In rural Africa, where money is scarce and subsistence farming the norm, even small injections of cash can go far and help grow a local economy in surprising ways.
These are among the findings of a study by the Washington-based American Institutes for Research (AIR), which over a two-year period analyzed Zambia’s monthly child grants to extremely poor households in three rural districts.
It comes against the backdrop of a wider debate about the role of aid in Africa, especially handouts, which critics say stifle economic activity by creating a culture of dependency and removing incentives to work.
But supporters of aid have long argued that direct cash transfers can give those at the very bottom of the income ladder a leg up, and this seems to be one of these cases.
Aside from greater food security – and it would be expected that such poor family units would spend additional cash on calories – the study found recipients boosted their crop production and also diversified their household income base by setting up small businesses.
“It has impacts across the board. People can take this money and grow it so it is helping to grow the economy. These households are starting short-term micro-businesses such as small shops,” David Seidenfeld, a senior researcher with AIR who directed the study, told Reuters in a telephone interview.
“We know they have more money than they did before, which has enabled them to do all of these things,” he said.
A simulation model used by the researchers found that each Zambian kwacha ($0.18) transferred to poor households raised, through multiplier effects, the income in the local economy by 1.79 kwachas.
This suggests that such transfers not only alleviate poverty but also stimulate economic activity – though of course on a small scale and from a very low base.
TARGETING THE POOREST OF THE POOR
Zambia’s modest program of child grants, involving three remote districts targeted because they had the country’s highest rates of extreme poverty and mortality among children under the age of five, was started in 2010.
The criteria was simple: all families with at least one child beneath the age five were eligible, but all households received the same amount – 60 Zambian kwacha or around $11 a month at current exchange rates – regardless of their size.
No conditions were attached to how the money could be spent and the researchers interviewed the heads of over 2,500 of the households in the communities, about half of whom were recipients, so they could contrast their fortunes with those who did not receive it.
The study found that 76 percent of the increased spending by those given the transfers went to food, with the percentage of households eating two or more meals a day rising by 8 percentage points to 97 percent.
In a promising sign, virtually none of the extra money was spent on alcohol or tobacco. So fathers were not grabbing the cash and heading down to the local informal bar for a bender.
The study also showed that the value of agricultural produce harvested rose by 50 percent and the number of households selling harvested crops rose by twelve percentage points.
This was because they had extra cash to hire labor from within their communities and also to spend on inputs and tools.
There was a 21 percentage increase in the number of livestock owned and recipient households sold twice as many livestock as those not receiving the cash.
Significantly, there was a 17 percentage point increase in the number of small businesses set up by the households receiving the extra $11 a month.
Zambia plans to build on what it sees as the success of the program by increasing it to 150 million kwacha a year in 2014 from around 17.5 million now and also expanding the criteria, so it may go to more than just families with children under five.
President Michael Sata inherited the program when he took office in 2011 and widening it is in keeping with his populist initiatives on behalf of the poor and working class.
Cash transfers or grants to the poor and indigent in Africa are few and far between but are starting to take root.
South Africa has by far the largest program on the continent, with around 16.1 million people or close to a third of its population receiving some kind of social grant, according to a recent report by investment bank Goldman Sachs.
The Transfer Project, a research initiative that looks at grant programs in Africa, says Namibia and Lesotho also have social pensions while cash transfers of various kinds have been rolled out in Malawi, Mozambique and Kenya.
If the Zambia case is anything to go by, such programs should at least aim for the very poorest households and those with young children, which could reap big dividends from even small grants of cash. ($1 = 5.5600 Zambian kwachas)