Safety nets and poverty reduction: A hand-up not a hand-out

Do you sometimes wonder if the average person is benefiting when the economy is doing well? Aren’t the poor left behind, even in the most rapidly growing economies? Concerns around rising inequality exist in many countries, rich and poor, East and West. Kenya is among them.

Over the last 10 years, the economy grew at an average of about 4 percent. With population growth of 2.7 percent, every Kenyan would have benefited by a modest 1.3 percent per year, but that assumes the growth was distributed evenly.

Even though many governments around the world want to avoid rising inequality — at least this is what many say — they often don’t achieve it. One challenge is that the already well off tend to benefit more during periods of economic growth. The poor typically also benefit, but their income rises more slowly. Does this mean rising inequality is here to stay?  Do we need to accept that some people live in unimaginable wealth next to the poor who can’t afford basic services such as clean water or a visit to a health clinic?
Not really, and especially not now. Well-designed safety nets can be part of the solution. Over the last decade, many countries have successfully implemented programs that have helped to lift the poor from poverty. In Africa, Asia and Latin America, these programs are demonstrating that they can help keep children in school, get poor households access to health services, and even help build productive assets.

There are a large number of success stories and many of them are coming from emerging economies like Brazil, Mexico and Indonesia. For example, the Brazilian “Family Grant” (Bolsa Familia in Portuguese) is the largest conditional cash transfer programme in the world. It played an important role in reducing extreme poverty and inequality in this notoriously unequal country.

Over the last decade, when Brazil grew strongly, the poor actually benefited more than the rich because some of the gains have been partly redistributed to help the poor.  This single programme was credited with one-fifth of the decline in national income inequality! Closer to home, Ethiopia has been successful in reforming its food aid system and largely replaced it with a predictable long-term national safety net that covers 7.8 million people. The program is addressing the country’s chronic food insecurity and helping with improved drought response.

Kenya is in a good position to learn from these experiences and create an even stronger system. Mobile money and other innovations can make it easier to transfer funds and reduce corruption. And Kenya is starting to take protection of the poor more seriously, as witnessed by the recent approval of a new social protection policy by the Government. But isn’t Kenya already doing a lot with projects ranging from support for orphans, elderly, school feeding programmes and an often massive emergency response to droughts?. Kenya’s safety net projects are too small and fragmented. Existing projects are limited in coverage and their systems and structures are not yet sufficiently robust to enable a rapid expansion to new beneficiaries. They are also dominated by expensive food-aid responses to drought — about 86 percent of safety net spending is oriented to emergency relief.

Financing is also a problem. Currently, spending for long-term safety nets in Kenya is at relatively low levels (around 0.22 percent of GDP). The low levels of financing mean that it can’t afford to support many people. Current coverage compares very poorly with other countries. Kenya covers only 10 per cent of its poorest quintile (i.e. two per cent of the population), much lower than Ethiopia (40 percent), Brazil (48 percent) and Indonesia (66 percent, see figure).

Figure – Social protection: Kenya needs to scale-up to catch-up

Source: World Bank estimates; Note: Coverage of the poorest 20 percent with Social Safety Net Programs

Kenya requires long-term interventions to address poverty, inequality and vulnerability. And this is where the Government’s new policy can make a difference. It proposes to establish a more comprehensive approach to social protection by streamlining many small interventions and using modern payment and management information systems to make them more cost-effective and robust.

This is not about charity. It is about giving every Kenyan a fair chance to live a dignified life, and to know that there is a helping hand when a crisis hits. If the Government can get the safety net system right, it will be the basis for a more equitable, prosperous and stable Kenya in the future.

Follow Wolfgang Fengler on Twitter @wolfgangfengler