The Social and Economic Impact of

South Africa’s Social Grants

18 November 2007

Michael Samson

msamson@epri.org.za

Economic

Policy

Research

Institute

Growing Up Free From Poverty

(GUFFP) Seminar

at the

Overseas Development Institute

(ODI)

London

Questions regarding social

transfers

�Targeting

�Conditionality

�Dependency and perverse incentives

�Sustainability

Question #1: Targeting

�Rationale: economy

�Costs

– distortions, perverse incentives and poverty traps

– unnecessary administrative and private costs

– social costs (cohesion)

– stigma

– political costs (programmes for the poor)

– often exclude the poorest

�Targeting may be a false economy

The poverty-reducing impact of

social transfers in South Africa

67%

48%

37%

21%

0% 20% 40% 60% 80%

Destitution gap

Poverty gap

Destitution headcount

Poverty headcount

SOURCE: STATISTICS SOUTH AFRICA (GHS 2005, I&E 2000) AND EPRI

cumulative proportion of sample

0 25% 50% 75% 100%

0

25%

50%

75%

100%

cumulative proportion of income

Lorenz curve without transfers

Lorenz curve

with transfers

SOURCE: EPRI

South Africa’s social grants reduce

inequality substantially

cumulative proportion of sample

0 25%

0

25%cumulative proportion of income

SOURCE: EPRI

The distribution of social benefits

in South Africa

SOURCE: South African National Treasury

and Statistics South Africa

Measuring coverage and efficiency

0

20

40

60

80

100

type I type II

percentage (%)

2004

2004

2000

2000

Exclusion

error

Inclusion

error

SOURCE: Statistics South Africa I&E2000, LFS2004, and EPRI calculations

Question #2: Conditionality

�Rationale: long term poverty reduction

�Ideology

�Reality

– 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

Social impact indicators

�Education

– School enrolments

– School attendance

– School performance

�Health and nutrition

– Stunting

– Wasting

– Reported hunger

– Expenditure on food

– Diversity of food consumption

�Rate of return analysis

�Ability to search for employment

– conventional wisdom and dependency

– evidence from South Africa (and elsewhere)

�Ability to find a job

– labour productivity

– breaking the poverty trap

�Bolster economic power in negotiating decent

work

Question #3: Dependency

Impact of South Africa’s Social Pension on adult labor force participation

SOURCE: Statistics South Africa Labor Force Surveys and EPRI calculations

Household

does not

receive

social

pension

in 2004

Household

receives

social

pension

in 2004

Improvement

associated

with social

pension

Probability that a poor adult

of working age in 2005 will:

Find employment 7% 9% 2%

Actively look for work 13% 15% 2%

NOTE: Sample includes working age adults (older than 16) in households in the lowest income

quintile but with no working individuals in September 2004.

Impact of South Africa’s Social Pension on adult labor force participation

SOURCE: Statistics South Africa Labor Force Surveys and EPRI calculations

Household

does not

receive

social

pension

in 2004

Household

receives

social

pension

in 2004

Improvement

associated

with social

pension

Probability that a poor adult

of working age in 2005 will:

Find employment 7% 9% 2%

Actively look for work 13% 15% 2%

NOTE: Sample includes working age adults (older than 16) in households in the lowest income

quintile but with no working individuals in September 2004.

Social grants are associated with improved labour market activity

0%

10%

20%

30%

40%

50%

60%

70%

Out of LF Unemp., no

search

Unemp.,

searching

Employed

Labor force status, March 2005

CSG households Non-CSG households

n=3462 n=1795

Question #4: Sustainability

�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

0%

2%

4%

6%

8%

2004 2006 2008 2010 2012 2014 2016 2018 2020

economic growth social grant spending (% of GDP) poverty gap (% of GDP)

poverty gapeconomic growth

social grant spending

Social grants produce social capital, which

promotes growth and reduces poverty in a

mutually reinforcing manner

Gini coefficients in 20 of the most

unequal countries of the world