Inequality: The unwanted side-effect of a changing economy
Mbongeni Mguni | Monday August 16, 2021 06:00
Inequality, or the unjust distribution of resources such as income and opportunities within a population, is emerging as one of the government’s greatest headaches. The challenge is to ensure that in the pursuit of a high-income economy, all citizens are carried on board along the way, with none falling behind, ignored and unattended by the transformation of the economy. The challenge is also expressed in terms of avoiding the entrenchment of a two-tier economy where citizens are either super-rich or super-poor and thus dependent on social services. An authoritative study by the United Nations Development Programme (UNDP), in partnership with local authorities, recently provided the first look at Botswana’s inequality, ranked the ninth-worst in the world, and attempted to better understand the reasons behind the trend.
Inequality as an economic concept tends to be technical and steeped in difficult calculations such as the Gini coefficient, which is the standard measure of inequality globally. However, the UNDP report gives a very simple explanation of the trends in local inequality over the years. “To give an idea of the order of magnitude of this increase in the Gini can be expressed in monetary terms by saying that while in 2009-2010 the average difference in standardised consumption expenditure between two individuals taken at random was P4,068, this difference increased to P6,447 in 2015-2016,” researchers say. The consumption differences worsen if specific districts are set against each other. For instance, average consumption expenditure in urban areas is almost double the one of rural areas at P6,734 per month compared to P3,752. Consumption expenditure refers to the amount of money spent by households each month on their needs and wants.
According to the report, at least 40% of the top 10% of the country’s richest people live in the South East District, while Gantsi, the district with the lowest levels of consumption expenditure, hosts less than one percent of the richest households. Interestingly, inequality is also highest in the richest districts, lending credence to the long-running argument that the urban poor often fall within the cracks of social service support due to their proximity to the rich. Behind the rising inequality is a surprising driver. According to the UNDP’s findings, the transformation of the economy since independence, moving from its agriculture base to the mining boom and the current services-led growth, has fuelled inequality. “Botswana’s economic composition and recent changes to this composition may play an important role in determining inequality,” researchers note. “As in other developing countries, Botswana is experiencing a process of structural transformation with a premature tertiarisation of the economy. “The importance of mining to the economy has waned, ceding its position to the hospitality and trade sectors and the financial, investment and real estate sector. “However, the services, trade and financial sectors are characterised by high-income inequality, a finding which may explain the recent increase in inequality.” Essentially, at Independence, the economy was led by agriculture, a labour-intensive sector where incomes are generally more equal than other industries. The 1970s mining boom was less labour-intensive and tended towards widening inequality with the creation of a new wealth class.
The emergence of the financial services sector as a driver of growth has only widened the inequality, employing far fewer citizens while the income gap has been widened even more. Across all sectors, of the 387,735 formally employed workers as at the fourth quarter of 2020, the largest proportion, or 28%, earned between P1,000 and P2,000. Overall, it seems that the recent increase in inequality is mostly explained by the growing role of the financial, investment and real estate sector and professional activities, which experienced a notable increase in consumption as a proportion of their 2009-2010 share and more than doubled their relative contribution to inequality, the UNDP researchers note. The growth of the economy over the years and its transformation left many behind, a fact underlined by the figures given by Statistics Botswana recently showing that at least 57.9% of households in the country receive one or more social safety net programmes.
UNDP resident representative, Jacinta Barrins says left unchecked, rising inequality can cause the country serious troubles. “Both theoretical and empirical studies have shown the negative effect of inequality on long-run growth, poverty reduction, social and political stability,” she says in the report. As policymakers pour over the latest study, Batswana will be eager to see whether the programmes being rolled out to further transform the economy, will ensure that everyone is carried on board.