UP higher education expert: COVID-19 has put the financial sustainability of universities at risk. Here’s what they should do now

Posted on October 05, 2021

South Africa’s 26 public universities are under considerable pressure, with financial sustainability and the COVID-19 pandemic as the top two risks. Financial sustainability risks have been mounting over the past decade and the pandemic has exacerbated this, forcing us to comprehensively review our budgets and financial position, and to be extremely careful about our cost and growth strategy.

Our public universities have three main streams of income:

  • The block grant and earmarked funds, that is, the government subsidy - the main source;
  • Tuition fees; and
  • Third-stream income from sources such as donations, industry, partnerships, contract research, consulting services and short courses. 

Starting with the block grant, the pandemic has negatively affected the government subsidy. At the end of May 2021, universities received an amended ministerial statement indicating that the block grant allocation had been cut, mainly due to increased allocations to the National Students Financial Aid Scheme (NSFAS).

R2 490million was reprioritised from university allocations to support NSFAS. The reprioritisation affected both the block grant and earmarked grants, including funding for university capacity development, infrastructure development and foundation provisioning. This created a shock across the university system and we all had to redo our budgets and review our priorities and commitments.

Many universities have sustainability plans but as is well known, when resources are in a state of flux, organisational vulnerability occurs. There are a number of risks we have to address in order to remain sustainable while ensuring that we don’t compromise the standards and services we offer. In some instances, we have had to postpone appointments and all faculties and departments have been asked to do cost-cutting and fundraising. The budget cuts could not have happened at a worse time – when universities needed resources to bolster their infrastructure for online education, improve online pedagogies and strengthen student success initiatives.

Fundraising needs to be bolder than ever before. We all need to develop a fundraising campaign for bursaries, expand our international fundraising, and substantially increase external research funding to offset the considerable funding risks we face.

One of the biggest risks for universities is unpaid student fees, and this will continue to rise in 2021 and beyond. In 2011, student debt in the sector stood at R3, 324 billion and rose to R16, 250 billion in 2020, resulting in a debt ratio of 52.30%. The broader context of the social and economic challenges that we face as a country come into play here, and this is concerning as South Africa has a significant and growing cohort of students applying for fee-free education. Government subsidies have not kept pace with the increase in student numbers; in effect, the subsidy per student has declined. The rate of state support increase, below inflation, places more pressure on student fees and third-stream income.

NSFAS offers bursaries for students from households with an annual income of up to R350 000. This has doubled over the past couple of years and it’s not sustainable. In 2018 funding for NSFAS was slightly under R15 billion and grew to almost R 35 billion in 2021. Due to the economic impact of COVID-19, NSFAS looks set to fund even more students, because many fee-paying students have moved into the NSFAS eligibility bracket, which once again reduces universities’ budgets as the number of fee-paying students declines.

The initial ministerial statement on university funding for 2021/22 and 2022/23 shows an allocation of R 29 411 904 for NSFAS in 2022/23, which is lower than the amount that was required in 2021/22 (about R 35 billion). This means that the Department of Higher Education and Training (DHET) has to find money from somewhere to meet the expected demand in 2023, even if it is to maintain current funding levels. It is therefore likely that the DHET baseline will be raided again to support NSFAS, unless the National Treasury allocates additional funding.

Fees wise, in 2020, our tuition fees increased by 5.3%, and we expect the increase to be even lower next year. In 2014 the average price index score for our universities was found to be 7,5% - significantly higher than the 2013 CPI of 5,7%. In 2019, the higher education price index was estimated at 6.5% compared to 4.1% for CPI. 

The per capita growth in real terms of university subsidies has been uneven over the years. For instance, in 2011/12 it grew by 4,2% but declined in 2013/13 by 4.7%. In 2017/18, it grew by 2.3% but in 2020/21 and 2021/22 it declined by 0.2% and 0.6% respectively. USAf points out that South African government investment in higher education as a ratio of GDP is about 0.71. This is less than half of countries like Cuba, China, Finland, Iceland, Malaysia and Ghana and also significantly less than Senegal, Chile, Brazil and India. Whilst this does not necessarily mean that higher education in these countries is better funded compared to South Africa, it reflects a relatively lower fiscal effort for higher education in South Africa.

We need an increase in government funding for universities.

Onto third-stream income – universities differ in their third stream income, but for research-intensive universities, it can be substantial. The proportion of third stream income in the total income of universities has declined from 28.6% in 2014 to 24.7% in 2020. However, third stream income depends on how the economy is performing and when it is not performing third-stream income goes down.

The question now arises, what strategies can our universities adopt to cope with this situation? Universities have to utilise resources sustainably, diversify resource streams, contain and replace costs. Universities have been compelled to defer or even cancel some planned infrastructure and other projects and manage maintenance costs with great care. Having said that, it is essential to balance this against maintaining quality and excellence in all of our core functions.

One of the key strategies the COVID-19 era has accelerated is the need to grow long-term, large-scale, sustainable transdisciplinary and international collaborations and partnerships, which helps to boost productivity and innovation, share costs and increase income. To achieve this, universities have to have a strong reputation for excellence, innovation and creativity, and a record of managing money well, with systems in place to monitor, evaluate and achieve the intended outcomes.

The significant advantage of international collaboration is that it enables universities to make important teaching and learning, research, engagement, and innovation advances by building on each other’s areas of expertise. In order to maximise international partnerships and research impact, we need to focus on the impact of universities in society in addressing the Sustainable Development Goals, Agenda 2063, in other words, the wicked problems of the  twenty-first century.

This form of one-world, one-vision collaboration elevates academic facilities to a new level, including teaching and collaborating across  continents, using online platforms and video calling in real-time. In this environment, digitalisation is an essential strategic resource for all aspects of university operations going forward.

Digitalisation requires considerable investment but achieves even greater gains, including producing students being digitally fluent and adaptable for a rapidly changing job market. A cost-controlling option is to look at sharing business services such as Information Technology (IT) with other universities in the area.

Another area that requires investment for gain is environmental sustainability. Several universities are actively going green, including putting water saving measures in place and supplementing the electricity supply with solar energy.

The many strategies we all adopt during these times cannot be based on “business as usual” approaches. It requires bold thinking and agile, positive shifts. And it requires leveraging all our networks, including our considerable alumni networks. Partnerships are all about networks. We have to develop them and sustain them and to draw on our alumni to increase our internationalisation agenda. People often feel more comfortable partnering or supporting people and institutions they know and trust, and there is a wealth of opportunity in alumni social and business networks that universities can call upon to see us through, better and brighter, to the other side.

Professor Gerald Wangenge-Ouma is Senior Director: Institutional Planning, University of Pretoria. He is a member of the Funding Strategy Group of Universities South Africa (USAf) – the membership organisation representing South Africa’s public universities – which is holding a major conference on 6-8 October to address the sustainable future of our universities.

This article first appeared in the Sunday Times on 3 October 2021.

- Author Professor Gerald Wangenge-Ouma

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