By Carl Manlan
Silicon Valley is betting on a universal basic income grant—a cash payment that would go directly into the pockets of everyday Africans—to enable prosperity in Africa. I like the idea, but fear we may not be ready. The real potential to build prosperity will come from African policymakers taking ownership and considering options regarding African countries’ socio-economic policies. However, the first step is to get our data and tax collection systems in order.
The largest experiment with universal basic income to date is a Silicon Valley-funded initiative in Africa called GiveDirectly. Unlike programs in other parts of the world, this initiative does not entail the government giving money to its citizens—a model that has not yet demonstrated it facilitates prosperity.
Much of the early optimism in Silicon Valley over the potential of universal basic income comes from a GiveDirectly pilot program in Kenya. While the program does not yet have proof of concept, it has shown encouraging results, such as better access to food, housing, and business in communities.
However, if programs like this are to be sustainable, the funding burden must shift from foreign donors to Africans through means such as increased domestic tax collection. To transform the continent, African governments must fund quality access to health and education, as well as provide greater opportunities for economic inclusion. GiveDirectly provides interesting data points about use of funds, cost efficiencies, and mobile payment technologies, but spending needs to be balanced with savings. The challenge we face, as we’ve seen through multiple experiments, is that initiatives like this rarely turn into comprehensive programs that integrate a multi-dimensional approach to enable prosperity.
Guaranteeing a basic income across Africa, which has more than 1 billion people spread over 54 countries, is no small endeavor. However, with the implementation of policies that increase access to useful and affordable financial products (in the form of mobile bank accounts and e-payments), there is a window of opportunity. These applications are spreading across the continent, but without significant economic activity, bank accounts will remain dormant.
Providing basic income grants would create a safety net and enable young people to kick-start their contribution to the economy and society. Thirty-seven percent of the working-age population is under the age of 35, and this age demographic makes up more than 60 percent of the unemployed in Africa. A universal African basic income could be a catalytic investment. While it might be perceived as an expensive “handout,” no other proposed solutions have solved the continent’s unemployment problems. We are already witnessing the costs of this failure, such as the limited use of Africa’s resources—well below its potential—to transform minerals, raw materials, and agricultural produce along their value chains.
The idea of a universal basic income is on the minds of policymakers around the world. The Indian government is considering such a program as an alternative to its current welfare system. Evidence suggests that giving $113 a year to every Indian citizen would cut absolute poverty from 22 percent to less than half of 1 percent. The combined population of all African countries is similar to the size of India, with comparable levels of poverty. If this works in India, it certainly has potential in Africa.
But one thing India has that Africa lacks is solid data on its citizenry. More than 1 billion Indians are now enrolled in the country’s biometric database—making it easier for the government to figure out how an income grant program would work. In Africa, by contrast, four out of five known births occur in countries without complete birth registration systems, calling into question the reliability of civil registration or vital statistics systems. Governments therefore have no hard numbers on how many people would qualify for grants or how much such a program would cost.
And a universal basic income program would certainly cost Africa a great deal. Population growth across the continent continues to surge, with projections putting the total headcount at 2.4 billion by 2050. One way to defray the cost of the program would be through improved tax collection. This starts by knowing each country’s economic size and strength so that we have better knowledge and understanding of the contributions of different sectors. Compiling this data is a necessary step to raise the tax-to-GDP ratios in many African countries where these figures fall well below 15 percent.
Today, African countries collect more than $500 billion in taxes, but it is not enough. There is room for an increase in tax revenues by supporting the digitization of transactions in the informal sector. Linking cell numbers to unique tax identification numbers will raise the tax ratio, which currently stands at less than 20 percent of most countries’ GDPs. While increased tax revenues alone will not be sufficient to pay for a basic income, African countries could try using dormant accounts to fund such a program and prioritize re-investing according to both country-specific needs and where investment can catalyze economic transformation.
The end of World War II was followed by unprecedented levels of growth and the accumulation of wealth and investment in infrastructure and industry. The Marshall Plan was Europe’s universal basic income through industrialization. It was this fast and sustained industrialization that was associated with the large increases in employment, labor productivity, health, and education that made Europe great. Today, the world needs a stronger and better Africa. The continent must go through this process together, not in piecemeal initiatives. And a universal basic income alone won’t work—it must be paired with industrialization and better tax policy.
When the world faces economic headwinds, Africa’s aid dependence erodes progress. African countries must invest in tailwinds such as domestic savings and domestic resource mobilization as a sure way to finance an eventual roll-out of a universal African basic income. How to enable prosperity in Africa is the billion-dollar challenge. The solution starts with collecting better data to measure the size of the economy and shape effective policies that generate revenue for the government and provide a safety net for citizens, all without relying on Silicon Valley or international aid.
[Photo courtesy of CIAT]