Extreme Inequality Retards South Africa’s Economic Growth

Leonce Ndikumana

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.

Goldman Sachs recently released a report which examines South Africa’s post-apartheid economy and the nation’s role as an economic engine in Africa. But despite progress and promise, the nation remains mired in poverty and income and wealth inequality and is one of the highest in the world.

We are now joined by Léonce Ndikumana. He’s a professor of economics at the University of Massachusetts Amherst and the director of the African Policy Program at PERI.

Thank you so much for joining us.

LÉONCE NDIKUMANA, DIRECTOR, AFRICAN POLICY PROGRAM, POLITICAL ECONOMY RESEARCH INSTITUTE: Thank you very much, and thanks for the opportunity.

DESVARIEUX: So, Léonce, can you just talk to us about South Africa’s role as a growth engine in Africa?

NDIKUMANA: Thank you very much.

Yes. In fact, if you look at what’s happening on the continent, there is plenty of things to celebrate in terms of renewed economic dynamism in the continent. We see a private sector expanding. And also growth rates are accelerating, and even poverty declining slowly in some countries.

Now, South Africa being the largest economy on the continent–about $300 billion, which is actually about one-fourth, 25 percent of the whole continent’s economy–it can be an engine of growth in several ways. One, it’s a major source of investment. If you look at many African countries, you see evidence of increasing foreign direct investment from South Africa. We typically think of foreign direct investment as coming from overseas, but there is plenty of potential of intra-Africa foreign direct investment. And South Africa is a major–they play a major role in that.

The other one is that South Africa is a large market. So for countries that can actually diversify their economies and produce exportable goods, that gives them a market where they can sell, especially to countries in the region.

Third is technology. One of the constraints to diversification and economic expansion in African countries is low technological content of their production system. And South Africa on that front is much ahead. So exchange and trade with South Africa can increase the technological content of production in African countries, and that could accelerate not just growth, but also increase resilience of the economies.

DESVARIEUX: But despite all this increasing growth, it doesn’t mean that it’s necessarily being spread around to different sections of society, ’cause according to The New York Times, only 47 percent of South Africans remain poor, and inequality is one of the highest in the world, as I noted before. And according to the IMF, South Africa’s economy will grow much slower than the rest of sub-Saharan Africa in 2014.

What is responsible for South Africa’s inequality? And could it undermine South Africa’s role as an economic engine and a model worth emulating by other countries?

NDIKUMANA: That’s a great question. And let me start with the last part of the question, which is that the negative impact of inequality on growth prospects, yes, in any economy where you have high inequality, that can be a drag on growth [incompr.] not even talking about the negative social impact in terms of social tensions, political instability, that can arise from inequality.

But in the case of South Africa, the high inequality is attributable to a number of things. The two main things is South African economy is your typical capitalist economy, where the proceeds and the gains from growth basically accrue mostly to capital. So the owners of capital get the maximum benefits of growth and the labor gets much less.

But in the case of South Africa, you have the legacy of history, where you have a large number of–the majority of the population has not been integrated in the modern economy. We’re talking about a two-economy system, where you have the modern economy with high wages, high technology, which includes a small amount of a number of the population, which is the high-skilled labor, but then the second part of the economy is the informal sector, which employs a large number of the population, mainly the blacks, unemployed–I mean, unskilled, and those have very low wages, very fragile livelihood. And what you see is a difficulty making a transition from the apartheid regime to a more democratic, inclusive system where you have the blacks integrating in the modern sector. And here education is key to making the transition.

DESVARIEUX: Alright. Léonce Ndikumana, thank you so much for joining us.

NDIKUMANA: Thank you very much.

DESVARIEUX: And thank you for joining us on The Real News Network.