Social Security and Population Ageing in Sub-Saharan Africa

The current age structure in Sub-Saharan Africa is one of the youngest in the world, yet fertility rates in most SS African countries, like elsewhere in the developing world, are falling with the result that the proportion of older people in the population will be doubled by the middle of 21st century. Fertility decline should be viewed as an opportunity by countries with a young age structure. However, it is important to note that because of earlier episodes of high fertility, the working age population will be growing in Africa over the next 30-40 years, whilst the size of school age population will decline. This provides a golden opportunity for improving the quality of education and the labour force, thus increasing the resource base needed to manage the rise in the dependency ratio (old/working age) and to care for an elderly population.
On the negative side, these trends are compounded by the epidemic rise of HIV/AIDS in parts of SSA. This has resulted in high death rates and lower life expectancy, especially among those in the most productive age groups of 20 – 65. Notwithstanding the human tragedies of AIDS, it is the impact on the productive capabilities in SSA that is of concern. The loss of such a large section of the labour force is undoubtedly going to affect labour-intensive sectors of the economy, in particular small scale farming. Whilst high unemployment and a youthful age structure would in part compensate for the loss of unskilled labour, skilled labour takes longer to replace.
The other effect of the AIDS/HIV epidemic is on the availability of care within the household and family for both children and the elderly. The traditional care givers - women - are as equally affected as men by HIV/AIDS in SSA. The loss of these carers could increase the risk of malnutrition and infectious diseases among children. The elderly would not only lose an important source of support for their own needs, but would also have to take on the role of care givers for the orphans in their household (UN, 1995).
Strategies designed to ensure the entitlement of the elderly to a reasonable standard of living are not fundamentally different from those designed for other dependent sections of the population. The key policy issue is not only how to tackle the welfare needs of the present elderly generation, but how to help the future generation of the elderly, who are potentially more numerous, to maintain their standard of living.
The elderly are a differentiated population in terms of their ownership of assets and sources of income that in turn determine their entitlement to goods and services. The elderly's income can be based on any combination of ownership of assets: own work, social security, pensions, marital status, other family members, etc. Available data on their sources of income in developed and developing countries show, that in general the richer the country the higher the percentage of those above the age of 60 relying on pensions/welfare for their livelihood. In low income countries, except in urban areas of China, family and own work are the main sources of income. The data also suggests that as countries get richer, formal systems gain importance in providing support to the elderly.
Family is a much more important source of income for the elderly in Africa than elsewhere in the developing world. In Africa the informal systems are based on broader familial links than in Asia. The extended family could contain adult brothers and sisters as well as children. Reliance on the younger generation is not limited to one's own blood children: the practice of adoption, fosterage, raising grandchildren, all help to widen the support base. Another source of informal support in Africa is the existence of kin, community and tribal support (World Bank, 1994). Migration has also played a complicated role in the development and maintenance of informal systems: it provids extra cash income that alleviates poverty, allowing the household to support its non-migrating members, including the elderly. This is predicated on the maintenance of links between the migrating members and the family, thus allowing the migrating members to come 'home' on retirement to be cared for by their family and the larger community. Such links are easier to maintain under circular patterns of migration, which are common in parts of SSA.
Informal systems, however, are not without costs, not all of them monetized, and not necessarily spread equally across household members. Women bear the main burden of caring for the elderly. At times, health costs could be prohibitive and undermine the resource base of the family by forcing the sale of valuable assets. In some households the demographic balance could also shift heavily against the younger generation, putting the care of a rising number of elderly beyond the their financial and physical capacity. The latter point is particularly important in SSA where AIDS is affecting those of working age. The table is turned on the elderly who now have to care for their dying children and look after their grandchildren.
As far as any formal old age care and social security system is concerned, the first objective is to protect or to provide aged people with the entitlement to a basic standard of living in line with their lifetime experience and the expectations of the society concerned. The second objective is to reduce the gap between different sections of the elderly. While the first objective can be achieved under a variety of institutional arrangements, the second objective requires some degree of state intervention.
Currently, the main pension schemes in the great majority of SSA countries are earnings related and cover formal sector employees who are predominantly urban based. Botswana is the only country with a universal pension scheme, while South Africa operates a means tested scheme. A few other countries operate a means tested scheme alongside their earning related schemes. Several countries also operate a Provident Funds scheme (a compulsory savings plan) that provides a lump sum on retirement or modest pensions and other contingencies, depending on its governing rules and regulations (ISSA, 2005).
Considering the limited population coverage of most of these schemes, they should be complemented with a range of policies that address the needs of the growing elderly population. In this respect there are valuable lessons to be learnt from the experience of East Asian countries that, like those in SSA, had relied on their traditional family structure for old age care. This was complemented by a range of policies that provided support for the family extended the coverage of formal schemes.
An obvious starting point in many of the E. Asian countries was the identification of the elderly's needs. Prioritising needs allowed the state to meet these selectively and within its budgetary capacity. In general, support is means tested in E. Asia and targeted towards the poor. All include some basic health and income maintenance support that work as a safety net to cover those who are most in need among the elderly. In addition, formal sector and state employees are entitled to a secure contribution-related pension.
Drawing on these similarities, the issue of ageing in SSA could be addressed at various levels. At macro level, and following Singapore's model, the ageing should be given a permanent and prominent presence at national level policy making fora. This process could begin by setting up an inter-departmental committee whose members would be drawn from, for example health, social security and welfare ministries, and voluntary organisations. Open and democratic debate is essential for the formulation of correct and legitimate policies. The legitimation issue is important for the public's acceptance and implementation of policies and for maximising donor's assistance.
Another important feature of E. Asia is its macroeconomic and price stabilities. Before the economic crisis of late 1990s, E. Asia had enjoyed long periods with a stable macroeconomic environment with low inflation that maintained the purchasing power of the elderly's income. Whilst macroeconomic stability is a general policy goal, more specific policies like indexation of the elderly's income to the consumer price index has to be enacted in order to assure people who are making plans for their retirement in 20 to 30 years time that the value of their savings will be protected.
Moving on to the informal and the household support system, as far as the family source of income is concerned, there are no hard and fast rules, except the general principle of supporting the economic base of the informal system of care for the elderly. At macro level this means supporting the agricultural sector: in general, the rural economy is important in SSA as it is where the majority of the elderly live. Another area of intervention is communication between rural and urban areas. The rural to urban migration of younger people could weaken the link between the two generations within families, and increase the level of uncertainty for the elderly who rely on remittances. Improving the flow of information and communication between the two areas and offering incentives for remittances could help to maintain the economic and social links between the two areas and between generations. Maintaining and encouraging generational solidarity is not without its costs, especially for the poor young households who have to and will share their meager resources with their elders. Some young households may not be able to save and accumulate resources essential for investment to raise their productivity. That is why public action and state support is essential to complement household support.
States in E. Asia provide a range of services such as health insurance, medical tests, pensions, income support and tax relief that in general complement rather than substitute those provided by families and other institutions. Some of these services, like pensions, take longer to set up or extend their coverage in SSA, whilst others could be implemented quickly, such as tax relief to families caring for their elderly, and health support. Complementarities between formal and informal systems in the era of cutbacks in state welfare budgets means that any cuts should ensure that the income of families caring for the elderly is protected when it comes to charging of fees and cuts in public services.
In South Korea and Singapore work has been used as another measure to maintain the economic independence of the elderly and to alleviate the pressure on labour supply shortages. S. Korea established job placement schemes for retirees and the elderly. For example, the elderly have been helped to set up workshops and share the income, or have been given priority for setting up stalls in public places such as parks to sell basic necessities and government monopoly goods. This policy can easily be adopted in SSA. To ensure that the benefits of such preferential treatment would not go only to those who have the skills and the capital to set up a small business however, this policy has to be complemented with the provision of small loans and training. Micro-credit institutions could help in this regard, and could also be used to build up pension funds for the poorer sections of the population. The potential downside of supporting the elderly to set up small businesses – competition with existing businesses in the informal sector – should not be of major concern given the relatively small number of elderly involved.
Africa has a rich history of looking after its older generation. In designing policies, due attention should be given to the existing institutional arrangements, both informal and formal, by trying to increase the complementarities between the two. The cost of running pay-as-you-go pension schemes would be lowered if household-based arrangements for the care of the elderly could be maintained. Providing financial incentives to households to care for their elderly should be part of the planning for population ageing. Strengthening the financial and other infrastructural links between rural and urban areas should also help migrating members of the household to look after the rural-based older generation.
The establishment and reform of the formal system is a much more problematic policy area. The existing pension schemes have a very limited coverage in SSA and in the main are restricted to wage earners. Expanding their coverage may be beyond the financial capacity of many African governments. Establishing private pension schemes, fashionable as it is, requires a strong regulatory infrastructure of the financial sector. As a first step, such regulatory frameworks have to be put in place, while developing and strengthening the financial sector.
Within the formal financial sector, provident funds have offered a certain degree of support to the elderly. Converting them into pension funds could come at the expense of the contingency function of these funds for the contributors. If people have to increase their savings for contingencies, their ability to contribute to a pension fund may well be eroded. The reform of provident funds has to take account of the various functions of these funds by trying to establish different instruments for the main functions - pension funds, micro-savings/credit funds, grant based means tested financial support, etc.
Social policies have to take account of the heterogeneity of the elderly in terms of their social and economic background and their areas of residence (rural or urban). Formal pension schemes more often than not cater for the urban based middle and upper strata of the population. The rest are too poor to meet the requirements of the formal sector. The formal financial sector in most developing countries has not in general been a source of financial service and assistance to the poor. Development of micro-financial organisations with the aim of providing financial support to the elderly should be an integral part of government planning for old age. Finally, a more general approach to the care of the elderly has to be established in which the needs of the aged are integrated within the support provided for the community which is expected to care for them.
References:
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