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UNCLAS SECTION 01 OF 04 PRETORIA 002971 
 
SIPDIS 
 
DEPT PASS TO USTR, USAID 
DEPT FOR E, EB/IFD, AF/EPS, AF/S 
DEPT FOR AF/S/AMBASSADOR FRAZER 
TREASURY FOR OIA/OAN/JRALYEA, BCUSHMAN 
 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: ECON EAID EFIN EINV KMCA SF
SUBJECT: POVERTY AND UNEMPLOYMENT IN SOUTH AFRICA 
 
REF: A) 04 PRETORIA 171  B) PRETORIA 29  C) PRETORIA 1413 
 
D) PRETORIA 2621  E) JOHANNESBURG 231  F) JOHANNESBURG 
762 
 
¶1. (SBU) Summary.  While the government's macroeconomic 
and stabilization effort is largely complete, South 
Africa faces formidable medium and long-term challenges 
to reduce high unemployment and widespread poverty.  More 
than a decade after apartheid, poverty and unemployment 
are still dramatically skewed along racial lines, with 
African blacks and "coloureds" experiencing the highest 
rates.  Unfortunately, changes in statistical methodology 
over the years make it difficult to conclude whether the 
situation is improving or getting worse.  Independent 
studies suggest that the situation has actually worsened 
since the early 1990s.  Moreover, poverty in South Africa 
is tragically compounded by the fact that the country has 
the greatest number of HIV/AIDS infected people in the 
world; increasingly, HIV/AIDs related deaths are taking 
parents away from the next generation.  The precipitous 
fall in life expectancy has lowered South Africa's rank 
in the 2004 Human Development Index to 119 out of 177 
countries.  Most inside and outside of government agree 
that South Africa's GDP growth rate of 3.7% in 2004, one 
of the highest in a decade, is still insufficient to 
reduce poverty and unemployment in the medium term.  The 
political ramifications of unemployment and poverty in 
South Africa is such that we should make sure that 
economic growth and employment, along with HIV/AIDS, 
remain central elements of U.S. assistance programs for 
South Africa.  End Summary. 
 
Poverty in South Africa 
----------------------- 
 
¶2. (U) While the government's macroeconomic and 
stabilization effort is largely complete, South Africa 
faces formidable medium and long-term challenges to 
reduce high unemployment and widespread poverty.  Fifty- 
seven percent of the population lives below the poverty 
line [defined here as a family of four living on less 
than $215 per month].  Rural provinces such as Limpopo 
and the Eastern Cape have even higher rates of poverty, 
i.e., 77% and 72%, respectively.  A rampaging HIV/AIDS 
epidemic has reduced life expectancy to 46 years in 2004 
- down from 63 years in 1992 and well below the 69-year 
average for other lower middle-income countries.  This 
reduction in life expectancy has been the primary factor 
for lowering South Africa's rank in the 2004 Human 
Development Index to 119 out of 177 countries. 
 
¶3. (U) Poverty in South Africa is tragically compounded 
by the fact that the country has the greatest number of 
HIV/AIDS infected people in the world.  In 2003, the 
United Nations estimated that 24% of adult South Africans 
were HIV positive.  Statistics South Africa estimates 
that 15% of adult South Africans are HIV positive. 
Whichever estimate you accept, the outlook is horrifying. 
The South African National Department of Health now 
estimates that 6.4 million South African were HIV 
positive in 2004 or 13.4% of the total population.  AIDS 
claims 800-1300 lives every day and the prevalence rate 
continues to rise in most age groups.  In the absence of 
corrective measures, nine million lives, equivalent to 
20% of the current population, could be lost over the 
next decade.  Estimates suggest that the AIDS could 
reduce GDP growth by 0.5 to 2.5% per year as greater 
numbers begin to suffer from AIDS and die. 
 
¶4. (U) Poverty in South Africa is also compounded by the 
fact that the country is still recovering from the 
political and cultural ramifications of apartheid. 
Socioeconomic divisions are dramatically drawn by race, 
and income inequality in the country is one of the 
highest in the world.  Per capita income for the white 
population rivals that of developed countries, while the 
overwhelming majority of the 25.5 million South Africans 
who live in poverty are of African descent.  If taken 
separately, the country's African and "coloured" 
population would constitute the fifth largest sub-Saharan 
African country by population - after Nigeria, Ethiopia, 
the Democratic Republic of the Congo, and South Africa 
itself.  For 2004, because of the high income of white 
South Africans and currency appreciation, South Africa's 
gross national income per capita reached $3630, putting 
South Africa within the World Bank's upper middle-income 
country group for the first time.  Without the 10% of the 
population that is white, however, South Africa's per 
capita GNI would stay squarely in the lower middle-income 
country category for many years to come. 
The Absence of a Definition for Poverty 
--------------------------------------- 
 
¶5. (U) The government has yet to define poverty according 
to a level or critical range of income.  To date, the 
primary guides have been expenditure studies, such as the 
Income and Expenditure Surveys (IES) in 1995 and 2000 
that give a sense of income groupings.  However, the 2000 
IES had major deficiencies caused by faulty weighting and 
the high number of non-responses, especially among well- 
off households.  A number of independent studies have 
tried to bridge the 1995 and 2000 IES by linking either 
national accounting statistics or reconstructing the 2000 
IES results.  The general result has been that poverty 
appears to have increased since 1995, although the extent 
to which it has increased is debatable.  Statistics SA 
will start a new IES in the third quarter 2005, with 
results to be published in 2007. 
 
¶6. (U) In the meantime, independent studies do not agree 
on a measure of poverty.  In the absence of good data on 
income and consumption, some researchers argue that an 
asset-based approach should be used (Ref B).  In the 
context of calculating the Gini coefficient, the 
government once argued that social service spending on 
the poor should also be incorporated into calculation of 
a "social wage" when measuring poverty, but this has been 
a source of great contention.  As with unemployment, the 
lack of good data means that the government is not sure 
if things are improving or getting worse. 
 
The Outlook on Poverty 
---------------------- 
 
¶7. (U) The outlook on poverty in South Africa appears 
grim.  Most independent studies suggest that poverty has 
increased since the early 1990s.  Common sense suggests 
that as the impact of the HIV/AIDS epidemic is realized, 
the country will have to cope with increasing numbers of 
orphans and parentless households, only worsening the 
situation.  The number of AIDS orphans is expected to 
triple by 2015.  Projections using the ASSA2002 
demographic model show HIV/AIDS deaths in 2010 could be 
450,000, if 20% of infected persons receive anti- 
retroviral treatment, or 381,000, if 50% receive 
treatment, and 290,000 if receive 90% treatment.  Certain 
sectors could be severely impacted, including government, 
agriculture, and mining.  The rapid increase in child- 
headed households serves as a warning sign that 
unemployment and poverty will continue to be critical 
issues for South Africa. 
 
¶8. (U) To measure the depth of poverty in South Africa, a 
November 2004 Human Sciences Resource Council (HSRC, a 
partly government funded institution) study calculated 
what it called the "poverty gap," i.e., the annual income 
transfer to all poor households required to bring them 
out of poverty.  Between 1996 and 2001, HSRC found that 
the poverty gap had grown from R56 billion (equivalent to 
6.7% of the GDP) to R81 million (equivalent to 8.3% of 
GDP), indicating that poverty was growing faster than the 
economy. 
 
¶9. (U) This growth in poverty is reflected in a rise in 
inequality between rich and poor.  HSRC found that South 
Africa's Gini coefficient (a measure of income inequality 
where zero equals perfect equality and one equals perfect 
inequality) had actually grown from 0.69 in 1996 to 0.77 
in 2001.  In its "Towards Ten Years of Freedom" report, 
the SAG calculated a coefficient of 0.57 in 2000.  A 
recent University of Cape Town study estimated it to be 
0.60.  Whichever figure one uses, income inequality in 
South Africa remains among the highest in the world. 
(Ref A) 
 
Unemployment in South Africa 
---------------------------- 
 
¶10. (U) Over the past decade, unemployment appears to 
have worsened, but again no one really knows by how much. 
Changes in statistical methodologies limit the value of 
historical comparisons.  The government relies on the 
Labor Force Survey (LFS) to provide the most accurate 
assessment of unemployment.  It surveys households and 
covers formal and informal sectors, including 
agricultural and non-agricultural workers.  It found that 
official unemployment (using the ILO definition of 
unemployment, which is comparable to the U.S. definition) 
had risen from 26.7% in February 2000 to 31.2% in March 
¶2003.  In September 2004, the last estimate, it fell to 
26.2%.  While the recent downward trend is positive, the 
levels are still unacceptably high. 
 
¶11. (U) A new data series, called the Quarterly 
Employment Statistics, was just released in June 2005. 
It has improved on the methodology used in the previous 
study of formal, non-agricultural employment, but 
excludes the informal sector and agriculture.  It found 
that in the first quarter of 2005 formal non-agricultural 
employment fell 136,000 (1.9%) to 6.9 million. 
 
¶12. (U) Increasingly, politicians and economists refer to 
the "broad" definition of unemployment.  This is because 
the official definition requires that a person looked for 
work in the last four weeks, while the broad definition 
only requires that an individual self-certify that he or 
she would be willing to work.  This captures the very 
poor who want to work, but cannot easily afford to spend 
a couple of dollars a day to search for work.  The 
current broad estimate of unemployment, calculated in 
September 2004, was 41.0%. 
 
Unemployment and Race 
--------------------- 
 
¶13. (U) The legacy of apartheid is everywhere in South 
Africa and perhaps most pronounced when it comes to 
employment.  The statistics that are available indicate 
that the South African labor force is clearly bifurcated 
along racial lines: one very educated and mostly white, 
and the other not so well educated and mostly black.  Of 
those employed, more black South Africans than other 
racial groups work within the informal sector, which has 
no defined benefits derived from the place of employment. 
In September 2004, the informal sector employed an 
estimated 30% of black South Africans who had jobs and 
6.6% of "other" South Africans (including white, 
coloured, Indian)(Refs C, E and F). 
 
¶14. (U) Unemployment is also dramatically skewed along 
racial lines.  Using the narrow, official definition, the 
unemployment rate for black Africans is 31.3%, for 
"coloureds" 21.8%, for Indians 13.4%, and for whites 
5.4%.  Black Africans and "coloureds" make up 88% of the 
population.  Using the broader definition, the 
unemployment rate for black Africans is 47.8%, 30.4% for 
"coloureds," and 20.8% for Indians.  Black African women 
have an official unemployment rate of 36%, the highest 
for any demographic group in South Africa. 
 
¶15. (U) Education may normally be the most important non- 
racial factor in explaining unemployment, but in South 
Africa, access to education is also dramatically skewed 
along racial lines.  Over 70% of whites have a high 
school education or above, while less than 25% of black 
Africans or "coloureds" do.  Moreover, of South Africans 
who do have a higher education, black South Africans are 
still less likely to find employment.  In 2002, 16.8% of 
black South African who completed tertiary education 
(i.e., university or technical training) could not find 
work, while only 2.6% of whites in the same category 
could not find work. 
 
¶16. (U) Evidence suggests that the situation is getting 
worse.  Haroon Bhorat, Director of the Development Policy 
Research Unit at the University of Cape Town and an award- 
winning researcher on poverty, unemployment, and labor 
markets recently released two working papers of note: 
"Poverty, Inequality, and Labor Markets in Africa:  A 
Descriptive Overview," and "The Post-Apartheid South 
African Labor Market".  In these studies, Bhorat measured 
South African labor market performance by race, using two 
October Household Surveys conducted by the Department of 
Labor in 1995 and 1999.  For all new black entrants to 
find employment during this period, Bhorat found that 
black African employment had to have increased by 40%, 
"coloured" employment by 23%, Indian employment by 25%, 
and white employment by 9%.  Actual increases in 
employment by racial group during this period were 9.9% 
for blacks, 15.9% for "coloureds", 12.4% for Indians, and 
6.2% for whites.  In other words, only about 25% of 
unemployed blacks found work during the same period that 
almost 70% of unemployed whites found work. 
The Outlook on Unemployment 
--------------------------- 
 
¶17. (U) Most inside and outside of government agree that 
South Africa's GDP growth rate of 3.7% in 2004, one of 
the highest in a decade, is insufficient to reduce 
poverty and unemployment in the medium term.  Charles 
Meth, a research fellow at the School of Development 
Studies at the University of KwaZulu-Natal and one of 
South Africa's leading researchers on income inequality, 
poverty, and unemployment recently authored a working 
paper for the Development Policy Research, "Half 
Measures:  The ANC's Unemployment and Poverty Reduction 
Goals."  In his paper, Meth suggests that to halve the 
official rate of unemployment by 2014, as set forth in 
the UN Millennium Development Goals subscribed to by the 
South African Government, South Africa would have to 
create between 3.7 million, under the most optimistic 
conditions, and 7.6 million jobs, under the most 
pessimistic conditions.  Using the broad measure of 
unemployment, South Africa would have to create between 
5.4 and 9.6 million new jobs.  This infers that annual 
GDP growth of 3.0% since 1994 has clearly not been enough 
to stem the tide of unemployment. 
 
¶18. (U) A study released on April 29 by T-Sec (a South 
African consulting firm) compared the number of jobs 
created -- 168,000 jobs in 2004 -- with the number needed 
annually to halve official unemployment by 2014. 
Although the GDP growth rate was 3.7% in 2004, the study 
concluded that the economy only produced half the minimum 
number of jobs needed annually to achieve this goal. 
 
Comment 
------- 
 
¶19. (U) The political ramifications of growing 
unemployment and poverty in South Africa is such that 
economic growth and employment, along with HIV/AIDs, 
should remain central elements of U.S. assistance 
programs for South Africa.  Without employment generating 
growth, the country will find it increasingly difficult 
to recover from the structural racial division that has 
defined its sordid past.  National government still needs 
help in designing effective pro-poor policies.  Equally, 
local and provincial governments are in dire of need 
capacity building to implement national poverty and 
employment programs.  U.S. foreign assistance should be 
directed to help set South Africa on a permanent course 
for growth and development, so that the country can serve 
as economic anchor and as an example for the rest of 
Africa. 
 
Hartley