The recent global economic crisis of 2008/09 illustrates the importance of addressing social security across all country groupings from the developed to emerging to developing economies. Access to social security is an important human right that helps to alleviate poverty and improve standards of living. Through social security, the lives of the marginalised groups in the society are improved. The experiences during the crisis and the challenges that social security arrangements face provide a window of opportunity for social security reform and improvement. There is need to continuously monitor demographic, societal, economic, political and individual circumstances so as to conceive and implement comprehensive social security systems that address the needs of vulnerable groups in society.
This CAI discussion paper focuses on the relevance of social security, and the developments and trends in social security during the recent crisis of 2008/09. The challenges and opportunities for scaling up social security arrangements in Africa are also explored.
Relevance of social security
Social security is a fundamental human right recognised in numerous international legal instruments, in particular the Declaration of Philadelphia (1944), which is an integral part of the Constitution of the International Labour Organization (ILO), and the Universal Declaration of Human Rights (1948) adopted by the General Assembly of the United Nations.(2) Social security covers all measures that provide benefits in cash or in kind to secure protection from: lack of work-related income (or insufficient income) caused by sickness, disability, maternity, employment injury, unemployment, old age, or death of a family member; lack of access or unaffordable access to health care; insufficient access to health care; insufficient family support, particularly for children and adult dependants; and general poverty and social exclusion.(3)
A human right, social security is also a social and economic necessity. The experiences during the recent global financial crisis show that social security systems play a major role in alleviating poverty and providing economic security. Access to social security helps people cope with life’s major risks including the need to quickly adapt to changing economic, political, demographic and societal circumstances. Yet despite its essential nature, social security is only enjoyed by a minority of the world’s population. This reality is especially evident in sub-Saharan Africa, where the majority continue to be in need of social protection due to the prevalence of demographic and labour force challenges and also because of the impact of HIV & AIDS.(4)
Countries with effective and efficient social security systems are better equipped to cope when hit by a crisis than those who do not have the foresight to put such systems into place. Income transfers through social security have a positive effect on income stability and poverty in developing countries especially in Africa. A comprehensive social security system is vital in times of crisis because it cushions workers and their families, stabilising the society and the economy by supporting aggregate demand and facilitating recovery.(5)
Countries around the world have been increasingly aiming to implement sustainable social security. Nonetheless, priorities for social security tend to differ across all regions due to the differences in the economic development levels, social security systems, historical and cultural variables. Consistently, social security reform is important in attacking poverty by reducing income vulnerabilities. Reforms are generally meant to close the gap that exists between the rich and poor, providing basic retirement, unemployment, death and disability benefits. An efficient social security system helps the society to share jointly the basic safety net that protects everyone against poverty in the event of retirement, death, disability or unemployment. Reforming the social security system, will help in restructuring the governance of the funds by a set of rules implemented through a common administrative platform.(6)
However, from a policy perspective, social security arrangements can be both beneficial and not.(7) On the one hand, social security arrangements can do good by reducing risks faced by households and smoothening otherwise traumatic social and economic transitions and supporting fairer distribution of income and opportunities. Undesirable outcomes can be experienced especially when promises are too many or too inflexible and hence contribute to fiscal unsustainability and perhaps financial crisis, and also when rules are unfair and hence contribute to social discontent and unrest. On the other hand, however, there may be undesirable outcomes, especially if schemes are not well-designed; if governance and management systems are weak and; if benefits lead to negative incentives as regards employment and activity. Policymakers should strategically address issues around social security and reforms with a sound mind to achieve the desired outcomes instead of pursuing their political will or interests.
Developments and trends in social security and the crisis
The crisis of 2008-09 led to falling or even disappearing labour incomes, increasing unemployment and falling revenues from self-employment. All over the world many people were deeply affected, whether they depended on income from the formal economy, the informal economy, locally earned income or earnings sent home by those working in the cities or abroad. The consequences did not remain in the income and poverty aspects only. Severe consequences impacted workers’ health care and that of their families:(8) Financial and economic crises usually lead to decreases in access to health care and coverage and this affects the most vulnerable sections of the population. For all these reasons, provision of basic income security and affordable access to essential health care is central to governments in Africa.
Many countries responded to the recent global economic and financial crisis by expanding social security coverage and raising benefit levels. Expansion of social security was the key crisis response method adopted.(9) African countries followed the trend in developed countries by expanding their focus on health, retirement, pensions and child support programmes to help the society.
For example, Egypt extended health coverage as did the United States under the new health insurance coverage passed by President Obama’s administration (though the latter is now in danger of being repealed). To help the elderly, the Kenyan authorities focussed on increased cash transfers to them. In Tanzania, minimum pension levels were increased. These stances are similar to the positions taken by Spain and Brazil, which increased the minimum pension benefits’ levels in line with the minimum wage. Rwanda successfully implemented a national community-based health insurance scheme that offers extended affordable coverage with tailor-made benefit packages. Its scheme allows low-income and informal-sector workers to gain access to affordable health care coverage. Mauritius also extended coverage more broadly by integrating its tax-financed pension system with a contributory pension programme within a multi-pillar pension system framework.(10) This is similar to the reforms that South Africa intends to implement in its social security and retirement fund industry.
In South Africa more broadly, the Government decreased the retirement age of men from 65 to 60, and prolonged child benefit payments until the 18th birthday (like the United Kingdom which also raised child benefits). During the recession, unemployment claims increased drastically and the number of people claiming social grants (11) significantly increased due to the deterioration of the economy. Thus, to reiterate, a key indicator of the importance of having social security in times of a crisis is the Unemployment Insurance Fund (UIF) which provided cover to workers who lost their jobs.(12) The UIF has shown how contributory social insurance can reduce the impact of negative income shocks. Although the South African economy has recovered from the recession at a macro-level, individuals and communities at the micro-level continue to feel the impact of the recession, due to unemployment and health demands among other crises.
Overall though, instead of instituting cutbacks, African countries are opting to reform and reinforce their social security systems (and this includes South Africa and Mauritius, for example). Innovative measures in financing social security are being tabled to enhance the sustainability of social security programmes.
Challenges and Opportunities for scaling up Social Security
Social security in Africa faces a series of challenges. First among these is determining the balance between the adequacy of retirement benefits and the adequacy of worker contributions. In many African countries a compulsory pension system does not exists and this continues to pose a problem for governments as people reach their retirement ages.(13) This is one of the key challenges to South Africa for instance, as the number of applications for old age pension grants continue to increase.
In a number of countries in Africa social security suffers or lags behind due to the institutional fragmentation that exists. This normally leads to high administrative costs which render participation in it unaffordable to low-income earners. Enforcement of compliance with contribution payments, and the cost implications of population ageing and overly-generous pension benefits also remain as challenges.(14)
Africa is a continent characterised by political tensions between the mainstream and rival (or rebel) political parties (groups). This phenomenon drags down the progress of tackling poverty through social security programmes. After disputed elections in the late 2000s, Zimbabwe and Kenya now have inclusive (“unity”) governments following the intervention of mediators to resolve the political impasses. The leaders of the rival political parties governing should put emphasis on the social security agendas instead of focussing on enjoying the political office benefits! In Zimbabwe, for instance, social security needs for the elderly, disabled and children should be addressed especially since the economy has been dollarised. A number of vulnerable groups continue to suffer due to hardships that confront them because they do not have working relatives at home or in the diaspora, who are often relied upon for support.
In some instances, vulnerable groups like children, disabled and the elderly end up suffering even more due to war and political tensions. Ivory Coast, the Democratic Republic of Congo (DRC) and Zimbabwe are typical examples were their citizens are forced to live in harsh conditions and some to flee into neighbouring countries. Resources of recipient countries are further strained in addressing the humanitarian needs of these refugees. Evidence can be drawn from Liberia which is receiving thousands of refugees from Ivory Coast, following the disputed elections of late 2010. The same can be concluded for South Africa with regard to its Zimbabwean refugees, and certainly DRC’s neighbours as well as perhaps Rwanda and Uganda, respectively. Resolving political tensions, acceptance of ‘democratically’ elected leaders, adhering to the rule of law and following the national constitutions (and revisions/ referendums thereof) will go a long way in helping African countries to solve their social security problems.
The ever-changing work patterns, family structures, demographic trends, environmental conditions, technological changes and societal values challenge, sometimes aid and also abet the provision of social security. These issues present circumstances that social security arrangements should continuously adapt to. In a society that is faced with pressing issues around HIV & AIDS, TB and Malaria, stress due to global developments, the changes in the life expectancy patterns pose a major threat to the retirement provisions.
The lower pace of employment creation and economic recovery, especially after the global economic crisis presents further challenges to governments around the world, no less in Africa. Issues around unemployment, health care demand, and child support would be generally perceived to be further pressing issues.(15) These circumstances can potentially harm the intended economic recovery as social unrest and instability becomes a potential risk and poor basic service delivery becomes a push factor for protests in society.
The recent global financial and economic crisis presents social security administrators and governments with the opportunity to reform and reinforce their social security arrangements. A well developed and functioning social security system is vital for adaptation to the ever-changing domestic, regional and international economic, financial and demographic environments. Although a number of countries have faced different circumstances in relation to social security, other measures should also take centre stage. For instance, skills development, encouraging a saving culture (investing in the stock market, bonds which are risk-free with guaranteed return such as the RSA Retail Savings Bonds in South Africa) and entrepreneurship development projects. These can help in reducing the burden on social assistance arrangements in a country.
Social security systems need to be reviewed continuously for them to remain relevant to the dynamic changes. Changes in life expectancy and mortality trends, shifts in dependency patterns and unpredictable trends in employment and income distribution are among the challenges that social security arrangements need to cope with. Finally, the recent crisis has shown that African countries can learn from international experience when reforming social security, income support, retirement funding and health insurance.
(1) Contact Anthony M Makwiramiti through Consultancy Africa Intelligence’s Africa Finance and Economy Unit (email@example.com).
(2) "World Social Security Report 2010 – 2011: Providing Coverage in Times of Crisis and Beyond", International Labour Organisation (ILO), 2010, http://www.ilo.org.
(6) "Dynamic Social Security: Securing Social Stability and Economic Development. Developments and Trends. Global Report 2010", International Social Security Association (ISSA), 2010, http://www.issa.int.
(7) Manuel, T., Speech. World Social Security Forum, Cape Town, 29 November 2010.
(8) "World Social Security Report 2010 – 2011: Providing Coverage in Times of Crisis and Beyond", International Labour Organisation (ILO), 2010, http://www.ilo.org.
(9) Hagemejer, K., "Social Security in Times of Crisis: An International Perspective", International Social Security Association (ISSA), 2009, http://www.eclac.org.
(10) "Dynamic Social Security: Securing Social Stability and Economic Development. Developments and Trends. Global Report 2010", International Social Security Association (ISSA), 2010, http://www.issa.int.
(11) Statistical Reports (Various Editions), South African Social Security Agency (SASSA), http://www.sassa.gov.za.
(12) "Social Security and Health Care Financing" (Chapter 7), National Treasury, National Budget Review 2010, http://www.treasury.gov.za.
(13) "World Social Security Report 2010 – 2011: Providing Coverage in Times of Crisis and Beyond", International Labour Organisation (ILO), 2010, http://www.ilo.org.
(14) "Dynamic Social Security: Securing Social Stability and Economic Development. Developments and Trends. Global Report 2010", International Social Security Association (ISSA), 2010, http://www.issa.int.
(15) Triegaardt, J. D., "Accomplishments and Challenges for Partnerships in Development in the Transformation of Social Security in South Africa", Development Bank of South Africa (DBSA), http://www.dbsa.org.
Written by Anthony M Makwiramiti (1)