Is BEE #feesmustfall solution? Riaz Gardee says it can reduce fees by 66%

The argument for free university is not a clean one. Firstly, as the saying goes, nothing is free. And while students may get free studies, someone, somewhere has to cover the shortfall needed to keep the lights on. So it’s of concern that President Zuma dangles a carrot of free education in front of students but there’s no mention of how he plans to live up to his word. And while solutions are most likely being sought behind closed doors, mergers and acquisition expert Riaz Gardee, who has a penchant for BEE deals, thinks part of the solution lies herein. Gardee does the numbers and suggests the private sector should obtain BEE credits in exchange for university funding. And the numbers he crunched point to a 66% reduction in fees. And while the suggestion makes a lot of sense, one can imagine that the select few who usually benefit from such deals may raise objections. Just look at the recent Mittal beneficiaries. – Stuart Lowman

By Riaz Gardee*

Recent student protests against university fee increases have once again brought the South African tertiary education sector to a grinding halt. Burning of libraries, destruction of property and even marching on the Wits vice-chancellor’s family residence have characterised this year’s demonstrations creating uncertainty over the continuation of lectures and completion of final examinations. A recent poll at Wits indicated that 77% of students would like to return to classes but this has not convinced the vociferous members of the student council to retreat. The student council, government and university management are deadlocked in a financial impasse with few economically viable solutions being debated. With effective planning and co-ordination black economic empowerment (BEE) policies can be used to make a significant impact on the funding shortfall.

Fees or no fees?

Horace Greely said ‘The darkest hour in any man’s life is when he sits down to plan how to get money without earning it.’ Economics students are also taught that ‘there is no such thing as a free lunch’. Anything received for free has to be absorbed elsewhere and most dangerous is creating a culture of expecting things for ‘free’. However access to world-class affordable education for a capable student is not an unreasonable demand.
After widespread demonstrations last year government announced that there would be no fee increases for 2016. The recent announcement by the education department that fee increases for 2017 would be capped at 8% has once again led to student demonstrations. Students cite unaffordable fees as a barrier to tertiary education while the universities highlight finite funding from government as a constraint.
The debates have largely centred on the quantum of the fee increase, which do not address the core issues.

Universities reflect SA’s future

The crux of the issue is access to tertiary education at a reasonable cost. In an ideal world, qualifying students should have access to world-class education without being overburdened by excessive costs while university management would be focused on providing the best education and measured in terms of their output. This is critical to SA’s long-term success as well as government’s broad-based BEE initiatives.

High-quality education is the cornerstone of any success story and the primary objective of any education system should be to match the innate talents of individuals from as early on as possible to their vocation. Failing which the state will be inefficiently funding students who eventually drop-out or do not utilise their training.

The output of the tertiary education system is therefore the litmus test of the future well-being of the country. If it is not seen as credible and able to produce quality outputs then those seeking a world-class education will quickly move elsewhere leading to a rapid downward spiral as the funding gap increases further.

The Malaysian economic empowerment model, on which SA’s policies were originally based, has shown that a critical success factor has been providing jobs to adequately qualified previously disadvantaged locals and integrating them into the formal economy. If SA is unable to do this then its BEE policies are unlikely to yield the desired outcome of economic transformation.

Reduce fees by 66%

So what options are available to fund the above shortfall using existing resources and still reduce fees significantly?

Read also: Matthew Lester seeks #feesmustfall solutions: the forgotten stakeholders

For illustrative purposes Wits has approximately 30 000 students who are charged an average of R45 000 per year in tuition fees. This equates to an annual funding requirement of R1,35bn. If student fees were to be set at R15 000 per year, a 66% reduction, the shortfall in funding required would be R900m — hardly significant to ensure 30 000 quality graduates enter the economy. This could further be split between government and the private sector with each contributing R450m. But what would the private sector receive in return for this contribution?

Companies receive points for enterprise development spend as well as various other items on the BEE scorecard. If a link to university funding is directly incorporated into BEE scorecards because of its priority, the funding shortfall could easily be reduced. The university would parcel this R450m debt into smaller denominations via a divisible note to be offered for sale to interested companies. In exchange companies would obtain enterprise development and BEE ‘ownership’ points and this would neatly solve the problems of both parties ensuring the funding is directed towards the highest priority item.

Read also: University fees fiasco: As life is lost, property destroyed, who is to blame? Analysis, national wrap

The percentage funded could be amended to desired outcomes and available resources. Students with higher marks could obtain larger discounts and universities with better outputs could get more funding as the needs dictated.

The market capitalisation of all the companies on the JSE is about R10 trillion and 0,1% of this sum equates to R10bn, or roughly 1% of net profit. This is in line with what companies spend on enterprise development and other BEE initiatives.

Intention

If the intention of the students, student councils, government and university is to seek a sustainable and viable economic outcome a solution will be realised. Selfish motives from any group will lead to chaos and further instability.

The resources are available to be channelled into the most optimal use to achieve the objectives of BEE, students, government and companies.

Whether the intention and will of all the parties are aligned remains to be seen.

• Riaz Gardee is a mergers & acquisitions specialist, financial writer and contributor to various media platforms including print, online, radio and television.