Reversing rising income inequality in Zambia
Felix Mwenge Published: Wednesday, 14 September 2016 09:58
By Felix Mwenge
The 2015 Living Conditions Monitoring Survey report has revealed that the gap between the rich and the poor in Zambia is widening. Zambia’s Gini coefficient now stands at 0.69 up from 0.60 in 2010; much higher than the African average of approximately 0.43.
The income disparity reflects the country’s inability to distribute its economic growth fairly across the population and is officially measured by the Gini coefficient, a statistical measure of dispersion ranging from 0 to 1. A Gini coefficient of 0 depicts perfect equality and 1 captures extreme inequality in income distribution.
Income inequality has been creeping into the Zambian society without so much discussion. But we must be wary of its ramifications: high inequality means large numbers of people are left behind in the development process, which could yield political and social tensions and threaten the peace Zambia enjoys. High inequality also deprives lower income households of the ability to afford basic necessities like education, health care, food, and housing.
Rising inequality is undoubtedly rooted in scanty opportunities for gainful employment. While unemployment is well below 10%, about 84% of the employed are in the informal sector with low earnings. Formal sector employees earn approximately two and a half times what informal employees earn. Agriculture, which employs nearly half of the population, is the lowest paying sector. The mining sector, while accounting for barely 2% of the employed population pays three times higher than agriculture. Furthermore, a lowly educated workforce reinforces polarisation in earnings: those with college education earn three times higher than those with primary education despite the former accounting for only 4% of the workforce compared to 40% with primary education. Similarly, those with university education, while accounting for less than 1% of the workforce earn six times higher than those with primary education.
Limited financial inclusion worsens income inequality. More than 60% of Zambians do not have a bank account while only 5% borrow successfully from a formal financial institution. These are usually large firms and wealthier households. Small businesses and poor households continue to face credit constraints due to prohibitive bank requirements thereby further entrenching inequality.
Reversing income inequality is therefore a matter of urgency and should start by creating more decent jobs. However, policies meant to support informal businesses to expand and become formal so as to provide more rewarding and assuring jobs don’t seem to be bearing fruit so far.
The current minimum wage policy is useful in redistributing income as it is expected to raise income levels of certain groups to reflect the cost of living. However, its distributive effect in Zambia is yet to be established. Regardless, there is need for careful consideration so that such laws do not unnecessarily raise the cost of doing business and become a disincentive to job creation.
Direct money transfers to the poor have proved to be effective in reversing inequality. The Cash Transfer Scheme that Government is implementing currently is a commendable income reallocation mechanism. However, sustainability is a big concern given the Government’s declining fiscal space amidst stagnating revenue but mounting expenditure.
Zambia also needs to increase financial inclusion which has proved effective in redistributing income in many poor countries. The steady increase in mobile financial services, though not providing credit currently, is an important alternative to traditional banking which should be supported.
Overall, Zambia’s income inequality challenges are not insurmountable, but they will need spirited and well thought out programmes and interventions.
The Author is a Researcher at the Zambia Institute for Policy Analysis and Research (ZIPAR). For comments send them to email@example.com.