South Africa – known for being the most unequal society in the world – has an inequality that is not only staying put, it is getting worse.
This is according to sovereign credit ratings agency, Moody’s. The agency put out a report on income inequality and its relation to low growth, political risk and the erosion of institutions.
The report was released on the eve of President Cyril Ramaphosa’s State of the Nation Address, where South Africans are expecting him to address low growth, announce assistance for ailing entities and introduce measures to address inequality.
The report is a research report conducted by Moody’s and does not constitute, nor is it related to, a sovereign credit rating action.
The report said South Africa, which had the highest reported income inequality worldwide with a Gini index of 63 in 2014, saw this inequality continue to increase in the last decade. The report said, at the same time, inequality in emerging markets showed a decrease.
“Slow growth is largely the result of domestic constraints, which include a long history of political tensions – themselves partly a result of high levels of inequality – and structural rigidities that have undermined businesses’ willingness to invest,” the report said.
The report also states that income inequality is associated with political risk, lower growth and weaker institutions.
“One consequence of those structural problems – high structural unemployment and high levels of poverty – is that in turn they fuel income inequality as well as reducing human capital and weakening the country’s productive base,” the report said.
It went on to state that although higher income inequality is broadly associated with lower sovereign ratings across the sovereigns that Moody’s rates, it is not a key differentiating rating factor.
Moody’s has given South Africa its fair share of reprieves when it comes to sovereign credit ratings in the past year, on the basis that South Africa can turn its economic fortunes around and fix its troubled power utility Eskom.