Date:
Author: Maya Goldman, Resesarcher, SALDRU, University of Cape Town
Original article: https://theconversation.com/south-africas-poverty-relief-grant-should-be-increased-rather-than-paid-to-be-more-people-economists-explain-why-241083
South Africa’s unemployment rate stands at a staggering 33.5%, one of the highest in the world. Coupled with an alarming poverty rate – where more than half of the population lives on less than R1,558 (about US$88) a month – the socioeconomic landscape is dire.
The country’s social assistance system has been a critical tool in the fight against poverty and unemployment. In fact, South Africa has one of the largest cash transfers programmes in Africa. More than 19 million grants are paid out every month. These are the Care Dependency Grant, Child Support Grant, Disability Grant, Foster Child Grant, Grant in Aid, Old Age Grant and War Veteran Grant.
During the COVID pandemic a new grant was added to the mix – the Social Relief of Distress grant. (It’s known as the R350 grant; equal to about US$20.) This was added because the pandemic worsened the country’s socioeconomic ills.
Initially, the grant targeted unemployed South Africans who had zero income, were not receiving any social grant, were not a resident in a government-funded or subsidised institution, and did not qualify for the Unemployment Insurance Fund. The grant was intended to last for six months.
The grant has since been extended and increased. The most significant change came in April 2022 when the bank means test – verifying an applicant’s monthly income against monthly inflows into their bank account – was introduced to test eligibility. This halved the number of approved applications. Then, recently, the grant was extended to March 2025 and increased from R350 to R370 (about US$21).
A qualitative report by the Black Sash, a South African human rights organisation, highlights the impact of the Social Relief of Distress grant. It underscores that the grant provides individuals with a sense of dignity, allowing them to support their families’ livelihoods without having to rely on begging or borrowing money.
It has also helped individuals to search for a job or start a small business.
We believe there is an urgent need to reevaluate its design to make it more effective. In our study we modelled several design options. We simulated their effects on poverty levels, the number of individuals who receive the grant and the expense to the public budget.
Our simulations suggest that increasing both the income eligibility threshold and grant size leads to a significant decrease in extreme poverty.
Given the country’s fiscal constraints, we further compared the impact of only increasing one of the aforementioned variables. We found that increasing the size of the grant was more effective at reducing extreme poverty than raising the income eligibility threshold.
More specifically, increasing the grant size from R370 (US$21) to R430 (US$24) or R530 (US$30) decreases poverty more than increasing the income threshold from R760 (US$43) to R1,058 (US$60) or R1,558 (US$88). This simply suggests that if the government can’t afford to increase both the grant size and the income threshold, it should prioritise increasing the grant.
Positive effects
In the past year the Social Relief of Distress grant has supported more than 8.5 million individuals. We estimate that the grant reduced the number of individuals living in extreme poverty by roughly 4 million. Moreover, the grant has been found to enable recipients to search for work or start small businesses.
More specifically, studies revealed that the grant increases the probability of searching for a job by 25%, for example, by allowing grant beneficiaries to pay for transport costs associated with a job search.
It’s also been shown to increase the possibility of people starting small businesses or investing in assets to make their businesses more productive.
But we believe the impact could be even greater with some adjustments.
Variations on the theme
We updated the 2014/15 Living Conditions Survey conducted by Statistics South Africa to simulate the present-day South African economy and demographics. This data was then used to model various grant design options. The results may slightly underestimate the actual cost and slightly overestimate the impact on poverty reduction.
Our simulations explored the impact of maintaining the current monthly grant amount (R370, US$20.96) at different poverty lines: the 2023 food poverty line (R760, US$43,), lower bound poverty line (R1,058, US$60), upper bound poverty line (R1,558, US$88.26) and national minimum wage (R4,744, US$270.84). The food poverty line, also referred to as the extreme poverty line, is the amount of money that one needs to afford minimum required daily energy intake – approximately 2,000 kilocalories per day. The upper-bound and lower-bound poverty lines both include basic non-food items, however, at varying degrees.
At the food poverty line, the total annual cost of the R370 (US$20) grant was R30.9 billion (about US$1.7 billion), slightly below the current budget allocation. We found a 6 percentage point reduction in extreme poverty for roughly 4 million recipients (Figure 1).
Source: Authors’ estimates based on LCS 2014/15, updated using the QLFS 2015 & 2021
Raising the income eligibility threshold – the level at which people would qualify for the grant – to the lower bound poverty line increased the total cost of the grant to R41.6 billion (US$2.3 billion), suggesting the current R34 billion budget is insufficient. Alternatively, increasing the grant amount to R430 (the original grant adjusted for inflation), or R530 (current Child Support Grant value) raised the total cost of the grant to R35.9 billion and R44.3 billion, respectively.
Our simulations suggest that increasing the size of the grant is significantly more effective at reducing the incidence of extreme poverty compared to raising the eligibility threshold.
For example, raising the threshold to the lower bound poverty line without raising the grant size reduces extreme poverty by 0.2 percentage points compared to the 1.0 percentage point reduction achieved by increasing the size of the grant to R430 (US$24).
Therefore, if fiscal constraints force trade-offs to be made, we recommend increasing the grant size over the eligibility threshold.
What would happen if both the grant size and eligibility threshold were raised?
Raising the eligibility ceiling expands coverage and includes those who are now excluded from the grant due to faults in the method of means testing. Leaving the current eligibility criteria unchanged, except for the income threshold, South Africa could expand support to all those living below the upper-bound poverty line with a budget of R55.5 billion (about US$3.14 billion).
This would support individuals living in poverty even if the grant size were not large enough to take them out of poverty at the national poverty lines. To have a bigger impact on the poverty headcount, both the amount of the grant and the eligibility threshold need to be increased.
Source: Authors’ estimates based on LCS 2014/15, updated using the QLFS 2015 & 2021
Further tweaks
The grant can be improved over and above this with the following two modifications.
First, dropping the Unemployment Insurance Fund benefits as a criterion for exclusion (this has been done).
Second, assessing an individual’s income as an aggregate over six months rather than the most recent.
The Unemployment Insurance Fund exclusion criterion likely omits many eligible beneficiaries as data for the fund is updated infrequently and often inaccurately. Further, the exclusion criterion may discourage individuals from registering for the Unemployment Insurance Fund.
Averaging income over six months prevents individuals from being excluded if they receive a windfall, such as severance pay, but nonetheless remain poor over time. These modifications do not lead to drastic increases in beneficiary numbers or the total cost of the grant but limit the extent of unfair exclusions.
We also propose moving away from the current banking means test in favour of self-reported income. Since April 2022, eligibility for the grant has been determined by analysis of total monthly inflows into an applicant’s bank account. But total inflows sometimes include household transfers and loans, which often leads to overestimates that disqualify those who should qualify.
Finally, we suggest offering grant recipients additional active labour market services, such as job training and linking job seekers and employers, with any add-ons rigorously evaluated and phased in based on available evidence and costs.