[Opinion] South Africa's welfare dilemma

Initially, the government introduced the special SRD grant to cushion South Africans from the economic impact of the Covid-19 lockdowns. Valued at R350 per month, the SRD grant is distributed to those who are unemployed and receive no other grant. Before the implementation of the SRD grant, South Africa’s dependency on the welfare system was steadily increasing.

Between 2001 and 2019, the number of social grants increased by around 360% – from 4 million to 18.2 million. Given the country’s high poverty and inequality rates, social grants did help to improve the quality of life for the poorest South Africans. However, since 2010, South Africa’s economy shifted from one that created employment and wealth, to one of redistribution and dependency. Since 2010, the number of social grants paid out exceeded the number of employed persons and by 2019, there were only 89 working people for every 100 grants distributed.

The government’s harsh response to Covid-19 has worsened this ratio. The number of employed people dropped from 16.3 million in 2019 to 14.1 million in 2020, essentially wiping out more than a decade’s progress on job creation. In April of 2020 the government introduced a temporary R350 SRD grant to support those left unemployed by the Covid-19 lockdowns. Applications for the SRD grant have escalated since 2020 as the country struggles to recover from the pandemic. By March 2022, 10.9 million SRD grant applications were approved. If we add this figure to the most recent number of social grants, the total number of grants distributed in 2022 is estimated to be more than 29 million. That is nearly double than the number of people currently employed in the second quarter of 2022.

Initially, the grant would only be paid out until the worst of the pandemic had passed and the economy started to recover. However, with expanded unemployment levels hovering above 44%, President Ramaphosa announced during the State of the Nation Address (SONA) that the R350 grant deadline would be extended for another year until April 2023. With a low growth environment and a shrinking tax base, the extension of the SRD grant will add significant pressure to South Africa’s already constrained fiscal position. According to Minister Lindiwe Zulu, the Department of Social Development (DSD) will allocate R44 billion for the SRD grant for the 2022/23 financial year.

Although it is financially unviable to continue implementing the SRD grant, removing it would prove extremely politically unpopular to do so. A rapid assessment by the DSD found that 88% of recipients of the SRD grant felt that it made a positive difference in their life. A further 93% used the grant money to purchase food. In addition civil society groups, such as Black Sash, are increasingly advocating that the SRD grant become the foundation for a more permanent Basic Income Grant (BIG). This pressure seems to have worked. In a report at the ANC’s recent policy conference, the party made its strongest-ever statement in support of the BIG. ‘All people should receive unconditional basic income to meet their basic needs indexed to the food poverty line. Government should continue to pay the social relief of distress grant of R350 until the introduction of the BIG…’

Introducing a more permanent basic income grant could push South Africa closer to the edge of a fiscal cliff. To reduce the reliance on the SRD grant and on the broader social welfare system, there needs to be a drastic reform of current government policy that will allow for increased employment opportunities. However, government has remained committed to harmful economic policies that hurt small businesses, chase away investment and lock people out of the labour market.

Unless necessary reforms are implemented, the unaffordable SRD will become a more permanent feature.

Article originally appeared here.