By Saliem Fakir · 6 May 2011
The social grant is a wager with time. Its aim is to catch the indigent - those who have no chance of ever finding a job - within a social welfare net to soften the blow of poverty.
For others, it’s a respite during hard times. It lifts the spirits of those waiting for their fortunes to change. Well planned and executed social grants should also help break inter-generational cycles of poverty.
The thought that social grants create “dependency” is largely dictated by what happens in an economy.
As the Brazilian example shows, the urge for social upliftment is far greater than the desire to be dependent. However, conditions for entry into the mainstream economy as well as general economic growth are key factors that drive rates of employment both formally and informally.
Social grants have a redistributive role. Their place in a highly unequal society like South Africa cannot be disputed.
South Africa already has a complex web of social grants. The collective presence and weight of which is not easily discernable unless you are close to the budgeting and delivery of these programmes. What we don’t have is a basic income grant, which has long been debated but never concluded. However, the debate on the merits of an unconditional basic income grant should also not be ignored.
The impact of the Brazilian programme offers useful lessons.
The Brazilian programme, Bolsa Familia, is dubbed the ‘new generation of social programmes’ because of its focus on human development imperatives in return for social assistance. Bolsa Familia is also viewed as a stepping-stone to a Citizens’ Basic Income Grant, which Brazil passed into law in 2005.
Luiz Inácio Lula da Silva, the former President of Brazil, introduced Bolsa Familia, a conditional cash grant for poor families in 2003. Bolsa Familia involved an integration of a number of social grant programmes that existed before under a newly constituted programme that is driven by a central system.
Bolsa Familia is the largest social grant scheme in the world. The relative cost of the scheme is about 0.4% of the Brazilian GDP. The programme is credited for lifting 20 million people out of poverty in a relatively short period of time, which has caused it to attract worldwide attention.
Bolsa Familia has spread to 16 other Latin American countries. The idea has even touched the ‘free world’. New York City has a similar scheme to deal with urban poverty in some parts of its city districts.
The application of a Brazilian type programme in the US is ironic given that the conception of a minimum income grant was actually pioneered by US economists and initially introduced in a partial manner before conservatives killed it the late 1960s.
Bolsa Familia turns conventional economic theory on its head. It challenges the predisposition that the trickle-down approach is the best mechanism for redistribution of income instead of active state intervention.
Bolsa Familia is a cash grant in exchange for families sending their kids to school and participating in other associated development support measures such as vaccinations, nutritional monitoring, prenatal and post-natal tests.
Bolsa Familia supports close to 12 million households or 50 million people and costs the state about US$4.5 billion per year. The programme targets families with monthly per capita income below US$52.
Preference is given to mothers or pregnant women within a family unit -- about 93% of beneficiaries are females. The family unit as a whole is made accountable for ensuring that the development obligations, which the scheme requires are being met in exchange for the cash transfers.
In 2007, the scheme was partially funded through a financial transfer levy on financial transactions - Brazil’s own “Tobin Tax” - and some support from the World Bank.
However, since the state was reluctant to increase the financial transaction levy, funds had to be sourced from elsewhere. Some funds were also generated through a tax on agriculture.
The distribution of grants is managed by central government and the disbursement mechanism is via the poor gaining access to a bank account (mainly through the state bank), which has also improved access to other financial services. The process for beneficiary eligibility, registration and verification takes place at the municipal level.
In March 2009, an International Labour Organisation study showed that Bolsa Familia had a better impact than other social transfer schemes because of the manner in which it was targeted. The scheme, in addition, avoided increased vulnerability of families to economic shocks by ensuring financial stability.
The income grant, which is supplementary to existing income, has had other benefits. For one, it stimulates local economic activity, especially in a counter-cyclical way, as it supports consumptive driven production as poor people continue to spend on food and other necessities.
However, Bolsa Familia does not work in isolation. The Brazilian government is also working to support labour inclusion programmes by seeking ways to break barriers that prevent poor people from entering the mainstream labour market. Some of the support comes in the form of special vocational training.
Vocational training programmes are mainly in construction and tourism where job growth is most likely to be created rapidly.
For a similar scheme to work in South Africa a number of conditions need to be satisfied.
Firstly, the overall impact and costs of existing social grant schemes need to be assessed both for the fiscus as well as for desired outcomes. Given that our net gini-coefficient has shown little improvement, a lot of questions need to be asked about whether the current social grants system is working or not.
Secondly, a centralised system of transfer will still depend on local level administration for registration and verification of beneficiaries. This assumes an effective local government system.
Question marks will be raised about South Africa’s local authorities and their state of readiness to support such a scheme. The scheme will also have to have an accessible disbursement system. The South African Post Office can serve as a bank for the poor given that the Post Office is also registered to operate as a public bank of late.
Thirdly, one assumption prevails only if the other holds. In this case, the link between cash transfers for development and education. The desired impact will only hold if teaching and educational facilities exist. More importantly, as the Brazilian example shows, school attendance does not assure the receipt of quality education.
Fourthly, the financing of the programme will also depend on competing demands for funds from the fiscus. Brazil’s Bolsa Familia was designed to ensure that the scheme did not crowd out funds for other programmes, but also went a step further by identifying other innovative sources of finance to support the scheme.
Finally, the effectiveness of social grant schemes will also have to be monitored, as the Brazilian programme shows that leakage can occur in cases where grants go to non-eligible beneficiaries. The rate at which this happens can compromise the entire basis of the scheme and exclude the intended target group.
The Brazilian model is flourishing and the model is being adopted widely in Latin America. There are also lots of similarities between South and Brazil. We have a lot to learn from them.
Developing the State
This is a very informative. We have indeed a lot to learn from South American countries. The inequality in South Africa is worsening. We have to design an effective safety net that can be used by people to lift them from poverty. Attaching training and schooling or other mechanisms to grants will ensure maximum effect.
Employment & energy
Excellent article - what if we decentralise a portion of Eskom's energy supply into various impoverished communities? Capital aquisiation loans to be funded by PPP's. Communities will own & deveop RE power for local use and to create local employment. SA can generate power sustainably and give impoverished communities long term income to be used for education, access to IT, funding of small businesses and community projects run by & for the communities.