A Local Vulnerability Index for South Africa

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Wim Naudé; Mark McGillivray; Stephanié Rossouw (2007). A Local Vulnerability Index for South Africa. Paper prepared for the 1st Annual Conference: Charlotte Manye Maxeke Collaboration in Research and Capacity Building in Economics of Social Protection, Pilanesberg, 12-15 June 2007.

Type	conference paper
Scope	Post-1994 South African economy
Method	descriptive quantitative
Period studied	1996–2005
Regions	South Africa, 354 magisterial districts, Eastern Cape, Limpopo, north-western interior
Themes	inequality poverty unemployment, demography urbanisation, methods data sources
Citation key	naude2007

Argument

The paper argues that economic vulnerability should be measured for places, not only for countries or households, because South Africa's high spatial inequality and uneven local-government capacity and legitimacy make national indicators misleading. It builds a Local Vulnerability Index (LVI) for 354 magisterial districts from ten domains (size, structure, trade, remoteness, development, volatility, demography/health, governance, environment, finance), using principal components analysis and 9-point rankings. It then regresses the LVI on transformed per capita income and takes the absolute residuals as a Vulnerability Intervention Index (VII), which flags districts where higher income alone is unlikely to cut vulnerability. The most vulnerable districts are remote, sparsely populated and dependent on primary production, while the metropoles are least vulnerable. The paper concludes that non-income interventions (infrastructure, diversification, land rehabilitation) are needed in some districts.

Evidence and method

Global Insight Regional Economic Focus data for 1996-2005, drawn from Statistics SA census and survey data and CSIR satellite imagery. It also uses Quantec HIV data, Statistics SA local capital budget data, ABSA bank-branch counts (Meintjes), and export diversity and distance-to-hub measures from Matthee and Naudé and Naudé and Matthee. The unit of analysis is 354 magisterial districts, shown in tables of quintile averages and district rankings.

Findings

• Per capita income differs sharply across district quintiles. (p. 9)

  the average per capita income in the highest earning quintile is almost double that of the next highest quintile, and more than 5 times that of the bottom quintile of places

• Richer districts export far more of their output, which may explain their higher growth volatility. (p. 10)

  exporting on average 16% of GDP compared to only 3% of those in quintile 5

• The LVI is only moderately correlated with income, which motivates the intervention index. (p. 13)

  The Spearman rank correlation coefficient between this variable and income per capita for our sample of 354 magisterial districts is ‐0.569.

• The most vulnerable districts are remote and isolated from economic hubs. (p. 17)

  most of these magisterial districts are remote and isolated from any nearby hub of economic activity

• The parameter of diminishing returns in the income transformation was set by best adjusted R-squared fit. (p. 19)

  led to a value of 0.80 being chosen for ε.

• Most highly vulnerable districts are not also high-VII districts, so income growth would help in them; only five need direct intervention. (p. 20)

  only five of the twenty most vulnerable magisterial districts in South Africa were also amongst the twenty districts with the highest VII

• One large district, Huhudi, combines high vulnerability with relatively high population growth. (p. 21)

  Huhudi was found to a relatively high population growth (on average 0.9%) compared to populations that are almost stable (at around 0.2% growth per annum) in the other areas.

• Metropolitan areas are generally low or moderate in vulnerability. (p. 22)

  The major metropolitan areas are generally areas of low or moderate vulnerability.

• Earlier work finds little convergence in district incomes after 1996. (p. 8)

  find little evidence of convergence in per capita incomes between magisterial districts since 1996

• The paper frames South Africa as macro-stable post-transition but locally fragile. (p. 5)

  managed a transition to democratic government in 1994, is characterized by monetary and fiscal stability, and has seen its highest growth in almost a century taking place over the past five years