Michael Nyamute: Conditional cash transfer and poverty alleviation

At last, we have a Cabinet. Bloated or otherwise, it has its work cut out for it.
One area that needs to be addressed urgently is poverty alleviation.

Post-election turmoil has seen the displacement of many economically active people. This has contributed to an upsurge in the cost of living, especially from rising food prices, and driven many households down the poverty ladder.

Hence, beyond the swearing in ceremonies, the Government must ensure that the economy starts growing again to provide the much-needed jobs and incomes.

Safety nets

According to David Coady and Rebecca Lee Harris of the International Food Policy Research Institute, social safety nets play a crucial role in any comprehensive poverty alleviation strategy.

Existing social safety nets, however, are perceived by many as not very cost effective because they are very badly targeted to poor households and in addition often involve inefficient pricing policies.

Coady and Harris further note recent reviews of social safety net programmes that quite a substantial number had a regressive benefit incidence, that is, the poor received less than their population share. Among these are universal food subsidies, which were found to generate substantial economic inefficiency in both production and consumption patterns.

One of the alternative programmes that has been used successfully in many developing countries (especially outside Africa) to alleviate poverty is the Conditional Money Transfer (CCT). According to the World Bank Institute, such programmes provide money directly to poor families contingent upon certain verifiable actions, such as generally minimum investments in children’s human capital (such as regular school attendance or basic preventative health care).

This is aimed at addressing the inter-generational transmission of poverty and fostering social inclusion by explicitly targeting the poor, focusing on children, delivering transfers to women, and changing social accountability relationships between beneficiaries, service providers and governments.

In their research, World Bank Institute researchers indicate that CCT programmes address demand-side barriers, have a synergistic focus on investments in health, education and nutrition, and combine short-term transfers for income support with incentives for long-run investments.

In Latin America, the research found out that CCT programmes have had reasonable success in meeting their basic welfare objectives, namely reducing short-term poverty through increased total and food expenditures, decreased malnutrition (stunting) among young children.

For instance, in the area of education, there was an increase in primary school enrollment from 75 per cent in the control group to 93 per cent in the treatment group in Nicaragua; and from 82 per cent to 85 per cent in Honduras. There was a decrease in school drop-out rates from 13 per cent to nine per cent in Mexico, from seven per cent to two per cent in Nicaragua and from nine per cent to five per cent in Honduras.

In the area of household consumption and nutrition, average consumption in the treatment group was higher by 13 per cent in Mexico and 15 per cent higher in Colombia than in the control group. In Nicaragua, stunting prevalence (low height for age) in children under age five decreased by 5.3 per cent.

Finally, in the area of child labour, the research notes that due to a CCT programme, in Nicaragua, the percentage of children age 7-13 who were working decreased by 4.9 per cent. In Mexico, labour participation for boys showed reductions as large as 15-25 per cent.

However, CCT programmes face a number of challenges as they evolve. These range from ensuring that they reach the vulnerable groups to fostering transparency and accountability at the community level.

For instance, centralised programmes have been criticised for limiting the engagement of local governments and civil society. Thus, it would be reasonable to bear in mind that though promising, these programmes are not a panacea against social exclusion.


When evaluating the economic impact of such transfers, it is useful to separate these into direct and indirect income (or welfare) effects. The direct income effects reflect the design of the programme (the rules for targeting transfers). The indirect effects capture the second-round income changes brought about by the impact of cash transfers, and their financing, on the level and composition of demand and supply.

Finally, any such programme must be sustainable if it is to meet its objectives. To ensure this, funding should be linked to a fairly stable source of funds (for example, luxury or value-added taxes).

The writer is a business analyst with The Standard Group

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