The Covid-19 proposals that may save millions

The economic shocks of South Africa’s lockdown will devastate impoverished communities. Proposals have emerged that may be sure bets to soften the blow.

On the morning of Friday 27 March 2020, South Africa woke to the first day of a nationwide lockdown. At the same time, the country’s first coronavirus casualty was confirmed in the Western Cape.

The devastating news of the latter seemed to confirm the necessity of the former’s severity. South Africa was no longer watching the global coronavirus pandemic from the sidelines. It had arrived in the thick of it.

But while there may be a developing consensus that stringent isolation measures are necessary to curb the spread of the virus, there is less certainty regarding what the wide-ranging lockdown, which is set to devastate informal incomes, might mean for the economic fortunes of impoverished communities.

A set of policy proposals that emerged over the weekend regarding changes to South Africa’s social grant system could mitigate some of the lockdown’s worst economic shocks, sparing several million more people from food poverty. While it appears unlikely that President Cyril Ramaphosa’s national command council on the coronavirus has yet considered the proposals, signs are that it is a matter of time.

South Africa’s economic volatility

Incomplete data under rapidly changing circumstances means that scientific consensus on coronavirus interventions remains immature and untested. Policy makers, as a result, have been forced into decisions under uncertain conditions.

But if the coronavirus data on which public health interventions are being based remains largely untested, the effects of economic shocks on South African households have been well studied.

One recent investigation into how households rise out of, fall back into, or remain trapped in poverty, for instance, detailed South Africa’s exceptional economic volatility. Half of the population has virtually zero chance of escaping poverty, while 13% has only some chance. A further 14% face a “considerable risk of falling into poverty”. That leaves only one in every four people who are stably in either the middle or elite classes.

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The study found that “casual and precarious forms of work do little to reduce poverty risks, while access to stable labour market income is a key prerequisite for households to achieve economic stability”.

This means that job insecurity – the sort of which is being ramped up across sectors by South Africa’s coronavirus lockdown – is a key determinant of economic vulnerability.

Consider someone who lived in a home where the household head had a time-limited work contract and no union coverage before the outbreak of Covid-19. The likelihood that they would fall into poverty was almost 50%. If the household head lost their job and was forced into casual employment, that risk would balloon to over 62%. After falling into poverty, the probability of escaping again would only be about 13%.

All of this volatility was modelled in a context free of the likely economic ravages of Covid-19.

The grants that might be

More than half of South Africans live below the poverty line. The poorest 5.6 million people survive on R352 a month. Before schools were closed in the wake of Covid-19, about 9 million learners received daily meals through the national school nutrition programme.

In a context in which households are one economic shock away from falling into almost irreversible poverty, South Africa’s Covid-19 lockdown threatens an unprecedented increase in impoverishment and hunger. So far, the command council’s efforts to mitigate this have turned on an increase in the reach of the Unemployment Insurance Fund (UIF). Almost one in every two workers in South Africa – eight million people – do not qualify for this support, however.

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A report being considered by various departments details a set of proposals “to deal with increased economic vulnerability due to the Covid-19 pandemic”. The proposals were designed to target precisely those workers who will not be caught by the UIF safety net.

Caroline Skinner, a senior researcher at the University of Cape Town’s African Centre for Cities and member of the task team working on the proposals, told Rapport over the weekend that an announcement on a special new grant, designed to assist informal workers in particular might be announced soon.

Also among the proposals was an increase to South Africa’s child support grant – a measure that may drastically mitigate the lockdown’s economic shocks. The report estimates, for instance, that the poorest 10% of South Africans, who rely on informal incomes, will lose up to 45% of their income as a direct result of the lockdown. Increasing the child support grant would cut this loss down to below 20%.

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Increasing the child support grant also appears imminently achievable due to South Africa’s existing and enviable direct cash distribution infrastructure. While governments around the world are grappling with how to transfer cash directly to citizens hit hard by lockdowns, the South African state, since 1994, has built a grants system that favours women and successfully targets its most economically vulnerable citizens.

More than half of the income of the country’s chronically impoverished people comes from government grants. In the middle class, by comparison, less than 7% of household income is from grants. All this, according to the report, “means that an increase in the value of existing child support grants will be an immediate and effective strategy” to reach South Africa’s poorest homes.

Increasing every child support grant by R200 would cost the state R10 billion. Increasing them by R375 would cost R15 billion, and increasing them by R500 would cost R20 billion.

The well-being of all

While questions around how to deal with the impacts that Covid-19 will have on impoverished people, particularly due to job losses, have arisen at the national command council, social development minister Lindiwe Zulu said that the proposals “have not been brought to the attention” of the council.

The virus is forcing the government to think anew about how to deal with poverty, said Zulu, and the proposals are likely being considered at a departmental level as a result. “There’s nothing wrong with them thinking, there’s nothing wrong with them making suggestions, there’s nothing wrong with them making the proposals”

Zulu has instructed her own department to “look towards the future” and consider “possible scenarios.”

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When asked if the proposals would be considered by the council in the future, Zulu said: “It has to. There is no running away from this one. It eventually will come…. There’s no way the social situation cannot be part of an agenda as to what are they going to do. It will come as an agenda, that I can guarantee you. If it’s not there, I personally would be failing the people that I have to deal with. My responsibility is the well-being of all South Africans, but my focus is on the vulnerable.” 

The National Treasury said that while the grant proposals “are one of several research options, they have not been formally considered by the Department of Social Development or Treasury yet.”

Calls to increase the amount of the child support grant have been growing outside of the processes unfolding in the command council on the coronavirus. It is included in a recent and scathing South African Federation of Trade Unions statement, for instance, which warns that “collectively, while the rich may run to their safe havens and the middle classes may escape to well-stocked suburban homes, our society as a whole will be defeated”. It is also one among an extensive set of proposals put forward recently by more than 100 economists and policy experts.

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