South Africa remains one of the most unequal countries in the world. The country’s per-capita expenditure Gini coefficient, a measure of how spending from income is distributed, stands at 0.65. This puts it among countries with the most unequal distribution of spending globally.

Nearly 55% of the population were living in poverty in 2023. The country also has one of the highest unemployment rates in the world: 33.5% in the second quarter of 2024. To compound these issues, economic growth has stagnated since 2008.

Ending extreme poverty, unemployment and inequality requires economic growth that includes more people. To get that result, there must be a set of interventions that work together. One intervention being considered in South Africa is basic income support to relieve poverty among unemployed citizens.

Prior to the COVID-19 pandemic, basic income support had been on the policy agenda in South Africa for at least two decades, since the Taylor Committee in 2001. The pandemic made existing inequalities worse through job losses. A “social relief of distress” grant was introduced in 2020 to support the unemployed.

The grant targeted those affected by sudden income loss, including unemployed working-age individuals who did not qualify for other grants. The introduction of the grant renewed interest in the concept of a universal basic income, or a more comprehensive form of income support. It highlighted the welfare potential for a more permanent basic income support system.

Very few cases of universal basic income support pilots exist in developing countries. Where they do exist, studies point to the vital benefits a basic income grant system might provide. Examples include evidence from a pilot in Namibia, nine villages in India, and rural Kenya.

In a recently published paper, a team of economists explored the possible effects of introducing permanent basic income support to:

• all individuals aged between 18 and 59

• only those who are unemployed

• only unemployed individuals in extremely poor households, defined by the food poverty line.

The economic modelling exercise demonstrates that a basic income grant targeting all individuals aged between 18 and 59 could significantly reduce poverty and inequality. These gains would, however, require carefully targeted and implemented interventions over a multi-year period.

Our approach

The study identifies which socio-economic groups would benefit the most from the grant, and sheds light on the impact of basic income support on the welfare and livelihoods of individuals and their households. We used market income or pre-transfer income as the starting point to see how public spending changed poverty or income inequality.

We used data from the 2017 Quarterly Labour Force Survey, a measure of employment and unemployment based on the country’s working population. Using the three scenarios, we calculated the likely effects.

The first scenario was based on the universal grant being paid to all those aged 18 to 59. In the second, only those aged 18-59 who were unemployed received it. Lastly, only those who lived in extremely poor households and were unemployed in 2017 were included.

Some form of support exists for children under 18 (child grant) and for adults aged 60 and over (pension). That’s why we allocated the grant only for adults from 18 to 59.

In all the scenarios, the income support transfer is assumed to be R595 (US$38) per individual per month in 2021, equivalent to what it cost to provide a basic basket of food (that is, the food poverty line). We use R595 as it closely aligns with the COVID social relief of distress grant extension and reflects the grant amount for the 2021/22 financial year.

Main findings

The main findings show that in general, a basic income support grant has the potential to reduce poverty and inequality in South Africa. However, the effect varies based on the targeting mechanism used to identify beneficiaries. Absolute poverty, its gap (the ratio by which the mean income of the poor falls below the poverty line) and income inequality fall the most when the transfer is universal or targets the unemployed and the extreme poor.

In the first scenario (support for all individuals aged 18 to 59) and the third scenario (the unemployed and extremely poor), both poverty headcount (the percentage of the population living below the national poverty line) and the poverty gap (the ratio by which the mean income of the poor falls below the poverty line) decrease more than in the second scenario (targeting only the unemployed). The income inequality reduction is also larger in the first and third scenarios compared to the second scenario.

Significance of findings

The significance of these findings is that better targeting makes basic income support more pro-poor and progressive, and reduces the leakage of the benefit to the non-poor.

In countries such as South Africa, where poverty and inequality are extensive and public resources are limited, the case for targeting is attractive. But it’s important to recognise that effective targeting entails higher administrative costs. Conversely, while a universal basic income grant may be more expensive in terms of total disbursement, it has the greatest potential to reduce poverty and overall inequality.

The government can make the best use of its resources by focusing on vulnerable populations, such as those who are extremely poor and unemployed.

Finding the right criteria to identify the poor, and running the grant properly, largely determines the programme’s success in improving welfare.

Concluding remarks

South Africa is currently saddled with high poverty and inequality. Our study brings the debate on the potential welfare benefits of expanding existing social grants back to the forefront of social policy.