Cash transfer a game changer in drought assistance

Wednesday March 18 2020

The Cabinet Secretary for Devolution recently declared that the government policy for drought and famine assistance would graduate to the use of cash transfers as opposed to provision of physical food. The imperative to assist vulnerable Kenyans was reemphasised but the mechanism for the assistance would change. This cash payment would enable the recipients to purchase their food in accordance with their preferences. This is sound thinking and even if it is not as novel as the office of the CS claimed.

And yet the response from some Kenyans was a mixture of incredulity and nonchalance. The claim is that this reform measure would be another avenue for theft and mismanagement, aided by this government’s tendency to throw technology and money at every policy problem. In sum, it’s an administration that is obsessed with the view that digital technology is a magic wand. And that this wand would solve problems as soon as it is waved furiously enough and supported with threats for non-compliance and non-cooperation.

Despite the woeful record of implementation of solutions based on digital technology, this new proposal to distribute cash directly to recipients of government assistance is an initiative deserving of support. While there has not been a formal publication documenting the reasoning behind the use of cash transfers to replace direct food assistance, government has a precedent in the use of same methods to support vulnerable Kenyans.

Audits have shown that cash transfers have been diverted but the larger share of the money still reaches intended recipients. Other independent reports demonstrate that direct cash payments to people is effective because it preserves their personal autonomy and allows them to use that cash according to their household preferences.

This means that in the case of food assistance, the cash payments could be deployed quickly without the encumbrance of well-intended but laborious procurement systems. The efficiency and personal autonomy arguments for the use of the cash transfers in emergency drought assistance remain strong and have been proven in other parts of the world. In addition, the costs of storage and transportation of bulky grain and supplies is avoided.

This new approach is also consistent with the basic understanding of economists who have studied the anatomy of droughts. The immutable conclusion, reinforced by Amartya Sen’s studies is that famines are not the result of shortage of physical food supplies but the inability to acquire that food as required.

Good judgements

Institutions such as Give Directly have undertaken large experiments in the use of direct cash transfers from private resources. Published information from their evaluations show that poorer people, including those in Kenya, invariably make good judgments about the use of financial resources that have been provided to them. Partnership with institutions with demonstrated working systems would improve reach and accuracy of the assistance.

However, that cash-based assistance would be easier to administer is not the issue that bothers the sceptics the most. The real issue is the fidelity of financial management by the government of Kenya. Few Kenyans believe that a country in which whole dams and vehicles bought with public resources disappear should be trusted to disburse cash when that is the only assurance that some families will have against starvation. They contend that that policy would be reckless.

The scepticism proves that a government that wishes to use cutting edge tools for policy execution will not be believed because of the antecedence of corruption. In spite of the fact that cash transfers in lieu of physical food stocks are an efficient way to administer relief, some Kenyans are saying that a government that couldn’t prevent or secure the food stocks is unlikely to manage cash given its fungibility.

To gain the trust of Kenyans, government would have to go the full hog and convert the grain stocks to a cash reserve as well. It beggars belief for the CS to believe that the distribution of drought relief can be in the form of cash, but that government must retain grain stocks as part of the strategic food reserve. It is true that a portion of the reserve is held in cash already, but the same advantages that commend the use of cash as a substitute for food relief apply to the grain reserve which should promptly be converted to a virtual reserve.

The only way out for the CS is to commit upfront to the publication of all spending and allow for audit of recipients with declaration on any errors. The preferable alternative is for Parliament to pass a law requiring this cash transfer mechanism to be managed outside the government through a private provider of that service. That would externalise the risk of losses by making the private provider responsible for losses from poor administration.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi.

Twitter: @IEAKwame