South Africa and Inequality Statistics

Photo: Bentley Azure/Crystal666/flickr

It is often noted that despite its great (and growing) wealth, South Africa is also marked by some of the most severe inequality of any country. A lot of numbers get thrown around, but without some explanation and context, they don’t mean much.

The most basic and most frequently cited economic indicator is a country’s gross domestic product (GDP). A country’s GDP is calculated by adding up every resident’s income for a given year: all wages, all profits, etc.

According to data from the World Bank, in 2009 South Africa had a GDP of about $285 billion. This is among the highest GDPs in the world — out of the 185 countries for which data is provided, South Africa ranks 31^st, between Argentina and Thailand. (At the number one spot, the U.S. had a GDP of nearly $14,119 billion.)

GDP per capita is just measured by dividing the GDP by the population. With a population of about 50 million, South Africa has a GDP per capita of about $5,786. The U.S., by comparison, has a GDP per capita of about $46,000.

Of course, as every traveler knows, a U.S. dollar tends to buy more stuff in Mexico than it does at home, and tends to buy less in Germany or Japan. One way to make cross-country comparisons more meaningful is by using the measure of purchasing power parity (PPP). By comparing the costs of hundreds of goods and services in countries around the world, economists come up with a number indicating just how far a dollar goes in a given country. So, for example, according to the most recent data (calculated in 2005), the price level in Romania is 49 percent of the price level in the U.S. In other words, a dollar will get you twice as much stuff in Romania as it will in Maryland. If $4 gets you a loaf of bread in Baltimore, it will get you two loaves in Bucharest.

According to the 2005 data, the price level in South Africa is 61 percent of that in the U.S.; the same loaf of bread that goes for $4 in Baltimore will only cost $2.40 in Kimberley. Since PPP is calculated relative to the U.S. dollar, the U.S. GDP (PPP) per capita remains at about $46,000, but the South African GDP (PPP) per capita nearly doubles, from $5,786 to $9,315. If you go by those numbers alone, someone in the United States can buy about five times more stuff than a South African.

Even if you tweak income by adjusting for PPP, however, GDP per capita tells us almost nothing about how much people are actually earning. As the old statistical joke goes, if you put your head in the oven and your feet in the freezer, on average you’re pretty comfortable. As an indicator of an average, GDP per capita doesn’t acknowledge the fact that some people are extremely rich while many, many others are poor.

One way to measure inequality in the distribution of income is the Gini coefficient. In his entertaining book The Haves and the Have-Nots, Branko Milanovic gives a concise explanation of how the coefficient works:

The Gini coefficient compares the income of each person with the incomes of all other people individually, and the sum of all such bilateral income differences is divided in turn by the number of people who are included in this calculation and the average income of the group. The ultimate result is such that the Gini coefficient ranges from 0 (where all individuals have the same income and there is no inequality) to 1 (where the entire income of a community is received by one individual).

According to the CIA World Factbook, of the 136 countries analyzed, Sweden has the most equal distribution of income (with a Gini coefficient of 23.0), followed by Hungary (24.7) and Norway (25.0). The United States has one of the more unequal distributions of income in the world; 97 spots down from Sweden, the U.S. has a Gini coefficient of 45.0.

And South Africa? With a Gini coefficient of 65.0, it is 135^th in the list of 136 countries; only Namibia has a less equal distribution of income.

A more tangible way of measuring income inequality is by analyzing income distribution by decile. This means arranging the population according to their income and examining what share of the total income the wealthiest 10 percent of the population receives, how much the next wealthiest tenth of the population earns, and so on through the bottom 10 percent.

According to a paper published by the OECD, in 2008 the richest 10 percent of the population in South Africa earned 58.07 percent of the total national income. The total combined income of the bottom eight deciles — 80 percent of the population — came out to be 25.35 percent of the national income. That means that the wealthiest 5 million South African earned more than double the combined earnings of 40 million of their fellow countrymen and –women.

Assuming that the distribution didn’t change from 2008 to 2009, the top ten percent earned $165.5 billion from the country’s total GDP of $285 billion. The ten percent of South Africans with the lowest incomes, on the other hand, earned .40 percent of the country’s GDP, for a grand total of $11.4 billion. Someone in the bottom decile would have to work for about 14 and a half years to earn what someone in the top decile earned in one.

Milanovic gives the important reminder that inequality is not necessarily an injustice:

There is “good” and “bad” inequality, just as there is good and bad cholesterol. “Good” inequality is needed to create incentives for people to study, work hard, or start risky entrepreneurial projects…. But “bad” inequality starts at a point—one not easy to define—where, rather than providing the motivation to excel, inequality provides the means to preserve acquired positions.

The above numbers only consider income, not wealth or capital. They don’t consider political context, and they certainly don’t reveal peoples’ lived experiences. In South Africa’s case, though, the crazy tilt of the numbers reveal radical inequalities.

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If you’re interested in the math used to calculate Gini coefficients, check out the Wikipedia entry.