Can the implemented Srd350 Grant help those without jobs and decrease unemployment rate?
One of the most alluring yet dangerous ideas to have captivated policymakers is the belief that South Africa’s world-class social grant system can stimulate economic growth. However, this is a misguided notion. While redistributing income from one group to another can lead to more equal wealth distribution, it is unrealistic to assume that it will also ignite economic growth, particularly in South Africa’s current circumstances.
In a country as unequal as South Africa, the redistribution of wealth through grants has significant benefits, especially for the recipients. It is undoubtedly positive for those who receive these benefits, but the funding for these grants must come from somewhere, imposing costs elsewhere in the economy. Essentially, there is no such thing as a free lunch. Despite this, the idea that grants can act as a growth policy has gained traction. A prime example of this is found in President Cyril Ramaphosa’s March 27 newsletter, titled “Stimulating growth from the bottom up.” In it, he highlights that over 18 million South Africans receive grants, and he suggests that beyond alleviating poverty, this has many additional positive effects, including stimulating economic growth.
For instance, the president points to the social relief of distress (SRD) grant, claiming that it increased recipients’ chances of finding work. He cites new research stating that the SRD grant raised the likelihood of recipients searching for and securing employment. Indeed, one of the study’s findings was that unemployed SRD grant recipients were slightly more likely to have found work three months after receiving their first R350 than non-recipients. However, to suggest that the SRD grant led to a significant rise in employment is misleading. The impact was minimal—only about a three percentage point increase—and the effect was short-lived. After a year, SRD recipients were no more likely to be employed than those who didn’t receive the grant.
These nuances in the president’s interpretation of the research are important as they challenge the broader assertion that social grants act as a stimulus for the economy, boost spending in poor areas, and improve employment outcomes. Such claims reflect wishful thinking. One might ask whether the employment rate would have been three percentage points higher if every eligible person had received the SRD grant. It is unlikely, given that the impact of the grant was small and temporary. Additionally, it seems that the positive effect on recipients was likely due to the fact that there were non-recipients who were less likely to find work, and the recipients had access to money that allowed them to take advantage of job opportunities faster than non-recipients. This does not imply that the SRD grant is inequitable; it simply means that the president’s conclusion—that if everyone received the grant, employment rates would rise—does not follow logically.
If everyone were a recipient of the SRD grant, there would be no advantage for recipients over non-recipients, meaning there would be no discernible increase in employment. In such a scenario, the overall employment rate would remain unchanged. The president’s tendency to indulge in optimistic assumptions is also evident when discussing a program he launched that has provided about 750,000 young people with temporary work in schools over the past few years. In his newsletter, he claims that over 72% of participants said that the program helped them gain a foothold in the labor market. While this program may have merits, it raises the question of how much success can truly be attributed to a measure as vague as “gaining a foothold in the labor market.” What does this even mean?
The president’s statement that social grants “increase spending in townships and rural areas” is accurate, as grants indeed benefit businesses in poorer areas. By boosting the disposable income of poor households, grants shift consumer spending toward areas where these consumers live. However, there is a significant difference between stating that grants are good for businesses and claiming, as the president does, that they “act as a stimulus for the economy as a whole.” This assertion might hold if the demand shift to poor households didn’t have to be offset by higher taxes or interest rates, which would dampen overall demand in the economy.
The essential reality is that while grants are an effective and crucial method for redistributing income, they do not simultaneously act as a mechanism for stimulating the economy. The idea that expanding South Africa’s grant system will spur economic growth is a dangerous fantasy that has gained traction in some areas of the policy debate. Grants are an important anti-poverty tool and are the most effective program of their kind in South Africa. However, expanding them without cutting spending elsewhere will likely harm economic growth and worsen inflation, rather than stimulate growth. If reducing poverty and fostering growth were as simple as issuing checks to poor people, it would be perplexing why no other society has adopted this approach.
In a context of extreme poverty and inequality, South Africa has built an effective, well-targeted income redistribution system, which is something to be proud of. Yet, instead of exaggerating the benefits of the grant system and indulging in wishful thinking about its role in economic growth, we need to be more realistic. We must focus on improving other aspects of our redistributive state to help people move off grants. This includes improving the quality of education, public transport, and housing policies that bring people closer to economic opportunities. Most importantly, we need to make the difficult decisions necessary to develop a more effective growth and employment strategy that creates more businesses, more jobs, and includes a larger portion of the population.
A relatively small economy in which most people are poor or nearly poor cannot redistribute enough income to achieve the socioeconomic outcomes we need. For that, we need genuine economic growth—something the government is currently struggling to deliver. Until this changes, pretending that income redistribution through grants can serve as an engine for economic growth will only amount to spin.