Inequality: Richest 0.01% in SA own more than poorest 90% combined

The top 1% in SA owns a higher share of wealth than the bottom 99%, and these levels of wealth concentration have remained remarkably stable since the end of apartheid, despite economic growth and supposed social transformation.

This is the highest inequality in the world, when compared to countries where similar research was done. This specific survey was done by the World Inequality Lab on wealth inequality in South Africa between 1993 and 2017. The paper systematically estimated the distribution of household wealth in South Africa since 1993, by combining all relevant macro and micro data sources.

According to the researchers, a growing number of studies measured the distribution of household income and consumption, but not dynamics of household wealth, especially in the developing world where available data sources are scarce, not detailed enough, and prone to important measurement errors.

There was a need to do something about this, given the rise of global wealth concentration and the policy challenges regarding tax evasion and political stability. Therefore the researchers estimated the distribution of personal wealth in South Africa from 1993 to 2017 by combining micro data from income tax returns, household surveys, and macroeconomic balance sheet statistics.

ALSO READ: Government should focus on ending inequality or face revolt

Unparalleled levels of wealth concentration

The results were staggering.

It showed unparalleled levels of wealth concentration, with the top 10% owning 86% of total wealth and the top 0.1% close to one third, while the top 1% wealth share reached 55%. The top 0.01% (3,500 individuals) owned 15% of household net worth, which is more than the bottom 90% as a whole.

The survey also showed how dire the situation is on the other side of the scale. The average wealth of the bottom 50% is negative because the market value of their assets is lower than their liabilities.

Comparable, high-quality estimates of wealth distribution were done in France, the United Kingdom, the United States, Russia, China, and India.

While the South African top 10% wealth share has fluctuated between 80% and 90% during the 1993-2017 period, it has remained below 75% in the US, 70% in Russia and China, 65% in India and 55% in France or the United Kingdom.

The same result is true for the top end of wealth distribution. The top 1% wealth share was 55% in South Africa in 2017, compared to 43% in Russia, 39% in the United States, 31% in India, 30% in China and less than 25% in France and the UK.

ALSO READ: SA needs Codesa-style economic model – Meyer

No decrease since the end of apartheid

The other alarming finding is that wealth inequality has not decreased since the end of the apartheid regime.

The survey showed that the top 10% wealth share has fluctuated between 80% and 90% between 1993 and 2017, mainly due to the rise and fall of household debt before and after the 2007-2008 financial crisis, with no sign of long-run trends.

If anything, the researchers say, the available evidence suggests that the share of wealth captured by the top 1% and the top 0.01% may even have increased. This is particularly alarming considering South Africa’s recent history of positive growth where real average income and wealth per adult respectively increased by 19% and 33% from 1993 to 2017.

One would also think greater racial inclusiveness would have made a difference, but although all discriminatory laws against oppressed racial groups had been abolished by 1991, nothing has changed.

ALSO READ: Beyond R350 grant: Universal basic income could benefit all of SA, but not without challenges

Owning the most assets

The unequal distribution of wealth also did not stop there. According to the researchers these inequalities are reproduced at the level of all asset classes. The top 10% of wealth holders own more than 55% of business assets and housing wealth and over 99% of bonds and stock.

These levels of inequality in South Africa were found in all forms of assets, including housing, pension funds, and financial assets. There was no sign of decreasing inequality since the end of apartheid.

Financial assets made up most of the assets of the top 0.1%, while the main holdings of the bottom 20% are owner-occupied housing and pension wealth. “We find significant wealth accumulation over the life cycle, but levels of wealth concentration within each age group are almost perfectly similar to those measured for the full population.”

The researchers say this suggests that individuals accumulate wealth at relatively similar paces, but start from very different initial endowments, which shows the importance of inheritance. They also noticed that while the top 10% share has remained quite stable, there seems to have been an increase in wealth concentration within the top 10%.

ALSO READ: Riots are government’s chickens coming home to roost

The rich get richer

According to the data, between 1993 and 2017 the top 1%’s share grew from 54% to 57% and the top 0.1%’s share from 22% to 31%. The researchers ascribe this to the combination of the rise in the share of non-pension financial assets, from 19% to 24% of net household wealth between 1992 and 2018 and the increase in wage inequality in South Africa during this time, which indirectly affected the distribution of pension assets.

“Overall, it is particularly striking that wealth inequality has remained at extreme and stable levels in South Africa in spite of the many progressive policies that have been pursued since the early 1990s. All discriminatory laws were abolished by 1991 and a new constitution was adopted in 1994.

Since then, government has endorsed several ambitious socio-economic policy frameworks with primary objectives consistently including reduced economic inequality inherited from colonial and apartheid regimes.

However, wealth inequality has remained remarkably stable over the past three decades.

“In line with our observations on the role of inheritance in explaining constant wealth disparities within age groups, our long-term series suggest that asset allocations before 1993 may still contribute to shape wealth inequality in recent years, despite the many reforms to address these lasting disparities.”