Ramaphosa Advisers Divided Over Implementing South African Basic Income Grant

(Bloomberg) -- A panel of economic advisers appointed by South African President Cyril Ramaphosa is divided over whether the country should implement a basic income grant to ease poverty in the world's most unequal nation. 

A report by 11 of the about 18 advisers cautioning the president against implementing such a program, saying it would be a “policy error” that would curb growth, was leaked last week. A separate report by four other advisers, seen by Bloomberg, warns that not doing so could lead to a repeat of last year's riots and looting in which more than 350 people died. 

“The state cannot turn a blind eye to this simmering discontent,” the authors of the latter report said. They called for the state to extend protection for the vulnerable beyond existing social grants.

The divisions within the Presidential Economic Advisory Council mirror those in government. While Finance Minister Enoch Godongwana and his predecessor, Tito Mboweni, have said an income grant is currently unaffordable, Ramaphosa and Social Development Minister Lindiwe Zulu have said the measure -- which would be the biggest of its kind globally if implemented -- should be considered to alleviate poverty. 

Business organizations have said it would be ill-advised.

‘Various Agendas'

On Saturday, Ramaphosa's office acknowledged the leak of the initial report, saying it was being used to “support various agendas.” The advisers “hold a range of diverse and nuanced views” that are valued by the president, his office said. The Johannesburg-based Sunday Times newspaper earlier reported on the second document.

South Africa, which at 3.3% of gross domestic product allocates a greater proportion of its revenue to welfare than most countries, is projected to spend 222 billion rand ($14.3 billion) on social grants in the year through February. More than 18 million people, or one in three South Africans, receive monthly payments, mostly in the form of pensions or child support.

Expanding welfare is seen as the ruling African National Congress's single biggest achievement in tackling inequality. There is no permanent provision for the unemployed. More than a third of South Africans are jobless and the figure rises to almost 80% among those aged 18 to 24.

Calls for the introduction of an income grant from civil society organizations and labor unions have increased after the government agreed to a temporary 350-rand monthly payment to the unemployed to mitigate the impact of the Covid-19 pandemic. 

Wealth Gap

The Thomas Piketty-backed World Inequality Lab said in a study that inequality in the country hasn't improved since the end of apartheid in 1994 and the richest 3,500 South African adults own more than the poorest 32 million people. The advisers who authored the report advocating additional welfare spending said it would increase consumer demand.

“Debate is corralled into a narrowing enclosure, where any rise in social spending, be it through a basic income grant, improvements in existing grants or a more comprehensive social package, is thought to displace investment and jobs,” Ayabonga Cawe, one of the authors of the report, said in a column in Johannesburg's Business Day newspaper on Monday. It should be looked at “as a critical feature of our post-democratic compact to build a society based on solidarity and compassion. Or as a critical feature of our growth story.”

The cost of a basic income grant, depending on what level it was set at, could range between 157 billion rand to 519 billion rand a year, according to a study by consultancy Intellidex.

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