Growing income inequality in South Africa is not only a serious social blight and threat to political stability, but will also, ultimately, undermine economic growth and be bad for business, a leading South African academic economist has warned.

Speaking as part of a recent panel discussion organised by the National Business Initiative, Professor Haroon Bhorat, of the University of Cape Town's Development Research Policy Unit, called for the creation of an "inequality war room" at the highest levels within government to focus on the challenge and ways of overcoming it.

The structure, he argued, would be distinct from the current antipoverty strategy and have a specific focus on interventions that could help ensure a more even distribution of income.

Failure to pay adequate attention to the problem is likely to result in a further perpetuation of recent economic history, with healthy declines in household poverty levels being offset by the fact that South Africa has now emerged as the "most consistently unequal nation on earth".

In fact, the country's Gini coefficient – the key measure of wealth-distribution inequality, which ranges from zero to one, with the ratio deteriorating as it gets closer to one – has worsened from 0,64 in 1994 to 0,69.

Bhorat described this outcome as "shattering", and said it should be seen as a flashing emergency light for South Africa's social and economic growth trajectory.

"The important message for business is that this is bad for growth and bad for business.

"You can't have a society where the benefits of growth are increasingly concentrated among a narrow, or smaller, group of the population," he warned, adding that it would also undermine South Africa's poverty reduction efforts.

"The higher the inequality, the less there is to distribute for poverty reduction," he explained.

Also of concern is the fact that the inequality trend is not confined to growing inequality within the African population, as a wealthy black upper and middle class emerges. In fact, the gap between racial groups has also widened markedly.

"The major contributor to overall inequality is the inequality between Africans and whites," Bhorat outlined, describing this fact as a big social and political threat.

To tackle the challenge, Bhorat believes far more attention should be given to South Africa's so-called ‘second', or informal, economy, which, he said, remained relatively underdeveloped when compared with the informal economies of other developing countries.

Government could use its procurement spend to stimulate activity in the sector, rather than focusing narrowly on the black economically empowered elite. In addition, it could assist by creating an insurance infrastructure for practitioners in the second economy, where the risk of going out of business could be significantly reduced if there was access to affordable insurance products.

"Often, a second-economy operator goes out of business for six months, simply because the car has broken down and there is no insurance to fix it."

Business can contribute by developing of new partnerships with entrepreneurs, through outsourcing models that are less focused on attaining black economic empowerment points and more aligned to the objective of sustainability.

But probably the biggest policy lever resides in the area of schooling and education.

Bhorat warned that, under the current trajectory, the schooling system was simply going to replicate the existing patterns of inequality, given the inadequacies of teaching and learning.

This point was highlighted by Goldman Sachs' South Africa MD Colin Coleman, who noted that, while State spending on education compared favourably against international benchmarks, the outcomes were lagging.

"We have to refocus on putting all our children through decent schooling," Coleman averred, stressing that teacher attendance needed to improve, along with the quality of schooling infrastructure.

He also sees a greater role for what he termed underutilised State institutions, particularly the South African National Defence Force, in giving young adult South Africans work experience.

"We need to think about using the defence force to stimulate public works programmes with communities, with businesses supporting and putting South Africans who are not in jobs, to work," Coleman elaborated.

But he stressed that, to deal with South Africa's challenges, including inequality, it was essential for the country to sustain its positive growth course.

He, therefore, cautioned that policymakers should be careful about making policy changes that could undermine growth, particularly in the context of a more hostile global economic climate.

Should growth be sustained, then various new policy tools could be introduced, even the contested basic income grant, which, Goldman's believes, would cost R30-billion a year, based on a distribution of R100 a month.

"But, if we are not growing the economy, we can't afford it," he concluded