In this paper, I analysed the main characteristics of the South African Welfare State in terms of inputs and outputs of the key policies usually identified by the literature to be useful to exploit a demographic dividend. In particular, I focused on the state of the labour market, the social assistance policies and the education and healthcare systems. To do this I studied some quantitative indicators of both inputs and outputs and I reported the qualitative analysis of some other articles of these individuals sectors. The conclusion is that, despite some important progress made by the democratic governments, there are many improvements needed to create a consistent and inclusive growth.

1. 1
South African Welfare State and the
Demographic Dividend’s Window of
Opportunity
Paper for the exam: Social and Welfare Policies, AA 2017/18 (prof. Marco Albertini).
University of Bologna
Author: Fabio Torreggiani
Abstract
In this paper, I analysed the main characteristics of the South African Welfare State in terms of inputs and
outputs of the key policies usually identified by the literature to be useful to exploit a demographic
dividend. In particular, I focused on the state of the labour market, the social assistance policies and the
education and healthcare systems. To do this I studied some quantitative indicators of both inputs and
outputs and I reported the qualitative analysis of some other articles of these individuals sectors. The
conclusion is that, despite some important progress made by the democratic governments, there are many
improvements needed to create a consistent and inclusive growth.
Introduction
South Africa is the second largest economy in Africa after Nigeria and it reports one of the highest GDP per
capita of the continent. It is relatively industrialized and urbanized. Despite this, the economic growth of
the past advantaged only a small part of the society, because of the apartheid. The result is that South
Africa has one of the most unequal distribution of income and property of the world, measured by the Gini
coefficient.
However, in the next years, this nation has an opportunity to change the situation. Unlike the majority of
Sub-Saharan countries, South Africa is in fact at an advanced stage of its demographic transition. Thus, due
to the subsequent falling of mortality and fertility rates, a demographic bulge of population is progressively
entering in the working-age (Bruni, 2016). This significantly reduces the dependency ratio of the country,
creating the opportunity of a sustained economic growth, the so-called demographic dividend.
To profit from this window of opportunity, a specific policy environment is needed, as showed in the cases
where it was not present (Bloom et al., 2003). The demographic bulge must be well educated and healthy
to be productive, so functioning education and healthcare system for the majority if the population are
crucial. Moreover, these new workers must be able to enter the labour market, hence the importance of
flexible labour market regulations and low entry barriers in the self-employment. Finally, effective family
planning policies are important to secure a sharper transition.
The aim of this paper is to analyse the South African welfare state and regime to comprehend if it is ready
to profit from its demographic dividend and to suggest where it is appropriate to intervene. As it will be
shown, even if the democratic brought important changes in the right direction, much still remains to be
done. The first chapter analyses the most striking problem of South African economy, that of
unemployment and a malfunctioning labour market. The second is dedicated to the social grants and the
struggle against poverty, because of the importance given to it by the democratic governments and
because of the relevance, in such an unequal society, to secure the distribution of the possible growth. The
last chapter concerns the education and healthcare systems, two areas of the welfare state historically
marked by problematic government’s intervention and apartheid’s inheritance.

2. 2
1. Unemployment and Performances of the Labour Market
The protection against unemployment in South Africa is based on an insurance-based system of passive
labour market policies based on cash transfers, whilst programmes of retraining and reskilling are not
provided.
This system is built on the Unemployment Insurance Fund (UIF), established in 2001. It is based on the
contributions of all the employers and employees of the formal sector, with the exceptions of public
servants. The contribution amounts to 2% of the employee’s salary, equally divided between the employer
and the employee. This fund also covers a range of other situations that can lead to the absence of an
income for the insured and his family, namely illness, maternity or adoption, and death. In these case the
benefits work in the same way as for unemployment, described below, with the only difference of changed
durations of the benefits.
Talking about the benefits specifically provided against unemployment, these are calculated on the average
salary of the contributor over the previous six month and the amount vary depending on the level of that
salary. The higher the income of the contributor, the lower will be the remuneration of the fund, from a
maximum of 60% for the lower income. All the contributors with an income above the threshold of
R8.099/month will receive a flat benefit. The duration of this benefit is 34 weeks at maximum and it is
calculated as the duration of previous employment divided by six. In 2010 the UIF counted 7.8 million
employees registered and provided benefits to 630 000 of them (Hall, 2014).
In addition to the UIF, the government resorts to the use of public employment to specifically fight
unemployment. All the projects and programmes of public employment targeted to poor people in
working-age are grouped under the Expanded Public Work Programme (EPWP), created in 2004. Although
this programme initially had also the aim of training the workers, after some disappointing results, its
current main aim is only to provide them an economic support. In the fiscal year, 2016/17 EPWP created
nearly 800.000 work opportunities, with an average minimum daily wage corresponding more or less to the
minimum wage of a domestic worker in the private sector.
Looking at the situation of unemployment in South Africa these measures seems to be more a temporary
relief against the consequences of this phenomenon than a strategy aimed at solving his causes. In fact, at
the end of apartheid, South Africa registered one of the highest rate of unemployment all over the world
(26% in 1994) and the situation did not change substantially until today. During these twenty years,
unemployment has always remained over 20 per cent and today it amounts to 27,7%, corresponding to
more than six million people. The informal sector is poorly diffused, if compared with other similar
developing countries, counting more or less 2,5 million of employees. This is due to an historical aversion to
informal self-employment, inherited by the apartheid, whose discriminatory laws punished each attempt
by the African population to escape the formal prohibition on self-employment (Kingdon and Knight, 2004).
Such an high rate of unemployment is linked to a series of rigidities of the labour market, namely an
complex regulation of work contracts, an high minimum wage, a low mobility on the labour supply side due
to an expensive and inefficient public transport system (Majahan, 2014; Mlatsheni & Leibbrandt, 2014;
Fields, 2014; Benjamin, 2014) and a product market scarcely driven by the competition (Worgotten, 2014).
In addition to this it can be noted a lack of skills due to the failures of the education system (see chapter 3)
and the negative influence of bureaucracy and corruption in the common imaginary that limits national and
international investments (Rankin, 2014).

3. 3
Figure 1: Unemployment in South Africa for different population groups and genders, 2008-2017. Source: StatSa, 2017
The result is a vicious circle where the new workers move in the urban areas of South Africa to search a job,
but they are pushed back in the rural area of the country, where the elderly lives, to be able to receive their
support1
(Klasen & Woolard, 2009). In fact, because of the absence of public support to the unemployed,
the families substitute this function, in particular by the elderly who receive a public pension. Finally, the
rural areas are also the ones with fewer labour opportunity, so the new and most vulnerable employees
become unemployed for long periods, failing in building their own household (Klasen, Woolard, 2009). The
result is a strong insiders-outsiders divide, where the employed are protected by a strong labour regulation,
relatively high wages and a public insurance system, while the outsiders fails in entering both the formal
and informal sector and in exiting the co-residence with the older generations. Despite the presence of
some safety net, the absence of work continues to be an important cause of poverty (Finn, Leibbrandt and
Ranchlond, 2014) for the unemployed and their families.
2. Fighting poverty and inequality – Public pensions, Social grants and Family
Allowances
South Africa is one of the most unequal and stratified country of the world, with an estimated Gini
coefficient of 0.631 and more than the 50% of the population below the poverty line, with important
differences based on race and, less markedly, with gender (StatSa, 2017a). To respond to this situation the
South African welfare state provides a set of means-tested social policies with the aim of fighting the
diffused poverty. The budget used in social assistance amounts to 3.5% of the GDP and the three categories
of receiver targeted are the elderly, the disabled and the children.
1
This generational divide of the geographical location of the households is due to the residential restriction applied
during the apartheid, that forced the African population to reside in the so called “homelands”.
0,0
10,0
20,0
30,0
40,0
50,0
60,0
Unemployment in South Africa for different social, gender
and age groups
Total Black/African Coloured Indian/Asian
White Women Men Aged 15-24

4. 4
Table 1: Population under different lines of poverty in South Africa, 2006-2015.
Poverty lines (per person per month) Poor people in millions (percentage over the total
population)
2006 2009 2011 2015
Population that is under the UBPL line
(R1.138 in 2017 prices)
31,6
(66,6%)
30,9
(62,1%)
27,3
(53,2%)
30,4
(55,5%)
Population that is under the LBPL line
(R758 in 2017 prices)
24,2
(51,0%)
23,7
(47,6%)
18,7
(36,4%)
21,9
(40,0%)
Population that is under the FPL line
(R531 in 2017 prices) (food poverty)
13,4
(28,4%)
16,7
(33,5%)
11,0
(21,4%)
13,8
(25,2%)
Source: Poverty Trends in South Africa, An examination of absolute poverty between 2006 and 2015, StatSa
(2017).
The Old Age Grant (OAG) is a means-tested programme that provides public pensions to women aged 60
years or more and men aged 65 or more. The pension provided is something more than an anti-poverty
income support, consisting in a cash transfer equal for all the eligible people of R1.600. This income is often
used by the households to provide welfare and an informal safety net within the family for those problems
that market and state are failing to solve, as in the case of protection against unemployment. It is also
interesting to note that, although this policy is formally means-tested, its coverage is so broad that it can be
almost identified as a universalistic policy. In 2017, in fact, it covers the 85% of age-eligible people2
. A
possible reason for this can be identified in the diffusion of poverty mentioned before. The resulting
framework is a pension system composed by a formally means-tested, nearly universalistic public pension
and an insurance-based private pension system for the wealthier part of the population.
The Disability Grant (DG), established in 2004 along with the Old Age Grant, shares with it the same
economic eligibility criteria and benefits, but is targeted to disabled people aged between 18 and 59 having
proven disability. The Grant in Aid is an additional cash transfer of 380/month for all the elderly and
disabled people who need a full-time care. With this measure, identifiable in the category of a supported
familism, the welfare state allows their families to directly take care of them or pay an external carer.
Finally, the South African welfare state supports poor, disabled and fostered children aged under-18 and
their families. In 2017, the Child Support Grant provided R380/month per child to the parents of 12,101,127
children; its economic threshold of eligibility is stricter than that of OAG and DG. The Care Dependency
Grant provides R1.600/month per child to the parents of 145,030 children with a severe disability. Finally,
R920/month per child are provided to all families who fostered a child, without economic restrictions. For
all these measures of family allowances, the identifiable approach is that of a supported familyism, not
being present a public provision of child targeted services, such as childcare facilities.
Table 2: Resume of the principal social grants in South Africa, 2017.
Name of the
policy
Age
restriction
Economic Thresholds Benefit Total of grants
provided in 2017
(Percentage of the
eligible)
Old Age Grant
(OAG)
60+ for
women
65+ for
men
Income: R73.800 if single
or R147.600 if married
Property: R1.056.000 if
single or R2.112.000 if
married
R1 600 per
month
3.313.630
(85% of people age-
eligible people)
2
This percentage is calculated using SASSA, 2017 and Stat,Sa 2017.

5. 5
Disability grant
(DG)
18-59 Income: R73.800 if single
or R 147.600 if married.
Property: R1.056.000 if
single. R2.112.000 if
married
R1 600 per
month
1.058.328
Child Support
Grant (CSG)
Under-18 Income of the caregiver:
R45.600 per year if single.
R91.200 per year
R380/month per
child
12.101.127
(62% of age-eligible
people3
)
Care
Dependency
Grant
Under-18 Income of the caregiver:
R192.000 a year if single.
R384.000 a year if married.
R1.600/month
per child
145.030
Foster Child
Grant (FCG)
Under-118 No economic restrictions R920/month per
child
445.404
Source: For the demographic data: StatSa (2017); for the details of the social grants: SASSA (2017).
If we now compare the amounts and coverages of these social grants with the poverty lines mentioned
before, we can note how these cash transfer represent a tangible support for the quality of life of the
receiver. It has been calculated that two-third of income of the bottom quintile comes from social
assistance grants (Hall, 2014).
That said, even if it is remarkable that the relative incidence of poverty is lowering down, half of the
population remains under the upper poverty line and no safety nets are provided to working-age people
without kids. Moreover, the sustainability of such a diffused public pension funded by the general taxation
without any contribution from the receiver is to be proven. The portion of population that is currently age-
eligible to the OAG is in fact only the 7% of the total and the life expectancy is of 61 years for men and 66
years for women, but it constantly raised in the recent years. When the demographic bulge will
progressively translate from the working age to the pension age, the South African pension system will be
put to the test, and that is even truer if the life expectancy will continue to raise.
3. The Education and Health-Care Systems
During apartheid, the African population did not have liberty to decide where to live and was forced to
attend the school present in their designated residential area. The funding of these schools was managed
by the white governing population. The result was a system unequally financed, with poor outcomes in
term of education and formation of the discriminated black population (Case and Deaton, 1999).
Since the advent of democracy, universal access to basic education is a right explicitly mentioned in the
Constitution and the public system counts 24.255 schools and 12 million learners. In 2010/11, South Africa
spent 6% of GDP and 19,5% of general government budget on education, a relatively high rate for the
international standards (DBE, 2013). The attendance is compulsory until the end of grade 9 (15 years of age
without grade repetition). The financing that the central state gives to each province depends on its
poverty, calculated with the size of rural population and of population who receive social grants (DBE,
2014). The province are divided in quintile from the poorest to the richest and the 60% of the resources are
delivered to the poorest 40% provinces (quintile one and two). Next to the public system, there is a private
education system, composed by 1.571 schools at every level of education. Both public and private
universities are autonomous and funded by the fees of their students.
3
This is only a gross estimation made to give an impression of the measures of this policy. In fact, the class of age in
which the population is divided differ between StatSa and SASSA. In the former one there is not an age class that ends
at 17 years, so, to calculate the total of people aged under-18, I divided by five the only age class available for that age
(15-19 years). I used the result as a gross estimation of a birth cohort and I subtracted two of them to the total of people
aged 15-19, to eliminate the people aged 19 and 18.

6. 6
To secure that basic education is a right not only formally, but also effectively, the schools located in the
poorest three quintile are totally free of tuitions. In 2011, that corresponded to the 78% of the total of
learners in basic education (Hall, 2014). Schools in other quintiles (20% of schools) are free to fix their own
fees and they are not required to publish them, so making some comparison about the available resources
of charging vs non-charging schools is complex. Some means tested fee-waivers are provided for the poor
children that study in fee-charged schools. However, the economic threshold for the eligibility is so strict
that only the poorest family can reach it and the schools are allowed to give the priority to the residents of
the province, that for definition have high incomes (DBE, 1998).
Thus, even if the past inequalities on the side of public expenditure have been overcome, the liberty of
fixing fees for the richest schools (both public and private) results in a de-facto two-tier education system
that perpetuates some historical inequalities. Schools attended mainly by white and wealthier students are
capable of requiring higher fees and offering better services and opportunities to the already advantaged
parts of the society.
The outputs if this system are remarkable in terms of school attendance, that is almost universal in the
compulsory phase (99% for 7- to 15-years old and 84,9% for 16- to 18-years old) for all the population
groups and genders. The most important increase observed in the last years is that of pre-primary school
attendance (5- to 6-years old, doubled from 40% in 2002 to 84% in 2011).
In terms of quality of education, the outcomes are unsatisfying. We can in fact note a racial-correlated
incidence of late school entry (lowering in last years), grade repetition and dropout, two events that are
strictly linked (DBE, 2013; Lam & Branson, 2014). Moreover the quality of education have been tested by
local and international assessments such as the Annual National Assessment (ANA), the Performance in
International Literacy Study (PIRLS) and the SACMEQ III with improving, but still disappointing results on the
skills of both students and teachers if compared with the international standards (Lam & Branson, 2014;
Badat & Sayed, 2014).
The worst performing parts of the schooling system are also that with weakest “input indicators”, such has
incomplete coverage of the curriculum, low percentages of students with their own textbooks, high
learner/educator ratios and teacher’s fragmented knowledge of the subjects. The low competence of the
teachers is a legacy of the apartheid, whose educational system had the deliberate and explicit aim of
maintaining the black majority illiterate. This stratification is evident at the university level, where the 80%
of students come from the 20% richest high schools (Badat & Sayed, 2014).
A similar two-tier system is also present in the health care sector, with a parallelism between public and
private sector and important differences in both their inputs and outputs. The framework inherited by the
apartheid was based two completely different systems: a functioning one for the white governing minority
and a methodically underfunded one for the discriminated majority (the doctors/population ratio in the
Bantustans ten time smaller than for the rest of the country) (Coovadia et al., 2009). Not only the public
expenditure for the white populated provinces was higher, but the wealthier people could also rely on a
costly and well-performing private sector based on health insurances (the so-called medical schemes).
In 1994, the public health system was reformed by the ANC and the past inequalities in the distribution of
resources between the provinces were eliminated. Children under-6, pregnant mothers and social grant
receivers now have access to free treatment, primary health care is free and mass immunisation campaigns
and strategic plans reduced the incidence of some communicable diseases. Moreover, abortion has been
legalized, public smoking has been banned and utilization of firearms has been regulated.
The total healthcare expenditure between public and private sector amounts at 8,5% of GDP (DOH, 2015), a
significant figure for a middle-income country. However, these resources are unequally distributed: the
private sector represents 46% of total expenditures, but it serves 15% of the population through the

7. 7
medical schemes. The private sector can
thus rely on per-capita expenditures (and
then resources) that are six times bigger
than in the public sector, thus providing
better services. This explains why another
21% of population uses it with out-of-the-
pocket payments, despite usually
depending on the public system. The
remaining 64% of the population must
completely rely on the public services
(Coovadia et al., 2009).
The public system is also facing a shortage
of skills similar to that observed in the
educational system, and most capable
doctors chose to work in the better-
paying private sector, resulting in an
adverse selection of the workforce
employed in the public sector. Other
failures are due to political choices, such
as that of placing unexperienced women
and black people in top management
positions to implement the principle of
redress instead those of efficacy and
efficiency, selecting managers according
to political loyalty instead of merit
(Coovadia et al., 2009).
The result is that South African health
care system is facing some difficulties in solving four main group of health-related issues that leaded to the
worsening of mortality between 1990 and 2005. These are HIV and tuberculosis; chronic illness and mental
health disorders; deaths related to injury and violence; and maternal, neonatal, and child mortality (Mayosi
et al., 2012; DOH, 2015). The incidence of these issues is heavier for the poorest parts of the countries that
can rely only on the public system.
The new leadership nominated in 2009 has already achieved some improvements and it aims to phase in a
National Health Insurance (NHI). It will cover the totality of the population and a mandatory tax, the public
treasury and a payroll tax will fund it. This will completely change the ratio of South African health system,
from a universalistic (and de-facto privatised) one to a completely insurance-based one.
Other planned interventions concern the creation of an evaluation platform that will test the facilities on
standardised quality norms and a redistribution of tasks and financing between the administrative levels of
the public system (Mayosi et al., 2012).
Conclusion
South Africa represent a welfare regime that is difficult to categorize, principally because of the divergence
between the principles on which it is struggling to found its society after the recent democratization; and a
diametrically opposed reality that is still mirroring the inheritance of the apartheid.
The welfare regime that emerges is highly stratified, strongly commodified and where both private and
public sector are failing at providing effective welfare to the entire population. The market provides high-
17,60%
10,30%
21,80%
46,80%
70,90%
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
70,00%
80,00%
Total Black Mixed race Indian White
44%
16%
13%
16%
43%
68%
0%
20%
40%
60%
80%
100%
120%
Total health-care financing Population coverage
Private insurance Out-of.pocket payments Public services
Figure 2: Medical scheme coverage in different population groups, 2011.
Source: Mayosa et al., 2012
Figure 3: Health expenditure and coverage, 2012. Source: Mayosa et al., 2012

8. 8
quality services only to a small part of the population and lacks in competition, given its high entry barrier.
The only driver of equality has been the welfare state, principally with the provision of cash transfers
affordable or free services to the majority of the population as a matter of social rights. However, the state
is also part of the problem, because of lacks in experience and expertise, but also for some wrong political
choice. One of these political choice concerns the labour market and industrial sector, where the state
benefited the insiders to gain political consensus, resulting in a stuck situation of suboptimal equilibrium
(Sharma, 2014; Mahajan, 2014; Worgotter, 2014).
Thus, at the actual state of affairs, it is arguable that South Africa will exploit completely its demographic
dividend. To do this, the government must intervene in the economic policies that regard labour-market
flexibility (Benjamin, 2014; Fields, 2014; Mlatsheni & Leibbrandt, 2014) savings (Viegi, 2014) and
investment climate (Rankin, 2014), in order to lower the unemployment, favour competition and create a
new middle class.
For what concerns the other sector of welfare, means tested system of social grants had a remarkable role
in fighting poverty and inequality. However, the sustainability of such an expanded public pension system
financed by the public finance is arguable and, by decreasing it, the government will face a strong
opposition as long as the poverty rate is so high. Finally, the problems of education and healthcare system
have been already shown and these are the welfare sectors where the state intervention is most needed.
For the former one a possible solution to bad management can be to distribute the financing not only on
the basis of poverty, but also, at least in part, on the basis of merit, calculated with the yet existing
assessment programs. For the latter, before adding new reforms and intervention, it must be given a
chance to the policies that the Department is going to implement in the next years, such as the National
Health Insurance, that seem to go in the right direction.

9. 9
Bibliography
Badat, S., & Sayed, Y. (2014). Post-1994 South African education: The challenge of social justice. The
ANNALS of the American Academy of Political and Social Science, 652(1), 127-148.
Bloom, D., Canning, D., & Sevilla, J. (2003). The demographic dividend: A new perspective on the economic
consequences of population change. Rand Corporation.
Bruni M. L., Rigolini J. & Troiano S. (2016). Forever Young? What Africa can learn from Southern Africa’s
demographic transition. African Can End Poverty – Blog from the World Bank site.
http://blogs.worldbank.org/africacan/forever-young-what-africa-can-learn-from-southern-africas-
demographic-transition
Case, A., & Deaton, A. (1999). School inputs and educational outcomes in South Africa. The Quarterly
Journal of Economics, 114(3), 1047-1084.
Coovadia, H., Jewkes, R., Barron, P., Sanders, D., & McIntyre, D. (2009). The health and health system of
South Africa: historical roots of current public health challenges. The Lancet, 374(9692), 817-834.
DBE (Department of Basic Education) (1998). National Education Policy Act, 1996 (Act No. 27 Of 1996) -
Admission Policy For Ordinary Public Schools. Pretoria
DBE (Department of Basic Education) (2013), ‘Macro Indicator Trends in Schooling: Summary Report 2013’,
South Africa Department of Basic Education, Pretoria.
DBE (Department of Basic Education) (2014). South African Schools Act No. 84 Of 1996 - Amended National
Norms And Standards For School Funding. Pretoria
DOH (Department of Health) (2015). National Health Act, 2003 - White Paper On National Health Insurance.
Pretoria.
Hall K. (2014), Social Safety nets. In The Oxford Companion to the Economics of South Africa. UOP Oxford.
Kingdon, G. G., & Knight, J. (2004). Unemployment in South Africa: The nature of the beast. World
development, 32(3), 391-408.
Klasen, S., & Woolard, I. (2009). Surviving unemployment without state support: unemployment and
household formation in South Africa. Journal of African economies, 18(1), 1-51.
Lam D., & Branson N. (2014). Education in South Africa since 1994. In The Oxford Companion to the
Economics of South Africa. UOP Oxford.
Mahajan, S. (2014). South Africa’s suboptimal political economy equilibrium. In The Oxford Companion to
the Economics of South Africa.UOP Oxford.
Mayosi, B. M., Lawn, J. E., Van Niekerk, A., Bradshaw, D., Karim, S. S. A., Coovadia, H. M., & Lancet South
Africa team. (2012). Health in South Africa: changes and challenges since 2009. The Lancet, 380(9858), 2029-
2043.
SASSA (South African Social Security Agency) (2017), Fact sheet: Issue no 4 of 2017 – 30 April 2017
Sharma, R. (2014). The Liberation Dividend. In The Oxford Companion to the Economics of South
Africa.UOP Oxford.
StatSa (Statistics South Africa) (2017), Mid-year population estimates – 2017 - STATISTICAL RELEASE P0302.
StatSa (Statistics South Africa) (2017a), Poverty Trends in South Africa An examination of absolute poverty
between 2006 and 2015. Pretoria.

10. 10
Stephan Klasen, Ingrid Woolard; Surviving Unemployment Without State Support: Unemployment and
Household Formation in South Africa, Journal of African Economies, Volume 18, Issue 1, 1 January 2009,
Pages 1–51, https://doi.org/10.1093/jae/ejn007.
UNESCO. (2011). Education For All Global Monitoring Report 2011. Paris: UNESCO Publishing.
Worgotter, A. (2014). Industrial structure and competition policy. In The Oxford Companion to the Economics
of South Africa.UOP Oxford.