SALDRU study on funding in Higher Education in South Africa

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In April of 2019, SALDRU began a two-year project focussed on higher education funding in South Africa. The study, which was commissioned by Universities South Africa (USAf) and funded by the Department of Higher Education and Training (DHET), involves research to determine the full financial cost of producing graduates at each of South Africa’s twenty-six public universities. Led by Prof. Vimal Ranchhod, the study involves analysing historical data from universities’ financial statements, combined with administrative data on student performance from DHET.

South African universities experienced widespread and severe student protests across the country in 2015 and 2016. The mass protests and subsequent crisis can be viewed as a moment of rupture in a broader historical context that involved the intersection of international and national macroeconomic trends, public finances, the labour market, and institutional characteristics of the university sector in South Africa; all combined with the persistent socio-economic stratification of South African society that is a legacy of our apartheid history.

As a society, South Africa continues to grapple with the long-standing crises of high unemployment, high poverty rates, and high inequality. Unemployment has recently increased, and poverty rates have been measured at approximately fifty percent depending on the data and methodology that is being used. The measured inequality levels are amongst the highest in the world, and no matter how one measures inequality, the South African experience remains a complete global outlier.

Within this extreme context, it is not surprising that students place a very strong emphasis on obtaining a tertiary qualification.

Empirically, the individual financial returns to a tertiary qualification are extremely high and have increased over the past two decades. In addition to earning fairly high wages, the returns to a tertiary education also manifest in the form of employment stability and the types of jobs that people with degrees tend to get. The demand for higher education is thus accentuated by the stark differences in material wellbeing that a graduate is likely to experience, relative to the low-paying and insecure employment prospects that many non-degree holders face.

While student numbers have been increasing steadily, the economic slowdown following the 2008 global recession put pressure on South Africa’s public finances.

The three largest components of national tax revenue are personal income taxes, corporate taxes on profits, and sales taxes collected through the VAT system. Each of these are sensitive to economic developments such as recessions.

In between the levels of the aggregate economy and the national government on the one hand, and individual students on the other, the key institutions that provide tertiary education are the universities themselves.

Public universities are autonomous non-profit organizations that report to the Department of Higher Educational and Training (DHET), and need to balance their revenues and expenses to maintain their financial sustainability.

On the expense side, the major operating expense for universities is staff salaries. This would include both academic staff as well as support staff. Other substantial cost drivers include maintenance of plants and machinery, residences and catering, sports facilities and student support services. For some universities, research costs can also be important.

On the revenue side, there are a few major sources of income. DHET allocates infrastructure grants to universities, as well as block grants that are either input grants or output grants. A key determinant of the input subsidy is the number of students that are enrolled in the university, while output grants are determined by the number of graduates, and the number of masters or doctoral theses produced. The third major source of income comes in the form of student fees. Universities have the autonomy to set their own fees, and this is the primary mechanism by which balanced budgets can be achieved. Some universities generate substantial cash flows from a research subsidy for the production of peer-reviewed and accredited publications. A final source of revenue that some universities have been able to generate involves ‘third stream’ income, which can take the form of returns on investments, endowments, donor funds and the ability to raise revenues for funded research projects.

In this complex environment, with multiple stakeholders and difficult economic circumstances, the question that arises is “What is a suitable level of funding for the public higher education sector in South Africa?”

How best can the state and universities interact to enable a well-functioning system that empowers its citizens and youth, while bearing in mind that the ability to raise revenue at both the national level as well as the institutional level are constrained.
A related strategic concern has to consider the dynamic health of the university sector, especially with regard to the supply of highly skilled academics. In a skills scarce country, where wages in the private sector can be substantially higher than those offered by universities, how can the different stakeholders identify ways to ensure that the institutions that are crucial for the long run evolution of society are able to flourish and perform their role in helping a country to fulfil its potential?

To implement the study, we first performed a literature review to look at any comparable international studies. This is useful for us to benchmark our subsequent findings, as well as to review the various methodologies that others have used when engaging in similar research. A large component of this project involves data; collection, cleaning and analysis. These activities are ongoing, with the ultimate goal of providing estimates of historical trends for each university; as well as for estimating the cost of producing graduates in some specific under-graduate level degrees across universities.