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Who really bears the burden of the stuttering SA economy?

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

In a recent article published by Moneyweb, we unpacked the current youth unemployment crisis and discussed some of the potential knock-on effects that can be caused by having a disproportionately large portion of the youth excluded from participating in the economy – in other words, unemployed.

Read: Youth unemployment: Two knock-on effects to expect

This article, in a similar manner, will unpack the present state of consumer prices and indicate where the largest burden lies and how this impacts the country not only now, but into the future as well.

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

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

The figure below illustrates the inflation rate per expenditure decile.

Source: Stats SA – Consumer price index September 2021

The above illustrates that the poorest expenditure decile (the first expenditure decile) is currently facing a significantly higher inflation rate of 6.6%, in comparison to the national figure of 5%.

Extending this further, the first three expenditure deciles (or poorest 30%, and where unemployment is highest) are all facing an inflation rate that is appreciably above that reported for the country as whole.

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

This is specifically concerning given South Africa’s high unemployment rate (34.4% in Q2 2021), as this implies that not only are the most marginalised economic groups facing the largest increases in prices, but these groups are also being met with increasingly fewer opportunities to find work to be able to provide for themselves, as shown below.

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

Source: Stats SA – Quarterly Labour Force Survey trends data (Q2, 2021)

This illustrates the positive correlation between higher education levels and those more educated individuals’ chances of finding a job.

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

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

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

Source: Stats SA – Consumer price index, September 2021

The above makes for grim reading as it shows the severity of the negative impact on the purchasing power of the poorest of people in society (given the large portion that food, household fuels/electricity and transport make up of the lowest expenditure deciles’ expenditure).

Not only do many people have less, their basic goods and services cost more.

Answering the question of who is bearing the burden of the stuttering SA economy, unfortunately the evidence points to those who require the most assistance: the poor, the less educated and the youth.

This is unsustainable in the long run as in the absence of uplifting the poorer economic groups and providing them with more access to meaningful opportunities to participate in the economy, the social welfare needs of these groups will grow at a rate that cannot be supported by the current tax base.

This article indicates that presently the brunt of the underperforming economy is being felt by the most marginalised groups.

Those who are fortunate enough to have opportunities to participate need to take heed of the hardship endured by these less fortunate groups.

Unless a plan is made to reduce the country’s social welfare needs (by providing more opportunities to marginalised groups) and increase its tax base, the compounding effect of prolonged years of budget deficits will be felt across the whole economy, rich and poor.

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

Read original article here

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