The Economics of #FeesMustFall

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Minister of Finance Pravin Gordhan will announce plans for funding a 0% increase in tertiary tuition fees during 2017 for up to 80% of students when he presents the Medium-Term Budget Policy Statement (MTBPS) in parliament on October 26.

An initial estimate by Universities South Africa (USAf) indicated that up to R2.5 billion would be needed to finance this, says Christie Viljoen, Senior Economist, KPMG, South Africa.

The ongoing #FeesMustFall campaign is aimed at convincing the government and tertiary institutions to eliminate tuition fees completely. Of course, free tertiary education would not really be free, and significant funding would need to come from public sources.

“In our latest thought leadership report, we considered the economics of the ideas behind and affecting the #FeesMustFall campaign and – taking into account multiple aspects surrounding university education in South Africa as well as the idea of tuition-free tertiary education in the country,” says Viljoen.

The report provides important fact-based information surrounding this campaign and tertiary education on a broader level. Some of the critical aspects highlighted in this report include:

· The recent sharp increase in tertiary education fees. Data from Statistics South Africa (StatsSA) indicates that tertiary education costs an average of 9% p.a. more during 2009-2015 – resulting in a cumulative increase of 80% since 2008. This is significantly higher than the average headline inflation rate of 5.5% p.a. and a cumulative inflation rate of 45% of the period.

· The reasons behind a significant rise in tuition. According to recently published research from the University of the Free State, the above-inflation increases in tertiary education costs is associated with two factors, namely: i) exchange rate weakness inflating the cost of imported textbooks, equipment, software, etc. and ii) a decline in private income earned by universities needing to be recouped from students.

· The contribution of government income to university budgets. Public sector transfers to universities remained around the 40% level (of total university income) during 2009-2013. When considering the impact of inflation, real state expenditure per student has remained relatively constant, and in 2013, was on a similar inflation-adjusted level to 2005.

· The role of the National Student Financial Aid Scheme (NSFAS). This state-funded organisation provides financial aid for poor yet academically eligible students. NSFAS, however, only applies to the poorest of households, thus creating a so-called ‘missing middle’ for many students who cannot afford higher education but are from families that earn above the R160 000 threshold.

· South Africa’s economic fundamentals in perspective. A selection of South Africa’s economic characteristics are considered against a group of 13 countries identified as having free or almost-free tertiary education (bachelor’s degrees). The data indicates that South Africa has little room to manoeuvre towards implementing tuition-free tertiary education compared to these countries.

· Alternatives to brick-and-mortar university education. Due to the costs associated with tertiary education in South Africa, alternatives could prove attractive. These options include the training of artisans, on-the-job training (in which South Africa already performs well in a global perspective), and internet-based education.

· The impact of planned increased government expenditure on tertiary education in 2017. Earlier this year, the National Treasury planned for a 13% (R3.6 billion) increase in subsidies to tertiary institutions during the 2017/18 fiscal year, i.e. before Minister of Higher Education and Training, Blade Nzimande committed the state to finding even more money.

· The need for universities to increase their income from other sources. Universities need to increase funding outside the sphere of state financing and tuition fees. Options include incentivising the private sector to share funding costs, using technology to improve access, and getting communities involved to reduce indirect costs.

Christie Viljoen is Senior Economist at KPMG in South Africa



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