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 * Business Day, Johannesburg, 12 January 2006**

=**Failing institutions trap SA’s poor in penury**=


 * Isobel Frye**

ACCORDING to the popular wisdom frequently repeated by the media the surest methods of addressing the poverty and destitution of the many millions of poor people living in SA is to build linkages between them and the “first” economy.

The metaphor of the “first” and “second” economies existing in parallel in SA was useful in illustrating the gaps in the daily realities and aspirations of South Africans. But if national policies are designed in accordance with this assessment, the result will be the continued marginalisation of millions in SA.

There is only one economy in SA. This is made up of diverse sectors and is characterised by various relations of production, consumption and interdependency, including those that are characterised as being “formal” and those that are seen as representing “informal”.

However, the distribution of resources and access to the means of production within this economy are extremely skewed in favour of a very small minority, which has earned SA the dubious distinction as having one of the highest rates of income inequality in the world, as measured by the Gini coefficient. Our relatively young economy was driven historically by agriculture and mining extraction, which depended on the deliberate marginalisation of the majority of South Africans in a mode of production referred to by Prof Sampie Terreblanche as “racial capitalism”.

Legislated dispossession of black people in SA — of the right to own and occupy land, the right to equal education, the right to own and accumulate property and the right to take up gainful employment of one’s choice — most effectively guaranteed an endless supply of cheap and exploitable labour for the development of South African capital. It laid the foundations and entrenched the patterns of conscious marginalisation and impoverishment that frustrate the state’s attempts to address poverty and unemployment today, and informed current land ownership patterns and geographic apartheid of urban white and rural black.

It is, however, erroneous and dangerous to view South Africans as peopling two different economies, as this analysis cannot lend itself to understanding how the “formal” economy continues today actively to marginalise people from it.

If our commitment is to arresting and turning around the spiralling levels of poverty and unemployment, an analysis of how this exclusion happens is necessary to enable policy makers to develop appropriate interventions and institutions that really guarantee the protection of people’s rights.

Just one example illustrates how failing government policies in effect worsen poor people’s ability to control their lives and their own micro economies within the broader South African economy. Someone, whom I will call Themba, borrowed R2000 from a micro lender. This attracted interest over six months of R1976,02. He struggled to keep up his repayments, but tried to pay as much as he could, keeping each receipt.

Because of his late payments, judgment was taken against him at the Johannesburg Magistrate’s Court for the sum of R4327 (including interest and costs). An emoluments attachment was granted against his salary by the magistrate, deducting R400 a month from his monthly salary of R2739. Themba did not deny he owed money on the loan, but wanted to know what had happened to extra payments he made amounting to R900 (of which he had proof), not reflected on the printout provided by the lender.

The moneylender referred him to its attorneys, who advised that the only information they had was that provided by the moneylender. To break the cycle of empty referrals, but unable to afford a lawyer, Themba approached an advice office in Johannesburg for assistance, but he was told that they did not have the expertise to help him.

Themba then approached the regulatory body of microlenders that reports to the trade and industry minister. Its website claims that “the primary aim of the regulatory council is to promote sustainable growth of the microlending industry, to serve unserved credit needs, while ensuring that consumer rights are protected”. In addition, this council “has been recognised as the official and single regulator of all money lending transactions falling within the scope of the Usury Act Exemption Notice”.

Themba was initially told that the council could not help him as the obtaining of a printout of repayments from the microlender would entail correspondence with its attorneys, who would charge fees for this. In the end the council agreed to assist. However, despite repeated attempts to obtain a response from the council, including directing his attempts to the CEO of the council, Themba received no further assistance from this watchdog of microlenders and protector of consumer rights.

Instead, Themba has a judgment against his name and has been blacklisted, which will ensure any further credit will be extended to him at a higher interest rate, and that should he wish to study further or seek another job, the blacklisting will prevent him obtaining a study loan and will be sufficient to dissuade many potential employers from considering him for a job.

This story illustrates how starkly the formal economy fails poor people. In addition to trying to tailor interventions to assist poor people in moving out of the second economy, government — especially the trade and industry and labour departments — business and labour should urgently undertake a review of current institutions, from the courts to the Commission for Conciliation Mediation and Arbitration, the Unemployment Insurance Fund and the Compensation for Occupational Injuries and Diseases Act, to ensure these benefit the poor, and support rather than deter their own economic initiatives.

‖ Frye is senior researcher at Naledi. She writes in her personal capacity.

From: http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A137234