Erasibo Consulting

Yesterday the Sowetan made South African blogging history. Well done chaps. They fired a sub-editor (Llewellyn Kriel) for blogging about the inner workings at AVUSA.

This is a news media company that regularly battles in the courts for the freedom to say what it feels it has to say. But I guess employees don’t have that right. 

Llewellyn was fired from the Sowetan for supposedly tarnishing the name of his employer and leaking confidential company information. Both reasons appear bogus to me, especially the charge that he leaked confidential company information.

AVUSA have set a very dangerous and shameful precedent.  

South Africans on an almost weekly basis are faced with the possibility that they will be left stranded without electrical power. This is because our state owned power company Eskom some how got their planning wrong and cant keep up with the demand of a growing economy. In response to their laid back approach to forecasting, Eskom are now going to be pumping billions of Rands into additional power generation facilities – of course we as consumers are going to have to foot the bill.

But money is not the only thing Eskom will be pumping. South Africa by all accounts has one of the cheapest electricity generation industries in the world. One of the reasons for this is because our electricity demand is met through the burning of coal. We are blessed with an abundance of coal in the North of the country. Coal however is the most polluting way to generate electricity.

Eskom has just been award second place by CARMA (Carbon Monitoring for Action) on its list of most polluting power companies in the world. Eskom is dumping ~214,000,000 tons of CO2 into the atmosphere every year through burning as much fossil fuel. So coal is our saviour and our villain.

Obviously no country can afford to just stop its current methods for generating electricity. In South Africa the need for more power is not only being driven by the growing economy i.e. current users – residential and industrial – requiring more power, but also by more and more households connecting to the electricity grid for the first time; thanks to governments policies aimed at poverty alleviation and access to basic services.

Eskom and the South African government are currently investigating alternatives. Nuclear is being punted as one of these alternatives. The South African government is also looking at bio fuels systems, hybrid systems, hydro systems, solar energy systems; and wind energy systems as other alternatives. However it would seem that the view of the Department of Minerals and Energy is that these alternatives are suitable exclusively in South Africa’s rural areas.

To date programmes with a strong rural focus have not been implemented as successfully as they could be. Energy is a highly technical area requiring private sector buy in and investment. To date government has not been able to channel this buy in and investments successfully into rural areas just examine how successful the Integrated Sustainable Renewal Programme (ISRDP) has been at getting private sector action – not commitments– in the rural nodes.

Focusing on just one potential alterative, here is a video presentation given by venture capitalist Vinod Khosla on how Solar can be made a financially viable alternative to coal. What’s interesting about this presentation is how he pitches the economic viability of Solar.

You can download the slides as well.There is a lot of great and exciting work being done by entrepreneurs, governments, scientist and NGO’s worldwide to think up better ways to maximise renewal sources of energy. I like Khosla’s thrust that there is amble resource around us to power humanities needs, we must not underestimate our ingenuity.

This past few weeks have seen a clash between the ANC and the South African Institute for Race Relations (SAIRR) on the issue of poverty levels in South Africa. The latest salvo was fired yesterday by the office of The Presidency in which they further attack the credibility of the SAIRR sources.

I think it’s great that this debate is raging.

The briefing note released by The Presidency is quoted below:

Briefing note released by Policy Co-ordination and Advisory Services – Global Insight, South African Institute of Race Relations (SAIRR) and Poverty: Whose Reality?

22 November 2007
The South African Institute of Race Relations (SAIRR), citing Global Insight Southern Africa (2006) reports that “[t]he number of people living on less than US$1 per day (the measure of extreme poverty used by the World Bank) in South Africa, increased from 1,89 million in 1996 to 4,2 million in 2005. As a proportion of the population, this represents an increase from 4.5% to 8.8% of the population living on less that US$1”.

This report differs dramatically from reports by various distinguished academics in the field.

From the onset, it is important to note that officially there is no consistent time series data on poverty and inequality trends over time. Most researchers use a combination of Statistics South Africa official data and unofficial data sources whose credibility they can guarantee, e.g. All Media Products Survey (AMPS) to arrive at a view on poverty levels and trends. They also adopt different poverty lines, ranging from about R2000 to R4000 per annum. Global Insight probably also uses a combination of data sources. However, there is no reflection on their sources and methodologies in the report.

What then should guide our understanding of the realities of poverty in South Africa? Perhaps the starting point should be the South African Constitution and the socio-economic rights it asserts should be progressively realised. These include access to housing/shelter, education, social assistance, health provision, food and water. This starting point, by implication, acknowledges that taking a narrow view of poverty and using a simplistic measure such as money-metric poverty barely engages with the reality of poverty and thus the combination of things that should be done to deal with it. The Constitution adopts a multi-dimensional approach to poverty that incorporates the meeting of basic needs.

Money-metric poverty

Let us begin with money metric poverty, the same indicator used in the SAIRR survey. How has this evolved over this reported period and beyond? Different reports are used here to illustrate the inconsistent view of the SAIRR report with the views of major work done in this area. Amongst this is work by UNDP covering the period 1995 to 2002. Using a national poverty line of R354 per month, the UNDP reported that the proportion of people living in poverty fell from 51.1% to 48.5% between 1995 and 2000. However, the absolute number of people living in poverty increased from 20.2 million to 21.9 million as a result of population growth. Other work by Hoogeveen and Ozler (2004) covering the same period, reports stability in the proportion of people in poverty using the R322 poverty line, and an increase in the absolute number of people living in poverty due to population growth.

Using a poverty line of between R3000 per capita per annum (in 2000 constant Rand) Van der Berg et al. report a slight increase in the proportion of people living in poverty between 1993 and 2000. However, this declined substantially even in terms of absolute numbers – from 18.5 million in 2000 to 15.4 million in 2004. Extending the period further to 2006, as is shown in the table below, headcount poverty significantly decreased from 2001 to 2006. In the entire period, 1993 to 2006, there was a proportionate decrease from 50.1% to 43.2%.

PERCENTAGE OF POPULATION LIVING BELOW R3 000 PER ANNUM
Year & Poverty headcount index 1996: 53.1% 1997: 51.2% 1998: 51.0% 1999: 52.1% 2000:50.8% 2001: 51.4% 2002: 49.0% 2003: 47.6% 2004: 46.9% 2005: 44.5% 2006: 43.2%

Van der Berg et al. also reflect on the changes in the poverty gap and severity of poverty. They show that the poverty gap index declined from 0.26 to 0.21 during the period under review (1996-2005). This implies a significant improvement in income and expenditure of those in poverty, bringing them closer to the poverty line of R3000. Furthermore they report a reduction in the depth and severity of poverty, from 0.16 to 0.12 in the same period. Calculated as the square of the difference between the poverty line and the incomes of the poor, the measure of depth and severity of poverty gives greater weight to those who are most deeply in poverty; and the fact of its improvement is even more significant.

Furthermore there is evidence that income poverty levels are indeed declining in part because of improvements in employment levels, but more importantly because of the enormously improved reach of the social grant system. Between 2000 and 2004 the per capita income of the poorest two population quintiles increased by over 30%.

Reaching the bottom 40% of the income distribution, government expenditure on cash transfers in the form of social grants increased from R10 billion in 1994 to R55 billion in 2005 and the number of beneficiaries grew from 2.6 million to 10.5 million. With the extension of the Child Support Grant to children under the age of 14, the total number of children accessing the grants is now over 7 million.

The impact of improvements in the labour market on poverty cannot be overstated. The number of employed people increased from 11.1 million in 2001 to 12.8 million in 2006.

The social wage

Beyond income poverty, which relates to private income and cash transfers, is the social wage. It will be folly to ignore the analysis of this component in the monitoring of progress or lack thereof with regard to poverty in our country. Emphasising the importance of the social wage, the HSRC made the following recommendation:
“The magnitude of the social wage is so great relative to poor people’s incomes, and even to the grants they receive, that any ongoing appraisal of government performance in supporting the poor, must take it into account…. [T]here would be value in ensuring the ongoing tracking of the social wage, with further methodological refinement.” (HSRC, 2004, p.32).

What are some of the elements of the social wage and how has it changed over time? The recent Community Survey provides a pointer in this regard. It finds that the proportion of households who use electricity increased from 56% in 1996 to 80% in 2007. The proportion of households who had access to piped water in dwelling or on site increased from 61% in 1996 to 70% in 2007. Households with access to flush toilet has increased from 52% in 1996 to 60,4% in 2007.

Another measure of the social wage is the government’s role in improving access to assets such as housing and land. According the Community Survey, the number of households living in formal dwellings increased from 69% in 1996 to 71% in 2007. More than R50 billion of assets (in the form of subsidised housing and land) was transferred to poor households in the period 1994 to 2003, according to the government’s Ten Year Review.

How well targeted are these programmes? Bhorat et al., although reporting on an earlier period, provide a sense of the beneficiaries of these improvements in services by income deciles. They indicate that during the period 1993 and 2004 access to formal housing grew by 42% and 34% for income deciles 1 and 2 respectively (the poorest sections of society) and 21% and 16% for deciles 3 and 4. Access to piped water increased by 187% in decile 1, while the growth was 31% in the 4th decile; and access to electricity for lighting for those in decile 1 grew by a phenomenal 578%. As the government’s programme of action indicates, 74% of those with access to water also receive free basic water, and the figure stands at 59% for electricity.

Account should also be taken of the education and health programmes, which include free medical care for pregnant women, children under six and people with disability; free text-books, improved infrastructure and no-fee paying schools

Using 2003 data (and Rand value), an HSRC study estimated that about 50% of this gross social wage value was directed at households in the poorest 40% of the population. This suggests that, taken as a whole, the programmes are progressively targeted. For social grants, 62% of the total went to the poorest 40% of households, and 82% to the poorest 60% of households. Furthermore, the HSRC study reports that female-headed households, those comprising single women supporting children, and granny households, receive larger-than-average social wage totals.

The benefit incidence demonstrates the impact of government programmes aggressively to address poverty and inequalities which reflect a history of systematic discrimination. This pro-poor bias of government social expenditure also demonstrates the critical role of the fiscus as an instrument of redistribution of wealth.

Exchange rate and purchasing power

Perhaps the central flaw in the SAIRR (Global Insight) report is the use of $1 per day as a poverty line. While this poverty line is recommended by the World Bank and used by most international agencies such as the UN, the uncritical adoption of this by SAIRR is unfortunate. This is particularly so in the context of the problematic nature of this measure especially with regard to exchange rate translations. Further, it is highly complex to correct for the differences in the relative purchasing power of the Rand to the US dollar.

But irrespective of these complexities, the report that the proportion of those below this poverty line has increased in the period under investigation is in contrast to evidence presented in other work. The All Media and Products Survey data for example, shows that the poorest income group (Living Standard Measure, LSM 1) fell from 10.5% to 4.8% of the population between 2001 and 2006. The bottom three income groups (LSM 1-3) shrank from 38.8% to 27.7% of the population in this period. Furthermore the incomes of people in the poorest groups grew by about 38% between 1993 and 2004, mostly as a result of the expansion of social grants.

The inconsistency of the SAIRR report calls into question their selection of particular data sources and their processing thereof. On a matter as critical as poverty-reduction, one would have expected at least a rigorous process of peer review and wider consultations before publication. In the event, the SAIRR in its carelessness and haste has served to generate more heat than light.

A concerning article which appears in the www.iol.co.za written by Ntokozo Mfusi which highlights that an 18 percent electricity price hike is proposed by Eskom for the next two years. It further notes that this increase will have a follow through impact on the price of water.

[slideshare id=174495&doc=eskom-annual-report-20062007-1195643965742586-4&w=425]

The data for that article was sourced from the National Energy Regulator of South Africa’s public hearing on electricity prices which was held in Durban on 20 November 2007, where an Umgeni Water representative reported that the proposed hike in electricity tariffs would cause subsequent rise in water prices as well. He noted that electricity is one of the primary drivers in the process of purifying water; therefore the rise in electricity prices will necessitate an increase in water prices.

While there is unlikely to be single South African citizen at this point in time who is unaware that we have a problem with electricity supply and the need to conserve energy, given the rolling black outs that have become a way of life of late. Arbitrary, blanket increases are not the solution. We need to find a way to deal with poor long term planning of resources, poor spatial planning in urban areas, wastage etc. These are planning issues that need to be affected properly with a long term view and understanding of the impact it has on all other aspects of government and public functioning. It needs to be communicated well to the public and partnered with the public to find a resolution. Crisis functioning is the reason we have a problem in the first place. Punishing citizens with price increasing merely exacerbated the problem, as citizens believe that they are being forced to compensate for inept government functions.

Electricity and water are scarce resources in South Africa and many South Africa citizens still have no access to these resources or are unable to afford them at current prices. Providing services to all citizens has been a challenge for municipalities and has been the reason a Free Basic Service (FBS) policy has been championed by government. To ensure that all citizens can have access to services, as is their constitutional right. An increase in the cost of both electricity and water, will impact hardest on the poor, who are already unable to pay for these services and will impact on the ability of government to roll out the FBS programme. It will add a further financial burden to municipalities who at present are struggling to manage their functions in a fiscally responsible way and are forced to subsidise the costs of vast numbers of their constituency instead of relying on service delivery as a municipal income. This burden on municipalities will then have to be relieved by the national fiscus.

Who are the poor? How many poor are there? How do we improve their quality if life? These are not as easy to answer as you might think. It is widely acknowledged that South Africa is confronted by an unacceptably high rate of poverty. Yet it would seem that being able to identify and target vital programmes at the poor is not simply achieved.

Government departments and institutions apply varying standards and criteria when it comes to determining who qualifies for service. In many cases these varying standards and criteria do not align and what results is people who qualify for one service not being able to qualify for another e.g. two old age pensioners who live in the same household and both receive state pensions may not qualify for Free Basic Service benefits from their municipality because jointly their income exceeds the income threshold set by the municipality.

The president has talked about ensuring that those who are need are able to access the “social package” of services.

A society in which large sections depend on social welfare cannot sustain its development. Our comprehensive programme to grow the economy, including the interventions in both the First and Second Economies, improving sustainable livelihoods and create work is meant precisely to ensure that, over time, a smaller proportion of society, in particular the most vulnerable, subsists solely on social grants.

Unfortunately when you read through a lot of the policy documents authored by government you see very little indicating that they have given consideration to where their programmes fit into a broader social package of services and therefore how their programme will best assist with poverty alleviation. This lack of an integrated view on how programmes need to be dove tailed coupled with the multiplicity of views on the poor, burdens government across all three spheres unnecessarily.

Being able to know who you are meant to service not only helps in targeting but also allows you to better plan, manage public funds and monitor and evaluate the success of your programme.

I am not for one second suggesting that government is not aware of this. They are aware and carefully – correctly so – they are moving towards dealing with the issue of developing a single view on who the poor are. Statistics South Africa has been tasked with developing a national poverty line, the purpose of this poverty line is explained as:

The nature of poverty, vulnerability and income inequality, and their shifts in response to economic trends and policy, need to be better understood if poverty reduction and social development programmes are to be well designed and effective. An appropriate index to assist in measuring and tracking poverty over time is therefore a useful statistical instrument for research and analysis. It can also serve as a reference measure for various policy purposes, such as the allocation of resources for poverty-focused spending programmes or the assessment of social and development needs.

We now have movement towards obtaining agreement on a universally accepted definition of who the poor are. All we need now is for departments to recognise that they do not work in silos, independently from each other and that in order to be able to give poor families who have not as yet realised the basic (service) benefits of our new democracy a greater sense of their “human dignity”. The fact that government has established the cluster system for departments and put into place legislation like the Intergovernmental Relations Framework Act [13 of 2005] are all steps towards better synchronisation of efforts, but much work needs to be done within the corridors, meeting rooms and offices of government.

[slideshare id=174332&doc=pro-poor-government-planning-and-coordination-1195632723529422-2&w=425]

On the 1st of November 2007 a call was made for government to do away with the SETA’s. Since the inception of the SETA’s there have been many issues raised about their ability to meet their mandate. Some SETA’s have been found wanting whilst others have made remarkable progress.

Scrapping our system of SETA’s on the grounds that there have been scandals and mis-management (Fidentia was certainly not a proud moment) is nonsensical. Firstly on a fairly obvious level no system is impervious to scandal and mismanagement and secondly the intentions and logical constructs behind the SETA system is sound. We cannot simply blindly trust that employers will take it upon themselves to do what’s best for the country, their first obligation is to themselves i.e. make sure that I am still in business by maximising profit and lowering costs. It is the responsibility of government and it’s regulations to look after the well being of the country by fixing one of our most critical challenges – our massive skills shortage.

The way in which the SETA system currently functions needs to be improved and this improvement need not necessarily be a radical one. The SETA system is a complicated system to come to understand let alone implement. Many SETA’s suffer from the very ailment they are try to rectify – a lack of critical skills, especially at the senior management, financial planning and project conception and implementation levels.

Those responsible for the SETA system need to act now by drawing on lessons which are there in the various reviews, impact assessments and evaluations that have been conducted over the years to start building a strong SETA system. There should be greater partnering between the private sector and SETA’s as clearly the SETA chambers are not working as effectively as they could and not for the private sector to take over the responsibility of the SETA’s.

Our high unemployment state is partially to blame on the fact that our economy has moved away from its traditional base and is requiring more skilled workers who can work in the formal sector. This imperative can only be lead successfully by government through the SETA’s.

We have been appointed by the Department of Provincial and Local Government (dplg) to develop the criteria for means testing on Free Basic Services (FBS).

We are excited about being able to help the dplg with this important set of criteria because it will go a long ways to assisting municipalities in clearly defining who should be targeted for FBS. In addition this will assist municipalities in being able to better finance their FBS obligations.

According to the latest government release on Free Basic Services:

A total number of 17,4 million people benefited from improved water supply up to April 2007 whilst 6,9 million people still need to be served. Free Basic Electricity is being provided to 3,6 million households, translating to 67% of the households with electricity. A total of 2,6 million households were served with basic sanitation since 1994 whilst 3,5 million still lack access to basic sanitation services at April 2007

As a consulting firm it’s very important for us to be able to efficiently communicate to and engage with the community we service. This is why we have decided to metamorphose the old Erasibo website into a blog.

You’ll find all the usual bits here: what we do, who we are, who we’ve done work for previously, but more importantly we you’ll start to read up on our thoughts and ideas that we think can impact meaningfully within the development sector and beyond. We also want to stimulate readers into giving us their feedback on latest issues and on our thoughts and ideas by way of leaving comments against each blog post.

Keep coming back as this blog will be updated religiously and we really look forward to what you have to say.

To get this blog rolling, we’ve included an interesting presentation below on Web 2.0 and what it means for Governments.

[slideshare id=116762&doc=web2-0-for-egovernment-why-and-how1424&w=425]