Covid-19 and the nationwide lockdown have severely impacted every income group in South Africa, with not even the richest cohort being spared the effects of shutting down the country.
The University of Cape Town (UCT) Liberty Institute, a marketing think tank, recently released a report titled ‘Impact of Covid-19 on household incomes’, which compares 2020 incomes with those of 2017. One of the main findings is that there has been a decline over the last three years in the proportion of households in the wealthier income segments. Conversely there has been a drastic increase in households falling into the poorer income segments.
The UCT Liberty Institute categorises the number of adults in the country according to the monthly income of the household they live in. The categories are the following: Ultra poor (Household income less than R3 500), Survivors (R3 500 to R8 000), Skilled strugglers (R8 000 to R22 000), Lower middle class (R22 000 to R40 000), Upper-middle class (R40 000 to R75 000) and Top end (R75 000 and more).
The two wealthiest income segments, the Top End and Upper-middle class categories, declined by around 50% between 2017 and 2020.
There are now only 400 000 South African adults living in households with a monthly income of more than R75 000, compared with 800 000 in 2017. During the same period, the poorest income segment, Ultra poor, increased by 54% – from 9 million adults in 2017 to 16.6 million adults in 2020.
Job declines
Covid-19 and the nationwide lockdown have impacted poorer households in different ways from wealthier ones. Data from the National Incomes Dynamics Study (NIDS) shows that low- to semi-skilled workers were the most likely to be furloughed or retrenched during the lockdown.
Job declines were most evident for manual labour, people without a university degree and informal sector workers. Informal workers were actually twice as likely to lose their jobs as formal workers. In other words, households that have lower-paying jobs and were located in rural areas where quality of education is generally poor were the most likely to find themselves unemployed during the shutdown.
On the other hand, wealthier households have also experienced a drastic decline since 2017. The decline in the wealthier categories shows that not even rich South Africans were shielded from the pandemic and measures taken in response to it. This finding is supported by other studies this year.
Highest exposure
For example, data from consumer credit reporting company Experian found that South Africans most affected by the economic downturn were those with the highest exposure to secured lending and other banking products. In other words, those who could afford home loans and vehicle loans experienced an increased likelihood of defaulting on their debts during the lockdown.
FNB Private Wealth and RMB Private Bank have stated that, as the lockdown drags on, their customers in the restaurant and hospitality industries who rely on tourist custom from abroad have emptied their personal nest eggs to stay afloat. In other words, many wealthier South Africans have had to dip deeper into their own pockets to keep their businesses afloat.
Meanwhile many rich citizens lost substantial investment value when the equity market crashed in mid-March as the effects of the pandemic became clear. While the JSE recovered some of the losses, it is still below where it was at the start of 2020.
Increasing exponentially
What does this all mean for South Africa? Poverty and inequality rates in South Africa are increasing exponentially, requiring the State to spend more money on supporting the growing numbers of unemployed and impoverished people.
To mitigate the economic fallout from the lockdown, the South African government expanded the country’s system of social assistance, and there are growing calls for a universal basic income grant. However, many economists have warned that South Africa does not have the fiscal space to afford such grants on a permanent basis.
Already, more than 18 million social grants are paid out every month. Recently, the Fiscal Cliff Study Group (FCSG) responded to finance minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) by saying that South Africa has now hit its ‘fiscal cliff’ as public sector remuneration, social assistance payments and debt-service costs have effectively absorbed government revenue.
This is coupled with the fact that better-off South Africans, who pay huge sums in personal income tax, have seen a decisive blow to their wealth, meaning one of the country’s main revenue sources has come under huge pressure.
Pre-pandemic levels
The nationwide lockdown’s impact will be felt for a long time to come. NIDS data further revealed that it might take some time for job levels to recover to pre-pandemic levels. South Africa cannot afford further tax increases either.
The only way to put the country on a sustainable path to recovery is to implement reforms capable of accelerating economic growth to levels comparable with those of the Mbeki years.
Back then, unemployment consistently declined and the country registered a fiscal surplus. Failing to embark on reforms will doom South Africa to a prolonged period of economic and social decline.
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Image by Gerd Altmann from Pixabay