Tackling Poverty with Social Transfers to Vulnerable Groups:

Evidence from Africa

15 November 2006

Michael Samsonmsamson@epri.org.za

Economic

Policy

Research

Institute

International Forum

on the Eradication of Poverty

New York City

15-16 November 2006

UNICEF session on

“Children in Poverty”

Overview

THE PROBLEM: Poverty disproportionately affects children and older people

THE INSTRUMENT: Social transfers provide regular cash payments to poor households

THE OUTCOMES:

– children’s health, education and nutrition

– break the inter-generational cycle of disadvantage

– labor market participation

– broad economic and developmental impactsKEY ISSUES: dependency, conditionality, affordability

South Africa’s cash transfers produce remarkable social outcomes while supporting economic growth and broad developmental impacts

Sub-Saharan Africa’s oldest social transfer program

Costs 3% of GDP Substantial impact on

poverty reduction Extensive studies of

growth outcomes– Human capital– Labor markets– Development

South Africa

South Africa’s social grants reduce poverty and destitution substantially

0%

20%

40%

60%

80%

Poverty gap

Destitution gap

48% reduction

67% reduction

The universal social pension in Lesotho mainly protects children and promotes human capital accumulation

The world’s newest universal social pension, started in 2004

Costs 1.4% of GDP 65% of the cash is

spent on children cared for by older people

Supports human capital investment, particularly for OVCs

Lesotho

Social transfers in Namibia protect children and older people, support labour market participation and promote local economic activity

A transformed pension system since democracy in 1990

Near-universal take-up (85%)

Costs 0.7% of GDP Supports labour

market participation, particularly for women

Stimulates local markets

Namibia

A major concern of policy-makersEvidence in many developing countries suggests that

social grants support labor market participationRobust evidence from South Africa

– Ability to search for employment – Ability to find a job

Bolster economic power in negotiating decent work

Do social transfers create dependency?

Impact of South Africa’s Child Support Grant on adult labor force participation

Household does not receive

child grant in 2004

Household receives

child grant in 2004

Improvement associated with child

grant

Probability that a poor adult of working age in 2005 will:

Find employment 13% 15% 2%

Actively look for work 17% 20% 3%

NOTE: Sample includes working age adults (older than 16) in households in the lowest income quintile but with no working individuals in September 2004.

SOURCE: Statistics South Africa Labor Force Surveys and EPRI calculations

Impact of South Africa’s Child Support Grant on women’s labor force participation

SOURCE: Statistics South Africa Labor Force Surveys and EPRI calculations

Household does not receive

child grant in 2004

Household receives

child grant in 2004

Improvement associated with child

grant

Probability that a poor women of working age in 2005 will:

Find employment 12% 15% 3%

Actively look for work 14% 20% 6%

NOTE: Sample includes women (older than 16) in households in the lowest income quintile with older people but with no working individuals.

Are conditionalities necessary?

Rationale: long term poverty reductionPhilosophical underpinningsRisks

– compromise the poverty reduction objective– deprive the poor of freedom to choose appropriate

services — and to freely make decisions to improve household welfare

– can be expensive, inflexible, and inefficient — in the worst of cases, screen out the poorest

Are social transfers affordable?

Social transfers must be financed, and the costs can be substantial — up to 3% of national income.

Economic growth and the government’s available budget depend on each other.

Social transfers conserve fiscal resources in important ways.

Social transfers can support a virtuous circle of growth, greater affordability and sustainability.

Conclusions

For countries in Africa, social transfers have demonstrated considerable success in supporting children’s health, education and nutrition.

In many countries they are the most effective government program for reducing poverty.

They help to break the cycle of inter-generational transmission of disadvantage.

Social transfers do not create dependency—they often break dependency traps, particularly by nurturing productive high-return risk-taking.

Social transfers support economic growth and development and are affordable.