More welfare or less? ANC confronts apartheid’s legacy

The ANC is being forced to confront a problem that has bedevilled the country since apartheid ended 28 years ago: how to reduce record gross inequality and poverty that hurts the black majority more than the white minority.

While the issue has never gone away, it has come to a head after the Covid-19 pandemic destroyed jobs and livelihoods.

Unemployment hit a record of nearly 35% in 2021 and anger at the worsening economy has spilt into violent protests and rioting, including last summer when more than 300 people were killed and hundreds of businesses destroyed.

The governing party is alarmed at its waning popularity among voters, and a leadership contest is months away, adding to pressure on President Cyril Ramaphosa to improve the lives of ordinary South Africans.

His preference is to give more free money to the poor. The government introduced a social relief grant in 2020 to support those worst hit by the pandemic, and is debating whether to increase handouts and make them permanent. Ramaphosa’s stance pits him against sceptics including his own finance minister, Enoch Godongwana, who fear that a proposed permanent basic income grant could be ruinously costly.

Opponents of more generous handouts also say they act as a disincentive to people looking for work and divert resources from basic services such as electricity, water and schools.

For some of the populace, the small social relief grant of R350 a month offered to those who were unemployed and did not receive any other form of grant was a godsend, even if it could not solve their problems longer term.

Sunnyboy Moseboa lives in Diepkloof, Soweto. He set up a stall selling boiled cow feet, using the grant to cover expenses such as electricity to keep his product fresh.

Unmarried and without children, he had depended on handouts from his family. Now his business nets him on average R2,000 a month, after years of failed job searches and enterprises.

“It’s small, but the R350 helped,” he told Reuters outside his house assembled from discarded wooden planks, glass panels and iron sheets.

“Sometimes I have cash flow problems. There are times when there’s no food for me to eat.”

Having extended the grant another year in his February state of the nation address, at a cost of R44bn, Ramaphosa is considering making it permanent and increasing it for 10-million beneficiaries — a sixth of the country.

Inequality campaigners see it as a global test case, as robots replace jobs and some countries look at providing unearned income as a solution. Many economists are unconvinced.

“We face a real danger of ... limit(ing) ... job creation potential by increasing the system of social grants,” some of Ramaphosa’s advisers wrote in a leaked February report, seen by Reuters.

After apartheid ended in 1994, the ANC introduced policies aimed at job creation and private sector growth that they hoped would reassure white nationals and international investors and prevent them flooding out of the country.

But it also spent heavily on improving benefits for people who were discriminated against under white rule, including building millions of subsidised homes for the poor.

Despite the huge spend — at 3.3% SA spends nearly three times the global median on social assistance as a share of its GDP, according to the World Bank — unemployment is at a record and, on some measures, inequality has got worse.

Economic growth slowed over the past decade as the country struggled with policy uncertainty, political turmoil, an energy crisis and allegations of state corruption under former president Jacob Zuma — who has denied wrongdoing.

This has piled more pressure on Ramaphosa, both within the ANC and on the streets, where hundreds have protested in recent months to demand the government limit the number of foreign workers in the country and safeguard jobs for SA.

Some analysts say that expanding social protection would be a vote winner for the ANC, which in 2021 suffered its worst result in local elections since taking power.

Voter support for the ANC dipped below 50% for the first time, raising the possibility that it could lose power for the first time since 1994. Godongwana noted in his budget speech that the social relief grant had expanded an “already extensive social safety net”, now covering half the population.

But Alex van den Heever, a social security expert at University of the Witwatersrand in Johannesburg, said the system was stingier than it looked and was less pro-poor when you offset it against tax breaks on private pension income, which funnel 1.7% of GDP back to the top 10% of earners.

Accusations of corruption and mismanagement have also dogged SA’s welfare programmes, resulting in long backlogs and shoddily built homes, and preventing help from reaching many of those in need.

Defenders of basic income propose at least doubling the Covid-19 grant to hit the food poverty line. In downtown Soweto the unemployed queue from as early as 2am to get their grants, forming snaking lines — a stark reminder of how persistent SA’s poverty is.

Among them is Thandi Shabangu, who has four children. Before the grant she did odd domestic jobs and now uses the money from both to buy snacks and sell them at a kiosk. “The grant helped me to start my business ... with today’s, I will buy more stock,” she said.

Ramaphosa had such people in mind when he said in his address that some used grant money to start businesses, rejecting the theory that they encourage idleness.

Sceptics still worry about the cost. 

“Affordability is going to be a serious problem, with our debt levels,” said Patrick Buthelezi, an economist at Sanlam Investments. The Treasury will spend nearly R250bn on grants in the financial year starting in April, up from about R225bn in the previous year.

But Shaeera Kalla, from activist group #PayTheGrants, said that with political will, SA could make the money back in taxes on the wealthy, such as VAT on luxury items.

Reuters