Build social safety net with conditional grants

AFTER the passing away of Mam’ Nomzamo Winnie MadikizelMandela and subsequent commemoration of her work and sacrifice towards emancipating the people of South Africa from the shackles of an oppressive apartheid system, thousands of South Africans paid their last respects to her on Saturday at Orlando Stadium and elsewhere across the country. Deservedly so.

The findings of a report released by the World Bank in Johannesburg last week show that South Africa still remains the most unequal society in the world.

In the World Bank’s latest South Africa Economic Update focusing on the theme of jobs and inequality, it notes that, at 0.63, South Africa’s 2017 Gini coefficient was the highest internationally and that inequality had worsened since 1994.

The Gini coefficient is a measure of income inequality ranging from 0 to 1, with 0 representing a perfectly equal society and 1 representing a perfectly unequal society.

It is no wonder that the release of these startling realities were preceded, in the past few months and as we head towards the 2019 general election, by debates about land ownership and expropriation without compensation.

Indeed issues of land dispossession are an important aspect in addressing the legacy of apartheid and colonialism.

However, without the necessary tools and infrastructure, translating land into a valuable commodity will not be an achievable reality.

Therefore, without addressing inequality head-on, the “new dawn” and/or “economic transformation in our lifetime” will be rendered mere slogans and rhetoric.

Why should addressing inequality be the most pressing issue in alleviating poverty and unemployment in South Africa?

Well, every country has a distinct political economy that shapes the extent and effects of inequalities. Besides being the most unequal society in the world, South Africa is no different.

Studies on inequality show it is not just determined by economic forces; it is also shaped by politics and policies.

Extreme inequalities tend to hamper economic growth and undermine both political equality and social stability, with cumulative economic, social and political effects.

But perhaps the worst dimension of inequality is inequality of opportunity, which is both the cause and consequence of inequality of outcomes. It causes economic inefficiency and reduced development as large numbers of individuals are not able to live up to their potential. This is particularly true for women and the youth.

For example, forecasts by the National Treasury as well as some private economists expect the South African economy to grow by 1.5% this year, 1.8% in 2019 and 2.1% in 2020.

Sadly, such growth is insufficient for remedying inequality.

Relying on market forces such as foreign direct investment (FDI) will not help either as capitalism in its nature relies on increased consumer spending, which at the moment is stagnant in South Africa.

The state can therefore no longer be a bystander and just wish for inequality to miraculously disappear into thin air.

Perhaps, in addressing the pressing challenge of inequality, a starting point would be a comparative analysis of how inequality has been dealt with in other parts of the world.

Brazil, for example, as an emerging economy, has social strata similar to South Africa’s. However over the past few years it has been able to reduce inequality through increased social support spending.

Its best known social support programme is the Bolsa Família (family scholarships) which provides financial aid to Brazilian families living below the poverty line.

Families apply, provide the necessary documents and, if accepted, receive cash electronically from ATMs.

In return for small cash transfers, families must keep their children in school, vaccinate them and ensure they go for preventive health care visits, including prenatal care for pregnant women and nutritional care and monitoring of their children’s growth and development.

The programme launched in 2003 to consolidate existing cash transfer programmes. Its beneficiaries increased to 13.8-million households in 2014, reaching almost 50 million people (26% of Brazil’s population).

Bolsa Família is the largest conditional cash transfer programme in the world.

The programme has mitigated shortterm problems that result from poverty and helped to invest long-term in health and education, thereby interrupting the intergenerational transmission of poverty.

Studies show it has significantly reduced extreme poverty and hunger, increased school attendance and decreased dropout rates. One estimate is that the programme reduced poverty by 12-18% between 2003 and 2009.

South Africa, too, can address inequality through similar social engineering support programmes tailor-made for this country’s needs.

This could be done through creating a social welfare support safety net for all citizens living below the poverty line.

However, in South Africa some have argued that such an intervention would create a “welfare” or “nanny” state, thereby draining the already limited fiscus.

But this is far from true as social support safety nets such as social grants for the poor have, since 1994, constantly remained at less than 10% of the GDP – which is way below international standards.

For example Organisation for Economic Cooperation and Development (OECD) countries devote more than one-fifth of their economic resources to public social support.

Public social spending-to-GDP ratios are over 30% of the GDP in Denmark, Belgium, Finland and France (highest at almost 32% of its GDP), with Italy, Austria, Sweden, Spain and Germany also devoting more than a quarter of their GDP to public social spending.

Public social support in OECD countries has seen an overall benefit in their respective economies.

In South Africa, instead of proportionally increasing social support grants, the reverse has happened.

The number of beneficiaries has increased from four to 17-million since 2002 to include children up to the age of 18 years. But the proportion and value of state spending on public social support has fallen, despite the increased need for social assistance.

Using the StatsSA poverty lines, which are updated each year to keep pace with inflation, in 2011, 53.2% of people were living below the poverty line. In 2015, this had risen to 55.5% of South Africans – more than one in every two people.

Also, more than one in four people in South Africa were permanently “food poor”. They did not have enough food to provide for their daily needs (let alone other needs such as housing, water and transport).

Yet the proportion of the total consolidated state spending (municipalities, provinces and national government) allocated to social grants has been falling.

From 9.8% in the 2008-9 fiscal year, spending on grants rose to over 10% in 2011-12, but this fell to 9.41% in 2016/17, which is lower than the 2008 figure.

A further burden to the poor has been the recent increase in VAT from 14% to 15%. This is nothing more than kicking the can down the road, and a way for the poor to foot the bill for the country’s leadership inequities. This is nothing more than a travesty of equality, fairness and justice.

Using the UN’s Global Policy Model (GPM), a macro-economic forecasting model used by G-20 and other countries to analyse inequality, it is clear that most South African households simply do not have enough money to buy the goods and services that allow the economy to tick over and ultimately spear the country towards economic growth.

Implementing a programme similar to Brazil’s Bolsa Família or the OECD public social support programme would, in my humble analysis, significantly reduce inequality, inevitably placing the country’s economy on an upward trajectory and leading to significant reductions in poverty and unemployment.

We therefore need to address inequality with the same vigour and energy that has been evident in commemorating our icon. Perhaps this would be the greatest way we can honour Mam’ Nomzamo Winnie Madikizela-Mandela’s legacy.