Zim’s inequality: The rich get richer and the poor get poorer

ACCORDING to the latest poverty report by ZimStat and the World Bank, Zimbabwe has become poorer over the last three years.

Tafara Mtutu
Investment analyst

Extreme poverty rose to 38% in 2019, while general poverty went up eight percentage points to 51%. To note is the country’s latest Gini coefficient of 50,4%, which is up from 44,7% in 2017. The Gini coefficient is a measure of income or wealth distribution in a country.

A Gini coefficient that is close to 0% implies that there is perfect or equal distribution of wealth. The other end of the spectrum — a Gini coefficient of 100% —indicates gross inequality, where only one person earns all the income.

Various developed countries have a Gini coefficient ranging between 27% and 45%, while developing countries range higher than that.

Southern African countries boast some of the highest Gini coefficients in the world.

South Africa has the highest level of inequality in the region and the world, at a Gini coefficient of 65%.

Other countries in the region have Gini coefficients of 59,1% (Namibia), 57,1% (Zambia), 54,2% (Lesotho), 54% (Mozambique), 53,3% (Botswana), and 51,5% (Eswatini).

The unequal distribution of income in these countries compromises the efficiency of policies that use averages such as gross domestic product (GDP) per capita (GDP divided by population figure) to map a way forward or to measure the population’s well-being.

For example, country A and country B could have the same GDP per capita of US$10, but if country A’s income is significantly skewed towards the top percentile of income earners relative to country B, the policy on income tax could be different between the two countries. Country A is better served by a progressive tax regime compared to country B.

A nation’s prospects also hinge on the distribution of income. Inequality in human development is often a function of the inequality of income distribution.

Data from the United Nations Educational, Scientific and Cultural Organisation (Unesco) and the United Nations Department of Economic and Social Affairs (UN Desa) shows that more children born in 2000 in very high human development countries will move into higher education compared to children of the same age that were born in low development countries.

This can be linked to economic growth through empirical evidence that shows that a country’s economic growth is most positively affected by investments in post-secondary education compared to similar investments in primary and secondary education.

This is largely because an economy’s innovation and growth are driven by strides in post-secondary institutions such as universities.

Developed countries have made significant investments in post-secondary education and their institutions consistently dominate top spots in global university rankings.

Universities in developing countries, on the other hand, are hardly in the top 100. The best university in southern Africa (and on the continent) is the University of Cape Town in South Africa which is ranked 220th by the QS World University Rankings.

Egypt’s American University of Cairo also features on the rankings at 411, eight positions above South Africa’s University of Witswatersrand. The top spots, however, are dominated by institutions in developed countries that include the United States, United Kingdom, Switzerland and Singapore.

Zimbabwe’s top institution, the University of Zimbabwe, is ranked 1 451 by the Centre for World University Rankings. The inverse relationship between post-secondary education development and income inequality serves to cement the importance of quality education and relevant skills in addressing inequality, and paving way for a developed and equal Zimbabwe.

Inequality in Zimbabwe has also been perpetuated by the lack of access to international capital and a concentration of remittances among the few wealthy individuals in the country.

Zimbabwe’s remittances are largely skewed towards the wealthy few in the country. Wealthy families have some members who are in the Diaspora. These members subsequently afforded themselves a better life and they regularly send money back home.

Over time, the wealthy individuals in Zimbabwe perpetually and exclusively take advantage of opportunities available because they have access to a stream of international capital that the rest of the country cannot tap into.

The opportunities often entail massive capital outlays that over 80% of Zimbabweans cannot raise without external support, and therein comes the issue of the lack of access to external capital.

Zimbabwe’s external debt stood at about US$8 billion at the end of last year and 74% of this debt is in arrears. The international lending community made it clear that it will not support Zimbabwe until it clears its arrears. FDI inflows into Zimbabwe by private equity investors have also waned, and 2020 was marked by international investor exodus through fungible stocks on the Zimbabwe Stock Exchange and the interbank auction system.

The decreased appetite of international investors for Zimbabwean investments and the skewed distribution of the only other significant source of international capital (remittances) mean that one single eventuality emerges; the rich get richer and the poor get poorer.

So strong are Diaspora remittances that, while global FDI is expected to fall by 40% in 2020, Diaspora remittances into Zimbabwe surged by 45% in the nine months of 2020.

Zimbabwe currently uses a progressive tax regime to redistribute wealth from the rich to the poor, but the country is extensively porous given that it has evolved into the second largest shadow economy in the world after Bolivia.

Further measures to support the productive minds in the country with no access to capital, such as a SME stock exchange and allocation efficiencies in the distribution of arable land and other resources, remain ever critical in addressing the inequality gap and dismal economic growth over the last two years.

These issues, if not addressed, could result in Zimbabwe’s current economic situation worsening after the African Continental Free Trade Agreement (AfCFTA) becomes effective in 2021. The prospect of opening our borders without the capacity to export more than we import holds discomforting implications for the country.

Mtutu is an investment analyst with Morgan & Co. He writes in his personal capacity