Money world

South Africa is paying the price for failing to narrow the gap between rich and poor since the end of apartheid in 1994 as it struggles to pull the country out of recession.

Interest rate cuts that have boosted consumer spending worldwide have failed to have the same impact in South Africa, because only one in six has any form of debt in the formal market, according to Finmark Trust, a research company.

Poor South Africans are getting more pessimistic about the economic outlook as job losses mount, even as the rich benefit from lower borrowing costs and begin to loosen their purse strings. The dual economy is threatening to damp retail sales at companies such as Shoprite Holdings Ltd., the country’s biggest food retailer that targets low-income earners through its Usave and Shoprite stores.

“We continue to be the most unequal society in the developing world,” said Haroon Bhorat, director of the Development Policy Research Unit at the University of Cape Town. “A very unequal growth path is bad for growth.”

South Africa’s Gini coefficient, which measures inequality, was 0.666 in 2008, compared with 0.665 in 1994, according to government data. A reading of 1 reflects complete inequality and zero represents complete equality. Brazil’s Gini coefficient, which used to be level with South Africa, is 0.526.

“I’m worried about losing my job,” said Gladys Mashaba, 33, who lives with her husband and three children in Alexandra township in Johannesburg and works as a cleaner for 3,000 rand a month. “I have to cut my spending. I look for all the specials at the supermarket. That’s the only time I can go shopping.”

Sales Slump

Retail sales fell 3.9 percent in August from a year ago, the seventh consecutive month of contraction, according to the median estimate of four economists surveyed by Bloomberg. The statistics office will report the numbers on Oct. 14.

Six interest rate cuts since December helped push consumer confidence among people earning more than 5,000 rand ($675) a month to 5 in the third quarter from 1 in the previous three months, the Bureau for Economic Research said on Sept low interest payday loans. 30. For those earning less than 5,000 rand a month, sentiment fell to minus 4 from plus 7.

“Interest rate cuts don’t have any effect on me,” said Thabo Matlala, who earns less than 5,000 rand a month as a security guard and has seen many of his colleagues lose their jobs. “I don’t have loans.”

In the lowest income group, who earn a monthly income of less than 2,000 rand, confidence slumped to minus 11 in the third quarter from plus 5, the bureau reported. About 39 percent of the population live on less than 388 rand a month.

Job Losses

“Interest rate cuts haven’t allayed fears on income growth and job security,” said Danelee van Dyk, an economist at Johannesburg-based Standard Bank Group Ltd., Africa’s biggest lender. Falling incomes and employment losses “highlight the risk of social unrest.”

That discontent has led to a series of disturbances in townships around Johannesburg since July to protest against a lack of housing, government services and jobs.

South Africa’s jobless rate rose to 23.6 percent in the second quarter, the highest of 62 countries tracked by Bloomberg. A government report published on Sept. 25 ranks South Africa as the most inequitable country in the world, with the richest 20 percent of the population accounting for 70 percent of total income last year.

“Income inequality in the long run is bad for growth,” and South Africa has had “the most consistently unequal society in the world,” Cape Town university’s Bhorat said at the release of the report. “It is a threat to social stability and to growth itself. The long-term trend is a worrying one.”

Hard Times

Consumers account for two-thirds of expenditure in the economy, and low-income earners make up the bulk of spending on food and other basic items, said van Dyk. Household consumption expenditure will probably contract 3.1 percent in 2009, compared with expansion of 2.3 percent last year, she added.

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