Page 82 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

BANKING
“As such the team created an inequality index based on the simple thesis that inequality could be measured by analysing the value of property for di erent income levels within South Africa.”
Based on both the World Bank and Gini Coe cients it would seem that South African inequality is rising, despite the fact that return on capital does not exceed economic growth. It must be noted that due to the imperfections of the Gini Coe cient index and the lack of recent data, a strong conclusion cannot be made with con dence. However, at the very least we can state that it is inconclusive whether the corollary of Piketty’s thesis pertains to South Africa: that when r < g, inequality decreases.
e Monocle Research Team felt that the distortions of the Gini Coe - cient index and the basis for the World Bank studies were not su ciently accurate. As such the team created an inequality index based on the simple thesis that inequality could be measured by analysing the value of property for di erent income levels within South Africa. While we recognise that this stands only as a proxy for inequality, it would at least provide an original insight.
e Monocle Research Team created a concept of a high-income indi- vidual versus a low-income individual, in which we de ned a high- income individual to possess excess wealth which would be invested in equity to the extent of 50 percent of his or her net asset value (NAV). Furthermore, we assumed that the same investor would be invested in luxury property to an extent of 40 percent of NAV, as well as 5 percent in bonds and 5 percent in cash for diversi cation purposes. In comparison, we created a concept of a low-income individual who would have no excess capital and therefore no holdings in equities or bonds. 70 percent of the low-income investor’s NAV would be tied up in low-income property and 30 percent in cash. Using the data collected from the various sources mentioned above we were able to show that from January 1995 through to September 2014 the compound annual growth rate for the low-income investor was in excess of 23.5 percent whereas for the high-income investor it was approximately 11.4 percent.
e tremendous distortion between the growth rates of the individual investors can primarily be ascribed to the enormous di erential in growth rates of high-income property versus low-income property. e lower income investor is 70 percent invested in low-income property and this particular property segment has experienced tremendous growth since the failure of Apartheid and the advent of true democracy within South Africa. Of course, this can easily be ascribed to the recognition – for the rst time for these properties – of land rights and the registration of these land parcels with the protection of democratic property rights. is is an indication that under the liberal constitution of South Africa, there has been a far greater growth in low-income capital than in high-income
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