender discrimination, environmental degradation and macroeconomic trends). Vulnerability to poverty is therefore characterised by an inability to devise an appropriate coping or management strategy in times of crisis. Poverty may also involve social exclusion in either an economic dimension (exclusion from the labour market and opportunities to earn income) or a purely social dimension (exclusion from decision-making, social services, and access to community and family support).

Households use their assets to undertake a wide range of income-generating activities, and in doing so exercise a range of claims in many distinctive claiming systems. There are at least four broad categories of assets and claims: human capabilities, natural resources, social and institutional networks, and human-made capital. Household livelihood strategies typically include some combination of the following income-generating activities: agriculture and fishing; self-employment in small and micro-enterprises; wage labour; legal claims against the state, such as pensions, unemployment insurance and state child maintenance; claims against employers, such as pensions; and claims against individuals such as private child maintenance. Several other types of income-earning or income-stretching activities are also often critical, and may include unpaid domestic labour, illegitimate activities (such as drug trafficking, prostitution and petty theft), the sale of household assets, and use of the environment (such as for cultivation, grazing, fishing, and as a water source).

Assessment criteria

Three important criteria can be identified against which the existing policy framework should be evaluated in terms of its impact on poverty and inequality:


2: The nature and measurement of poverty and inequality


One consequence of apartheid has been the lack of comprehensive social indicator data that could assist in policy formulation. For example, between 1976 and 1994 official data excluded the supposedly ‘independent’ TBVC territories, thus excluding many poor South Africans. The PIR accordingly makes use of the 1993 Project for Statistics on Living Standards and Development (PSLSD) which provided a baseline survey, the 1995 October Household Survey (OHS), and the 1995 Income and Expenditure Survey (IES), supplemented qualitatively by the 1995 South African Participatory Poverty Assessment (SA-PPA). The PIR concentrates on the dimensions of poverty and inequality that are easily and objectively measurable. It uses conventional, money-metric measures, as money is commonly the means people use to obtain inputs needed for their development; such measures are therefore practicable, allow for comparisons between people, and are a fairly good proxy for standards of living. The PIR also uses a broader, composite indicator of deprivation to obtain a poverty profile.

Measures of poverty and inequality in South Africa

In measures of human development such as life expectancy, infant mortality and adult illiteracy, South Africa compares unfavourably with several other middle-income countries. These indicators also vary widely by race group, gender and geographical location within the country, however. Such comparisons are supported by use of the Human Development Index (HDI), an indicator constructed to determine the extent to which people live long, informed and comfortable lives, and which combines measures of life expectancy at birth, education levels, and standard of living. The HDIs for South Africa, its nine provinces and four population groups can be compared with those of other countries. The Western Cape and Gauteng, as well as the white and Indian population groups, fall within the HDI range equivalent to ‘high human development’. Northern Province falls within the HDI range equivalent to ‘low human development’. The other provinces, together with the coloured and African population groups and the HDI for South Africa as a whole, fall within the ‘medium human development’ range.

Measurement of income inequality involves indicators such as the Gini coefficient, which ranges from 0 (absolute equality) to 1 (absolute inequality). For a long time South Africa’s Gini coefficient (currently 0.58) was the highest in the world, and today only that of Brazil is higher. Another way to express income inequality is to examine the shares in total income of groups of households arranged in order of income level. The poorest 40% of households (equivalent to 50% of the population) receive only 11% of total income, while the richest 10% of households (equivalent to only 7% of the population) receive over 40% of total income. Inequality of income distribution between race groups is considerable, and accounts for 37% of total income inequality. However, inequality within race groups is also substantial; African households, for example, have a Gini coefficient of 0.54, nearly as high as the national figure. Rural/urban inequality is considerable, with African and coloured median incomes in the rural areas being about half the African and coloured median incomes earned in urban areas.

The extent and distribution of poverty

Poverty can be defined as the inability to attain a minimal standard of living, measured in terms of basic consumption needs or the income required to satisfy them. It is conventional to draw up a ‘poverty line’ reflecting the monetary value of consumption which separates the ‘poor’ from the ‘non-poor’. For South Africa this cut-off point can be defined by considering the poorest 40% of households (about 19 million people or just under 50% of the population) as ‘poor’, giving a monthly household expenditure level of R353 per adult equivalent.

Most of the poor live in rural areas: while 50% of the population of South Africa is rural, the rural areas contain 72% of those members of the total population who are poor. The poverty rate (which is the proportion of people in a particular group or area falling below the poverty line, and which measures how widespread poverty is) for rural areas is 71%. The poverty gap (which is the annual amount needed to uplift the poor to the poverty line by means of a perfectly-targeted transfer of money, and which measures how deep or intense poverty is) was about R28 billion in 1995, and 76% of this was accounted for by the rural areas.

Poverty is distributed unevenly among the nine provinces. Provincial poverty rates are highest for the Eastern Cape (71%), Free State (63%), North-West (62%), Northern Province (59%) and Mpumalanga (57%), and lowest for Gauteng (17%) and the Western Cape (28%). Poverty is deepest in the Eastern Cape, Free State and Northern Province, which together make up 36% of the population but account for 51% of the total poverty gap. Poverty is not confined to any one race group, but is concentrated among blacks, particularly Africans: 61% of Africans and 38% of coloureds are poor, compared with 5% of Indians and 1% of whites. Three children in five live in poor households, and many children are exposed to public and domestic violence, malnutrition, and inconsistent parenting and schooling. The child risk of poverty varies widely by province: in the Eastern Cape 78% of children live in poor households, compared with 20% in Gauteng.

Household surveys provide information about inequality between households, but cannot provide much information about inequality within households. Hence, while ‘poor women’ are generally perceived as those within poor households, the relative position of women within non-poor households is not clear. However, women are clearly more likely to be poor than men: the poverty rate among female-headed households is 60%, compared with 31% for male-headed households. This underlines the importance of targeting women (especially rural women) in public works and training programmes, as well as programmes to develop small, medium and micro enterprises (SMMEs).

Poverty and human development

There is a very strong correlation between level of education and standard of living: the poverty rate among people with no education is 69%, compared with 54% among people with primary education, 24% among those with secondary education, and 3% among those with tertiary education. There is also a correlation between poverty and ill-health, although this is more difficult to measure, and access to effective health care is specific to particular social and environmental situations. However, it is clear that poor children suffer a much higher than average rate of stunting.

Poverty and unemployment are closely correlated: 55% of people from poor households are unemployed, compared with 14% of those from non-poor households. Poor households are characterised by a lack of wage income, either as a result of unemployment or of low-paying jobs, and typically rely on multiple sources of income, which helps reduce risk. Access to basic services such as electricity, toilets and piped water is also closely correlated with poverty.

A deprivation index has been constructed for South Africa, being a composite of 12 household indicators thought to represent critical basic capabilities such as income, nutrition, access to health services, education level, etc., as well as perception of quality of life. This index shows that some people classed as ‘non-poor’ by income measures are actually deprived due to lack of access to certain critical capabilities: groups of people are missed who have slightly higher incomes, but may be deprived in other ways. About 90% of the deprived people ‘missed’ by the income poverty indicator are Africans from rural areas, mainly in KwaZulu-Natal.

The experience and perceptions of poverty

Statistics say little about people’s actual experience of poverty. However, qualitative data from the SA-PPA study indicates clearly that poverty typically comprises continuous ill health, arduous and often hazardous work for low income, no power to influence change, and high levels of anxiety and stress. The absence of power is virtually a defining characteristic of being poor, and is worsened for women by unequal gender relations. Poverty also involves constant emotional stress, and violence has a profound impact on the lives of the poor.

Time is an important cost associated with many of the livelihood plans constructed by the poor, especially for women, who are often singly responsible for child-care, cleaning the house, fetching and heating water, washing and ironing, shopping, collecting firewood, cooking and washing dishes. The long and arduous working hours experienced in many households are exacerbated by seasonal demands in rural communities. Due to the lean times experienced in subsistence farming during certain times of the year, seasonal stress is also a feature of the lives of the rural poor. Ill health and workload both follow a seasonal pattern in rural areas, varying by area, settlement type and climate. In urban areas, seasonality is due to climate (high energy requirements in winter), cyclical or periodic income earning opportunities (for example during the holiday season) and opportunities for urban agriculture. By scheduling public works programmes at those times of the year in which such stress occurs, the greatest impact can be achieved.

The persistence of poverty in rural areas is due to ‘poverty traps’, i.e. a lack of complementary assets and services resulting in ‘poverty of opportunity’, whereby individuals are unable to take full advantage of the few assets to which they have access. The contraction of the South African economy in recent years, and the erosion of the rural economic base through population expansion, lack of infrastructure, and outright dispossession, means that many households previously dependent upon a cash income now find themselves with neither the income, nor the assets from which to generate an adequate income.


3: Macroeconomic Context


Through macroeconomic policy, government can create an environment that facilitates economic growth and the reduction of poverty and inequality. Economic growth is crucial for the reduction of poverty and can contribute to the reduction of inequality, while widespread poverty and significant inequality can undermine economic growth. Consequently, policies aimed at achieving higher economic growth rates, and those policies aimed at reducing poverty and inequality, can reinforce each other.

Past performance of the South African economy

The elements of economic crisis

During the 1960s the South African economy grew at about 6% per annum, while total employment grew by nearly 3% per year (about the same rate as population growth). During the 1970s and 1980s, however, a serious slowdown occurred in the growth of both output and employment, while population growth continued at around 2% per year. Consequently, real per capita incomes declined during much of the 1980s, a marked degree of income inequality and widespread poverty persisted, and unemployment rose to high levels. Almost 30% of the labour force were unemployed in 1994 and, as mentioned in Section 2 of this report, unemployment is strongly correlated with poverty and is particularly severe among the African population.

Without rising real output per capita (i.e., economic growth) little progress in the reduction of poverty is likely. This could exacerbate social conflict, which in turn could further undermine economic growth, and so on. Rebuilding and strengthening the economy is thus one of the key foundations of the government’s Reconstruction and Development Programme.

Constraints to growth

The decline in the rate of economic growth since the 1960s is the result of several basic problems:

The macroeconomic policy response

By early 1996 it had become clear that without new macroeconomic initiatives by government, economic growth rates could not be attained that were both sustainable and high enough for effective poverty alleviation, income redistribution, employment creation and financing of essential social services.

Growth, Employment and Redistribution Strategy

Faced with this outlook, government formulated the Growth, Employment and Redistribution (GEAR) strategy. GEAR reiterated government’s commitment to the existing economic policy framework, identified many of the structural weaknesses inhibiting economic growth and employment, and focused attention on market-based policies to address them. The strategy recognises that a sustained reduction in inequality requires accelerated job creation, which in turn requires structural transformation to achieve higher and more labour-absorbing growth within the economy. GEAR focuses its strategy for higher growth rates on several related elements:

The last six elements are considered below with respect to their impact on poverty and inequality. Re-prioritisation of the government budget is considered in Section 3.4 in the context of a public expenditure review.

Fiscal policy

In order to improve the performance of the economy, government has adopted a fiscal policy stance compatible with lower inflation and interest rates. Key elements of this include a reduction in government dis-saving, a revision of the tax structure to increase its efficiency, reprioritisation of the government budget, and the restructuring of state assets. Fiscal prudence is an essential element of sound economic management, particularly given the impact of global conditions on national economies. Nevertheless, specific approaches within GEAR need to be considered in relation to prevailing patterns of poverty and inequality in South Africa.

International experience shows that a low and stable level of inflation can protect poor people against further erosion of their standard of living. However, the extent and duration of the economic contraction required to achieve this outcome must be considered as well, since the socio-economic costs thereof may offset the anticipated gains from low inflation. GEAR’s deficit targets aim to restrict inflation to single-digit levels, but there is evidence that the fiscal and monetary policy necessary to achieve this may reduce both employment opportunities and real income in the short term. This implies a potential trade-off between the GEAR objectives of low inflation and higher levels of employment and output. Moreover, the impact of lower inflation on different households depends on the commodity composition of their consumption: rates of inflation that are lower in aggregate might not benefit poorer households, if inflation in the prices of basic goods (such as foodstuffs, for example) does not slow down.

Domestic savings are crucial for the financing of investment, and government saving can make an important contribution to the overall domestic savings level. The crucial issue is the extent of government saving required in the context of the multiple challenges of economic growth, poverty and inequality that South Africa faces. GEAR holds that maintaining the government budget deficit at 5% or above will crowd-out private sector investment; however, there is cross-country evidence that some government investment expenditures, particularly in rural and urban infrastructure and human resource development, may actually crowd-in private investment. To come to a conclusion, one needs to know how investment responds to interest rates and what the prevailing elasticity of money demand is under particular deficit conditions.

Budgetary compression may constrain government in reducing poverty and inequality. While government has to undertake some measure of redistribution and reprioritisation of public expenditure towards poor households, fiscal constraints have already forced government to moderate its redistributive approach in the areas of education, health and land reform. Since poor people are already marginalised and have little capacity to persuade government to provide an adequate level of services, this puts the country at risk of social instability and also has the potential to undermine economic growth.

Monetary and exchange rate policy

Current monetary policy in South Africa aims to maintain low inflation rates, to gradually reduce exchange controls (to encourage private sector investment) and to ensure that the real exchange rate is at a competitive level (to make exports more attractive overseas). The last two objectives have the potential to contribute to reduction of poverty and inequality, particularly if labour-intensive exports are boosted and the balance of payments is strengthened. However, a tension exists between these objectives and that of maintaining lower inflation rates through enforcement of high interest rates. Firstly, persistent high real interest rates have a negative impact on investment, economic growth, development of the SMME sector, and encouragement of home ownership. Secondly, higher interest rates can strengthen the value of the currency and undermine export competitiveness. The key issue is for government to evaluate, on an ongoing basis, issues of policy timing and flexibility, in order to facilitate both economic growth and reduction of poverty and inequality through the maintenance of a strong level of effective demand in the economy.

Consolidation of industrial reforms

GEAR’s trade and industry reform strategy consists of elements designed to help South African industry become internationally competitive, encourage the development of small and medium firms, strengthen competition policy, and develop an industrial cluster programme. For an international competitiveness strategy to benefit poor people, the use of labour-intensive technologies should be encouraged, and appropriate precautions taken to deal with the possibility of short-term adverse impacts of globalisation on poor people (such as shedding of unskilled labour or lowering of the social wage in certain industries). As South African firms respond to trade liberalisation, it will be important to monitor the impact to ensure that the poor do not bear an excessive share of the adjustment burden.

Public sector restructuring

One aim of current fiscal policy is to increase the efficiency of public spending through the restructuring of the public sector. The public sector restructuring programme includes mechanisms for transforming public corporations, the sale of non-strategic assets, the creation of public-private partnerships in transport and telecommunications, and the restructuring of the public service. The overall thrust of public sector restructuring is to reduce government spending by ensuring that government moves out of providing services that can be provided more efficiently by the private sector; that public-private partnerships are established to increase access to capital and new technologies and to increase efficiency; and that the funds raised from privatisation are used to reduce the national debt. Done correctly, the restructuring of state assets can lead to an expansion of services at lower prices, and provides other opportunities for addressing poverty and inequality such as the redistribution of assets to poor households.

As part of public sector restructuring, government has embarked upon the ‘right-sizing’ of the public service, i.e. identifying areas of priority and allocating personnel accordingly. This could lead to an increase in personnel in some areas and a decrease in others. However, under current conditions of budget compression, reprioritisation has been conflated with across-the-board budget cuts, which run the risk of undermining government’s capacity to build a strong public service. This is particularly critical given that the government is not only trying to meet new priorities, but is also extending services to the whole population where before only a minority was fully catered for.

Structured labour market flexibility

In order to address poverty and inequality, one of South Africa’s key economic concerns is to increase employment. The framework for increasing employment provided in GEAR focuses on supporting a competitive and more labour-intensive growth path through wage moderation and increasing employment flexibility. While GEAR does not define precisely what is meant by ‘labour market flexibility’, the implications of this, particularly at the lower end of the wage distribution, are worth considering. Employment flexibility (e.g. the use of casual and contract labour) is increasing in South African industry, increasing the danger that, while labour market flexibility may increase jobs, these are likely to be of a lower quality, and worker insecurity may be increased. In the face of global competition, firms will require a margin of flexibility; however, the challenge is to ensure this flexibility while ensuring security, which implies some degree of regulation of the affected labour markets, as well as structuring a benefit system to which the various employers can contribute. In addition, it implies the need for government intervention to ensure that the overall social wage earned by workers places them above the poverty line.

Social compact

GEAR advocates a social agreement to facilitate wage moderation, underpin accelerated investment and employment and enhance public service delivery. A social compact is precisely the type of instrument that can be used to mitigate the negative impact of labour market flexibility and increased international competitiveness on vulnerable groups. GEAR starts from the assumption, strongly supported by international evidence, that the most successful strategy for reducing poverty and promoting equity is one that emphasises growth and job creation. In the South African context, this is supported by the results of the PIR, which show a strong correlation between unemployment and poverty. Articulation of a social compact among economic stakeholders can provide an important means to foster agreement on shared goals and reach compromises on specific areas. For maximum effectiveness, this compact should try to incorporate the interests of all groups, not just those typically engaged in public debate: e.g., consideration should be given to small-scale businesspeople, not just the large corporate interests, and to the unemployed and unskilled, not just skilled and organised labour. A concern is, however, that the criticism GEAR has attracted in certain quarters may undermine the potential for such a compact.

Reprioritisation of the budget

This section focuses on the attempt by government to reprioritise its expenditure since democratisation, and on the impact of this expenditure on poor individuals and households. Public expenditure reviews are a useful tool for such an analysis, but they are usually a major exercise requiring highly detailed information. For the purposes of this study only certain elements of the public expenditure review will be dealt with due to lack of more recent data (e.g., household income and consumption data). Moreover, in many cases policies are fairly new and comprehensive data on their key performance indicators is not available. South Africa must develop the capacity to undertake more comprehensive public expenditure reviews as part of the monitoring and evaluation of policy implementation. What is essential at this point, however, is to provide sufficient insight into the allocation of public expenditures, and their likely impact on poverty and inequality.

Sectoral composition of expenditure

This analysis focuses on a review of the allocation of government expenditure across various functions of government. Its purpose is to determine the level and trend of expenditure for the social sectors (education, health, social security and welfare, housing, and recreation and culture) as a proportion of overall expenditure. This is an important indicator of whether government expenditure is likely to reduce poverty and inequality. There has been an increase in the share of total expenditure going to social services from 43% in 1985 to 57% in 1995/96. In the 1997/98 budget, social services account for 60% of non-interest spending and 47% of total consolidated national and provincial expenditure, of which education receives the largest share followed by health, social security and housing. This shift towards social services is evidence of a poverty-sensitive budget. In addition, South Africa spends a significantly higher proportion of total expenditure on social services than other developing countries (including East Asia), but spends far less on economic services. However, South Africa spends less on education than other developing countries with a similar human development index (HDI).

The economic composition of expenditure

In most countries recurrent expenditures account for roughly 80% of total government expenditures. In South Africa, from 1994/95 to 1997/98 total recurrent expenditures have accounted for 92% of total government expenditure. In the 1997/98 budget, remuneration to employees is the largest item, being 39% of total expenditure and 56% of total recurrent expenditure. However, remuneration is an even higher proportion of total expenditure in the social services (which are human-resource-intensive), making up 75% of total expenditure in education, for example. This points to the importance of human resource development within the social services in order to improve their efficiency. It also calls for caution in the budget compression process in order to be able to deal with the inefficiencies and dislocations that will arise from public service restructuring.

Capital expenditure (mainly to acquire fixed capital assets, stock and land) has remained at an average of 8% from 1994/95 to 1997/98, while current transfers have declined from 15% in 1994/95 to 13% in 1997/98. The largest components of current transfers are transfers to households (9.3%), followed by business subsidies (3.6%). These figures indicate that a GEAR objective to shift expenditure from recurrent towards capital expenditure has not yet been achieved.

Incidence of expenditure and tax

Analysis of expenditure incidence shows that in 1993/94 Africans received by far the largest share (64.3%) of expenditures that can be allocated to households. However, analysing allocable expenditure by income group for 1993/94 shows that high-income and middle-income groups benefit from government expenditure significantly more than the poorest households do. Factors involved in hindering access of the poor to government services include longer distances (especially in rural areas), poor quality of services, lack of information on government services, and the cost of using services. While the poor receive a smaller proportion of government expenditure, the relative importance to them of these benefits is much higher as a proportion of income. On average, rural people received 84% of their income in public expenditure benefits, compared to 26% for people in metropolitan areas. These results point to the importance of government expenditures (particularly in the social sectors) for poor people, in particular Africans and coloureds, as well as rural people. It also highlights the need to review the extent to which budgetary benefit patterns are changing.

Redistribution and tax incidence

It is necessary to calculate the extent to which government expenditures in 1993/94 offset the tax burden on each household, and hence to estimate which households experience positive redistributions and which households experience negative redistributions of their incomes through fiscal activities. This analysis shows that the lowest-income groups benefit least from government expenditure. In contrast, fiscal activities in 1993/94 tended to redistribute income from the highest-income group to the middle-income groups, but not to the poorest. This suggests that the middle income groups should perhaps be bearing a slightly higher proportion of the tax burden in order to improve the position of the lowest-income groups.

Intra-sectoral composition of social service expenditures

This analysis details intra-sectoral allocations and impact of expenditures in the social sector components of public spending, with a specific focus on education, health and welfare. These are the sectors that impact significantly on poverty and inequality, and also make up a high proportion of the government budget relative to other components.

Education receives the largest proportion of the budget (21% in 1997/98) followed by debt interest (20%), and also receives the largest proportion of funding allocated for social sectors. Pre-primary, primary and secondary education receive the largest shares of the education allocation, which compares favourably with other developing countries. However, pre-primary education and Adult Basic Education and Training (ABET) do not receive the proportion reflected by the level of need. Greater focus on these areas is critical, particularly given the levels of poverty among African women, especially in rural areas, and the fact that these people tend to have the lowest levels of education. The proportion of expenditure allocated to pre-tertiary education has declined since 1994/95, which is contrary to the trend normally advocated. Per capita student expenditure on primary education has been lowest in provinces with the highest incidence of poverty, viz. KwaZulu-Natal, Eastern Cape and Northern Province. In secondary education, the Free State, Mpumalanga and Northern Province have the lowest expenditure per student. These results raise the issue of targeting the poorer provinces for extensive public education in order to address poverty and inequality.

Health receives the next largest allocation of total government expenditure after education. The major focus of reprioritisation of expenditure in the health sector has been expansion of access to primary health care, particularly in under-served areas. However, South Africans are still using high-cost, high-level health care for primary health purposes: clinics are still not widely used, even by the poor, probably due to lack of easy access and poorer quality of service, while a significant proportion of poor households use hospitals and private doctors. Hence while health care policy is moving in a generally desirable direction, the challenge is to provide an incentive structure (including progressive user fees and health insurance reform) that will change the patterns of use of public and private facilities in the correct direction.

Social security and welfare expenditures form an essential part of government’s programme to address poverty. Expenditures on this sector have increased substantially over the past five years in order to achieve parity in social grants. Of the overall sector’s budget, 88% goes toward social security, 8% to welfare assistance and services and 4% to capital expenditure. Most of the social security (60%) goes to the elderly, 24% to the disabled and 14% toward maintenance grants. Old age pensions make up a significant proportion of the income of poor households (23% of the incomes of poor households compared to 5% for the non-poor), and have a significant potential to ameliorate poverty: Africans receive 90% of the benefits. By comparison, however, the expenditure incidence of child maintenance grants is skewed against African women, which government intends to address with a new child maintenance system.


One key issue for the reduction of poverty and inequality is targeting of government expenditures to the poor: the richest and middle quintiles have been largely the beneficiaries of public spending in the past, although recent policies are likely to change this situation quite rapidly. In order to address inequality, sectoral policies must continue to target the poor, as well as address racial, gender and spatial imbalances in access to basic services.

Government is striving to simultaneously reprioritise the budget, reduce overall spending, and improve targeting, while keeping to the fiscal targets set out in GEAR. This is a huge task, which will remain a challenge for a long time to come. Some initial successes are already apparent: Government has achieved a reprioritisation of expenditure, has stayed within the overall budget limits, and seems to better reach the poor. However, in the short to medium term there will be certain costs and inefficiencies associated with organisational and systemic dislocations arising from fundamental shifts in policy. In addition, the attempt to refocus the budget and reduce costs simultaneously may prove very difficult to achieve. As a result, the GEAR proposals concerning the size of the deficit, its impact on social expenditure, and current monetary policy regarding the decision of the Reserve Bank to use interest rates to cut credit remain areas of controversy.

The government has taken constructive steps to address the poverty and inequities created by past policies. What appears necessary is a mechanism to monitor the impact of policies very closely to ensure that poverty and inequality reduction is an integral part of the focus of the policies and their implementation. Furthermore, the country must develop the institutional capacity to take corrective action quickly should policies fall short of expectations. Considering which areas should be of major priority, and how the changes should be phased is thus of critical importance in terms of the impact of macroeconomic policy on the reduction of poverty and inequality.


4: Employment Creation


Access to quality employment is an essential way of achieving sustainable livelihoods, which in turn is a crucial means of reducing poverty and inequality. Poor people face the problems both of unemployment and the low quality of the jobs which they otherwise occupy. The challenge is therefore not only to create jobs, but to create better quality jobs. The structure of the labour market significantly affects the employment status of poor people, and (together with the structure of demand) determines the extent to which poor people will benefit from increased economic growth. The South African labour market is segmented into formal and informal sectors; the formal sector is further divided into primary and secondary labour markets. The primary labour market is regulated and characterised by higher wages and skills requirements, an organised workforce and opportunities for upward mobility. Secondary labour markets are less regulated, the workers have lower skill levels and are paid less, and opportunities for further training and upward mobility are limited. In addition there is a non-market or informal segment comprising informal and casual labour, unpaid, domestic and family labour. Poor people are often relegated to the secondary labour markets and the informal segment, and have difficulty moving into the primary labour market due to various barriers.

Poverty and employment

High levels of poverty prevail in rural areas, and agricultural workers are among the poorest households. Average wages in agriculture are well below the minimum living level, workers’ educational qualifications are low, they have few other resources, and they demonstrate little mobility on the labour market. The vulnerability of farm workers is increased because they rely on their employers not only for employment and wages, but also for services such as schools, housing, electricity, medical facilities, water and transport. Consequently, changes in the number and quality of employment of farm workers is one way to impact significantly on poor rural households. The key to addressing poverty in the agricultural sector is to increase employment through the use of labour-intensive technologies, improve the conditions of employment of farm workers, and increase support to small farmers through extension services and research on appropriate production methods.

The mining sector also employs a large number of vulnerable workers. Because the sector has historically depended on rural labour from all over Southern Africa, its impact has ramifications beyond the employees themselves, who support many dependants on wages generally lower than the average wage in manufacturing. The key issues with respect to mining are its declining role and the impact this is likely to have on rural unemployment and the households that depend on mine remittances for survival. Furthermore, addressing the historical racial inequalities in access to higher skill levels and wage employment, as well as the general quality of employment of lower-end mineworkers, is essential.

Private, community and domestic services comprise the largest employment sector in South Africa, particularly for African women. Much of the employment in this sector is informal, and characterised by home-based micro-enterprise and reliance on informal skills. This kind of work is done mainly by women, and often the distinction between unpaid and paid labour is blurred. The level of income generated by these activities tends to be low because they operate in highly competitive environments whose clients comprise largely low-income households. Key challenges for improving the quality of employment in this sector are the provision of adequate infrastructure (particularly housing, water, sanitation and electricity) for more efficient operation; training and the development of norms and standards for certifying competency levels; and a more coherent and well-targeted policy and institutional framework for supporting micro-enterprises.

The informal sector

Those in the informal sector tend to remain in poverty while still being in employment, since the informal sector consists predominantly of workers involved in survivalist activities. It can be argued that the informal sector represents those who, while being employed, are severely disadvantaged in the labour market. Of the 1.2 million people in the informal sector, 86% are African and 7.6% are coloured. Informal sector activities are numerous and varied, ranging from street sellers to small-scale manufacturing, although the most common activities are retail and service-oriented, and a relatively small proportion of the self-employed are in manufacturing. According to the SALDRU survey, average monthly net return to the self-employed was R826, while the median monthly income was much lower at R200. By contrast, the mean monthly wage across all sectors is R1,900, which is the main reason the informal sector has been identified as a second-best option relative to formal employment. A minimum of 45% of the self-employed are earning an income lower than the Supplemental Living Level (SLL) poverty line, set at R220.10 per month.

There are four ‘markers’ or characteristics of poverty among the self-employed: race, gender, age and location. Africans constitute 76% of the self-employed earning less than the SLL, while 60% of all those earning less than the SLL are women. Similarly, 67% of the self-employed earning less than the SLL are aged 15-24, while 46% of all those earning less than the SLL are based in rural areas. Hence, the most disadvantaged among the self-employed will be African women aged 15-24 in rural areas; 80% of this group earn less than the SLL. There is also a strong correlation between the type of activity the self-employed are engaged in and the extent of poverty. Only among shopkeepers do a majority earn more than the poverty line, while occupations with the highest incidence of incomes below poverty level are street sellers and shebeen operators. There are pockets of better-remunerated individuals in the informal sector, but it is clear that the sector contains a high proportion of the working poor who would readily take up employment in the formal sector. Current policies aimed at the SMME (small, medium and micro-enterprise) sector need to be better targeted at the most vulnerable segments of the informal sector. The policy recommendations in this regard are similar to those proposed for the private, community and personal services sector, as there is significant overlap in the characteristics of the two sectors.

Poverty and unemployment

Unemployment is a significant contributor to poverty, and a broad definition of employment would include 30% of economically active South Africans. Unemployment rates tend to be highest among Africans, in rural areas, among women and the youth, and among those with no previous work experience. There is a strong link between unemployment and poverty: using the broad definition of unemployment, in 1995 the rate of unemployment was 59% among the poorest quintile (fifth) of the population, compared to 5.5% among the richest quintile. With respect to the characteristics of the people in the poorest quintile, 93% of the unemployed poor are Africans, 56% are female, 70% are below the age of 35, 58% are from rural areas, 50% have completed primary education or less, and 72% have had no previous job experience. Of the unemployed poor who have work experience, 78% are in the major occupational categories ‘elementary occupations’ (e.g. domestic workers and farm workers) and ‘craft and related trade’ (which includes construction workers and mine workers).

There are six basic categories of unemployed poor, each requiring a different strategy from government in order to effectively address their situation:

  1. poorly educated rural unemployed (28%);
  2. poorly educated urban unemployed (13%);
  3. young unemployed with no labour market experience (36%);
  4. long-term unemployed with no labour market experience (6%);
  5. those with labour market experience and some education (15%); and
  6. highly educated unemployed poor (1%).

For both the poorly educated rural unemployed and the poorly educated urban unemployed, strong growth in labour-intensive employment, support for informal sector activities and intensive education and training may be required to integrate them into the job market. In the interim, community-based public works programmes and adequate social safety nets could be important interventions. For the young unemployed with no labour market experience, more jobs, skills training and assistance with job search may be the most appropriate solution.

For the long-term unemployed with no labour market experience, the problem may be particularly intractable. Education, training, and intensive support to assist them in finding and keeping employment will be required; however, without significant growth in employment their position will not change significantly. In the meantime, social safety net support may be crucial. For people with labour market experience and some education, greater labour market opportunities and assistance with job search and placement may be all that is required. Highly educated unemployed poor people make up a very small share of the unemployed poor, and probably consist of frictionally unemployed.

The characteristics of the groups differ markedly:

In the short-term, assistance to the unemployed needs to be provided through safety nets, community-based public works programmes, and better support for micro-enterprises. An increase in labour-intensive employment (in a balance between domestic and export production) is essential to reduce poverty, and greater emphasis needs to be placed on education and training, and assistance with job searches.

Trends in demand for low-paid labour

While the South African economy appears to have broken out of the long-term stagnation that characterised much of the 1970s and 1980s, it is still creating employment far too slowly to make a meaningful impression on unemployment. Employment in the non-agricultural sectors is declining, but employment in the tertiary sector and in the informal sector has expanded in recent years. There is a critical link between the jobs that people do at different occupational levels and the wages they receive: 42% of Africans earn gross monthly incomes of less than R1,000 from employment, while 11% of Indians and 4% of whites fall into this category. Those falling into the lowest income category tend to be employed in jobs requiring the lowest levels of skill.

The impact of government policy upon poverty

Labour market policy may not be the main instrument for eradication of poverty. An effective, successful process of poverty eradication is only achievable through co-ordinated government strategies and action; other policy areas (welfare and health policy, distribution and taxation policy, etc.) must be included. Labour market policy measures aimed at poverty alleviation include four distinct sets of instruments:

Financial institutions, credit and cash benefits

The informal sector is growing and constitutes the largest group of vulnerable workers in the labour market. The restructuring of financial assistance to the informal sector is essential for improving the income earning potential of people involved in the sector. The main bulk of the informal sector lies in consumer services, but the current emphasis on manufacturing SMMEs does not address the most vulnerable groups, which are found in services; these SMME development programmes are aimed at economic growth and not at addressing poverty. Banking facilities for people lacking access to them and wanting to be self-employed should be investigated more closely in South Africa, to give access to credit to the poor and simultaneously make productive use of loans.

Public works programmes

Public works programmes can play an important role in delivering services and infrastructure to communities formerly excluded from them, and can also provide an income and skills training, thus building the assets of the poor. The key to the success of public works programmes as important short-term poverty alleviation programmes is ensuring that they are well targeted, as was for example the Community Employment Programme, the component of the Community-Based Public Works Programme implemented by the IDT.

Equity and discrimination

Direct discrimination on the basis of race and gender constitutes one of the major barriers for vulnerable groups in the labour market. Consequently, the implementation of labour standards and legal mechanisms as well as a court system to promote non-discriminatory labour practices are essential. Discrimination occurs at two levels: within the labour market and outside it. Among the working poor very little internal labour market discrimination is experienced, except possibly for workers in the mining industry. The primary form of discrimination against the working poor is discrimination outside the labour market: the working poor are generally confined to certain occupations because of inadequate access to education and training, locational disadvantages and class background. The inequality and discrimination faced by the working poor is the inability to access more secure, well-paying jobs that offer the opportunity of upward mobility in the long-term. This points to the importance of providing access to training and education at various levels, in order to overcome the barrier to entry into formal employment among the working poor.

Labour standards and job security

The Basic Conditions of Employment Bill will directly improve the living and working conditions of workers. However, it will have limited impact on the vulnerable workers in domestic service and the informal sector. This could be ameliorated by the establishment of the Employment Conditions Commission, which should improve the working conditions of the workforce and especially its poorest segments. In some settings where unemployment is the main cause of poverty, job security will be an important mechanism for reducing poverty. However, where employment per se does not necessarily supply sustainable livelihoods, job security will be important, but not the main factor for reducing poverty. A key issue will be to maintain the appropriate balance between flexibility in the labour market and employment security.

Wage setting and minimum wages

Minimum wage setting has been seen by many as a barrier to needed flexibility in the labour market and to job creation. However, even market models of wage determination have recognised that there is a floor price for labour because of the need for subsistence. The effects of minimum wage fixing upon general wage levels, actual wages being paid and employment, is far from obvious and will have to be established on the basis of detailed empirical work. A policy based on severe wage restraint does not necessarily create employment, and may possibly increase poverty at the household level. While wage flexibility may indeed increase jobs, if the associated employment elasticity proves to be low, then household poverty will rise. Accurate estimations of wage elasticity for affected sectors and regions are necessary in order to carry this issue forward.

Training, skills and education

South Africa has one of the poorest human resource development indices in the world, in terms of both the skill levels of the workforce and the resources spent on training. Training and retraining to build up human capital and marketable skills, such as basic literacy and basic entrepreneurial skills, and training in non-traditional occupations for vulnerable groups, are critical to the integration of the poor into the labour market. To meet this need, the Department of Labour’s Skills Development Strategy for Economic Growth provides for funding of training by employers via a payroll levy, the establishment of a national skills authority to determine training standards, and a standardised system of learning.

Labour pools and bureaux

Proper labour recruitment stations or bureaux could be helpful in vetting the qualifications of job-seekers while also ensuring that proper labour practices are adhered to.

Social agreement: a productivity accord?

A national accord or social agreement building upon the joint interests of business and labour and compromises between them may assure the right balance between the market and legislation, profits and labour standards, and growth and redistribution, while also assuring that policy-making and implementation are facilitated.


5: Human Development


This chapter covers the ‘big spenders’ among government departments, i.e., Education, Health, Police and Welfare. It also covers HIV/AIDS and nutrition, issues where there is urgent need for cross-cutting, intersectoral work. Sectors such as education and health are often perceived to have greater potential to ‘solve’ poverty than they actually possess: without economic opportunities, in particular, higher levels of education and better health will not end poverty or inequality. Nevertheless, the services provided by these sectors can contribute to the alleviation of poverty by increasing poor people’s well-being and productivity, and equity demands that the poor have greater access to education, training, health care, and protection.

Education and training

Government’s efforts in respect of education and training will improve the opportunities of those who are reached but, without other interventions such as job creation and equal opportunity initiatives - will not ‘solve’ the problems of poverty and inequality. There are four areas of education and training with special significance for the poor: early childhood development (ECD), the childhood years of free and compulsory schooling, adult basic education and training (ABET), and further vocational provision for previously disadvantaged adults. If improvement of provision focuses on these areas, it will have the greatest impact on the current enormous disparities.

The shape and size of inherited inequalities

In 1994 per capita expenditure varied between R5,403 on white schools and R1,053 on schools in the Transkei; repetition and pass rates correlated closely with these differences. South Africa has a fairly good record in enrolment at school but a poor one in attendance, repetition and pass rates. Matriculation results show poor performance overall and marked geographic (reflection of race) and gender differences. Young men and women in impoverished areas tend to stay at school despite poor performance because of high local unemployment rates, lack of alternative possibilities, and the often misguided perception that education provides a route out of poverty. There are severe deficiencies in both quality and distribution of teachers.

Current provision of adult basic education and training reaches only 6% of the estimated 5.3 million adults lacking formal schooling and hence literacy skills. Further, the training component does not feature particularly strongly in most provision, reducing the utility and attractiveness of ABET for the fortunate few who are reached. Lack of access to ECD facilities impacts not only on children’s development, but also on the ability of the primary caregivers (usually women) to pursue their own income-earning and other activities. Neglect of this area of education will incur serious problems in the future at both economic and social levels.

Expenditure on education and training

Approximately one quarter of the government budget is allocated to Education, while state financial support for training is primarily within the budget of the Department of Labour. The focus of initiatives to address poverty and inequality must fall on the provinces, where 85% of the Education budget and the bulk of the staff and students are. In all provinces approximately 80% of the budget is allocated to public ordinary schools, with two thirds of this directed to the primary level. This concentration of resources, although focused on an area important in terms of poverty alleviation, leaves little scope for expansion in other under-funded areas such as ABET and ECD.

Policy development and barriers to participation and utilisation of opportunities

Most of the effort to integrate education and training and promote ‘lifelong learning’ has focused on the schools rather than ABET or ECD. At the same time, the constitutional devolution of power makes progress in education and coherent implementation of policy reliant on the capacity, policy and commitment of the provinces. Movement towards equity has been slowed by the incapacity of some of the poorer provinces to spend their full allocations, and by the ability of the better-off provinces to lobby successfully for additional resources; government’s Medium-term Expenditure Framework may help address this problem. The Culture of Learning project, a Presidential Lead Project of the RDP, initially had difficulty being implemented in many provinces due to capacity constraints on starting a new project outside normal line functions. The National Schools Building Programme, run by the national Department, got off to a quicker start and has made progress, but still faces an enormous backlog.

The National Qualifications Framework (NQF), applied through the SA Qualifications Authority, has yet to be accepted by all stakeholders as a common framework rather than merely a means of redress. Three-year pilot ECD projects have been designed by the provinces which are well-targeted in that they focus on community- or home-based services, i.e., outside formal schools. With respect to ABET, both national and provincial activities have been hampered by lack of personnel, authority and resources; most provinces are mainly employing ordinary teachers who then teach adults at night, using school methods and materials, which limits the appeal for potential learners. With respect to adult further education, an inter-ministerial working group has recommended that the Department of Education takes over the training functions of the Department of Labour, but Labour is still undertaking most of the co-ordination of adult further education.


Education is relatively well-resourced, at least in financial terms; training less so. However, certain ‘development-related’ areas such as ABET and ECD are under-funded, under-resourced, and lack capacity and ‘clout’. Where pilot projects exist, there is often little clarity as to how these will be ‘mainstreamed’ after the pilot is completed. Throughout the education and training system, equity demands significant decreases in resources allocated to the more advantaged in the form of subsidies to expensive urban schools, and much tighter control of allocations to sectors such as tertiary education, which reach primarily those who are already relatively privileged. Whether at the inter-provincial or intra-provincial level, the national Department of Education needs to play a strong leadership and monitoring role.

Health care

Health care is merely one of the determinants of health. A range of other factors, such as housing, sanitation, access to safe drinking water, etc., impact on health status. Those initiatives within health care which have the greatest potential impact on poverty and inequality include the development of a District Health System, building and upgrading of clinics, reallocation of financial resources, and the introduction of free health care. Most of these relate to a shift towards primary health care.

The situation as regards health and health services

The characteristics of the South African health sector at the time of the 1994 general election can be summarised as follows:

Health policies and programmes since the 1994 elections

A key policy goal of the new government was to achieve universal access to primary health care, a shift acknowledged to be progressive, poor-friendly and sensible, in that it focuses on prevention rather than cure. The government is also committed to prioritise the health needs of vulnerable groups such as the rural, peri-urban and urban poor, and women and children.

The time needed to integrate fragmented bureaucracies has had an adverse impact on service delivery and detracted from the implementation of primary care programmes. The establishment of the District Health System forms the foundation for primary health care, but has been held up by the slow and uneven development of local government. The Clinic Upgrading and Building Programme has made a significant contribution to addressing poverty and inequality by locating new clinics in under-served areas, but has been held up by administrative problems. From 1995/96 the Department of Health attempted to redistribute resources so as to phase-in weighted per capita equality in provincial health budgets, and this has already had tangible results. However, the provision of free care for certain health services and categories of patient (such as pregnant women and children under age six) is the policy which has probably made the most significant impact on improving access to health services for the poor. Health service utilisation has increased substantially, but health personnel feel that there should have been greater consultation and planning before the implementation of such extensive changes.

Other health sector programmes to address inequities include a Committee of Inquiry into a National Health Insurance System, which is addressing the severe inequality between those with access to private health care and those who depend on public delivery; the National Drugs Programme, which is attempting to rationalise the use and procurement of medicines; and initiatives to redress the maldistribution of health personnel between provinces, between rural and urban areas, and between levels of care. Programmes targeting vulnerable groups and diseases of poverty include measures to promote maternal, child and women’s health, which are important poverty-reduction strategies; and the control of tuberculosis and other communicable diseases such as hepatitis B, polio, and measles.


The existing policies and programmes provide an excellent basis for addressing the challenges facing the health sector, and practical steps have been taken to redress health sector inequities and to address poverty. The Department of Health has generally taken a strong stand in favour of redistributive measures, but there have been difficulties in moving from policy and programme development to implementation, due partly to inadequate management capacity but also to structural obstacles and constraints, especially finance.


The combination of poverty, natural disasters, violence, social chaos and the disempowered status of women facilitates the transmission of HIV. Conversely, the illness increases the risk of a household or individual becoming impoverished, and lowers the general level of health in communities because of its close relationship with other communicable and poverty-related diseases such as tuberculosis. The latest national survey of HIV prevalence among women attending antenatal clinics in October/November 1996, found that an average of 14% of pregnant women were HIV-positive, giving a total estimate of over 2.4 million HIV-infected people in South Africa.

The most significant response to the epidemic occurred during the early 1990s in the NGO sector with the formation of the National AIDS Co-ordinating Committee of South Africa (NACOSA), which not only created a networking and advocacy forum, but more importantly pursued strategy development and implementation plans. After 1994 several NGO programmes combating HIV/AIDS were forced to close as international donors redirected their funding to government. Nevertheless, from 1990 to 1994 NACOSA developed a National AIDS Plan which formed the basis of government’s 1995/96 Strategy, Business and Structure Plans within the HIV/AIDS and STD Programme.

In all provinces the Provincial AIDS Programme is situated within the provincial department of health, but there is an overall maldistribution of trained staff. The lack of development of appropriate health promotion centres, home-based care programmes and hospices within affected communities has further undermined the quality of care of infected people as well as aggravating rural-urban inequities. The NGO sector has been crucial in policy development, in precipitating a more effective governmental response, in monitoring state programmes, servicing areas not covered by the state, and ensuring the rights of infected individuals. However, service-related programmes are concentrated in urban communities and the more developed provinces. NGOs and government have worked together to develop and implement training packages for professional and lay counsellors to meet the psychological needs of those infected and affected by HIV/AIDS.

Key steps to improve the response and facilitate the more effective implementation of the National AIDS Plan are: greater political, bureaucratic and financial commitment to the Plan; greater adherence to the principles identified within the Plan; and more effective steps to target the most vulnerable groups (especially women), and to reduce the maldistribution of resources.


Malnutrition is not to be equated simply with lack of food, or regarded as a medical problem; it is the outcome of complex inter-related social, economic, political and other processes. Where malnutrition does not cause death, it impacts on the quality of life and opportunities of those affected, and on their ability to earn adequate income. While the risk of death increases with severity of malnutrition, the largest number of deaths occur among those affected by mild to moderate malnutrition. The national stunting rate among young children, captured by height-for-age measurements, ranges between 23% and 27%. Among the poorest 20% of households the rate is 38%. Micro-nutrient malnutrition is a public health problem of considerable significance in South Africa: one in three children display marginal vitamin A status, 20% are anaemic, and 10% iron-deficient.

Immediate causes of malnutrition include inadequate dietary intake and diseases; underlying causes are related to household food security, adequate maternal and childcare, and adequate access to basic health services and a healthy environment; and basic causes relate to the availability and control of human, economic and organisational resources. Poverty is thus a basic cause of malnutrition. The relative importance of difference causes in particular groups or geographical areas is less well understood, and there is an urgent need for research on causality, which should be closely linked to policy and programme interventions.

To combat malnutrition, the immediate, underlying and basic causes of the problem need to be addressed, and there must be short-, medium- and long-term actions at various levels and by a range of actors. Economic development strategies and appropriate social spending by government are important and mutually supportive strategies to achieve sustainable improvement in nutritional status. In addition, relatively low-cost direct nutrition programmes such as behaviour change strategies and micro-nutrient fortification, can have considerable impact.

The report of the Department of Health’s Committee on Nutrition on an Integrated Nutrition Strategy has been accepted as the guiding policy framework for nutrition within the health sector. It proposes an integrated strategy for the Department of Health, including programmes based in health facilities, community-based programmes, and nutrition promotion and advocacy. It envisages the integration of existing programmes, such as the Primary School Nutrition Programme (PSNP) launched in 1994 as a Presidential Lead Project, the National Nutrition and Social Development Programme (NNSDP) and the Protein Energy Malnutrition (PEM) Scheme, into a new framework.

Progress in overcoming malnutrition in South Africa requires that nutrition goals be explicitly incorporated into the activities of economic and social sectors, with realistic levels of collaboration between sectors to achieve these goals. Service delivery sectors (Health, Welfare and Agriculture) should implement activities with distinct nutrition-related objectives, while others (Trade and Industry, Finance, Water Affairs and Forestry) should be aware of the potential impact of their activities on nutritional status. To sustain such an approach, the nutrition units within the Department of Health should be empowered to support other sectors as they develop and implement nutrition-related activities. Appropriate structures for co-ordinating implementation should be in place at national, provincial and local level. The inter-ministerial ‘cluster’ addressing social issues, chaired by the Minister of Health, would be an appropriate focal point, if supported by an inter-ministerial policy or technical unit.


Welfare and safety nets form an integral part of the government’s strategy for responding to poverty and inequality, and the primary focus of the Department of Welfare is poverty. Nevertheless, welfare provision still bears the marks of apartheid inequalities, with people in many rural areas having limited or no access to welfare services from government or NGOs. Welfare should ideally help people escape from the poverty trap, while safety net programmes ensure that people have adequate economic and social protection during times of unemployment, ill-health, maternity, child-rearing, widowhood, disability, old age, etc. When such programmes are combined with capacity building, people can be released from the poverty trap. GEAR acknowledges that social security, social services and related social development programmes are investments that contribute to social and economic gains and growth. Welfare is the fourth largest vote in the government budget, accounting for 10% of the total, 99% of which is allocated to the provinces. In practice, however, targeting of welfare expenditure, being statutory grants, is decided at national level.

The White Paper on Social Welfare

A notable feature of the White Paper on Social Welfare is its shift to developmental social welfare, which emphasises helping people to help themselves and thereby become self-reliant, in contrast to a conception of welfare as ‘handouts’. Reorientation of the Department towards developmental social welfare will require further staff training and increased staff levels, which might run counter to government’s attempts to limit current expenditure, despite the fact that at present staffing comprises a very small proportion of the welfare budget because of the preponderance of grants.

Social security

Close on 90% of the Welfare budget is allocated to social security, in the form of old age pensions, pensions for the disabled, child and family benefits (maintenance grants), and social relief. The old age pension programme consumes 60% of the social security budget. It is generally considered to reach a high proportion of those eligible (1.7 million people receive old age pensions), to be well-targeted, and to provide many poor households with a regular income which provides a basic level of food security. African households comprise 89% of those receiving old age pensions, and two thirds of the pensions go to rural areas. Disability grants (24% of the social security budget) are paid to those with physical or mental disabilities that render them unable to work and support themselves. Maintenance grants (14% of the social security budget) are means-tested payments of single parents and children where the other parent is not able to provide.

It is estimated that fraud, theft and inefficiencies absorb around 10% of the R11 billion welfare budget. In 1996 the government appointed the Committee for the Restructuring of Social Security (CRSS) which recommended that the system be overhauled and reorganised nationally, rather than provincially; the new system is to be fully operational by 2000. Given the fairly good targeting and reach of the old age pension, reform there has focused on efficient delivery; with child and family grants, however, there has been more basic questioning of the nature of the assistance. The Lund Committee on Child and Family Support has recommended continuation of the child benefit grant to the primary care-giver, based on the degree of need, and restricted to a smaller age group than previously to reach a larger number of those most in need. Implementation of these recommendations will address inequality to the extent that assistance should reach a far greater number of children, and also be less racially and geographically skewed. It will address poverty to the extent that the grants reach intended beneficiaries, but the limited size of the grant will limit its impact, and current recipients will be worse off in that the size of the grant and age range covered will be reduced.

New initiatives in developmental social welfare

The Integrated National Disability Strategy (INDS) seeks to ensure that disabled people are enabled to develop optimally, are not removed from their families and communities, and that ways of meeting their needs are developed with their communities. The Flagship Programme is a three-year pilot which aims to assist single women with young children escape the poverty trap by developing group economic activities. The programme is seen to have a strong economic empowerment effect and to promote the circulation of money within poor communities, but limited resources means that attempts to expand the programme will face obstacles as it has heavy requirements of money and personnel. The Family Preservation Project (FPP) aims to provide an alternative to out-of-home placements of children at risk from communities under stress, which is family-focused and community-based and enhances the capacity of families to care for their children. Finally the White Paper on Population represents a significant policy direction.


The Department of Welfare has made a conscious effort to design and implement policies targeting the most vulnerable categories of people. However, one obstacle is the lack of general agreement or understanding on the definition of developmental social welfare; another is a budgetary constraint on expansion to the bigger staff complement which developmental social welfare will require. Another factor retarding the effectiveness of poverty reduction programmes is the lack of, and difficulty in implementing, co-ordination of initiatives undertaken by various government departments.


South Africa has among the highest rates of violent crime in the world. Poor people are far more at risk from personal crime than the affluent, and violent crime is one of the more severe shocks that can cause vulnerable households to become impoverished.

The links between crime and poverty

While the wealthy tend to be victims of property crime, poor people (typically Africans and women) are at risk from personal crime. Africans are 20 times more at risk from a homicide death than whites, while in 1995, 95% of reported rapes were of African women. Poverty, high unemployment and marginalisation of men increase the risk of violence against women, and poorer women are often trapped in abusive relationships due to dependence on partners for food, shelter and money. Areas inhabited by the poor are less likely to have infrastructure such as street lighting and telephones, public transport and decent roads that facilitates crime prevention. Poor people are unlikely to be able to supplement the services of the police by purchasing private security. In addition, police resources are inequitably distributed: in 1996 three quarters of police stations were in historically white areas.

State responses

New government policies aimed at curbing crime are still more reactive than preventative. Any system, no matter how efficient, can do little in the form of restitution for victims of crime, and thus for the poor, successful crime prevention is critical. Some causes of crime, such as overall socio-economic conditions, can only be addressed in the medium- to long-term; others are more immediate and amenable to shorter-term interventions. The most viable crime prevention strategies are those that aim at a particular crime (or group of crimes) and put in place a customised, comprehensive programme of preventative measures.

The National Crime Prevention Strategy (NCPS) introduced in 1996 aims to co-ordinate the activities of the departments involved in crime control and prevention, as well as to build partnerships with civil society. The 18 prevention strategies of the NCPS are divided into four pillars: criminal justice process, community values and education, environmental design and transnational crime. The programmes are driven from the national level, and do not have a poverty focus. Some of the strategies could exacerbate relative dangers for the poor: for example, environmental design strategies are likely to be more successful in affluent urban areas than in underdeveloped areas, and might result in the displacement of crime to less protected areas - often where poorer people live - rather than its prevention.


While national crime prevention initiatives will have little effect on problems specific to different areas, there is a need for guidance from the national level to ensure that policies are in line with national frameworks, and to address the severe spatial and other imbalances in current service provision. In addition, it may be advisable to site the issue of crime prevention more firmly in the offices of provincial MECs for Safety and Security rather than at national level. The current arrangement distances MECs from political accountability for crime control, while weakening their responsibility for crime prevention. Much greater attention needs to be given to specific crime prevention strategies for the poor, who are largely dependent on public provision. At present poorer areas, particularly the former homeland territories, are severely under-resourced and require policy responses quite different from those in urban centres.


6: Infrastructural Services


Infrastructural services such as communications, power, transportation, provision of water and sanitation are central to both the activities of households and a nation’s economic production. In order to ensure that growth is consistent with poverty alleviation, infrastructural development needs to be extended to all sectors of the population; access to at least minimum infrastructure services is one of the essential criteria for defining welfare. Links between poverty and infrastructural services in South Africa are not always easy to define because lack of access to one utility does not necessarily mean a lack of access to the others. Moreover, the different infrastructure sectors have different effects on improving quality of life and reducing poverty: access to reliable energy, clean water and sanitation helps reduce mortality and morbidity and saves time for productive tasks; transport enhances access to goods, services and employment; communications allows access to services, and information on economic activities. Redress of current imbalances in infrastructural services requires considerable investment in the short- and medium-term, despite fiscal constraints. Resolving this fiscal dilemma - generating sufficient public and private investment without incurring excessive public debt - is essential in order to secure the growth and poverty reduction linkages of infrastructure investments.

Water supply and sanitation

The absence of potable water and sanitation services makes people vulnerable to poor health, which reduces the quality of life and productive capacity of people, and burdens health care and social welfare services. Provision of dependable water supplies can have a strong positive effect on food security and income generation for rural women; substantial livelihood gains are likely to be made by releasing labour time spent on obtaining water, and providing water for small farming and other enterprises. However, only 21% of households have piped water, and only 28% have sanitation facilities. In rural areas, more than 80% of poor households have no access to piped water or sanitation, and 74% of rural African households need to fetch water on a daily basis. Most people without access to basic supply and sanitation services live in rural areas, which is why the Community Water Supply and Sanitation Programme (CWSS) of the Department of Water Affairs and Forestry (DWAF) focuses on these areas. The DWAF vision is to achieve a situation where there is equitable access to water on a permanent basis at a minimum level. The CWSS aims to provide water supplies to 90% of the currently non-serviced population by 2004, and since its inception in 1994 has provided basic water supply to 1.3 million people.

Many actors (government, parastatal, non-government and private) are involved in delivery of water supply and sanitation services:

Despite all this progress in water provision, however, the problem of non-payment for services must be tackled if services are to be sustainable: many municipalities face severe financial problems, and improving income from service charges would help to stabilise the position of local government. Sanitation delivery has not yet taken off, although there has been an important process of involving different government departments and setting policy.


Improvement of access to water is naturally a critical component of programmes to strengthen the asset base of the rural poor.

The status quo in policy and in law

Two distinct experiences of irrigation in South Africa can be drawn out: relatively successful white commercial agricultural schemes which enjoyed comprehensive support, subsidies and irrigation development support; and irrigation schemes in the former homeland areas unsuitable for smallholder production and lacking appropriate support from development agencies and homeland departments. At present, approximately 50% South Africa’s water use is devoted to the irrigation of 1.3 million ha of land, accounting for 25-30% of South Africa’s total agricultural output. Water rights are a complex issue, further complicated by the difficulty of granting water rights to individuals on land held in traditional communal tenure in the former homeland territories. The national Department of Water Affairs and Forestry (DWAF) is responsible for the development of national water infrastructure, and for the allocation and control of scarce water resources. The national Department of Agriculture (DoA) is responsible for marketing standards and norms, and the provincial Departments of Agriculture for supporting and developing irrigation farming.

The White Paper on a National Water Policy for South Africa

The White Paper on a National Water Policy for South Africa (1997) has recently been adopted, a new National Water Bill has been drafted, and a separate Water Services Bill has been prepared covering provision of water by local authorities. As a consequence of apartheid policies, distribution of access to water is as skewed as access to land, and the new water policy provides a framework and principles to redress present inequities. Agriculture, which, as mentioned above, accounts for half the nation’s water use, will have to re-evaluate its usage, and will have to pay a price for water that reflects its real economic, social and environmental cost. Water will be allocated through a new licensing system founded on achieving beneficial use in the public interest. Proposed new irrigation policy would found irrigation development on farmer management and participative planning, which would open up access to previously disadvantaged users of water for productive purposes. The separation of water rights from title deeds to land will open access to those without freehold tenure, and the establishment of Water User Associations at a local level will provide for the effective representation of small farmers and community gardeners on irrigation schemes.

Future irrigation development

Irrigation development offers a range of possibilities for poverty alleviation, and the budgetary implications of many of the options are modest. A new institutional framework for water management and allocation will facilitate irrigation development through creating spaces for the representation and self-development of small-scale irrigators. What is required are clear policy principles and relevant information to guide provincial Departments of Agriculture and local authorities. The discussion documents produced so far represent only a preliminary move towards policy formulation.


‘Energy poverty’ is the condition of having less than a certain level of daily energy consumption necessary to maintain a minimum standard of living. This results in various negative impacts on nutrition, hygiene, health, and comfort. In addition, energy poverty limits the ability of a household to engage in a variety of economic opportunities, particularly in small- and micro-enterprise. Energy is divided into three sub-sectors: electricity, hydro-carbon (including coal, gas and paraffin), and biomass (wood, dung and crop waste). In South Africa, most of the poor meet their energy needs using biomass fuels, or a combination of biomass and hydrocarbon fuels, and sometimes electricity. This multiple fuel use or fuel-switching is peculiar to low-income households. Just under half of all South Africans still do not have access to electricity, despite the accelerated electrification programme, and many of those who have access to it cannot take full advantage of it.

Key energy delivery strategies to the poor at present are Eskom’s Accelerated Electrification Programme and the Biomass Initiative (now absorbed by DWAF into their Community Forestry programme). There is no official policy from the Department of Minerals and Energy, which has primary responsibility for the supply of energy to the poor, although a draft White Paper makes tentative moves towards reducing inequality. The RDP set the target of electrifying 2.5 million households, 72% of the total, by the year 2000. The Accelerated Electrification Programme is currently on schedule to achieve this target, but is running into a crisis around cost: continuing non-payment of electricity accounts by consumers has accumulated arrears owed to Eskom of R1.2 billion, while low take-up rates have restricted its ability to cross-subsidise.

Some 44% of households use paraffin every day, making it the most widely used commercial fuel in urban and rural areas. There are serious safety and health issues connected with hydrocarbon use, however, such as the fire hazard, respiratory disorders, and paraffin poisoning of children. Many of the very poor in urban or rural areas are dependent on biomass fuels. The task of collecting these has severe social and health costs which accrue primarily to rural women and children. For these and other reasons the Department of Mineral and Energy Affairs (DME), the private sector and several NGOs are involved in pilot studies of a diverse range of alternative energy delivery technologies; there is considerable expertise in this area in South Africa that could be developed and supported. In addition, attention should be paid to improving the thermal insulation of housing, which would decrease peak period demands for space heating during winter. All low-cost housing projects could make use of the extensive expertise available in this area, but a lead is required from government.

There are several specific issues that currently hinder progress towards reducing inequality in access to energy, including the fact that Eskom is delivering electricity only to where the grid currently reaches or is planned to be extended to during the next five years. Those not within these areas, generally the most disadvantaged and isolated, are unlikely to receive electricity within five years. At the same time, little attention has been paid to the sufficiency, accessibility and security of energy sources other than electricity. A further problem is that local governments are reluctant to electrify an area until property tenure is secure, which is difficult to achieve in informal settlements. In addition, electricity is still under-utilised (generally only for lighting) by many of the poor who have access to it, other fuels being used for other purposes. Current energy strategies are thus not meeting the needs of the poor, and bold strategies involving alternative forms of energy such as biomass and liquid fuels need to be adopted in order to make a real contribution to the alleviation of energy poverty.


Transport is a significant factor in the development of health and education programmes, and is essential in stimulating and maintaining small enterprise and commercial activity. In addition, the length of time spent commuting daily robs the poor of one of their most valuable commodities - time - that could be spent in income generation or other productive activity. The South African passenger transport system was designed largely to transport people between dormitory townships and their workplaces. Due to the spatial distances resulting from apartheid planning, the working poor spend a large amount of time and money on transport. Few households have access to a private car, while more than 60% of the ‘ultra poor’ walk to work. Accessibility of transport services for the poor is limited in the extent and location of services provided, and poorer groups are often required to use more than one mode of transport to reach their destination. People with disabilities are a particularly vulnerable group, as the lack of efficient transport effectively excludes them from most economic activities. In addition, the safety and security of passengers differs according to the modes of transport available.

The minibus taxi industry increased its share of the African commuter market from virtually zero some decades ago to over 50% in 1996. Market saturation, declining profits and general structural crisis are constraining vehicle replacement, and the many unroadworthy vehicles which remain are a significant safety threat. The rail network in South Africa is controlled by Spoornet and the South African Rail Commuter Corporation (SARCC). Urban rail offers commuters the cheapest mode of transport and the demand among low-income communities is not currently being met. The SARCC achieves cost recovery of only 30% of total revenue from fares, the balance coming from state subsidies of R1.3 billion per annum; the rate of fare evasion is estimated at 25%. The high cost of rail subsidisation has led the Department of Transport to consider introducing concessions for the private sector to operate and maintain railway services.

Road transport is the dominant mode in South Africa, and the investment in roads constitutes a major part of the government’s capital stock. The replacement cost of the rural road network is estimated at R130 billion, and more than half the country’s road network has exceeded its 20-year design life span. Commercialisation of roads may resolve the road funding crisis in urban areas, but is unlikely to assist the poor, especially those in rural areas. One mechanism for improving both the rural road network and rural livelihoods is community-based public works programmes. However, access roads that meet the needs of the poor, particularly in rural areas, have not been addressed in a co-ordinated manner, which has reduced the impact of road-building programmes. There is little evidence of real targeting in terms of the roads that have been constructed, and there are serious problems with sustainability because of lack of resources for maintenance. The government’s Spatial Development Initiatives will improve major road links through certain disadvantaged rural areas, but will not enhance road development within these areas.

The Department of Transport paid out R901 million in subsidies for bus transportation in 1995/96, forming about 50% of the operating income of subsidised bus companies. There have been no incentives or penalties to encourage a better, more efficient service. However, a new scheme to be introduced will introduce a degree of competition for transport subsidies, involving tendering for specified routes. The structure of the transport system tends to benefit operators even where there is evidence that they do not carry the majority of the poor: the beneficiaries of bus subsidies are not the ultra-poor, but middle-income earners. There are inequities in the allocation of bus subsidies between provinces, and a new transport formula should be established to ensure that provinces with the highest number of poor people receive a fair share. Since the taxi service is the most available mode of transport to the majority of the poor, and the government does not provide it with subsidies, it is nearly impossible for existing transport subsidies to benefit the poorest of the poor. Train services, which receive massive subsidies, are surprisingly unavailable to the majority of commuters. This is a classic case of resource mismatch.

The National Land Transport Bill of 1997 covers all areas of passenger and freight transportation. It provides for the creation of a code of conduct for, and regulation of, taxi operators. Existing transport subsidies will still be paid to the transport operators. Primary responsibility for transport delivery is devolved to provincial and local level, but provincial government structures have neither the capacity nor the experience to deliver effectively, while the break in the chain from national to local level inhibits effective provision of transport by local authorities. The strategies currently in place do not help redress inequality, and the system does not lend itself to simple reformist interventions.


Communications are often not considered part of the primary bundle of development services in developing countries. However, reliable telecommunications provide access to information, employment opportunities, education and health facilities, which in turn impact on productivity and social networks, which in turn influence the ability of individuals and households to participate productively in the economic sphere.

Almost half of Telkom’s 4.1 million telecommunications lines are installed in Gauteng and the Western Cape, while the most poorly serviced provinces are the Northern Province and the Eastern Cape. Eighty five percent of white households have a telephone line, compared with 14% of African households. Across all races, 1% of rural households have a telephone, compared with 32% of urban households. Telkom is committed inter alia to extending residential and business coverage to all who can afford it, to extending public pay telephone penetration to all parts of the country, and to ensuring that all priority clients (such as schools, clinics, libraries and local authorities) are connected by the end of the century.

The South African Postal Services (SAPOS) is aiming at a long-term scenario in which each postal outlet will offer a full range of services. This will specifically ensure that rural areas, where postal agencies are currently more prevalent, have access to a wide range of services. SAPOS is aware of the critical role it can assume in community development, but this emphasis is not necessarily consistent with its objectives of breaking-even in terms of revenue generation. The strategy adopted by SAPOS includes placing basic postal services within easy reach of communities, and giving each person in South Africa a postal address.

Inequality will be addressed by the postal and telecommunications sectors, probably within the next five years. This will benefit those for whom access and not affordability is the key consideration. Current SAPOS and Telkom strategies have aimed their delivery to the poor through a public network. Although they will not have addressed the needs of the poor in the same way that they will have met the needs of paying customers by early next century, all South Africans residing within remote areas will have access to both services. The issue of affordability is being addressed through the use of technology, but it is unlikely that the majority of the poor will be able to fully utilise the systems. Access to information technology poses more problems than postal and telecommunications services because of issues such as education and affordability.


7:   Institutional Context