What do we know about wealth in South Africa? In this factsheet, we explain the different ways in which wealth can be measured and also present available data sources.<\/p>\n
Working out how wealthy someone is, means working out how many\u00a0economic resources<\/a>\u00a0the person has.<\/p>\n Wealth \u201cis the value of all the assets owned by a household [or individual] less the value of all its liabilities at a particular point in time,\u201d the suggested definition in\u00a0guidelines<\/a>\u00a0for the Organisation for Economic Co-operation and Development (OECD) goes.<\/p>\n Such assets would include both financial assets, like cash or stocks, and non-financial assets, like land or real-estate. When we then subtract the total value of these assets from the total value of debts (liabilities), we come to a figure that represents wealth. This is also known as net worth.<\/p>\n Most commonly, of course, that figure is given in terms of money. Even traditional measures of wealth, such as livestock, are given\u00a0a cash value<\/a>\u00a0in the modern world economy.<\/p>\n How is wealth measured?<\/strong><\/p>\n It is simple enough to calculate the difference between the value of what one owes and what one owns, but then you have to know those two figures, of course. How can we accurately determine who owns what?<\/p>\n Though\u00a0it is increasingly rare<\/a>, some countries employ wealth taxes \u2013 a tax paid on some value of the assets one owns. In places where wealth is not taxed, like South Africa, there are no national records of the wealth that an individual owns, since there is no obligation to declare wealth unless it\u00a0produces income<\/a>, such as interest from investments.<\/p>\n As a consequence, we have to rely on various\u00a0estimates<\/a>\u00a0of wealth at the individual level, or summed data at the national level. Here are three of the more common methods used to measure wealth, as well as the challenges we might have in employing them.<\/p>\n One way of coming to an estimate of individual or household wealth is to conduct a survey and to project those findings to the population at large.<\/p>\n The\u00a0National Income Dynamics Study<\/a>\u00a0(NIDS) \u2013 to date conducted in four waves between 2008 and 2014 \u2013 asks respondents what would be left over (or left owed) if they sold all their possessions and paid off all their debts. This figure represents their wealth.<\/p>\n Surveys such as NIDS, when researching people\u2019s wealth, commonly struggle to collect data from all groups of people in the correct proportions. As a\u00a0European Central Bank<\/a>\u00a0study of household finance\u00a0explained<\/a>, \u201cwealthier households tend to be more difficult to contact and less likely to respond\u201d. Unchecked, this inevitably has an impact on the results.<\/p>\n In addition,\u00a0a 2010 study<\/a>\u00a0on the problems of collecting data on household wealth notes: \u201cHousehold surveys on wealth typically register lower response rates largely because of the sensitivity of the survey topic.\u201d People can understandably be hesitant about discussing their financial affairs.<\/p>\n Finally, household surveys are also likely to miss out on the very, very wealthy. Since the group is\u00a0so small in number<\/a>\u00a0relative to the rest of the population, their chances of being included in a survey are negligible.<\/p>\n However, because of the immense fortunes of the ultra-rich, including them would clearly affect the overall picture. For example, South Africa had eight people on the 2017\u00a0Forbes\u2019<\/a>\u00a0list of billionaires, with an average net worth of approximately R39.7 billion.<\/p>\n \u201cWith a net worth of \u2018only\u2019 R300 million, the richest person in the NIDS is thus well below [the] cut-off of the ultra-wealthy,\u201d a 2016 paper for the\u00a0Research Project on Employment, Income Distribution and Inclusive Growth<\/a>\u00a0(REDI) on\u00a0wealth inequality in South Africa<\/a>\u00a0pointed out.<\/p>\n Surveys do often try to limit the impact of these challenges by\u00a0purposely seeking out<\/a>\u00a0a disproportionately high number of wealthy respondents to make up for their lacklustre response rate. Alternatively, the collected\u00a0data can be weighted<\/a>\u00a0to better reflect the real-world situation.<\/p>\n The REDI paper\u00a0used<\/a>\u00a0personal income tax data to estimate wealth and contrasted this to the NIDS survey data on wealth. While wealth itself is not taxed in South Africa, income from investments is. Investment income is therefore used as a stand-in for wealth.<\/p>\n The downside of using income tax, as the author pointed out, is that we only have access to data for those who are above the threshold to pay income tax (and further, in this case, those who have investment income).<\/p>\n In 2017, when the taxable threshold for under-65s was R75,000,\u00a087% of the South African taxpayers were exempt<\/a>\u00a0from paying income tax. So income tax records wouldn\u2019t\u00a0directly\u00a0<\/i>tell us anything about the wealth in that group\u2019s possession.<\/p>\n A further way to get information on wealth is to look at data from national balance sheets.\u00a0Balance sheets<\/a>\u00a0present the market value of all assets and debts held by the various sectors of the economy.<\/p>\n The\u00a0South African Reserve Bank<\/a>\u00a0maintains datasets that detail the country\u2019s balance sheets. From these, we can gauge the total amount of wealth residing in private (as opposed to corporate or government) hands, but\u00a0not how that wealth is distributed<\/a>.<\/p>\n To develop estimates of the distribution of wealth, the data from national accounts has to be manipulated. For example,\u00a0Credit Suisse<\/a>, a financial services company, starts with the assumption that the distribution of wealth is similar to the distribution of income, but\u00a0adjust the data<\/a>\u00a0to account for the fact that wealth tends to be more concentrated at the top.<\/p>\n What do we know about wealth in South Africa?<\/strong><\/p>\n Bearing the limitations of the available data in mind, three recent reports help to illuminate our understanding of wealth and its distribution in South Africa.<\/p>\n Credit Suisse Wealth Report<\/strong><\/p>\n Credit Suisse<\/a>\u2019s\u00a0Global Wealth Report 2017<\/a>\u00a0is based on national accounts data so they don\u2019t have specific data on how wealth is distributed in the country.<\/p>\n However, the authors of the report suggest that\u00a0their method<\/a>\u00a0of using national accounts data, in conjunction with estimates based on countries whose wealth distribution\u00a0is<\/i>\u00a0known, generates a reliable approximation in countries with imperfect data.<\/p>\n Based on their calculations, Credit Suisse estimated that the total net wealth of South African adults amounted to US$0.8 trillion, or R9.5 trillion, in 2017. While broadly speaking the distribution is similar to the world as a whole, the large majority of South Africans (68%) was estimated to fall into the lowest wealth category. These are people with assets of less than US$10,000, or R117,000 at the current exchange rate.<\/p>\n While there is no further breakdown within that group, the report estimated that the median wealth in South Africa was at US$5,186 (or R60,900), well below the US$10,000 cut-off.<\/p>\n At the other end of the scale, 58,000 South Africans, or 0.2% of the population, were identified as dollar millionaires, while 84,000 would belong to the top 1% of global wealth holders.<\/p>\n Allianz Wealth Report<\/strong><\/p>\n Financial services firm\u00a0Allianz<\/a>, using data from national accounts, estimates in their\u00a0Global Wealth Report 2017<\/a>\u00a0that the richest 10% of South Africans owned more than 70% of net financial assets. For comparison, the average of the 53 countries included in the study was 53%.<\/p>\n As wealth distribution data is not available for South Africa, Allianz told Africa Check that the estimate is calculated from a combination of income distribution statistics. They also employ \u201cthe average wealth-to-income ratio of all countries for which data on both income and wealth distribution are available\u201d.<\/p>\n Another way to look at the distribution of wealth is to compare the median wealth to the mean wealth within a country. The median figure is the literal halfway point between the richest and the poorest person in a country, and thus gives a relatively good representation of an average person\u2019s circumstances.<\/p>\n The mean wealth (the sum of the total wealth divided by the number of people) will be noticeably higher than the median, given that it will be inflated by the large fortunes of the very richest people in the country.<\/p>\n The bigger the gap between the mean and the median, the more unequally wealth in a country is distributed.<\/p>\n In South Africa, the mean wealth figure was six times the median \u2013 the maximum figure reached at the national level for any of the countries studied. For comparison, the average in the 53 countries studied was 2.5.<\/p>\n REDI wealth inequality study<\/strong><\/p>\n The REDI study \u2013 which contrasted data from the NIDS survey, personal income tax as well as the national balance sheet \u2013 offered an even starker picture: one percent of South Africans were estimated to own at least half the wealth in the country and the richest 10% \u201cat least 90-95% of all wealth\u201d.<\/p>\n Given South Africa\u2019s history, it is unsurprising that white South Africans were found to own a disproportionately large share of the wealth. But interestingly, \u201cNIDS [data] also shows that the degree of inequality within the African group exceeds that for the overall population, being much higher than the level of inequality within any other racial group\u201d.<\/p>\n The\u00a0Gini coefficient<\/a>\u00a0for incomes in South Africa was reported as 0.7 (where 0 is total equality, and 1 is total inequality), whereas for wealth it was 0.95. (Note: While Gini coefficients\u00a0<\/i>aren\u2019t strictly speaking directly comparable<\/i><\/a>\u00a0between countries, the most equal societies tend to have income coefficients of around 0.25<\/i>.)<\/p>\n These figures show wealth is even more concentrated among the rich than income in South Africa.<\/p>\n Markus Korhonen is a political analyst specialising in Global Political Economy. He is currently teaching at the Department of Political Science at Stellenbosch University.<\/i><\/p>\n This article was first published by Africa Check. You can view the original article here<\/a><\/strong>.<\/p>\n
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