US embassy cable - 05PRETORIA29

UNCLAS SECTION 01 OF 03 PRETORIA 000029 
 
SIPDIS 
 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR OAISA/JEWELL 
 
SENSITIVE 
 
E.O. 12958: NA 
TAGS: ECON, SOCI, EAID, SF 
SUBJECT: Poverty in South Africa: Two New Studies 
 
 
Sensitive but Unclassified; Protect Accordingly.  Not 
for Internet Distribution. 
 
1.  (SBU)  Summary.  Two new studies provide 
additional insight on poverty in South Africa.  A 
report by the Development Policy Research Unit at the 
University of Cape Town provides additional evidence 
that South Africa has made progress in the provision 
of socio-economic services and infrastructure such as 
education and access to electricity, water and 
sanitation.  A new study by the Human Sciences 
Resource Council, a government research institution, 
found that in income terms poverty has not changed 
significantly between 1996 and 2001.  In fact, 
households living in poverty have sunk deeper into 
poverty, and the gap between rich and poor, 
regardless of race, has widened.  The findings 
themselves are not new, but rather provide further 
evidence of South Africa's mixed record on economic 
development over the last ten years.  Government 
poverty alleviation initiatives mitigate some of this 
disparity, but recent large increases in the number 
of beneficiaries are straining both national and 
provincial budgets.  End Summary. 
 
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Access to Social Services and Infrastructure Improves 
--------------------------------------------- ------- 
 
2.  (U)  The Development Policy Research Unit (DPRU) 
at the University of Cape Town studied poverty based 
on access to assets and services. It did not analyze 
poverty based on income.  Using their access to 
assets or services approach, the DPRU report found 
that 68.5 percent of households lived in formal 
dwellings in 2001, up from 64 percent in 1996. 
Access to clean water also improved, increasing from 
80 percent of households to 84.5 percent of 
households.  Sanitation improved with 59.1 percent of 
households having a flush or chemical toilets 
compared to 50.3 percent in 1996.  Households with 
electricity for lighting increased from 58 percent to 
70 percent between 1996 and 2001; electricity for 
cooking, however, rose only from 47.1 percent to 51.4 
percent.  Households receiving refuse removal at 
least one a week from a government organization 
institution grew from 51 percent to 55 percent. 
 
3.  (U)  The DPRU report found that there had been a 
marked improvement in education attainment since 1996 
with the proportion of the population with a high 
school or higher education climbing from 22.6 percent 
to 28.8 percent.  The proportion of the population 
with no schooling dropped slightly from 19.3 percent 
to 17.9 percent.  The report notes that these figures 
reflect quantitative increases but not necessarily 
qualitative improvements.  In fact, a study early 
this year by Stellenbosch University found that while 
the SAG had equalized spending across racial lines 
the quality of education had declined. 
 
4. (SBU)  Comment: The increases in access to 
services and the improvements in housing support data 
published last year in the Government of South 
Africa's review of ten years of democracy.  The 
government and many commentators have noted the 
successes of government in improving housing and 
access to basic services.  To help make the figures 
more understandable, in order to improve the percent 
of households in formal dwellings from 64 percent to 
68.5 percent in five years, government had to provide 
housing to an additional 190,000 formal houses or 
nearly a million homes during this period. 
Electricity was supplied to an additional 1.7 million 
households or 335,000 per year. 
 
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Income Inequality Grows 
----------------------- 
 
5.  (U)  The Human Sciences Resource Council (HSRC) 
study looked at poverty in terms of income.  Income 
was defined using household budget surveys and thus 
reflects only formal income, not the value of items 
produced and grown by the household or transfers the 
household received from government or members of the 
family resident elsewhere.  HSRC found that 
approximately 57 percent of South Africans were 
living below the poverty income line in 2001, 
unchanged from 1996.  Limpopo and Eastern Cape 
provinces had the highest proportions of poor with 77 
percent and 72 percent of their populations living 
below the poverty income respectively.  Western Cape 
and Gauteng had the lowest proportion in poverty, 32 
percent and 42 percent respectively. 
 
6.  (U)  To measure the depth of poverty, the HSRC 
study calculated the "poverty gap," the annual income 
transfer to all poor households required to bring 
them out of poverty.  HSRC found that the poverty gap 
has grown from R56 billion in 1996 to R81 million in 
2001, indicating that poor households had fallen 
deeper into poverty.  The poverty gap has also grown 
faster than the economy.  In 1996, the total poverty 
gap was equivalent to 6.7 percent of the GDP; by 2001 
it had risen to 8.3 percent. 
 
7.  (U)  This growth in poverty is reflected in a 
rise in inequality between rich and poor.  According 
to the study, South Africa's Gini coefficient (a 
measure of income inequality where zero equals 
perfect equality and one equals perfect inequality) 
had grown from 0.69 in 1996 to 0.77 in 2001.  In the 
past inequality in South Africa was largely defined 
along racial lines.  The HSRC report, however, 
indicates that inequality within each of South Africa 
four racial groups has grown substantially.  For 
African South Africans the Gini coefficient rose for 
0.66 to 0.72, for Whites from 0.50 to 0.60, for 
"colored" South Africans from 0.56 to 0.64 and for 
Asian South Africans from 0.52 to 0.60. 
 
8.  (SBU)  The HSRC study used a poverty line 
developed by the South African Advertising Research 
Foundation (SAARF), which is toward the lower end of 
most poverty lines.  Choosing a different poverty 
line would affect the quantitative results but is 
unlikely to alter the conclusion that poverty has 
increased.  Government disputes the HSRC figures 
because they do not include government transfers or 
private remittances.  HSRC's Gini coefficient is 
higher than other recent studies.  For example, the 
SAG in its "Toward Ten Years of Freedom" report 
calculated a coefficient of 0.57 in 2000, and recent 
University of Cape Town report estimated 0.60 in 
2003.  Whichever figure one uses, income inequality 
in South Africa remains among the highest in the 
world. 
 
9. (SBU)  Comment: There is no government-accepted 
poverty line in South Africa.  Most studies have 
worked on the international definitions of either 
US$1 or US$2 per day.  The World Bank estimated 
poverty using $2 per day at 36 percent in 2001 
compared to 34 percent in 1995.  The US dollar based 
definitions have unfortunate consequences in an era 
of volatile exchange rates.  In South Africa the rand 
has doubled in value against the US dollar in the 
last three years.  This means a poverty line of one 
dollar a day was R12.15 in the beginning of 2002, but 
is R5.65 now; some people whose income halved during 
this period might have actually moved from being poor 
to being non-poor by the usual international 
definition.  A major study in 2002 found that 46 
percent of South Africans were poor based on SA's 
minimum living standards survey (equal to US$1.60 per 
person per day).  The SAARF definition used by the 
HSRC, by being based in assets and rands, does not 
have the problem of being based in US dollars. 
 
--------------------------------- 
Poverty Alleviation Stains Budget 
--------------------------------- 
 
10.  (U)  Government programs that provide grants to 
children, disabled and elderly South Africans are one 
of several government poverty alleviation 
initiatives, although given recent large increases in 
the number of grant beneficiaries, these initiatives 
are straining both national and provincial budgets. 
Two million people joined the list of grant 
beneficiaries between April and September alone, 
pushing the total number of beneficiaries to nine 
million - or one out of every five South Africans. 
Welfare and social security spending constitute the 
fastest growing share of overall expenditures, 
increasing from 18.6 percent of total government 
expenditures in FY2004 to 20 percent by FY2007.  The 
government now spends R50 billion on social grants 
and current estimates suggest that welfare grants 
will comprise over 40 percent of the government's 
expenditure increases over the next three years.  As 
evidence of the its concern over escalating welfare 
costs, government recently granted extensions for 
indemnity to fraudulent grant recipients and began to 
investigate more systematically instances of welfare 
fraud. 
FRAZER