View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Unisa Institutional Repository POVERTY REDUCTION STRATEGIES IN SOUTH AFRICA by BHEKIZIZWE NTUTHUKO MBULI submitted in fulfillment of the requirements for the degree of MASTER OF COMMERCE in the subject ECONOMICS at the UNIVERSITY OF SOUTH AFRICA SUPERVISOR: PROF OA AKINBOADE JOINT-SUPERVISOR: DR P LALTHAPERSAD-PILLAY MARCH 2008 i Declaration Student number: 357-484-86 I declare that POVERTY REDUCTION STRATEGIES IN SOUTH AFRICA is my own work and that all the sources that have been used or quoted from have been acknowledged by means of complete references. Signature (Mr B.N. Mbuli) …………………….. Date …………………………………………….. ii Acknowledgements It gives me great pleasure to thank a number of people without whom this dissertation could not have been completed. Although it seemed as if he had perennial work-related commitments, my supervisor, Professor Olu Akinboade, was always willing to spare his valuable time, including seeing me on weekends and whenever I needed guidance in preparing this dissertation. The imparting of his unique wisdom during our discussions has made a big difference in my life, both within and outside the academic context. I would also like to thank him for his support and patience, as I encountered a number of family-related difficulties while preparing this dissertation. Similarly, special thanks are due to my joint supervisor, Dr Pinky Lalthapersad-Pillay, for her patience, moral support and valuable contribution during the preparation of this dissertation. Lastly, I would like to thank my special family and friends for constantly supporting me with love and patience. iii Abstract Between 45-57% of South Africans are estimated to be engulfed by poverty. In an attempt to identify policy instruments that could help change this status quo, the various strategies that have been implemented in countries (e.g. China, Vietnam and Uganda) that are known to have been relatively successful in reducing poverty are reviewed. In the process, this dissertation discusses the literature regarding poverty, with a particular emphasis on the definition, measurement and determinants thereof. Furthermore, South Africa’s anti-poverty strategies are discussed. It turns out that these have met limited success. This is largely due to insufficient pro-poor economic growth, weak implementation/administration at the municipal level, slow asset redistribution, high income/wealth inequality, low job generation rate by SMME’s, high HIV/AIDS infection rate, public corruption and inadequate monitoring of poverty. Therefore, if meaningful progress towards poverty reduction is to be achieved, the government needs to deal with the foregoing constraints accordingly. iv Key Terms Poverty; poverty reduction; anti-poverty strategies; poverty alleviation; safety nets; absolute poverty; chronic poverty; transient poverty; relative poverty; inflation; social security system; head count ratio; gini-coefficient; pro-poor economic growth; globalisation; unemployment; human capital; unskilled labour; productive assets; trickle- down effect principle; basic needs; HIV/AIDS; land reform programme; infrastructure investment; household; natural disasters; household head; SMME; population growth; former homelands; market access; good governance; apartheid; democracy; South Africa; China; Vietnam; Uganda; African National Congress. v Table of Contents Declaration………………………………………..………………………………..i Acknowledgements………………………….………………………………….ii Abstract……………………………………………………………………………..iii Key Terms………………………………………………………………………….iv Chapter One: Introduction 1.1 Introduction…………………………………………………………..…………..1 1.2 An overview of the extent and distribution of poverty in South Africa……….…3 1.2.1 Where are the poor in South Africa?……………………………………………4 1.2.2 Who are the poor in South Africa?……………………………………………...5 1.3 Problem statement………………………………………………………………. 7 1.4 Objectives of this study…………………………………………………...……...8 1.5 Outline of this study……………………………………………..……………….9 vi Chapter Two: Literature Review: Definition and Measurement of Poverty 2.1 Introduction………………………………………………………………………..…12 2.2 Defining poverty…………………………………………………………………..…14 2.2.1 Concepts closely related to poverty………………………………………………..15 2.2.2 Different types of poverty………………………………………………….…….…19 2.2.3 Moving towards a definition of poverty……………………… ………………………...22 2.3 Measuring poverty………..……………………………………………………….…24 2.3.1 Measuring poverty using monetary indicators….……………………………..…..25 2.3.1.1 Choice of indicators for measuring monetary poverty: consumption and income indicators…………………………………………………………….…………...….…..26 2.3.1.2 Poverty lines based on the consumption/expenditure approach…………………27 2.3.1.3 Computing poverty indices……………………………………………….…...…30 2.3.2 Human poverty and development approaches…..………………………….…...…35 2.3.2.1 Human Poverty Index (HPI)………………………………………………..……36 2.3.2.2 Human Development Index (HDI)………………………………………….……37 2.4 Conclusion……………………………………………………………………….….39 Chapter Three: Determinants of Poverty 3.1 Introduction…………………...…………………………………………………..….41 3.2 The roots of poverty……..…..……………………………………………………....45 vii 3.2.1 A synopsis of how colonisation and apartheid policies engendered economic disempowerment among blacks in South Africa…….……………………………..…….46 3.3 Global or exogenous determinants of poverty…………………………………...…..53 3.3.1 The negative effects of globalisation and poverty………………………….………54 3.4 Macro-level determinants of poverty……………………………………………...…59 3.4.1 Environmental/situational characteristics………………………..………….…….59 3.4.1.1 Natural disasters (floods, droughts, etc.) and poverty……...…….…….…….…60 3.4.1.2 Rural location and poverty……………………………………….…………..….63 3.4.1.2.1 Factors contributing to low income and poverty in rural areas…….….…..…64 3.4.1.3 Internal migration and poverty…………………..……………….………..…....65 3.4.1.3.1 Migration as a cause of poverty………………………………….…….……...66 3.4.2 Economic characteristics and poverty……………………………….……………68 3.4.2.1 Stagnant/shrinking economic growth and poverty…………………..………..…69 3.4.2.2 Inflation and poverty………………………………………………….……..…...70 3.4.3 Social characteristics…………………………………………………….…..….…72 3.4.3.1 Rapid population growth and poverty…………………………………..……….72 3.4.3.1.1 Rapid population growth-poverty link…..……………………………...….…..72 3.4.3.2 Inequality and poverty…..……………………………………………..……..….74 3.4.3.2 Public corruption and poverty…..……………………………………………....75 3.5 Household or individual level characteristics and poverty………………………….77 3.5.1 Demographic characteristics………………………...……….…………………...77 3.5.1.1 A large household size with a high proportion of dependants and poverty…..... 77 3.5.1.2 Age of the household head and poverty…………….……………………………79 3.5.1.3 Gender of the household head and poverty…………………………………...…79 3.5.2 Economic characteristics……………………………………………………..…....80 viii 3.5.2.1 Lack of gainful employment opportunities and poverty….………………..…...81 3.5.2.1.1 Employment-poverty link ……..………………………………………..…….81 3.5.2.1.2 Underemployment-poverty link ………………………………………..……..84 3.5.2.2 Inadequate access to productive assets and markets and poverty…...………....84 3.5.3 Social characteristics ……………………………………..………….…………..85 3.5.3.1 Ill-health and poverty………………………………..….………………………85 3.5.3.2 HIV/AIDS and poverty………………………………..….…………………...…87 3.5.3.3 Inadequate access to education and poverty……………………………………88 3.5.3.4 Inadequate access to decent shelter and poverty….…….….…………………..90 3.6 Conclusion ……….…..……………………………………..………………………91 Chapter Four: International Best Practices 4.1 Introduction……..…………………………………………………………………..93 4.2 Theoretical recommendations on how best to reduce poverty………..………….…98 4.2.1 The similarities between the World Bank’s recommendations and those of other institutions…………………….…………………………………………….…………102 4.3 What are the international best practices with regard to poverty reduction?……...103 4.3.1 An overview of how China managed to reduce poverty during the 1981-2003 period…………………………………………………………………….….…………103 4.3.1.1 Rural reform (1978-1984)…………………………………………….…….…104 4.3.1.2 The National Targeted Poverty Reduction Programmess (1986-1993)….…...106 4.3.1.3 The 8-7 Plan (1994-2000)……………………………………………..……....107 4.3.1.4 China’s current poverty reduction strategy: the New Century Rural Poverty Alleviation Plan (2001-2010)…………………………………..…………….………..109 ix 4.3.2 An overview of how Vietnam managed to reduce poverty during the 1993-2004 period……………………………………………………………….………….……….110 4.3.2.1 The impact of economic growth on poverty reduction during the 1993-2004 period…………………………………………………………………………………..110 4.3.2.2 The impact of national poverty reduction programmes on poverty reduction during the 1993-2004 period………………………………………………………………………..……………113 4.3.3 An overview of how Uganda managed to reduce poverty during the 1992-2000 period………………………………………………………………………….……….116 4.3.3.1 The impact of economic growth on poverty reduction during the 1992-2000 period……………………………………………………………….……………….…116 4.3.3.2 The impact of poverty reduction programmes on poverty reduction during the 1992-2000 period……..…………………………..…………………………………….120 4.3.4 Moving towards international best practices…..…………………………………121 4.3.4.1 Creation of economic opportunities for the poor: augmenting the poor people’s assets and providing them with market access……………………………..…….…….122 4.3.4.2 Good governance: sound macroeconomic management……….…...….………124 4.3.4.3 Targeted programmes: social safety nets……………………………………………125 4.4 Conclusion………………………………………………………………….……....126