ISSA General Assembly, Beijing 2004 ILO Session, Wed., Sept. 15, 2004

1. Social Protection of the Rural Population:The need to think outside the boxRobert Holzmann, World Bank ISSA General Assembly, Beijing 2004 ILO Session, Wed., Sept. 15, 2004

2. Background and main Conclusions • Social Protection for the rural area is a challenge: High coverage can be achieved, but essentially only at high fiscal costs which poorer countries typically can not afford • 69% of population in low-income countries (> USD 735) and 51% in low-middle income countries (> USD 2,935) live in rural area • Low and low-middle income countries constitute 40% and 39% of the population, respectively • Special challenges for rural population in LICs include: • Natural forces and agricultural events/risks are more important • Traditional “social” contingencies receive low priorities (except health) • Upstream measures of prevention crucial (e.g. non-agricultural employment) • Attention on four risk management instruments: basic health, social pension, public works, and conditional cash transfers • Social funds and CCD – important processes to provide social services • Social insurance-type programs can be effective but are often not efficient

3. Selected Underpinnings of Statements: Structure • Social protection and the role of risk management in development • Social protection in the rural context • Income support for the elderly: Role and limits of social pensions • The role and limits of social security organizations in the extension of coverage

4. SP and the Role of Risk Management in Development • Its is increasingly understood that assisting individuals, households and communities in dealing with diverse forms of risks is crucial for accelerated poverty reduction and sustainable economic and human development

5. Risk and Poverty Income Poverty line Time

6. Risk and Poverty Income Shock Poverty line Time

7. Risk and Poverty Income Shock 1 Shock 2 Poverty line Time

8. Risk and Extreme Poverty Income Poverty line Time

9. Risk and Extreme Poverty Income Poverty line Shock Time

10. Education Stock Development Education 0 % Age

11. Education Stock Development Education Shock 1 0 % Age

12. Education Stock Development Education Shock 2 Shock 1 0 % Age

13. Social Risk Management FrameworkBasic Thrusts • The poor are typically most exposed to diverse risks (natural and man-made) • The poor have the fewest instruments to deal with these risks The poor are the most vulnerable as shocks have strongest welfare consequences The high vulnerability makes them risk averse and thus unable or unwilling to engage in higher risk/high return activities A reduction in vulnerability is thus both an end and a means of development

14. SRM leads from Intervention-based Definition of Social Protection … Labor Market Interventions LM regulation LM programs (active/passive) Wage setting Social Security Social Insurance 9 contingencies a la ILO Social Safety Nets/Social Assistance

15. … to Objective/Risk-based Definition of Social Protection Social Protection is defined as public strategies, policies, and programs that • assist individuals, households, and communities better manage risk, and • provide support to the critically vulnerable Other objectives consistent with the approach is the achievement “solidarity” in a society and a human rights based approach

16. Social Protection in the Rural Context • There is a difference between urban and rural population with regard to risk and vulnerability • The identified drivers for the vulnerability to poverty suggest other than traditional instruments • The crucial position of agricultural production reflected in the importance of two instruments • Food security, as public instrument, is gradually replaced by improvement of transport and markets • Rural-rural migration as private instrument is much more important than rural-urban or South-North migration (example: East Asia crisis of 1997 and 1998)

18. Identified Drivers for the Vulnerability to Poverty • Risk and Vulnerability Assessments, as new analytical instruments in client countries (over 25 en route or done) • Recent Kenya study identifies 5 main drivers: • Exposure to malaria • Level of access to non-agricultural activities • Level of fertilizer use • Level of literacy • Access to market outlets such as the existence of feeder roads

19. Key Social Protection Instruments • Public Works Programs to stabilize income and poverty • The value of infrastructure to reduce vulnerability • Risk diversification (supplementing cash crop) and risk taking (iff credible as available and implemented) • Unemployment benefit scheme for highly informalized economies • Conditional Cash Transfers (CCT) • Transfers to poor families contingent on certain behaviour (such as school attendance or health facility visit if children) • Successful design and implementation in Mexico and Brazil (and under consideration in many other countries) • Creation of Employment in Rural Areas • Most effective upstream/preventive measure • Crucial to supportive productivity growth in agricultural production • Role of Risk Mitigating Instruments limited (health and pensions) • Issues of risk pooling (financing) and service supply (health) • Difference in demand: high for health, low for pension products

20. Income support for the elderly … • Reduced importance of family-based arrangements due to globalization, urbanization, falling fertility rates, and HIV/AIDs • Coverage extension more difficult than envisaged (ISSA, Stockholm 2001) • Good reasons why demand for formal and mandated pensions among rural population limited • Many other risks that are more pressing • Low credibility of public and private institutions • Low demand for annuity-type products if insurance market of other risks is incomplete

21. …Role and limits of social pensions • Increasing interest in and support of non-contributory pensions by NGOs, academia and international organizations (UN, ILO, WB) • Central question for LICs: Poverty and vulnerability status of elderly compared to other groups to determine trade-off • First empirical investigations in 15 African • Support request to explore the contribution of NCP to poverty reduction and socio-economic development • Do not support unconditional demand for implementation in all LICs • Costs for benefits of 70% of poverty threshold at age 60 range from more than 1% to more than 3% of GDP • 2% of GDP in LICs is some 15% of tax revenue, and about 5-10 times the expenditure on social assistance for all other groups • Future work – design and implementation issues, such as how to distribute small amounts of money to thinly populated rural areas where the age of the beneficiaries cannot be established

22. The role and limits of social security organizations in the extension of coverage • Rural population will continue to depend on government for provision and regulation of social protection services • Role of traditional (and centralized) public sector channels low compared to community driven approaches such as social funds (as government agencies), user associations, mutualities, and NGOs • Importance of regulation and co-financing is potentially high • Role of traditional and employment-linked social security organizations is likely to remain limited for foreseeable future • Existing social insurance institutions (in rural area) can contribute to coverage extension, but only at the margin • Earnings-related old-age benefits have low priority, compared to access to basic health care • Disability benefits are conjectured to have high demand, but supply has failed to materialize • There are encouraging signs that social protection is receiving more attention in the developing debate during the Poverty Reduction Strategy Paper (PRSP) process