/ 21 April 2020

Get cash out to the poorest now

Poverty Levels Slightly Up In Sa, Down In Zim
Primary healthcare visits for children aged under five years dropped 23% in 2020, as the sector’s focus largely shifted to the response to the Covid-19 pandemic.

President Cyril Ramaphosa is announcing a further package of economic measures tonight. The government has been scaling up food parcels as part of the social relief of distress grants system. 

But there is overwhelming evidence that money, not food, is the most efficient and effective way to distribute emergency aid

Poor people spend cash grants well. A 165-study review by the Overseas Development Institute found that grants improve dietary diversity and food security. A World Bank review found grants improve growth and cognitive development in small children. Cash has the added benefit of giving people autonomy to spend on what they need most. There is little evidence of waste: a review of 19 studies by the World Bank found cash grant recipients did not increase spending on alcohol or cigarettes.

Recently, it’s been argued that pension recipients are more responsible than young mothers, but there is also no evidence of big differences by age in spending grants. Even teenage girls in Malawi receiving cash transfers used them well; they reduced pregnancy rates and spent longer in school.

There are also old arguments that the grants are incentives for women to have children, but there is no rigorous evidence of this. As well as South African studies, randomised trials in Nicaragua and Malawi found that women in households are less likely to fall pregnant; a trial in Mexico found no effects. 

Cash is cheaper to distribute than food, even when starting a system from scratch. We don’t have to; the South African Security Agency (Sassa) grants system reaches 18-million people. Cash might be more fungible and possible to divert, but South Africa already has everything the World Bank recommends to prevent “leakage”: direct beneficiary payments with biometric identity verification and a clear payment schedule. And the Sassa card system is better for physical distancing than food parcel queues, because it enables withdrawals at many locations and has the capability to stagger collection dates. Most importantly, analysis by economists at the University of Cape Town shows that the child grant is already extremely well-targeted at poor households.

What do we do for those who are not receiving a grant? We need to get cash to them fast. For a few months, this should be through whatever infrastructure we have, even if targeting is imperfect. Other countries are using a patchwork of existing programmes and infrastructure. First, the government should relax some eligibility conditions for new enrolments, as called for by the Institute for Economic Justice. It should register pregnant and new mothers and automatically renew disability grants. Second, we could increase all social grants, as Kenya and India have, rather than trying to choose one. Third, many governments are using other registries of poor beneficiaries to pay once-off grants. Ethiopia is paying all public works beneficiaries in urban areas without requiring them to work. We could make transfers to mothers whose children have recently aged out of receiving the child grant, current and past participants in public works and anyone we have reason to think is poor whose bank account details we have.

The government and citizens will need to live with the fact that this temporary response will be imperfectly targeted, with inclusion and exclusion errors. But transfers are often shared. Grandparents share pensions with whole households. In Mexico, households ineligible for cash transfers targeted at the poor still got loans and gifts from eligible households in the same village and had higher food consumption. The government could even encourage beneficiaries to share with others in need. 

Why the rush? Emergency, fast cash is a smart investment in long-term poverty alleviation. Numerous studies, from China and India to Ethiopia and Malawi show that economic shocks have severe long-term consequences. Poor households often take short-term decisions that leave them in deeper long-term poverty. The decision most feared is that households reduce children’s nutritional intake. Setting aside moral arguments, stunted children have lower schooling attainment and lower earnings throughout their lives. Women may enter into transactional sexual relationships: during the 2014 Ebola outbreak in West Africa, a study by anti-poverty organisation BRAC found young women had older partners, higher rates of pregnancy and didn’t return to school. Both responses to poverty will be mitigated by an increased child grant.

But studies also show that when facing a short, deep shock, desperate households “dissave”: they sell productive assets such as cows, vehicles or phones or dip into meagre savings they usually use to search for work. Losing the means of earning can lead to many additional years of poverty. Temporary cash grants can help. Studies in Bangladesh and Malawi found recipients of grants are less likely to sell assets when they face shocks. One South African study found youngsters in households with a pension recipient are more likely to find jobs. 

It will be possible over time to develop new grants and enrol new recipients. India has sent money to Jan Dhan accounts linked to the Adhaar ID system, which were created to promote financial inclusion among the poor. Peru has given a one-off payment to households normally deemed too wealthy for their transfer programme. Brazil is allowing households enrolled in the census of the poor to sign up for emergency assistance. In Pakistan, people who regard themselves as vulnerable sign up by texting the existing social programme, Ehsass, with their national identification number. 

Right now, this week, we need to get money out fast to stop people falling into extreme poverty. Decades of research tell us that we have no time to lose.

Kate Orkin writes about social protection systems and labour markets in South and East Africa. She is a senior research fellow at the Centre for Study of African Economies and Blavatnik School of Government, University of Oxford