Submission to the Commission of Inquiry into Higher Education and Training

1. Submission to the Commission of Inquiry into Higher Education and Training 09 MARCH 2017

2. The Brief from the Fees Commission • The overarching question is whether “fee-free” Higher Education & Training Feasible in the South African context? • What is BUSA’s understanding of “fee-free”? • Is “fee-free” possible or desirable in the South African context • Should “fee-free” be applicable to all students from all backgrounds? • The proposed funding formula to fund “fee-free” higher education, which ensures quality and sustainability of the PSET sector? • Any further proposals • What would the broader social, economic and financial implications of providing “fee-free” Higher Education and Training be?

3. Business Unity South Africa • BUSA is the apex body representing business. It is a confederation of business organizations including chambers of commerce and industry, professional associations, corporate associations and unisectoral organizations. It represents South African business on macro-economic and high-level issues that affect it at the national and international levels. • BUSA’s function is to ensure that business plays a constructive role in the country’s economic growth, development and transformation and to create an environment in which businesses of all sizes and in all sectors can thrive, expand and be competitive. • As the principal representative of business in South Africa, BUSA represents the views of its members in a number of national structures and bodies, both statutory and non-statutory. BUSA also represents businesses' interests in the National Economic Development and Labour Council (NEDLAC).

4. BUSA Strategic Priority Areas

5. BUSA Strategic Priority Areas - cont • BUSA aims to be a strategic partner in designing, developing and promoting on behalf of business an enabling environment where 6.9 million work opportunities can be created for predominantly black people, women, youth, people with disabilities and people that come from poorer backgrounds in order that they can participate in private sector businesses of all sizes and formats across many different sectors of the economy. • This can only be achieved through fundamental sustainable economic transformation of the South African economy - a key enabler is the development of quality education and skills that will contribute to business needs, and the country now and in the future. Inclusive economic growth can be defined as economic growth that delivers progress to society as a whole. It implies that the benefits of increased prosperity and productivity are shared more evenly between people and translate into an increase in well-being across society Reference: OECD Taxation Working Papers No. 26

6. Introduction • BUSA supports quality, relevant and accessible free higher education for the poor, provided that Government is able to adequately manage the fiscal burden/impact. • BUSA is opposed to the violent nature of the protests, which needs to be addressed by the key political players in consultation with social partners. • With current low growth levels, business cannot afford an additional financial burden without this impacting negatively on business sustainability and employment. A range of business contributions are already made and planned across multiple interventions • There are several engagement platforms where Business is demonstrating our commitment to viable solutions to the challenges currently being experienced e.g. Ikusasa initiative, DHET PPC, HEPARD and at NEDLAC on the s77 protest action. • Collectively, we need to ensure that these solutions are integrated into a single co-ordinated solution. This can only be done by bringing the collective together.

7. BUSA’s Key Principles in this Regard • To support and adequately fund our higher education institutions as a national asset • Strengthen Basic and Post school education systems in order to address challenges in terms of inefficiencies and wastage • Speed up the realignment of the SETA/ post school training and development system and structures in consultation with key stakeholders, to meet business and country needs • Business to better co-ordinate voluntary initiatives/ participation by Business together with key stakeholders • StrenghtenNSFAS and make it efficient in terms of awarding bursaries/loans and collection of monies and working in partnership with the private sector • Find long term sustainable funding solutions - UIF/SETA funds are short-term, unsustainable solutions • Consider the BBBEE as a way in which to incentivise investment in skills • Sustainable economic growth remains a priority of business and the country in order to achieve developmental objectives - additional taxation of companies should be avoided as this can impact negatively on growth.

8. The Business Contribution • Approximately R17 billion is contributed towards skills development by business through the Skills Development Levy (SDL). • SETAs ring fence approximately 4% of Discretionary Grants (from the SDL) to NSFAS. This excludes other direct support that is provided to higher education learners institutions through discretionary grants e.g. internships, workplace-experience programmes, lecturer development and bursaries. • BUSA notes, however, its concern with the current inefficiencies with in the SETA system and the current legal proceedings with Minister of Higher Education and Training, regarding the SETA grant regulations (the reduction in the Mandatory Grant from 50% to 20%, effective 1 April 2013, has had a significant negative effect on company training budgets. The reduction was deemed ultra vires the Skills Development Act in the judgment handed down in August 2015. The court found in favour of business but the mandatory grant has not been increased to 50% to date, despite the court ruling)

9. The Business Contribution • The Employment Tax Incentive created over 645 000 employment opportunities in 2014/15 with between 5-35% absorption rate into permanent roles. This is a significant contribution to graduate placement often combined with formal and informal workplace training. • Under the CEO Initiative, Business is now exploring the YES concept to place 330 000 youth in 1 year work experience, each year for 3 years, targeting 1 million youth. • Corporate Social Investment support to higher education amounts to approximately R2-3 billion annually (BLSA / Chamber of Mines data). • Industry BBBEE sector charter commitments amount to approximately R5 billion • 6% contribution to skills development is regulated by BBBEE requirements. The commission should note that a significant amount of this funding is allocated to post school/Higher Education studies.

10. Business contribution-cont. • BUSA and its members, including BLSA, are actively involved in efforts to address the universities crisis. The focus is on 2 national programmes: the Ikusasa initiative and the Moseneke led National Education Crisis Forum.  • Business also works closely with the NSFAS regarding turnaround strategies to improve system efficiencies of the NSFAS. Extensive technical support is offered to the entity. • Business, at firm level, at sector level and in partnership with others makes a significant contribution to education and skills through a variety of different mechanism and processes – the innovation, and demand led contribution that this makes should not be underestimated.

11. Previous Business Engagements & Positions • BUSA commented extensively on the Green and White Paper on Post School Education and Training in 2012/3. At the time, BUSA identified • inadequate resources relating to entry, enrollment and expansion. • raised concerns regarding the burden on the State, including the fiscus, infrastructure and capacity constraints on Higher Education and the TVET system. • It is unfortunate that business and other stakeholders were not meaningfully engaged on on this matter in a co-ordinated and coherent manner. • A key enabler for ensuring a sustainable higher education fee solution is social partner engagement and commitment. Nedlac can play a key role in this regard if the appropriate technical and leadership support is secured. • BUSA is in support of the proposal by the Minister of Higher Education in regard to the funding of the poor and “missing middle” but this should be done without placing further obligatory burdens on corporate South Africa and/or taxation.

12. Fee-free Higher Education & Training • Fee-free is a mechanism that seeks to make access into higher education and training accessible to all at “no cost” to the individual. • This however, in the current South African context is not feasible. Payment for this approach will have to come from somewhere i.e. the state, corporate South Africa (donations and increased taxes) or from households (taxation). • It must be noted that the redistributive impact of taxes and transfers is lower when taking a longer time horizon. The decline in the effectiveness of taxes and benefits at reducing inequality from a lifecycle perspective results from the fact that a large part of redistribution occurs over individuals’ periods of life (intra-personal redistribution) rather than across individuals (inter-personal redistribution) (OECD 2016). • A sustainable, progressive, long term solution must be found to address the higher education funding issue.

13. Is fee-free possible or desirable in the South African context? • In an ideal situation, no worthy student should be denied higher education on the basis of affordability. • The economy must grow, however, in order to provide the fiscal space to further support the call for free higher education. The current capacity cannot support all competing developmental priorities to the extent that we would want. • BUSA supports the reprioritization of Government spending towards education, without undermining fiscal discipline - any funding shortfall for the tertiary education sector will need to be found in this context. • Given the low levels of economic growth, “free” education should be considered on a staggered or graduated basis and most be focused on those most in need. This approach would avoid a shock into the system and allow for a planned or phased introduction of an education subsidy. • Current policy regimes, which have proven to be successful, must be implemented more efficiently and on a graduated basis in order to realise its full potential.

14. Should “fee-free” be applicable to all students from all backgrounds? • BUSA is of the firm view that access to higher education and training is a necessary and desirable intent, in line with our Constitution. • Currently, we all know that given competing social demands and economic status of South Africa simply cannot afford it. The most effective way to achieve access to higher education in the medium – long term is through getting more people into employment in the private sector. • BUSA supports the proposal by the Minister of Higher Education on funding of education for the poor and “missing middle” and development of a clear definition on eligibility for the short term. This will address the most pressing challenges in relation to access to higher education.

15. The proposed funding formula to fund “fee-free” higher education, which ensures quality and sustainability of the Post School Education Training sector? • Back to Basics. At this stage we “fee-free” higher education is not possible, however if policies and partnerships are in place to address challenges in the current PSET system and we become more efficient, in terms of throughput rates, curriculum improvements, skilling for an improving economy, then we can gradually progress towards ensuring access to all eligible students, including how fees are adjusted. • A critical element for a sustainable fee-free model is an efficient and effective basic schooling system. This also relies on a quality basic education system and support to learners that creates the platform for success at post-school level - South Africa’s levels of Maths and Literacy at international levels demonstrate a significant challenge in this regard.

16. Way Forward • BUSA remains committed to engaging with key stakeholders to resolve the challenges facing Basic and Higher Education and set the country on a more sustainable footing for the long term. • Certainty in the post school education and training sector (including higher education) is required. In particular, this relates to the conclusion of the ongoing policy issues, institutional structures and SETA Grants and administration. • BUSA supports the need for the turnaround strategy for NSFAS. • Business commitment to the Ikusasa initiative and the Moseneke led National Education Crisis Forum remains in place. • The voluntary initiative from business to address the “missing middle” concern must remain in place and be further leveraged.

17. Closure • The only way address challenges in relation to access to higher education and the associated issue of fees, is to grow and transform the economy so that it is inclusive and capable of employing the 6.9 million people that are currently unemployed. Higher education and training is a key enabler of inclusive, economic growth. • We need a broad social consensus that addresses the challenges in basic and higher education systemically, supports institutional structures and makes the space for the private sector to draw the skills that are needed to power the economy. • This calls for social partner engagement and commitment – BUSA is willing to play its part.