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Sample Essay on Effects of Income Inequality in South Africa

Effects of Income Inequality in South Africa

Apartheid in South Africa came to an end in 1994 and despite this fact the country still records the highest income inequality globally as measured by Gini Index.  As a matter of fact, income inequality is the biggest and major challenge facing the nation and it is detrimental not only to economic development but the business environment as well.

The facts

  • Real gross domestic product in SA between 200 and 2001 averaged 3.6% which was on par with average global growth. Despite the fact that the country has recorded high economic gains, it still has the highest level of unequal income distribution with a 63.6% Gini Index in 2011 relatively unchanged from the 2000 Gini index of 63.5%.
  • Between 2000 and 2011, there has been a widening of the gap between the richest 10 percent households and the poorest 10 percent households. During this time, the average disposable household income was an increase of 14.4 percent and 26.8 percent.

Income inequality in South Africa has lowered the people’s standard of life and it has also proved to be economically inefficient. According to the president of the Center for Global Development Nancy Birdsall (2007) income inequality makes it impossible for the markets to function their best because of resources that remain unused as well as diminished demand.

In addition to this, it also creates a society that does not support rational thinking thus limiting regulatory effects of government and creating unstable markets. Because of this, there is a decrease in consumption, the GDP is driven down and so is the economic progress within a country. Income inequality also hinders growth and as a result, the country ceases to develop as a result of capital influx.

  • Income inequality which is on a rise in South Africa is a major challenge for the country and it adversely affectsimages (2) social political stability, impedes progress of education and health, while at the same time impacting economic development.
  • Because of huge income variations, there is increased poverty incidence in South Africa and this has contributed to high crime rates. In 2011, reports indicate that the country had the 8th largest homicide rate.
  •  While the United Nations Development Programme’s (UNDP) classifies South Africa as middle income country, it also reports that it has the highest levels of poverty with a large portion of the population living below the poverty line. What is more, a large percentage of the population in the country is classified as low income earners.
  • Income disparities also limit growth of middle income earners though the size of this class can also provide ideal opportunities for non essential consumer goods industry.

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