Income Distribution in South Africa:

A Comparison with the Canadian Economy

Jacob LeBlanc
A00418878

Saint Mary’s University

March 25, 2020

Income Distribution in South Africa: A Comparison with the Canadian Economy 1

Introduction

According to ​The World Factbook ​on the CIA’s website, the Gini Coefficient of
South Africa was 0.625 in 2013, while the Gini coefficient of Canada was 0.321 in
2005. A Gini Coefficient of 1 would indicate total inequality, while a coefficient of 0
would indicate total equality. This information tells us that income in South Africa is
distributed much more unevenly than it is in Canada, to the point where South Africa
is ranked as the country with the second most unevenly distributed income, just
behind Lesotho (CIA, 2020); which happens to be contained within the borders of
South Africa. We are going to be taking a look at some of the factors that contribute
to the differences between Canada and South Africa, as well as any similarities that
we may see.

Canadian Distribution

Starting by taking a look at the distribution in the Canadian economy, we are

already looking at a fairly equal spread. According to Statistics Canada in their
document ​Income Composition in Canada​, the median total income for Canadians
aged 15 and over in 2010, was $29,900 (StatCan, 2018). The document also tells us
that this income was made up of a mixture of private income as well as government
transfer payments. These transfer payments are typically payments made to people
at lower income levels, in the form of payments such as the GST/HST credit.

“People in the top three income deciles received 55.7% of the nation's total
income and paid 71.5% of the nation's total income tax. Of this group, people in the
top decile received 28.1% of the nation's income, while paying 42.1% of the nation's
income tax.” (StatCan, 2018). This means that the government is using our
progressive tax system as a way of redistributing the income from the top earners, to
the lower earners in the form of income taxation. The lowest earning deciles typically
receive more in transfer payments than they pay in income taxes (StatCan, 2018).
These transfer payments have proven their usefulness in mitigating some of the
inequalities we see arising in the distribution of national income, but they do not
completely solve the so-called ‘issue’.

One of the factors in Canada’s unequal income distribution that I want to

discuss, is the topic of immigration. Green, Riddell, and St-Hilaire (2017) described
how Canada has one of the highest immigration rates in the Western world, at 0.8%
of their population annually. The text described how recent immigrants to Canada in
the year 2000 were 2.4 times more likely to be low-income earners than their
Canadian-born counterparts. Green et al. (2017) reasoned that as immigrants adding
Income Distribution in South Africa: A Comparison with the Canadian Economy 2

to the supply of low-skilled labour came into the country, they would be driving the
wages down in these sectors, thus increasing the inequality of incomes. However,
the argument can be made that the low-skilled labour increase would also be
counteracted by an increase in the supply of high-skilled labour from immigrants.
Therefore, it would be incorrect to conclude that immigration can account for a large
portion of the inequality that we see in our incomes, but it is a factor in the
determining of wages.

South African Distribution

Now, we are going to start by taking a look at the overall distribution of income
in the South African Economy. We are going to be seeing a large amount of
inequality, as mentioned earlier in the paper. According to the World Bank in their
national accounts data​, the GDP per capita in South Africa during 2018 was
USD$6,374.02 (World Bank, 2020). Even with the conversion to CAD, this is still
much less than the 2010 GDP per capita of Canadians that we had previously
analyzed. As for a breakdown of the income, I was unable to find mention of
government transfer payments that are similar to those that are used to supplement
low-income households in Canada.

Now, I want to move onto a quote from an article on the International

Monetary Fund’s website, “​Income distribution remains highly skewed. The top 20
percent of the population holds over 68 percent of income (compared to a median of
47 percent for similar emerging markets). The bottom 40 percent of the population
holds 7 percent of income (compared to 16 percent for other emerging markets).”
(IMF, 2020). This is in reference to the income distribution of the South African
economy, and we can see that it is much more skewed than the distribution in
Canada. Comparatively, 55.7% of the income in Canada is distributed to the top
three deciles in the country (StatCan, 2018), while 68% of the income in South Africa
is distributed to the top two deciles (IMF, 2020). This clearly shows us the reasoning
behind South Africa’s much more unequal Gini Coefficient of 0.625 (CIA, 2020).

As we have been looking at purely quantitative measures for the inequality in

South Africa, I want to take a quick look at the political view, while still staying
relevant to our course’s learning objectives. According to ​Class, Race and Inequality
in South Africa​, by Jeremy Seekings and Nicoli Nattrass, the amount of inequality in
South Africa did not decrease as a result of Apartheid being abolished; they say it
has actually increased. According to the text, while the racial divide in income
inequality has lessened, the overall disparity still exists due to the high level of
unemployment in the country (Seekings and Nattrass, 2005). Seekings and Nattrass
(2005) believe that the reason for this, is the lack of appropriate public policy that has
been implemented by the South African government; which has negatively affected
Income Distribution in South Africa: A Comparison with the Canadian Economy 3

the distribution of income through labour market failures, poor economic growth,
poor education for the majority of the population, as well as inefficient welfare
policies. This is where we see the need for policies such as the ones that we have
learned about in our Public Finance course, to ensure that we are seeing an equal
distribution of income throughout the country. This is one of the reasons
governments in developing countries are known to have policymakers from more
developed countries come in, to help develop policies that will ensure proper
economic growth within a nation.

Differences in the Countries

Now that we have finished comparing the countries separately, I want to take
a closer look at some of the factors that were previously mentioned when discussing
the main reasons for inequality in South Africa. I think it is important to compare
some of these statistics between the two countries.

Firstly, when taking a look at countryeconomy.com’s ​Country comparison​ tool,

we can take note of the countries’ overall expenditure on education for particular
years (in millions of dollars). According to the website, in 2011 Canada spent
$94,588M on education, while comparatively in 2017 South Africa spent $21,404M
on education (countryeconomy.com, 2020). This means that 6 years after the
measure was taken in Canada, South African expenditure on education was still only
about 22.5% of that in Canada from 6 years prior, even though their population
outnumbered Canada’s by 20 million in 2018 (countryeconomy.com, 2020). I think
this is a very important statistic to look at, as it means that education expenditure per
capita is much lower in South Africa than it is in Canada, which will lead to
lower-skilled workers that are less employable, and lower GDP per capita as a result.

Working off of the information in the previous paragraph, I want to take a look
at the unemployment rates in the two countries. According to countryeconomy.com
(2020); in February 2020, Canada had an unemployment rate of 5.6%, while South
Africa had an unemployment rate of 29.1% in December 2019. This is a massive
difference in the rates of unemployment, which is directly causing the lower GDP per
capita in South Africa that was mentioned earlier in the paper.

I want to take a look at two more statistics that we will use to compare the
countries, one of them being the imports/exports. Continuing on with the information
gathered from countryeconomy.com, we see that both countries are net importers.
According to the website, Canadian exports as a percentage of GDP are 26.24%,
while South African exports are 25.50% of GDP; we see a very similar distribution
when it comes to imports as a percentage of GDP, both of these measures were
taken in 2018 (countryeconomy.com, 2020). While both countries have similar ratios
Income Distribution in South Africa: A Comparison with the Canadian Economy 4

for their imports/exports, total South African exports in 2018 were only about 20% of
those in Canada for the same year (countryeconomy.com, 2020). Connecting this to
the high rate of unemployment in South Africa, we can see that it leads to a much
lower level of overall production in the economy, which is a cause of the stagnation
that the country sees in GDP growth.

The final statistic that I want to examine, is the corruption index between the
two countries. According to Transparency International, the corruption index
measures 180 countries by their perceived levels of public sector corruption,
according to people within the industry, such as experts and businesspeople (TI,
2018). The measure is on a scale from 0-100, where 0 is very corrupt, and 100 is not
corrupt at all. South Africa was given a rating of 43, while Canada received a rating
of 81 (TI, 2018). This put Canada within a few points of being in the top 6 countries
in terms of the least amount of corruption, while South Africa settled somewhere
around the global average in terms of corruption according to Transparency
International (2018). This higher level of perceived corruption in South Africa can be
linked to oppression of the general public by the upper-class and the ruling elites,
which would help to describe why members of the lower-income classes are not
afforded the same educational opportunities, and therefore contribute to the high
levels of unemployment in the country.

Conclusion

When comparing the income distributions between these two countries, there
are many factors to consider when looking at the differences. I think the most
important of these to recall is the somewhat recent abolishment of Apartheid in
South Africa, as mentioned earlier in the paper. This system of discrimination within
their society did not foster an appropriate environment for proper economic growth,
as well as the implementation of proper government policies that would be used to
ensure a fair distribution of income within the society.

Moving forward, I believe that the only ways South Africa will see a decrease
in the overall levels of inequality within their country, are if they can ensure more
equal access to education for their general population (which will in-turn lead to
higher levels of employment), as well as decreasing the level of corruption within
their government. As their levels of education begin to increase, they will see their
labour force become more highly-skilled, which will then lead to them being more
employable, and they will begin to see a decrease in the high levels of
unemployment they are afflicted by.

As for government corruption, if they are able to ensure that government

parties are more representative of the general population, they would be able to
Income Distribution in South Africa: A Comparison with the Canadian Economy 5

ensure that policies are being made with the needs of the many in-mind, instead of
the concerns of the few. These policies should come in the form of transfer
payments similar to those used by the Canadian government as a way of
redistributing wealth from to lower-income households. While South Africa already
makes use of a progressive tax system similar to the one used in Canada, I believe
that their policymakers need to ensure that these taxes are being reallocated in a
more efficient manner.

As South Africa’s economy continues to develop, I believe that we will see the
implementation of new policies similar to those already in use by Canada, and
hopefully we will begin to see the overall level of inequality start to diminish. As for
Canada, I believe that most of our policies are quite fair in the way that they ensure
proper income distribution but it would still be nice to see the divide between the
upper and lower income deciles slightly shrink rather than continue to widen.
Income Distribution in South Africa: A Comparison with the Canadian Economy 6

References

COUNTRY COMPARISON :: DISTRIBUTION OF FAMILY INCOME - GINI

INDEX. (2020). Retrieved March 17, 2020, from
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.
html

Country comparison Canada vs South Africa 2020. (2020). Retrieved March 20,
2020, from https://countryeconomy.com/countries/compare/canada/south-africa

E.V., T. (2018). Corruption Perceptions Index 2018. Retrieved March 20, 2020,
from https://www.transparency.org/cpi2018

Green, D., Riddell, W., & St-Hilaire, F. (2017, February 23). Income Inequality in
Canada. Retrieved March 18, 2020, from
https://irpp.org/research-studies/income-inequality-in-canada/

Income Composition in Canada. (2018, July 25). Retrieved March 16, 2020, from
https://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/99-014-x2011001-e
ng.cfm

Seekings, J., & Nattrass, N. (2005). ​Class, Race, and Inequality in South Africa.​
Yale University Press. Retrieved March 20, 2020, from
www.jstor.org/stable/j.ctt1np886

Six Charts Explain South Africa's Inequality. (2020, January 30). Retrieved March
20, 2020, from
https://www.imf.org/en/News/Articles/2020/01/29/na012820six-charts-on-south-
africas-persistent-and-multi-faceted-inequality

World Bank. (2020). GDP per capita (current US$). Retrieved March 17, 2020,
from
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?contextual=default
Income Distribution in South Africa: A Comparison with the Canadian Economy 7