International Labour Office ILO Global Campaign for Social Protection and Coverage for all: as a means to reducing poverty in Africa and Asia International Labour Office Lusaka, 4 July 2008 Pauline Barrett, Krzysztof Hagemejer, Urszula Lonc, Adrian Shikwe

Can Zambia afford to provide basic social security for all in need? The right question is the reverse: Can a country like Zambia afford not to provide basic social security to its residents? The answer is: no, Zambia has to build basic social security as social security is economic and political necessity as well as human right Further questions to be asked and answered: What is in place and what is missing? How much it costs? How to find money?

Zambian SPER: main findings Sequence of analysis Living conditions Poverty and vulnerability How do people live? Which groups are more vulnerable? Labour market environment What do people do to make a living? Where do they work? How do they work? Coverage of social protection schemes Which population groups are covered? How efficient are the existing schemes? Government finances and social budget How many resources are allocated? How is spending financed? How much it will cost tomorrow?

Findings: How do people live? Almost half of the population was found to be ‘extremely poor’ living below the official poverty line, and almost two-thirds were found to be ’moderately poor‘, living below the basic needs poverty line (BNPL) Above implies that social protection measures will eventually have to be addressed at the majority of the population.

Findings: Who are the most vulnerable? - Households headed by the elderly and by women are the most likely to experience extreme poverty. In the poorest decile 25 per cent of households were headed by elderly persons and 27 per cent by women. - Households headed by persons with less than a secondary school education were also more likely to be extremely poor, with only 33 per cent of extremely poor households headed by a person with a secondary-school education. - The majority of extremely poor households in Zambia have six or more members most of whom are children. Children alone account for nearly half of the extremely poor population.

Findings: How people work? Overall employment rates are high: more than 75 per cent of all those aged 15 and over are employed (71 per cent of all women at this age and 79 per cent of all men; 89 per cent in rural areas and 52 per cent in urban areas) However, over 40 per cent of all those employed work as unpaid helping family members or workers (nearly 55 per cent of employed women and 27 per cent of employed men) – most of them in traditional agriculture. Twenty-five per cent of children aged under 15 were recorded in the survey as employed, but the large majority of them are unpaid family workers The lack of provision for income security in old age (except for a small minority) results in the employment rates of older people (at age 55 and over) being even higher than for those of working age (15-54 years).

How people work Source: CSO LFS 2005

Findings: Informality and social security coverage The economy as a whole has a high degree of informalization 83 per cent of economically active persons being either unpaid household workers or self-employed 88 per cent of all those in paid employment (as self-employed or employees) with no social security entitlements (majority) or inadequate entitlements. This huge coverage gap is not filled by non-contributory social assistance: existing SA programmes reach under 4 per cent of the population and thus significantly less than 10 per cent of those in poverty. There is hardly any coordination of all these social assistance programmes, and thus the very scarce resources allocated are not used very effectively.

Coverage by main social assistance programmes – are there well defined target groups? % POPOPULATION Public Welfare Assistance Scheme 1.4 Cash transfers pilots 0.6 Food Security Pack 0.3 School Feeding Programme 1.5 Total 3.8

Findings: Social assistance coverage Existing social assistance programmes often fail to cover most persons within its target groups, because of excessively narrow targets, inaccurate targeting low and inconsistent levels of benefits hugely inadequate funding Additionally, the award of benefits from these programmes is not based on legislation and thus people have no well-specified rights to claim benefits when they need them or to appeal when they are refused.

Challenges to social assistance coverage The government-funded programmes are under-funded and deliver low and inconsistent benefits On the other hand better, donor-funded programmes delivering more substantial benefits cover only pilot areas, or small sections of the population, or are operated for limited periods. Targeting is in most cases decided on the basis of available funds, with little reference to the situation of poverty and vulnerability. Present community-based targeting methods may also lead to uncontrolled inclusion and exclusion errors.

Employees – what potential coverage? Source: CSO LFS 2005; LCMS 2004

Findings: Coverage by contributory programmes The coverage situation is different for those who have employee status: only 20 per cent of them are totally in the informal economy But, on the other hand, only 22 per cent of them are in a totally formal environment The majority works with a higher or lower degree of informality, enjoying some of the entitlements resulting from labour legislation but never all of them, including coverage by contributory social security The data on membership provided by the pension schemes suggest that they cover around 79 per cent (550,000 out of about 700,000) of their target group – that is all those aged 15-55 years who are in employment

Old age income security: potential and actual extent of coverage Active members Pensioners persons % LF E % ES POP 55+ NAPSA 355200 8.0 15.3 50.5 0.0 PSPF 106062 2.4 4.6 15.1 46,122 LASF 13000 0.3 0.6 1.8 1.4 8,250 Occupational 409047 0.9 5.8 1.2 7,173 Social assistance n/a 1,0 ~ 6,500 Total ~11.5 ~ 68,00

Challenges to contributory programmes More employees (and better-off self-employed) can be effectively covered than it is the case now It requires institutional efforts focusing on enforcing existing legislation, raising awareness of this legislation among employees and employers – apart from introducing new legislation wherever necessary Institutions and their supervisory bodies must increase coordinated efforts on more effective enforcement of obligations to register and contribute to social security, and also on raising employees and employers awareness of their social security rights and obligations It is also important to create stronger incentives to contribute, by developing both well-designed social insurance policies and good governance of social insurance schemes.

Social budget of Zambia  Expenditure 2005 2006 Health 5.9 Education 4.5 4.8 Pensions 1.2 1.3 Work-related 0.3 Social assistance 0.1 Administration 1.4 Change in reserves 1.5 Total 14.8 15.1  Revenue Households 4.4 3.8 Private enterprises Government 5.3 6.0 Donors 2.9 3.2 Other 0.2 Investment 0.7 0.6

Zambian social budget: expenditure Expenditure on health care dominates - close to 6% of GDP Education – close to 5% of GDP Non-health social protection expenditure is dominated by expenditure on government employees’ pensions – at about 1 per cent of GDP. Expenditure on social security benefits to private-sector employees is still very low, as the contributory scheme is young and not many members are yet entitled to any benefits NAPSA reserves are growing every year by more than 0.5 per cent of GDP and have already surpassed the level of 3 per cent of GDP A small group of beneficiaries of occupational pension schemes receives annually about 0.3 per cent of GDP in different benefits Reserves of the occupational pension scheme surpassed another 3 per cent of GDP At the same time budget allocations to all main government- and donor-funded non-contributory social assistance programmes is at 0.165 per cent of GDP This seems to be barely sufficient in a country where half the population is said to live in extreme poverty.

Zambian social protection budget: financing The main actor in the provision of social protection is the Government with a share of 40 per cent of total revenues, which is financed with tax revenues in-kind benefits (health and education), cash benefits (social assistance), and grants and contributions to social security institutions. Households are financing 25 per cent of social expenditure through out- of-pocket expenditure and employees’ contributions Donors provide 21 per cent of resources through several mechanisms (e.g., grants to the Government and projects) Private enterprise contributes 9 per cent of resources via social security contributions, health insurance, etc Investment income from pension schemes represents 4 per cent of total resources

Fiscal space: operations of general Government (as percentage of GDP), 2005-2006

Fiscal space: External funds to central Government operations (in USD million)

Distribution of main sources of financing, 2006 Fiscal space: Distribution of main sources of financing, 2006

Projected future trends under status quo conditions: expenditure of social budget (per cent of GDP)

Changing the status-quo to build a basic social security in Zambia Let us look at the future costs of three hypothetical benefits targeted at three specific groups of beneficiaries: ☐ a social assistance scheme targeted to “most vulnerable households” and covering 10 percent of all households. (We have assumed that this scheme and other simulated schemes will cover 100 per cent of the target group in the first year (2009). We have assumed a benefit per household equivalent to the average amount of benefit paid within the current cash transfer pilot schemes and adjusted annually for inflation (estimated to be K 52,725 per household per month in 2009); ☐ a universal pension for all persons aged 60 and over, starting with a monthly amount of K 60,000 in 2009; ☐ a child benefit with two variants: – paid to the first child up to age six, K 30,000 per month; – paid to the first child up to age fourteen, K 30,000 per month.

How much it would cost?

How to find money to finance it? Creating new fiscal space – within existing resource envelope Revising current expenditure programmes to release fiscal space or use it in accordance with social security policy objectives Rationalization: making expenditure more effective (like: decreasing administration costs in existing pension programmes) Re-assessment: are the existing spending meeting our policy objectives (like: is there sufficient economic justification to existing fuel (or similar) subsidies – “cash” transfers to the richer part of the society? Integration, coordination, redesign of existing programmes: There is plenty of small, under funded, uncoordinated poverty alleviation programmes – government or donor funded. Integration or coordination can increase effectiveness of existing expenditure Redesign of existing social insurance programmes to make them meeting priorities and expectations of different categories of potential contributors may not only rationalize use of existing resources but open space for new revenue from new contributors

How to find money to finance it? Creating new fiscal space – extending fiscal envelope Sources: Mobilizing domestic revenue: Improving effectiveness in tax collection Broadening tax base Increased or new taxation Securing increased grants from donors Past experience Sub-Saharan African countries increased on average domestic revenue from 15% to 19% of GDP between 1997 and 2006 Where does Zambia go from current level of domestic revenue at 17-18% of GDP? Grants in sub-Saharan Africa are no average 4-5% of GDP and no increase since 2003. Where will it go from now?

Way Forward The Government needs to undertake a detailed public expenditure review with the aim of assessing the basis for, and redistributive impact of all kinds of existing transfers, subsidies and tax privileges in order to identify the fiscal space needed to finance priority social policies. The results of the work on informality of employment should feed into policy discussions on the extension of social protection coverage, together with a job creation strategy targeted at youth. There is scope to extend coverage by existing contributory and non-contributory schemes. A minimum package of cash benefits would be affordable – targeted social assistance and a universal pension would cost less than 1 per cent of GDP. A universal but limited child benefit scheme (first child only) would have higher start-up costs (1.2 per cent of GDP) but reduce over time. The next stage of the project needs to address the composition of a comprehensive social protection system and funding mechanisms.