Tackling Poverty with Social Transfers to Vulnerable Groups: Evidence from Africa 15 November 2006 Michael Samson International Forum on the Eradication of Poverty New York City 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 impacts  KEY 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 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-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 Do social transfers create dependency?

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

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

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.