Malawi: Making the most of it - A regional multiplier approach to estimating the impact of cash transfers on the market

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This report uses qualitative and quantitative methods to help understand the market impact of CWW's emergency cash transfer programme in northern Dowa District, Malawi known as the DECT programme. The programme was undertaken during the 2006/07 "hungry season" from December 2006 to April 2007 as a response to crop failure resulting from poor rainfall during the previous cultivation period in the region. It is during this time of year in which households' maize stocks are depleted with the shortages being particularly acute following drought. Although this programme lasts 5 months, this study was carried out in February 2007 and focuses on the impacts in January 2007. Continuous monitoring and evaluation is however undertaken by the CWW's own M&E team.

The DECT programme builds on the experience of a similar programme carried out during the 2005/06 hungry season in which both food and cash were distributed to beneficiaries.

The principal aim of the programme is to permit households to meet their "food entitlement" by giving them the purchasing power sufficient to buy the necessary maize from markets, traders or farmers with stocks. With this aim in mind, CWW distributed nearly MK14m to 8,384 beneficiaries in December 2006 and MK17m to 10,161 beneficiaries in January 2007. This represents over 60% of the total population in the area.

Such an intervention will have both social and economic impacts outside of the principal aim of the programme. This report contributes to understanding the economic impact of the DECT programme.

A literature review and a review of the findings from to 2005/06 FACT programme helps to put the DECT programme in perspective with a specific focus on the multiplier. The literature review reveals that outside interventions can lead to regional multipliers estimated to be between 1.2 and 5 depending upon the intervention, the size of the region and other circumstances.

The review of findings from the FACT programme helps to understand how beneficiaries are likely to use their money which acts as a starting base from which the flow of money around the local economy can be analysed and the multiplier estimated. Since any significant injection of cash into a small local economy is likely to have an impact on prices, the review helps to understand the longer run price adjustments in the maize market. Maize price fluctuations are thus discussed in a longer run context using basic quantitative information gathered during the two programmes and provided by FEWSNET.

Although not the main aim of this report, there is some evidence that supply has been able to respond to increased demand in accessible areas which has minimised any inflationary effects. In more inaccessible areas, the programme may have created additional inflation. Anecdotal evidence suggests that this is partly due to risk aversion on behalf of traders who are unwilling to travel to unknown areas, even with the prospect of high profit. The inflationary pressure created by the project is however difficult to assess since Malawi as a whole had a large maize surplus and government policy prohibits export causing excess supply and a nation-wide price crash in January.

This report uses two methods to estimate the regional multiplier resulting from the DECT Programme with Traditional Authority Chakhaza as the area considered.

Firstly, using beneficiaries' reported spending patterns, secondary beneficiaries were identified and interviewed to ascertain their own spending patterns. This permits the cash injection to be "followed" around the local economy until it is spent elsewhere. Groups which benefit were classified; and spending by each group with all other groups was analysed in matrix form with one group's spending being another group's income. This allows for the creation of a "Reduced" Social Accounting Matrix (RSAM) from which the regional multiplier can be calculated and the total impact for each group estimated after all spending rounds have been completed.

Individuals representing each group were interviewed to obtain quantitative expenditure information and additional qualitative information. Under different assumptions, a regional multiplier of between 2.00 and 2.79 is estimated with beneficiaries' spending being treated as the exogenous stimulus. The lower region of these estimates is favoured as being under more realistic assumptions.

Using data from the 1998 Malawian census, this report goes on estimate the multiplier for TA Chakhaza at 2.11, helping to confirm the multiplier estimate as being in the lower region of the estimates using the RSAM.

The RSAM is also used to estimate the total increase in income for each group resulting from the cash injection. Noting that each group's total gain is estimated and that more individuals are included in some groups than others, local commerce and village traders are significant winners with many people making purchases from these two groups in rural areas with small towns. Smaller farmers gain more than their larger counterparts; an unsurprising result given than smallholders are the backbone of the Malawian economy. Households are also gain (both beneficiaries' and others') since part of the money finds its way back into their pockets in the form of wages, ganyu payments and gifts. Finally, both clinics/hospitals and schools also gain with a part of the money being spent on health and education.

Qualitative evidence indicates that the impact for schools is particularly important and deserves greater attention. The schools interviewed reported improvements in enrolment/drop-out rate as well as fee-paying which was put down almost exclusively to the DECT programme. One school also indicated improvements in students' concentration resulting from being properly fed thanks to DECT.

The longer-run benefits of improved health and education are not analysed in this report. Other longer-run benefits also not examined may result from investment in farm productivity such as fertiliser resulting from the DECT programme and supported by the Government fertiliser subsidy programme.

Anecdotal evidence not quantified in this report suggests that there may be a reduction in unemployment as a result of the programme. It is more likely however that labour market benefits are in the form of reduced underemployment with those already (self-)employed working harder to meet increased demand. Similar anecdotal evidence suggests that there has been not only a demand-side impact on labour but also a supply-side impact. Beneficiaries are less likely to offer their services in the form of ganyu creating problems for larger farmers.

Understanding the impact on the labour market is key to understanding the degree to which the multiplier represents increase production of goods and services resulting from the increased demand. In the short run, increased consumption on aggregate can only be met through increased work; if no additional employment is created, increased consumption on one person can be met only through another's reduced consumption.

This report gathers qualitative information suggesting that local businesses and traders have strongly positive views regarding the DECT programme. Most recognise the benefit for themselves personally, and are particularly grateful of the demand stimulated and from which their businesses benefit during the most difficult period of the year. Although some reported initial misgivings about the misuse of the cash, there is now general satisfaction with the fact that the transfers tend to go the females and are not abused. Traders in particular noted their preference for cash aid over food aid as it continues to ensure a market for their maize. It also prevents beneficiaries selling maize back to them as reportedly occurs when food aid is given.

Anecdotal evidence collected from businesses regarding spending habits of beneficiaries (who can usually be readily identified) supports the theory that beneficiaries are spending their transfers on worthwhile goods including food; school fees; health etc. Some however indicates that a small amount is spent on "extravagant expenditure" with one bar reporting busy nights on the day of the distribution; this is not however believed to be significant.

Inevitably interviewees discussed several aspects of the programmes and several distributions were witnessed. Indirectly relevant findings regarding the programme including the framing of the changing value of the transfers, communication with maize traders and potential abuses of position as village head are briefly discussed towards the end of the report.

Technical aspects of calculations are presented in the appendices and recommendations are made in final section of the main report.