MAMOKETE LIJANE: Why a basic income grant would doom poor South Africans to perpetual poverty

My mother lives in a small farming town in the eastern Free State called Clocolan. It’s there that I came face to face with poverty in SA.

My mother once remarked that in her church they had funerals every weekend, but very few, if any, weddings. Most young people in Clocolan don’t finish school, can barely read for meaning, have children early, never hold a job, live off child support grants, and look forward to migrating to old-age grants — if they live that long. The pipeline from birth to death is bereft of milestones of progress. It’s just drudgery, hardship and slog.

At the time of the most recent census, in 2011, only 23% of the population in Clocolan had matric or a tertiary qualification; 17% of households had no income. On the expanded definition, the unemployment rate for the Setsoto municipality — which encompasses Clocolan and three other towns — was 45%.

Clocolan is a specific example of a generalised SA problem. In the context of this semi-dystopian reality, calls for social support are understandable. But that could be the proverbial road to hell, albeit paved with good intentions.

Before Covid, SA’s social security programme, which includes benefits for vulnerable children, and elderly and disabled people, covered 18-million people. As a result of the pandemic, the social relief of distress (SRD) grant — which President Cyril Ramaphosa recently extended for another year — added 9-million unemployed adults to that tally. As a result, just under 30-million South Africans — or 40% of the population — are covered by grants.

At R350 a month, the SRD grant will add about R40bn a year to the government’s expenditure bill. Proposals range from a modest increase of the SRD to R600 a month, which would increase the bill by another R40bn, to the introduction of a universal basic income grant (BIG) at the level of the minimum wage, which would raise the bill north of R1-trillion a year.

BIG proponents sit in two camps: one argues for the extension of the grant to ameliorate suffering; the other argues that by increasing expenditure, the BIG will lead to faster growth, and so the higher the grant, the better.

The pipeline from birth to death is bereft of milestones of progress. It’s just drudgery, hardship and slog

The extension of social support on a semi-temporary basis to reduce abject poverty, while other measures are put in place to deal with poverty on a sustainable basis, is not only understandable but desirable.

At more modest levels, the costs of a BIG appear more fundable, hence the recommendation in December 2021 by a BIG panel, headed by Prof Alex van den Heever, for the gradual extension of the SRD. Even then, though, policy needs to be calibrated carefully to contain the risks posed by this expansion.

The extension of grants to preserve the status quo — where the majority of South Africans are unemployed — cannot be sustained over time. That such expenditure could somehow be financed by the Reserve Bank or taxes is a fantasy.

A moral question

The maths of the debt equation already suggest that SA is on an unsustainable debt path: interest rates paid by the state are well above GDP growth, and it is difficult to see how debt will be stabilised over time.

The rates charged to the state set the rates at which every other borrower in the economy accesses debt. Consequently, high government bond rates restrain both current and future economic growth, and thus employment prospects.

Debt costs are the fastest-growing expenditure line item for the state. Expanding debt service costs cannibalise other expenditure and, over time, will lead to further degradation of the social services that are a necessary investment in the futures of poor South Africans.

Expanding state expenditure now, by introducing a BIG or other programmes, will increase the not-immaterial likelihood that SA will remain stuck in a slow-moving debt crisis over time. The BIG would thus reduce the chances that the poor will ever get out of their current quagmire.

Poverty is destroying SA’s social fabric, and something must be done. Policies leading to a step change in employment, better education, a better social wage and lower costs of living are where the solutions lie. Social grants can only be a bridge to a better future — they cannot be the future. A BIG that is ultimately a replacement for work would doom poor South Africans to perpetual poverty. It would not be the moral thing to do.

Lijane is a fixed income sales trader and macro strategist at Absa Capital