South Africa has one of the highest measures of income and wealth inequality in the world. But we are not alone. The benefits of economic growth in many major developed economies are increasingly not being shared evenly. Governments can play a key role in making economic growth more inclusive through various actions: Rethinking policy goals to better balance prosperity with environmental and social progress; ensuring that education policy addresses the needs of young people from pre-school to university; creating skills and training policies that promote the best use of workers’ talents; implementing job creation policies so that families do not get trapped in poverty; and finally, increasing taxes and transfers which may favour assistance to those in need, whilst limiting tax breaks and allowances that disproportionally benefit high earners.
The manner in which governments respond (or not), to growing income disparities will have a profound effect on each country’s asset classes and currency going forward.
Global News
- The Covid pandemic has revealed glaring inequality across the globe. In Spain this is evident in the schooling structure – private schools have access to funds, are able to implement safety measures quickly, and have access to additional resources such as larger campuses and more outdoor space, while public schools are facing delays in funding and bureaucratic barriers. This is only exacerbating the disparity between the rich and poor in the country.
- In the UK, evidence of disparity is present in an even more concerning way. Minority ethnic groups, especially people of Black, Pakistani and Bangladeshi ethnicities, have been found to be at greater risk of dying from Covid-19. An inquiry found that Black people were over four times more likely to die than their White counterparts, with Bangladeshis and Pakistanis being at least three times more likely.
- Oxfam released a report calculating that the richest one percent of the world’s population is responsible for more than twice as much carbon pollution as the three billion people who made up the poorest half of humanity over the last 25 years. “The over-consumption of a wealthy minority is fuelling the climate crisis, yet it is poor communities and young people who are paying the price,” said Tim Gore, Head of Climate Policy at Oxfam and author of the report. For the article, follow this link.
- An investigation by the International Consortium of Investigative Journalists has shown that increased regulation on suspicious transactions has not stopped trillions of dollars from being laundered. JPMorgan, Deutsche Bank, and HSBC were among the big banks under scrutiny after they “kept profiting from powerful and dangerous players” even after the US imposed penalties on various financial institutions.
- Wall Street CEOs have been among the loudest calling for employees to return to the office, a development which has already resulted in a few new Covid-19 outbreaks. On the other hand, Tim Cook, the CEO of Apple, is promoting working remotely, saying that he is impressed by his employees’ ability to work from home. Cook has also suggested that some new work habits will remain after Covid-19 has receded.
- Justice Clark Litle has written an article where he compares the economic storm facing the US to the Roman financial crisis of 33AD. He suggests that the circumstances may be different but the ingredients are the same – credit and lending, speculation, government intervention, and even quantitative easing! Follow this link for the full analysis.
Local News
- Covid-19 has made South Africa’s most vulnerable even more so. The prevalence of the virus has been far higher in townships than in the suburbs. The inability for people to self-isolate together with the general close proximity of living conditions has been massively problematic in poorer areas during the pandemic.
- When the pandemic hit South Africa, unemployment numbers were already high. There is now an unemployment crisis in SA with job losses expected to rise as businesses battle through the recession. In the first quarter of 2020, there was a 30.1% decline in the employment rate, which is expected to worsen in the second quarter. It has been estimated that about 3 million South Africans lost their jobs in the first month of the lockdown. The unemployment statistics for the second quarter will be released next week.
- Covid-19 has hit some industries harder than others – for instance the accommodation and food and beverage industries continue to face challenges even after the majority of restrictions have been lifted. Stats SA reported that “measured in nominal terms (current prices), total income for the tourist accommodation industry decreased by 88.3% in July 2020 compared with July 2019. Income from accommodation decreased by 90.5% year-on-year in July 2020”. Stats SA also published July food and beverages data, showing that total income generated by the food and beverages industry was down by 52.6% versus the previous July, with bar sales down 95.1%.
Sources: Dynasty, Reuters, Bloomberg Markets, The New York Times, Daily Maverick, and Moneyweb, etc
