Social Protection in Small Developing States

Small Island Developing States (SIDS) face more than just climate related challenges, some of which possible to overcome through financially sustainable, rights-based social contracts. Resilience to natural hazards and other shocks does not need seawalls and clean energy solutions only. If we are committed to leaving no one behind in the SIDS on the path to sustainable development, expanding investment in education, healthcare and social protection and promoting gender equality and human rights-based policy and law making are prerequisites to any solid, irreversible progress.

Universal access to social protection is an important component of the social contract in any democratic state, and, as reflected in the 2014 Human Development Report, Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience, one of the six building blocks of resilient social systems along with universal provision of basic services, addressing life cycle vulnerabilities, promoting full employment, addressing societal inclusion and building capacity to prepare for and recover from crises[1]. This is applicable to all nations, regardless of size, geographic position or culture. Human development is the only reason for which we all advocate economic growth and climate stability. As a colleague in the United Nations in the Pacific bluntly stated, the only reason we care about global warming is because it puts humanity at risk. And it does, most critically, in Small Island Developing States, not only because of their geography, but also because their small economies cannot timely finance all critical infrastructures needed and the local human capacities available are generally limited. Some of the SIDS have major difficulties in accessing external financing simply because they are already highly indebted and, as mostly Mid-Income countries, the aid they can still secure is insufficient.

Such a complex set of constraints calls for a thorough rethinking of the SIDS growth model. To start with, more needs to be done to strengthen the only resource that all SIDS have, which is human capitals. Investing in people helps countries overcome absence of or depleting natural resources as human creativity is an important growth driver. Establishing multi-pillar social protection systems to include social security/insurance schemes, social welfare and labor market interventions can help SIDS overcome some of the human development gaps that they experience. And as migration from the SIDS will always happen, better skilled labor force would be easier to integrate in recipient countries.

According to the 2018 Human Development Statistical Update, the average Human Development Index for the SIDS[2] stands at 0.684, below the world average of 0.728. The same dataset shows that SIDS’ average life expectancy is 71.2 years, 1.0 years lower than the world average (72.2).

The SIDS’s average expected years of schooling of 11.9 years is below the 12.2 years average of developing countries and below the world average of 12.7 years. The average Gross National Income per capita of $8,164 (in PPP$ constant 2011 international) is only 54.4% of the world average of $15,295 and about 85.7% of the average for developing countries.

Around 82.8 million people live in the SIDS (11% of the total world population), all of them facing increasing vulnerability and a growing risk of exclusion unless we bring up on the priority list key enablers of human development in these island states. The Gender Inequality Index (GII) measured in 19 out of the 38 SIDS is 0.458, slightly higher than the global average of 0.441. For the other 19 SIDS, data on gender inequality is not even available, which is a clear indication of total absence of dedicated policies and action plans. One of the drivers of gender inequality is the low labor force participation of women, which stands at 53.7%, far below the participation rate for men in the SIDS (73%). Papua New Guinea is home to the most gender unequal society (GII is 0.741) followed by Haiti in which the GII is 0.601. Unpacking the GII across the 19 SIDS takes us to some concerning realities. For instance, the Maternity Mortality Ratio (female birth deaths in 100,000) is 549 in Guinea-Bissau compared to only 15 in Bahrain. The Adolescent Birth Ratio (births per 1,000 women aged 15-19) in the Dominican Republic is 95.0 compared to 44 the global average and only 5.8 in the Maldives. Difference in shares of population with at least some secondary education (F – M) is 15.4 in Guyana, whereas the average for all the SIDS is negative (-1.7). There is a lot that SIDS can learn from each other too.

In the 16 SIDS in which data was available, population in multidimensional poverty stood at 47.5% (i.e. 27,481,000 individuals) with Madagascar leading the way with an MPI of 0.453, followed by Guinea Bissau with an MPI of 0.372. The lowest level of multidimensional deprivation was recorded in Trinidad and Tobago (MPI=0.002).

Measurement of vulnerability to multidimensional poverty shows that 32.2% of the population of Vanuatu is on the brink of poverty while 38.8% are multidimensionally poor. In Timor-Leste, based on the 2016 Demographic and Health Survey, 46% of the population is multidimensionally poor and, additionally, 26% are vulnerable to poverty.

Out of the 36 SIDS for which data was available (Nauru and Tuvalu not included) Samoa has the lowest Employment to Population Ratio (28.9%) and Labor Force Participation Rate (31.5) meaning that only 28.9% of the active population (age 15-63) has a job and just 31.5% of the active population seek or hold a job. Youth unemployment in Samoa is the second highest (18%) after Fiji (18.8%) among all SIDS. Youth not in school or employment stands at 37.9% of the population in that age group.

The SIDS Accelerated Modalities for Action Outcome Document known as S.A.M.O.A. Pathway in paragraph 78[3] identified social protection as one of the needs across SIDS that can accelerate sustainable development, yet 5 years after and 2 months before the Midterm Review at the UN General Assembly, very few SIDS have made progress towards legislating and developing functional social protection systems.

As defined by former World Bank President Kim in the press conference marking the 2016 WB – ILO partnership for universal access, social protection “is a means to reduce poverty, achieve greater gender equity, reduce economic inequalities, and promote good jobs. While many developing countries are already achieving universal schemes designed to ensure that nobody is left behind, only one in five poor people in the lowest-income countries is covered by any form of social protection today.”. Three years after, the situation has not changed much. Countries that have long had social protection systems in place are forced to revise eligibility criteria to address implicit debts and secure fiscal sustainability whereas developing island states lack such systems, partially or completely.

In all societies, increasing demand for goods and services at the base of the income pyramid through targeted, conditional social safety nets helps boost economic growth and contributes to social stability. People who, for medical reasons, are unable to work must be supported with social benefits to allow them to lead a dignified life. Similarly, elderly uncovered by a pension plan, should be entitled to a minimum income to survive and decrease dependence on family members. There is considerable literature demonstrating the positive economic impact of well-designed, targeted and conditional social welfare systems, but centering social protection on active measures such as labor market services including job mediation, vocational, entrepreneurial and on-the-job training among others could also have a significant socio-economic impact, gradually reducing demand for cash transfers.  

In its 2013 Tailoring Social Protection to Small Island Developing States paper, the World Bank identified five characteristics calling for tailored Social Protection solutions in the SIDS: (1) Limited productive sectors and heavy reliance on imports, (2) Tourism as a driving force of the economy, (3) Significant susceptibility to economic and environmental shocks, (4) Small labor markets, compounded by limited skilled labor and high unemployment, (5) An impending large increase in the size of the elderly population. In the Pacific, another important characteristic of the SIDS is their high dependence on rapidly depleting natural capitals. Despite significant improvement of connectivity through submarine cables, the economy is still dominated by basic agriculture and fishery, manufacturing only employing 6% of the labor force. Expansion of services brings in primarily foreign labor, but, in general, foreign direct investment remains limited, in part due to the smallness of the markets and low domestic demand and to the lack of adequate skills for technology intensive jobs. Youth migration to larger neighboring countries is still considerable, the brain drain hindering human capital-driven growth. Large size remittances flow in, fueling demand for imported goods in the absence of sufficient local production. While an engine for growth and a poverty reduction factor, remittances face increasing uncertainty as labor markets in countries in which such money flows originate come under stress due to increasing cohorts of labor seekers.

It is therefore time for a serious revision of social protection arrangements in Small Island Developing States to reduce reliance on remittances, provide skills development and lifelong learning opportunities to SIDS populations of active age, make labor markets more competitive while supporting dependent members of the society with social benefits and services. Social protection stimulates growth in multiple ways, but it is not a panacea for structural problems, particularly if it does not draw on a long-term sustainability analysis. 

Most importantly, social protection remains one of the few interventions that States can still make in even most liberal markets. If centered on active measures such as labor market services, social protection is pro-cyclical in economic booms and counter-cyclical in times of shocks and downturns, in the latter case enhancing affected populations’ purchasing power and capacity to recover and maintaining the demand. 

Universal child allowance conditional upon school attendance, school feeding and mono-parental family support are also important ways in which social protection represents an investment in future generations for sustainable development. Ultimately, leaving no one behind starts with making sure no child is out of school, unfed or left without proper healthcare.

The question is how such social protection systems can be financially sustainable in small economies. One may argue that it is much easier to maintain sustainability of a pension system in markets where compliance can be easily enforced and social security contributions systematically collected. However, with such low employment participation and labor force participation rates, pension funds will be too small to make an economic impact and to cover pension rights of ageing populations. The answer remains expansion of the tax and contribution base through more people in paid employment and well-designed pension benefits. Remittances can then be converted into development financing through diaspora bonds that have been quite successful in Israel, Lebanon, Sri Lanka among others, with expatriates more likely to accept lower yields and overlook some of the country’s structural problems.

Centering social protection on professionalizing labor markets and investing in skilled labor, including in cutting-edge science and technology could build a strong competitive advantage for the SIDS and advance growth and resilience in these highly exposed countries and territories. Otherwise, these stunningly beautiful parts of the world will continue to foster vulnerability and exclusion and make slow progress, if any, on the Sustainable Development Goals pathway. 

[1] Chapter 4, page 83 of the 2014 Human Development Report

[2] HDI was calculated for 37 out of 38 SIDS (Singapore was not included)

[3] “78. We recognize that social development, as one of the three dimensions of sustainable development, is crucial to ensuring development progress by small island developing States both now and in the future. We therefore support efforts to enhance social protection and inclusion, to improve well-being and to guarantee opportunities for the most vulnerable and disadvantaged."