Income Inequality in Africa
December 26, 2018 (Ezega.com) - In September 2017, the United Nations Development Program (UNDP) launched a study dubbed “Income Inequality Trends in Sub-Saharan Africa: Divergence, Determinants, and Consequences.” What was clear during the launch is that Africa must address the challenges of income inequality if it is to progress towards poverty reduction and Sustainable Development Goals (SDGs).
According to this study, despite the economic progress we’ve made this far, highlighted by our robust GDP growth of around 5.0%, the level of poverty in Africa at 41% is still high compared to other developing continents.
Income inequality in Africa stems from its highly dual economic structure. High-income sectors like multinational entities and the extractive industries offer the limited capacity to create employment compared to the informal sector, where a majority are low-income earners.
The Gini Index Ranking
Also called the Gini coefficient, the Gini Index is a statistical method used to measure economic distribution developed by an Italian mathematician known as Corrado Gini in 1912. It is used to estimate economic inequality between countries, income and wealth distribution.
It measures the extent of income distribution, and consumption in some cases, among households and individuals within an economic setup and how it deviates from a perfectly equal distribution. In the Gini index, a Lorenz curve is plotted. It comprises cumulative percentages of the total incomes received against the cumulative number of the recipient, starting with the poorest household or individual.
The index measures the resultant area between the curve and the proverbial line of absolute equality. The result is expressed as a percentage of the area under the line. In this perspective, a Gini index of 0 denotes perfect equality, whereas an index of 100 implies perfect inequality.
The World Bank Development Research Group uses this method to rank countries, based on primary household survey data obtained from governments and statistical agencies.
So, how is Africa doing with this index? Not well. Some African countries rank very high on this index, even by world standards (meaning they have one of the most unequal societies income wise), while others are creeping up on that road year-over-year. Of the top 10 highly unequal countries in the world, 6 of them are in Africa.
Here are the top African countries that rank high in the Gini Index:
1. South Africa
Data from the UNDP indicate South Africa has the highest level of income inequality in the world. Most of the inequalities witnessed are creations of the apartheid era.
Income inequality has worsened since the end of the apartheid but is somehow less associated with race. Furthermore, from 1991-1996, the white middle class in the country grew by 15% whilst the blacks’ grew by 78%.
The World Bank estimated that South Africa’s GINI index was 63.40 in 2011. In the last 18 years, this figure has increased to a maximum of 64.80 in 2006, and went down to a minimum of 57.80 in 2000. Currently, the GINI coefficient for South Africa is 63.4 according to Index Mundi, making it the number 1 unequal country in the world.
Since independence, Namibia has embraced free-market option, meant to promote commercial growth and job creation to bring about economic empowerment. To realize this goal, successive governments continue courting donors and foreign investors.
Namibia is a middle-income country with an annual GDP per capita of US$ 5,828, but has unequal income distribution. In 2009, the World Bank estimated that Namibia's Gini ’index was 61.00.
In a span of ten years, this figure has fluctuated between 59.7 and 74.3, according to data obtained from the United Nations. Currently, Namibia stands at 61, according to Index Mundi, making it the number 2 unequal country in the world.
According to the World Bank estimates, Botswana’s Gini index was reported to be 60.50 in December 2009. There was a decrease from a previous figure of 64.70 in December 2002.
This data is updated annually, and over the years it has averaged at 60.650 from December 1985 to 2009, where four observations were made. Currently, the index stands at 60.5 for Botswana, making it the fourth highest unequal country in the world.
In 2015, the World Bank reported that Zambia’s GINI index value was 57.10. In the last twenty-four years, this figure reached a maximum point of 60.50 in 1991 and a minimum of 42.10 in 2002 respectively. Currently, the GINI coefficient for Zambia stands at 57.1, making it the sixth highest unequal country in the world.
5. The Central African Republic
CAR’s unemployment rate is 6% as reported by the Nations Encyclopedia. Many people live in rural areas, where there’s food but consumer goods and money are difficult to obtain.
In 1992, it was reported that CAR had a GINI index of 61.30. Over the years, this figure has dropped to 43.60 in 2003 and 56.20 in 2008. However, from 2010 this figure remains between 60 and 70. Currently, the GINI coefficient for CAR stands at 56.2, making it the seventh highest unequal country in the world.
Reducing the Gap
Building on the data from the Gini index report, the five countries; South Africa, Namibia, Botswana, Ghana, and central Africa republic, which are characterized by land and socio-economic assets at the hands of a few individuals, are leaders in the continent in income inequality. These countries make Africa’s Gini coefficient higher than other parts of the world.
On the other hand, although poor overall, countries like Mali (33.00 in 2009), Niger(34.00 in 2014), Guinea (33.70 in 2012), Burkina Faso (35.30 in 2014) , and Burundi (39.20 in 2013) appear to be performing well and rank highly among the most equal in terms of income inequality in Africa and the world.
These nations are characterized by egalitarian access to land and communal land ownership; features that accelerate the proper use of land for productive engagements, especially in the agricultural sector.
Despite the progress made by some countries, there is no one-size-fits-all method of addressing income inequalities in the continent. But, below are some strategies African countries may consider to improve the situation.
Strategies African Countries Should Consider:
- Education can reduce the levels of poverty, but it can’t reduce the inequality gap unless accompanied by other progressive developments like open-minded taxation and well-targeted social protection. African states must increase direct taxation and efficient administration of the tax collected, as well as investing in social expenditures.
- The UNDP contends we must start focusing on our growth patterns as opposed to our growth rate. Inequality falls where growth is witnessed in labor-intensive sectors like construction, agriculture, and manufacturing, but rises when growth is witnessed in sectors requiring high capital and the use of skilled labor like mining, real estate, and insurance.
- At the moment, many Africa countries work with strained budgets. We tend to allocate a significant amount of our national budgets to recurrent expenditure and debts, leaving little or nothing for new projects and development. Moving forward, we must reassess our budgets and limit unnecessary expenditures.
- A report compiled by the UN highlighted how household income favors adult males, in an era where gender discrimination is endemic. The reports correlated human development and gender equality. Conversely, there are those countries with high levels of gender inequality but perform poorly in terms of human development. It is therefore important to strike a balance between the two.
- In line with Africa’s Sustainable Development Goals (SDGs), the global community called for an end to poverty and reducing income inequality within and among countries. This proved to be a turning point in addressing the last stage of exclusion, which prevents many people from improving their economic livelihoods. African countries should aim at implementing programs that will enable them to achieve their SDGs.
Addressing income inequality calls for a coalition at the local, national and international level. More importantly, this association should aim at pushing for reforms that fortify governance institutions, institutes new social contracts that enable shared prosperity, inclusivity and social protection.
These reforms should advance globalization in a manner that embraces some form of compensation that allows the vulnerable to have a voice and share in the new world.
Ultimately, all Africans should live productive lives and uphold the SDGs pledge that no one should be left behind.
By Solomon O. for Ezega News