The consequences of the COVID-19 lockdown are yet to be fully determined and understood. But one thing we can be fairly certain of – in South Africa its impact will be shaped by the country’s inequalities.
Our study reveals that half of the adult population survives with near-zero savings, while 3,500 individuals own 15% of the country’s wealth. The response to the crisis must take this into account to help the most vulnerable while still safeguarding fiscal sustainability.
Based on our new study on wealth inequality in South Africa, we propose a progressive solidarity wealth tax. This would allocate the fiscal burden of current interventions on those most capable of paying. It is in line with the recommendations recently made by the International Monetary Fund to equitably attain fiscal sustainability and better position the economy for post-COVID recovery.
We show that a wealth tax on the richest 354,000 individuals could raise at least R143 billion. That equates to 29% of the announced R500bn fiscal cost of the relief package.
A lot of studies show how extreme income inequality is in South Africa, but little has been documented about wealth. Net wealth is the sum of all assets less any debts. Assets include cash, bank deposits, pensions, life insurance, property, bonds and stocks. Debt includes mortgages and other loans such as retail store credit accounts or loans from friends, family and money lenders.
In our new paper, we combine national accounts statistics, household surveys and exhaustive tax microdata to assess the reliability of available data sources. We also provide the most comprehensive possible picture of the distribution of wealth. This is the first time this has been done in South Africa.
Better data is needed – about direct ownership, capital income and assets held through trusts. Nevertheless, our results give a good sense of the magnitude of the disparities. Three key results are worth mentioning.
Firstly, in 2017, the 10% richest South Africans (all adults with a net worth over R496,000) owned 86% of wealth, with an average of R2.8 million per adult. In contrast, about 18 million (the poorest 50%) were either in debt or had near-zero savings. With an average net worth of R486 million, the richest 3,500 owned 15% of wealth. This was more than the 32 million poorest altogether.
Secondly, these extreme inequalities extended to all forms of assets. The richest 10% owned 99.8% of bonds and stock – which accounted for 35% of wealth. The top decile also owned 60% of housing wealth and 64% of pension assets. Housing wealth amounted to 29% of wealth and pension assets to 33%.
Thirdly, we show that wealth concentration has remained broadly stable since 1993, and may even have increased within top wealth groups. Wealth inequality remains significantly higher than what could be estimated in Russia, China, India, the US or France.
Why wealth inequality matters now more than ever
Our findings are particularly relevant to the current crisis. South Africans are unequally armed to survive the contraction of the economy produced by the lockdown. Our paper helps get a sense of the size of the population likely to be under intense stress in the very short term.
Before the lockdown, about half of the population was already in debt, or had near-zero net wealth. Therefore, this crisis will at best sink millions of people further into indebtedness or force them to beg, loot or starve. Conversely, our paper shows that a minority of individuals are in a much less vulnerable situation.
The policy solutions needed to absorb the shock and recover fast must be carefully designed to take these factors into account. Principally, they need to reallocate resources to give everybody equal chances to survive the shock.
In this unprecedented crisis, the government announced a relief package with a R500 billion fiscal cost. One key remaining question is how such a plan will be funded.
The possibility of collecting additional tax revenue from those most able to contribute has not yet been brought to the table. We believe it should be considered. Our estimation suggests it would raise significant revenues. And it would allow the country to allocate the cost of the national response on the least vulnerable.
In the spirit of solidarity, a wealth tax could be part of the solution to safeguard long-run fiscal sustainability and inclusive growth.
How much could a wealth tax raise?
We propose a progressive wealth tax, which would apply only to South Africans with a net wealth currently superior to R3.6 million, that is the richest 354,000 (1% of the adult population).
The first bracket – all wealth between R3.6 million and R27 million – would be taxed at a 3% rate, the second bracket (R27 million to R119 million) at 5%, and all wealth above R119 million at 7%. Individuals with less than R3.6 million would be exempt. A billionaire would face a 6.7% tax rate: she would pay 3% on the fraction of her wealth higher than R3.6 million but lower than R27 million; 5% on wealth higher than R27 million but lower than R119 million; and 7% of the R821 million she owns above R119 million. This would leave her with post-tax wealth of R933 million.
Other tax schedules could of course be designed. The objective here is to give an order of magnitude of the expected revenues.
Taking into account the recent Johannesburg Stock Exchange All Share Index drop in value and assuming a 30% evasion rate (as available evidence suggests), we simulate that such tax would raise R143 billion.
It would still leave rich individuals with very high levels of wealth: for each of the brackets, post-tax wealth would on average be R9.3 million, R50 million and R376 million respectively.
A realistic policy
Critics of a wealth tax argue that it would be too costly and complex to implement. But South Africa is well positioned to administer this tax cost-effectively.
Firstly, the tax base we consider covers very few individuals, reducing the administration required.
Secondly, South Africa already has in place third-party reporting by financial intermediaries straight into the South African Revenue Service, providing information on capital income and ownership. Existing municipal valuations could be used to value property assets. This would cover the major components of asset holdings, especially stocks and bonds.
Capital flight, through offshoring or migration, is a potential risk. We account for this by making conservative assumptions about avoidance and evasion, and still project sizeable revenues. There is also markedly more cooperation between tax authorities to clamp down on undeclared incomes and assets in foreign jurisdictions, including tax havens. The premise is not a given. Capital flight implies forfeiting opportunities that considerably enriched them for the sake of avoiding a tax that barely makes an impact on their total wealth. Importantly, the wealthy themselves have said now is the time for solidarity.
A wealth tax, contrary to popular opinion, would not necessarily discourage job-creating investments. Maintaining fiscal sustainability while sparing the most vulnerable is more important to ensure a quick recovery and attract investments. Moreover, inherited wealth has a significant role in South Africa: we find high levels of wealth concentration even among 20-year-olds. Diminishing the importance of inherited capital with a wealth tax may actually be a better collective strategy to improve social welfare, including growth.
In light of the lessons learned from the Zondo commission of inquiry into corruption, taxpayers would need guarantees that this special tax will be properly collected and spent. The national treasury already uses ringfencing mechanisms to make revenue and spending for specific projects accountable. To answer potential criticism, the government could build on such rules to generalise more transparent practices.
There may be theoretical implementation challenges of such a wealth tax. But we would argue that South Africa is well placed to overcome these.
When designing the radar for Britain during World War II, Robert Watson-Watt justified his choice of a nonoptimal frequency as follows:
Give them the third best to go on with; the second best comes too late, the best never comes.
This radar was pivotal in allowing Britain to overcome a larger, more sophisticated German air force.
In our situation, we cannot let perfection be the enemy of progress, or in this case, survival.
Aroop Chatterjee, Research Manager: Wealth Inequality, Southern Centre for Inequality Studies, University of the Witwatersrand; Amory Gethin, Research Fellow - World Inequality Lab - Paris School of Economics, and Léo Czajka, Research fellow - World Inequality Lab - UCLouvain
Almost all of the companies that operate in the real estate sector in Angola are in a situation of technical bankruptcy, as a result of the market being at a standstill for over five years, said the president of the Association of Real Estate Professionals of Angola (APIMA).
Pedro Caldeira told Jornal de Angola that the lack of co-financing is the sector’s main problem, as a result of a stoppage in the real estate market and this has made it difficult for promoters to work because this is a segment that requires significant social contact.
Saying that the crisis has had a significant effect on the areas of sales and leases, he added that there are a number of problems, and mentioned a lack of funding for investment, reducing bureaucracy of the legal system for the real estate business, unattractive interest rates for consumer credit, inactivity of the National Housing Institute in relation to issuing licenses for the sector and the lack of a license to carry out the profession, among the most visible.
In an interview with the newspaper, Caldeira, noted he was unhappy with the current real estate market situation and accused banks of no longer financing the sector because they believe it is an area of increased risk.
He said that home loans are non-existent in the country at the moment, but that they could allow entrepreneurs to build low-rent housing.
He recalled that APIMA is a self-funded non-profit association and that it is not possible to conduct real estate business without funding. He added that the government can count on APIMA’s associates to outline strategies to leverage the private real estate sector and achieve the segment’s objectives.
Foremost composite e-commerce giant, Konga has recorded another first in Africa’s e-commerce market, with the launch of a live online product auction.
The initiative, another ground-breaking innovation from Konga, will debut this Friday, May 1, 2020 by 5pm on its online platform – www.konga.com and across its social media channels – Instagram, Twitter, Facebook and YouTube. Equally important, the live auction is a monthly feature which will afford eager shoppers a chance to stake their claims for the exciting products on offer on a monthly basis.
Already, anticipation and excitement is sky-high for the debut edition of the auction tagged Konga Last Price.
Prince Nnamdi Ekeh, Co-CEO, Konga Group, says the initiative is further proof of Konga’s boundless strategies to raise the bar in the e-commerce market and excite its customers globally without stories.
‘‘This live online auction across social media and our website is another first from Konga. This is another addition to being the first to pioneer the marketplace structure in the African e-commerce market six years ago for others to follow and the fusion of online and offline in creating a world-class composite retail platform, among others.
‘‘With this live auction – Konga Last Price, the first in Africa, we are further expanding the scope of e-commerce and giving our customer base an additional reason to smile. It has certainly come to stay as a monthly feature and we encourage all Nigerians to join us on the various social media channels and on the Konga website for this exciting initiative. It promises to be a world-class and unforgettable experience, with a huge number of genuine products across categories to be auctioned at mouth-watering prices,’’ he said.
For this inaugural edition, Konga has put up a number of eye-catching products across multiple categories for Nigerians to smile home with after weeks of the lockdown occasioned by the COVID-19 pandemic.
Also in store for participants is a surprise product. As a matter of fact, the Konga Last Price live auction will feature three sessions.
They include a live auction across its social media channels – Instagram, Twitter, Facebook and YouTube; a timed auction on the Konga website and a flash sale on social media involving no bids which will run concurrently with the social media live auction.
For the latter two – the timed auction on the Konga website and flash sale on social media, price slashes will be announced at the commencement of the live auction. Bid winners will follow the regular check-out process and can use the Payment on Delivery option.
However, intending participants on the social media live auction are expected to submit their bids via comments with their name, phone number, product and bidding price, with each participant allowed to purchase a maximum of three products per category.
Subsequently, bid winners will be contacted for payment confirmations via bank transfers at the end of the social media live auction.
Microsoft co-founder Bill Gates and social media platform TikTok have donated a combined $20 million to a global health partnership that will deploy vaccines for the novel coronavirus in Africa after they are developed.
According to Reuters, Gates and TikTok each donated $10 million to Gavi, the Vaccine Alliance, a private global health partnership that works to improve access to vaccines for people in low-income countries, to help fight the outbreak in Africa.
The alliance, which was founded in part by the Bill & Melinda Gates Foundation, will reportedly use the funding to help with the distribution of vaccines for the coronavirus in Africa immediately after they are developed and licensed for use.
Seth Berkley, a chief executive with the private partnership, also told Reuters the funding will help curb “a potentially catastrophic impact on immunization programs across the developing world.”
The move by Gates and TikTok comes a month after Matshidiso Moeti, regional chief for the World Health Organization (WHO), said the continent had begun seeing an “extremely rapid evolution” following a sharp rise in COVID-19 cases throughout the region.
According the WHO’s regional office for Africa, the number of cases from the virus reported in the continent rose to more than 10,000 earlier this month.
Moeti said in a statement at the time that the virus “has the potential not only to cause thousands of deaths, but to also unleash economic and social devastation.”
“This requires a decentralized response, which is tailored to the local context. Communities need to be empowered, and provincial and district levels of government need to ensure they have the resources and expertise to respond to outbreaks locally,” he continued.
However, Ahmed Al-Mandhari, WHO regional director for the Eastern Mediterranean, said the continent still has a chance “to reduce and slow down” transmission of the disease that has spread rapidly across the world in recent months.
“All countries must rapidly accelerate and scale up a comprehensive response to the pandemic, including an appropriate combination of proven public health and physical distancing measures. Within that process, Member States should target effective control of the outbreak, but plan for the worst,” he said.
“Early isolation of all cases, including mild cases, is one of the key control measures, along with early detection, early treatment and contact tracing,” he added. “Timely and accurate epidemiological data is one of the most important tools to inform and drive the response.”
Ivory Coast is weighing an increase in the premium that it charges for the quality of its cocoa to as much as double the current margin, according to three people familiar with the matter.
The world’s top cocoa producer will raise the country premium, also known as the origin differential, to a range of 150 pounds ($187) to 180 pounds per ton on top of futures prices, from a current guide of about 90 pounds a ton, said the people, who asked not to be identified because a public announcement hasn’t been made. The hike could be implemented at the end of May or early June and levied on new forward-sale deals for the next harvest that begins in October, said the people.
A spokesperson for the regulator declined to comment when contacted by phone.
An increase in the quality premium will follow less than a year after Ivory Coast and neighboring Ghana, the West African neighbors that account for more than 60% of global output, implemented a differential of $400 per ton to improve the income of farmers. Their dominance has given traders little choice but to agree to the increase, even though the hike has been partially offset by discounts on other charges.
Ivory Coast has improved the quality of its beans compared with some other producers such as Nigeria and Cameroon, justifying the increase, said one of the people. The country has also increased its warehousing capacity and will store beans if buyers initially refuse to conclude deals at the higher price, said the person.
London cocoa futures have slid from a peak in February as the coronavirus outbreak impacts chocolate demand. The worldwide processing of cocoa is forecast to drop for the first time in four years, according to Olam International Ltd.
Cocoa for delivery in December rose 1.3% to 1,718 pounds ($2,137) per ton at 4:25 p.m. in London on Wednesday.