Friday, November 23, 2007

Poverty - any options left?

The question on the magnitude of poverty in the country ignited a war of words. Here's the latest from the Presidency.

A few observations:

1. The point was made again that poverty is more then a lack of income. Fair enough. Again , depends what one measures.

2. Taking population growth into account one can have a rise in the absolute number of poor, but a decline in the proportion of poor to the total population. According to the Presidency: Using a national poverty line of R354 per month, the UNDP reported that the proportion of people living in poverty fell from 51.1% to 48.5% between 1995 and 2000. However, the absolute number of people living in poverty increased from 20.2 million to 21.9 million as a result of population growth. Other work by Hoogeveen and Ozler (2004) covering the same period, reports stability in the proportion of people in poverty using the R322 poverty line, and an increase in the absolute number of people living in poverty due to population growth.
So, be very aware which trend one reports on. Making no progress on absolute numbers of people in poverty means that we are fighting a losing battle.

3. Definitions of poverty matter! The percentage of population living below R3000 pa declined from 53.1% in 1996 to 43.2% in 2006, with an acceleration in the downward trend since 2000. That's still around 20 million people in poverty (earning equal or less then R250 per month)

4. Those that are under the poverty line of R3000 pa did experience an improvement in income and expenditure.

5. According to the Presidency: there is evidence that income poverty levels are indeed declining in part because of improvements in employment levels, but more importantly because of the enormously improved reach of the social grant system. The statement does not say, but how much is really due to improvements in employment levels?

6. The report goes on: The impact of improvements in the labour market on poverty cannot be overstated. The number of employed people increased from 11.1 million in 2001 to 12.8 million in 2006. That is an average of 340 000 more employed per annum or roughly 3% pa. Population growth over this period How did this translate to a significant impact on poverty if we have 20 million people in poverty?

7. The report makes the point the living standards has generally improved: the poorest income group (Living Standard Measure, LSM 1) fell from 10.5% to 4.8% of the population between 2001 and 2006. The bottom three income groups (LSM 1-3) shrank from 38.8% to 27.7% of the population in this period. Furthermore the incomes of people in the poorest groups grew by about 38% between 1993 and 2004, mostly as a result of the expansion of social grants.
Social grants makes life a bit easier, but will not lift one out of poverty.

8. The report argues that the central flaw in the SAIRR (Global Insight) report is the use of $1 per day as a poverty line. While this poverty line is recommended by the World Bank and used by most international agencies such as the UN, the uncritical adoption of this by SAIRR is unfortunate. This is particularly so in the context of the problematic nature of this measure especially with regard to exchange rate translations.

$1/day is a crude, but internationally used measure, and an appreciating Rand (since 2002) would decrease rather then increase the number of people living under this poverty line. More people would have lived under R12 per day then under the current R7 per day.

Technically, one would therefore expect that in an environment of a strengtening Rand, the number of poor living under the $1 line would fall not rise. This has happened according to the SAIRR, poverty peaked at 4.5 million in 2002 before reaching 4.2 million in 2005.

Given all of this where are we?
  • Progress on service delivery
  • Persistent high levels of income poverty no matter how this is defined.
  • Social welfare eases the pain.
  • Unconfirmed (probably small) effects of employment on poverty reduction.
With services delivered and social welfare payments close to its peak, what options are left to eradicate poverty?
How can the economy suck an additional 2o million people into a meaningful and dignified existence?
These are some of the questions that should pre-occupy our policy makers.

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