15 November 2006 Michael Samson msamson@epri.org.za Tackling Poverty with Social Transfers to Vulnerable Groups: Evidence from Africa 15 November 2006 Michael Samson msamson@epri.org.za International Forum on the Eradication of Poverty New York City 15-16 November 2006 UNICEF session on “Children in Poverty” Thank you for the opportunity to present these research findings to you. It is an honor to participate in this conference.

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 impacts KEY ISSUES: dependency, conditionality, affordability The main problem I will discuss is that both chronic and shock-induced poverty in Africa disproportionately affect children and older people--and in Africa HIV/AIDS as well as demographic and cultural change increasingly leave older people responsible for young children, and with diminishing resources. Increasingly governments and non-governmental organisations are employing social transfers as an instrument to tackle this problem--employing regular reliable payments to poor households for the purpose of reducing poverty. Research in many African countries has demonstrated considerable success--in terms of improving children’s health, education and nutrition, breaking the inter-generational transmission of poverty, promoting labour market participation and broadly generating positive economic and developmental impacts I’ll also address a few issues policy-makers often raise--dependency, conditionality and 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 Perhaps the most studied case is South Africa—the grants are much bigger and take-up rates now are very high. Data availability is good—and many researchers around the world have conducted extensive studies. We see strong evidence in terms of poverty reduction, human capital, employment and the macroeconomic impact. TURN SLIDE No social transfer programme in the developing world reduces the poverty gap and the destitution gap more than South Africa’s unconditional grants. South Africa

South Africa’s social grants reduce poverty and destitution substantially 48% reduction 67% reduction And HHs that receive grants spend more on education, food and health care. Biometric indicators are better--both for height-for =-age and weight-for-height in HHs that receive grants. School attendance rates are significantly higher -- and the health and education effects are about twice as great for girls compared to boys. I won’t go into all the details right now, but in EPRI’s study, social grants have a positive impact on school enrolments - reducing by 1/3 the non-enrolment rate. Esther Duflo finds improvements in health status of girls when grandmothers receive pensions, Anne Case finds children in pensioner households 3-4 cm taller than those in non-pensioner households. EPRI found reinforcing results from more recent data Maitra and Ray find grant recipients spend more on food, less on gambling. EPRI finds the same with StatsSA I&E data.

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 The government of Lesotho implemented the world’s newest universal social pension 2 years ago, and the first evaluations are providing evidence that it plays an important role supporting children’s human capital development, particularly in households affected by HIV/AIDS in which both parents have died and grandparents use the resources to support grandchildren. This is one of the most consistent themes across social transfer programmes--both the conditional programmes in Latin America and the unconditional ones in Africa. Social transfers promote education, health and nutrition— protecting families and helping to break the inter-generational cycle of disadvantage. 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 In Namibia, we find very similar results in terms of the impact of both child grants and social pensions on the well-being of children. And we find strong empirical evidence that social transfers provide enough support to households that woman can migrate to look for work. And we see cycles of economic activity that coincide with the cash injected into the economy. As one Namibian observed, the wheels of the local economy begin to turn on pension day. Namibia

Do social transfers create dependency? A major concern of policy-makers Evidence in many developing countries suggests that social grants support labor market participation Robust evidence from South Africa Ability to search for employment Ability to find a job Bolster economic power in negotiating decent work In almost any meeting with policy-makers discussing social transfers, the question of dependency will arise. For some reason there is a grave concern that providing small cash transfers to destitute households will discourage workers in these households from seeking employment. Our research documents the opposite. One of the most important findings is the extent to which poverty acts as a tax on the working poor. First the very poor often don’t have the resources required to search for work. In a country with 40% unemployment like South Africa job search is a risky investment. And poverty drags down productivity. Without social transfers the burden of sustaining the very poor falls on the backs of the working poor, draining their own resources and hindering their productivity. Social transfers address both these issues--they guarantee a minimum level of resources and so encourage workers to invest in higher risk higher return activities like job search, and provide the necessary resources for this. We find evidence of this in Mexico, Brazil and Namibia as well. And social transfers bolster the economic power of the working poor to enable them to better negotiate decent work--social transfers provides a better fallback position.

Impact of South Africa’s Child Support Grant on adult labor force participation We can use the govt of SA’s LFS to assess the impact of the child support grant. We divide the poor HHs into those with children that receive and those that don’t receive the child support grant. And we measure how working age people respond over time. Workers in HHs with children that receive the CSG are more likely to look for work and find employment than those in comparable HHs with children that don’t receive the grant. SOURCE: Statistics South Africa Labor Force Surveys and EPRI calculations

Impact of South Africa’s Child Support Grant on women’s labor force participation And if we look only at women in these HHs, we see the impact is about twice as strong. These tables illustrate the results from rigorous structural econometric models of the SA labour market, available on our website. SOURCE: Statistics South Africa Labor Force Surveys and EPRI calculations

Are conditionalities necessary? Rationale: long term poverty reduction Philosophical underpinnings Risks 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 Some programmes--particularly those supported by the World Bank--tie conditionalities to social transfers. One possible philosophical underpinning to conditionalities is that the poor are poor because of their behaviour. If conditionalities can create incentives to change their behaviour, they can lead the poor out of poverty. If they don’t respond they remain poor. With this thinking poor people are responsible for their poverty. This philosophy may help explain the political popularity - governments and societies are not responsible - the poor are. But sometimes poverty is a consequence of circumstances that behaviour won’t change. Conditionalities can punish these people. You want to go to school but you don’t have the resources, or the distance is too great, or there is no available school. In these cases, hard conditionalities can be perverse - to punish the poor when they cannot comply - - means the programme fails to reduce poverty. Soft conditionalities - or developmental conditionalities - like in Brazil or in UNICEF’s pilot programme in Kenya - take a different philosophical approach. Intervene in order to correct the underlying problem—they DON’T punish the poor. But there are risks to conditionalities: They can compromise the poverty reduction objective if poor households have their benefits cut because they cannot comply And they deprive the poor of freedom to choose appropriate services — and to freely make decisions to improve household welfare. In South Africa there is a high incidence of teachers abusing students. Is a conditionality appropriate here? And conditionalities can be expensive, inflexible, and inefficient — in the worst of cases, screen out the poorest And there’s no evidence conditionalities are necessary.

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. One last point—social transfers cost money—up to 2-3% of national income. Is this affordable, and sustainable? Affordability depends on how much tax revenue a country can raise—and economic growth raises the country’s tax capacity. Social protection supports economic growth and development, which expands the resources available to government. But social protection also has direct fiscal benefits—by breaking the inter-generational cycle of disadvantage, the infant whose nutrition was funded by a social transfer will grow into a school-age child better able to learn—and more likely to succeed in school. Fewer fiscal resources will be wasted on children who have to repeat grades they otherwise would have passed. The child will grow into an adult more likely to find work—and pay taxes. The worker will grow older with a lower chance of contracting a chronic debilitating diseases, and so be less likely to unnecessarily burden the public health care system. These fiscal savings effects combined with the growth impact mean that social transfers are more likely to be affordable and sustainable.

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. In conclusion, 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.