Economic growth can be stimulated in SA by affording basic income grant to poor

A primary driver of long-term economic growth and job creation is to get everyone over the food poverty line. With the fiscus under pressure, this may not be possible now, but we must work relentlessly toward that goal.

If you scrimp on food and buy only the essentials, you can get by on R50 a day. That’s the logic behind the official “upper-bound poverty line” and it means that those who live below it don’t even have enough money for the most basic necessities of life.

About half of all South Africa’s people, including nearly 70% of its children, live below that line — despite most of them receiving some form of social grant. This just goes to show the depth of our nation’s poverty and how far we are from realising the constitutional obligation of adequate social protection for all who need it.

The extent of poverty, inequality and unemployment make a compelling case for a basic income grant for all, a call which the minister of finance has described as “reasonable and legitimate”.

However, National Treasury has argued that there is little room for growth of social grants in the short term and no prospect of a universal basic income grant in the foreseeable future.

This stance is informed by budget deficits and rising national debt, but also by its view — expressed in a case brought by the Institute for Economic Justice — that “social grants are a downstream intervention in response to an upstream problem, namely the lack of economic opportunity and jobs”.

In Treasury’s mind, the answer is to focus on promoting economic growth that creates jobs. This has been a clear policy objective since 1994, yet unemployment rates remain persistently high and have increased steadily since 2008. In late 2023, over 40% of working-age adults were unemployed (using the expanded definition of unemployment which includes those who have given up looking for work).

Nearly 30 years of tepid GDP growth — in real terms, averaging just 0.7% per person per year — tell us that we won’t be able to grow the economy enough to create jobs without confronting the problems that are even further upstream. These are the lack of access to sufficient nutritious food and quality education.

The World Bank’s view is that it is largely due to these factors that the average child born in South Africa today will only achieve 43% of their potential human capital, which is the lifeblood of economic growth and job creation. If we could eliminate nutritional stunting in children, they would grow up contributing at least another R90 billion to the economy each year; and were schools to perform as well as those in comparable middle-income countries, the economy would be between 23% and 30% bigger.

Growth through grants

Social grants have a direct and immediate benefit on the economy by enabling more people to participate, both as workers and consumers. To date, grants implemented in South Africa have reduced economic exclusion by about 10%.

They provide the purchasing power to sustain the bottom third of food retail markets — contributing to hundreds of thousands of jobs in the formal and informal sectors. They allow more unemployed people to look for and find work.

But the most fundamental and long-lasting economic benefit of social grants is that they enable poor children and young people to prepare for work through better nutrition, education and health.

Just as education, healthcare and social protection are equally important and cannot be characterised as competitors for social spending, it is wrong to contrast job creation as “income-generating” with social protection as “poverty-mitigating”. Both are both, which is why employment strategies and social wages should not be made to fight each other for economic relevance.

Trade-offs and rationing are features of any prudent fiscus, but the assumptions behind them can lead to very different policy decisions and budget priorities. If we don’t follow the stream all the way to its source, we could spend too much money on industrial strategies trying to stimulate economic growth and not enough on tackling the fundamental problem that generations of children continue to grow up malnourished, compromising their potential.

People need enough nutritious food to grow, learn and work. The most pressing strategy for national development is to get everyone over the food poverty line — below which they don’t get enough to eat even if they spend all their money on food. The national food poverty line was R760 per person per month in 2023 (equivalent to R25 a day).

As pitiful as they seem at just R2 180 per month, the grants for old-age pensioners and people with disabilities are both substantially above the upper-bound poverty line (R1 558 per month in 2023). This amount is deemed sufficient for basic food and subsistence for an individual, even though we know that others in the household share that income.

Child grants and nutrition

Still, that reality applies to all grants and so our focus should be on increasing Child Support Grants (roughly R17 per day) and Social Relief of Distress Grants (R12 per day).

The immediate priority should be to increase the Child Support Grant to the food poverty line, for three reasons:

  • First, prioritising children will have the greatest impact on new human capital formation and contribute most to government’s medium- to long-term plans for economic growth and job creation;
  • Second, a higher proportion (59%) of children than adults (42%) live in the poorest 40% of households. Providing sufficient income to feed all children will direct more resources to the poorest households; and
  • Third, section 28 of the Constitution gives every child the right to basic nutrition and preference to children in all matters regarding them. This right is immediate and not subject to progressive realisation.

The Child Support Grant was originally set at a value linked to the cost of basic food and clothing. Unfortunately, its value has been eroded over time, and particularly in recent years when food inflation was very high. It is now worth just two-thirds of the food poverty line.

Bringing all child support grants back to that value may not be immediately affordable. If we started with eligible children under six years of age, the additional cost would be about R13.6 billion per year, bringing the total annual budget for a grant that reaches 13 million children to R100 billion. This would still be below the R106-billion budgeted for the older persons grant, which is paid to just four million people.

The next priority is to extend the Child Support Grant backwards into pregnancy. The earlier in childhood we intervene to ensure sufficient nutrition, the more profound the effects on life-long growth and development.

review published in The Lancet in 2013 found that maternal undernutrition accounts for about a fifth of all stunting. At 13.2%, South Africa’s rate of low birth weight is roughly twice that of Brazil or Indonesia, contributing to the fact that about a quarter of our children are stunted.

A maternal support grant would reduce healthcare costs, nip stunting in the bud and set South Africa on a higher course for long-term economic growth. At the food poverty line, the cost would be about R2.6-billion per year — assuming two-thirds of pregnant women get the grant for six months of pregnancy.

Set at the food poverty line, these targeted interventions will significantly improve nutrition and well-being, but there are still many people in desperate need of social protection who would not receive it.

In 2020, 82.6% of children entitled to the Child Support Grant received it. Nearly 2.2 million children were excluded, meaning that roughly one in six children in need of support receive no form of social grant. The main reasons for exclusion are lack of documentation (birth certificates or identity documents), lack of information and administrative hiccups.

Social Relief of Distress

Further, of the 16 million people estimated to be in need of the Social Relief of Distress grant, 14.4 million applied but only about 55% were approved. Many applicants were declined because their income was just above the very low threshold of R624 per month, while others were excluded because of administrative problems such as outdated information on government databases.

Those children and adults who meet the criteria but are excluded from social protection for administrative reasons are likely to be those in greatest need. If it is not possible to bring their income up to the food poverty line by reaching them with social grants, and if a universal basic income guarantee is unaffordable in the short term, we must find urgent ways of effectively lowering that line by making essential foods more affordable.

Nationwide food affordability is the basis for the urgent proposal to double-discount 10 highly nutritious basic foods through a combination of industry and fiscal contribution. Food retailers and manufacturers would waive their profits on just one food label of 10 “best buy foods” which would typically constitute the staples of poorer households if they could afford them. Industry’s contribution of profits would be matched through a retail subsidy from government.

While industry has not yet been willing to provide aggregate estimates of the profits forfeited — and likely to be recouped through greater foot traffic in the stores — the DG Murray Trust estimates that this solution will cost the fiscus about R2 billion per year.

In our view, these are the most critical strategies to start with because they are both most targeted to improve access to food in the short term and will have the biggest positive impact on human capital development in the long run.

The law reform required to introduce a universal basic income grant will take at least another five years. Over this period, another 1.5 million children under the age of five will become stunted from malnutrition. This is why government must act decisively now, even as it considers longer-term changes to the social security system.

Beyond these interventions, a steady expansion of income support to everyone else who needs it, first to the food poverty line, and then progressively towards an amount that can provide enough for the necessities of life, will help South Africa escape from the inequality trap that is currently retarding economic growth and job creation.

David Harrison is CEO of the DG Murray Trust (DGMT), and Katharine Hall and Paula Proudlock are senior researchers at the Children’s Institute, University of Cape Town.

This opinion article was first published by the Daily Maverick on 09 May 2024. Read it here.






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