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Sunday Times STLive By RENÉ VOLLGRAAFF, 2011-02-20

Growing inequality a global challenge

Inequality and a lack of social cohesion will have an increasingly important impact on economic and political matters.

This is according to Mario Pezzini, director of the development centre of the Organisation for Economic Cooperation and Development (OECD). Pezzini visited SA this week for an African seminar series hosted by Frontier Advisory and the JSE.

He said inequality is one of the main challenges brought about by the shifting of wealth from its traditional home in advanced economies to the emerging markets of the world.

"Inequality is increasing in many countries," he said.

"(The events in) Egypt and Tunisia are some of the manifestations that inequality matters in economic and political terms."

He said in a country such as Tunisia unemployed youth, may of whom are educated, can see the better positions they could be in as wealth flows to the country but they do not necessarily have access to it.

"That causes discontent. And governments do not always have the capacity to intervene (to ensure equal access)."

Large populations in emerging markets presented challenges and opportunities, Pezzini added.

"We now have many countries with large populations that are available for work at low wages and they are not necessarily unskilled," he said.

"But it is true that there could be tension in some countries due to the fact that the rhythm of growth, even if it is very high, does not guarantee a quick answer to the anticipated expectations of the people.

"The real issue is how to use the advantage of a large population available for work as a basis for sustainable economic growth and development."

Geopolitical tension, as seen in North Africa and the Middle East, was likely to continue because of the stark contrast between rich and poor, said Dave Butler, managing director for Southern and East Africa at consultancy Control Risks.

Geopolitical relations are not static; they fluctuate, which can lead to a rapid change in political leadership even in seemingly stable states such as Tunisia and Egypt, Butler said.

In many cases business operations would suffer because of these tensions, he said.

Citing the example of Gauteng's affluent Sandton business district, which sits adjacent to Alexandra township, Butler said the proximity of extreme wealth and extreme poverty exacerbated tensions.

"But complex urban environments like these are here to stay and we will need to learn to work with it."