Raila's Sh6,000 'handout'- viable economic plan or empty promise?

Kenyans are still reeling from the havoc wreaked by Covid-19 and the pandemic appears to be rearing its ugly head in the sixth wave. This has been exacerbated by high inflation and the attendant hike in prices of essential commodities in the face of salary cuts and job losses which have dealt a double blow for Wanjiku, Achieng, Namukhula, Kadzo and Jepchirchir.

This is especially so for those from the middle and lower-middle income groups and below poverty line (BPL) segments of society. Adding salt to injury is the skyrocketing fuel prices petrol breaching the Ksh. 160 /litre-mark for the very first time and diesel creeping up, at over ksh 140 while kerosene is at 127 per litre.

Different political actors have responded to this national conundrum. The Azimio la Umoja One Kenya coalition party ticket of Raila Odinga and Martha Karua, in their 10-point agenda have promised a social protection programme dubbed Inua Jamii, Pesa Mfukoni.  They observe that a nation’s greatness is judged by how it treats its poor and vulnerable. Inua jamii is a social protection programme that promises to deliver Ksh6, 000 per month to two million of the country’s most vulnerable families.

They argue that it is not intended as a handout but an investment and a foundation for a new transformational value chain that will also trigger massive economic activity and create thousands of localized small-scale businesses and enterprises across the country. Furthermore, it is expected to lead to millions of jobs and the eventual development of a thriving middle class. The resulting middle class and SMEs will be a robust market for larger, more national corporations. Is this new?

Poverty-targeted household cash transfer programmes – often with conditions and sanctions attached – have spread across the world. Indeed, what Raila is promising is not new. Cash transfers are often used by governments to respond with economic interventions to cushion the shock.

The Kenya government already runs a social protection programme; The Older Persons Cash Transfer (OPCT) started in 2007. The objective of the programme is to provide regular and predictable cash transfer to poor and vulnerable older persons (65 years and above) in identified deserving households.

Opinions are divided about the viability of cash transfers. There are those who argue that the likelihood of failure of cash transfers is particularly strong because these programmes, since they are development interventions focused on eradicating poverty, are often expected to ‘graduate’ their beneficiaries out of poverty. Yet, this is an unrealistic expectation, for several reasons.

First of all, this approach focuses on individuals as the key actors, responsible for ‘lifting’ themselves out of poverty, with a little help from the government. However, we know that reducing poverty and inequality requires a structural transformation of economies and societies: it can never be an individual responsibility.

As a result of this, in the past, some governments have been concerned that transfers would increase dependency on the state and, in particular, that cash transfers would not be used well because it is hard to monitor how people spend them.

Many governments used instead to provide food aid or subsidise basic food items. So why have governments shifted to using cash in low and middle-income countries?

Evidence shows that in most situations, there is strong evidence that money, not food, is the most efficient and effective way to distribute emergency aid and social programmes. This particular question, on how poor people use cash transfers, is one of the most studied in development sociology.

Besides, poor people spend cash grants well. The bulk of transfers is spent on food anyway. Studies have shown that recipients of cash grants have better dietary diversity and are less likely to face food insecurity.

A World Bank review found grants improve growth and cognitive development in small children. Cash also has the added benefit of giving people autonomy to spend on what they need most.

It also stops distortions arising in local markets, where bringing in free food can lead to price decreases that hurt local producers.

Setting aside moral arguments, malnourished children have lower schooling attainment and lower earnings throughout their lives.

Studies show that grants improve growth and cognitive development and later outcomes in small children. It is harder to find a smarter investment.

But studies also show that, when facing a short deep shock, desperate households often sell productive assets such as cows, vehicles or phones or dip into meagre savings which they usually use to search for work. Losing the means of earning can lead to many additional years of poverty. Temporary cash grants can help. Studies show that recipients of grants are less likely to sell assets when they face shocks.

In low and middle income country settings, cash transfers also mostly do not affect whether, or how much, people work. In some studies, they increase job searches because they give people money for transport costs and airtime.

As such, youngsters in households with a pension recipient are more likely to find jobs.

There are anecdotes of welfare queens: people spending their welfare money poorly. But the anecdotes just do not bear out the reality in large samples of people. There is really no good evidence of waste.

World Bank reviews have found out that cash grant recipients did not increase spending on alcohol or cigarettes. In some countries, which only give the grants to parents, there have been arguments that the grants are incentives for women to have children.

But there is little rigorous evidence of this. In fact studies show that women in households are less likely to fall pregnant.

Cash is also usually cheaper to distribute than food. It can often be transferred to bank accounts or mobile money accounts. It does not go off, and governments don’t have to worry about having the wrong type of cash in the wrong place.

There are worries that cash might be more fungible and possible to divert, but there is also evidence on how to prevent ‘leakage’, in particular by paying directly to beneficiaries, requiring biometric identity verification and being very clear about who is getting what benefits on what schedule.

It is obviously difficult to set these systems up from scratch, but many countries have them in place already. And cash is much better for social distancing than food parcel queues, if it can be sent to bank accounts. Cash transfer for social protection is a win-win.

- Edwin Wanjawa is a lecturer at Pwani University