In the early hours of this morning, an opinion piece appeared on Moneyweb: Wits has made a mistake: short-term win but long-term loss.

This morning, the Wits protests against tuition hikes spread to Rhodes University in Grahamstown, and the University of Cape Town (although that particular protest does seem a little half-hearted). More universities to follow, no doubt.

Thanks EWN
Thanks EWN

But going back to the opinion piece, I’d like to draw your attention to this portion of the article:

Students go to university because there is no work for them. It’s a generalisation perhaps, but the long and the short of it, is that if they are not at university, they are sitting around doing nothing. There is no labour market to absorb them. The moment they get spat out the other side, they are hardly more employable.

In doing some research for this column I started looking around and found this report from 2010, which showed that in the US 17.5% of office clerks, 17.4% of baggage porters/bellhops and 15.2% of taxi drivers had at least a bachelor’s degree.

That’s in an economy which has 6% to 8% unemployment.

In South Africa, that unemployment number is closer to 40% for people under 26. How’s that bachelor’s degree going to work out for you?

To paraphrase that:

  1. A university education is just a way of reducing youth unemployment.
  2. But a university education won’t reduce unemployment once graduates are “spat out the other side”.

Contradiction much?

But more importantly, the analogy here is wrong. While the United States may have over-skilled workers doing less-skilled jobs, South Africa does not have that problem. Instead, South Africa has a massive skills shortage. And most of those skills require a university degree.

Here’s the 2014 National Scarce Skills List released by the Department of Higher Education and Training:

Screen Shot 2015-10-19 at 10.22.53 AM Screen Shot 2015-10-19 at 10.23.10 AM Screen Shot 2015-10-19 at 10.23.22 AM

By my count, at least 72 of those occupations require at least a Bachelor’s degree. Probably more.

And it’s not just government that says this. Here’s an extract from an Adcorp press release in May this year:

There are currently as many as 829 800 unfilled positions for high-skilled workers across a wide range of occupations in South Africa.

This is one of the findings of the latest Adcorp Employment Index, a monthly survey conducted by JSE-listed human capital management group, Adcorp.

The Index, reflecting employment in South Africa during April, also shows a negligible increase in jobs of just 1.86%, described by the company’s Labour Economist Loane Sharp as patchy and even.

Unpacking the findings of this month’s Index, Sharp says: “To a great extent, the shortage of highly-skilled workers has been artificially induced by the Immigrations Act (2002), which makes it exceedingly difficult for foreigners to find work in South Africa.

“The most recent amendments to the Immigrations Act, promulgated in April 2011, prohibit the use of immigration agents and quota work permits, both of which have historically been widely used by South African companies seeking foreign skills.”

As a result, Adcorp finds, South African citizens’ wages in highly-skilled occupations have been unduly escalated, in inflation-adjusted terms, by a mammoth 286,4% since 2000.

…

Adcorp’s research reveals that the highly-skilled categories suffering the greatest skilled shortages are:

  • senior management;
  • the professions – medicine, engineering, accounting and the law;
  • technical occupations – specialised technicians and artisans; and
  • agriculture.

In terms of actual numbers broken down by occupation, the skills shortage among technicians is 432 100, among managers 216 200 and among professionals 178 400. In sharp contrast, a total of 967 600 elementary workers are in excess of the nation’s needs, as are 247 400 domestic workers.

So let’s talk about the tuition hikes in the light of that.

Reading the Annual Reports

I spent part of my morning reading the 2014 annual reports of Wits University and UCT. Find them here:

I’ve summarised them into pie charts. In 2014, Wits University collected almost R5.4 billion in revenues while UCT collected just over R4.7 billion.

Where those revenues came from:

Screen Shot 2015-10-19 at 11.40.51 AM

And how those revenues were used:

Screen Shot 2015-10-19 at 11.41.20 AM

For both universities, almost half the total expenditure went on salaries to University staff – significantly more than what was collected in tuition fees.

Here is one side of the problem:

  • Academic staff are some of those “highly skilled” workers of which there are shortages.
  • Which means that their salaries are on the increase (a direct consequence of a shortage of supply).
  • Even if there is an increase in their salaries in line with inflation (of, say, 6%), the simple math is: holding the other incomes and expenses constant, tuition fees would have to go up by around 10%.

Here is the other side of the problem:

  • Universities have significant transformational mandates, including the opening of new campuses, etc.
  • These activities are funded by specific government grants that cannot be transferred toward other expenses. So there is ring-fencing of those revenue streams.
  • From what I can tell, 11% of the government grants received by Wits in 2015 were effectively returned to government.
  • That’s only slightly less than the total extra tuition that would be raised from the original proposed increase.

That is: it seems that any increases in government grants are being pre-allocated to specific projects and cannot fund the increase in personnel costs.

So looking at the 2013-2014 movement for Wits:

  • Personnel costs went up 11.2% (about R255 million)
  • After taking out the unutilised ones, government grants and subsidies went up by 2.6% (about R32 million – although only R9 million was an unrestricted increase in government subsidies).
  • So who financed that shortfall? Well, the students did. And university donors.

To sum up:

  • Government has caused a significant skills shortage in order to promote domestic up-skilling of the labour force.
  • Government would like the tertiary institutions to address this.
  • But government will not be paying for the consequences of that skill shortage (ie. the higher salaries for academic staff required in order to maintain their skills within South Africa’s tertiary institutions).

As I see it, there is very good reason to protest here. This is not a case of some students wanting free education.

Instead, government policies were implemented that students are being asked to pay for. And that is not really fair.

PS: having said all that – I do agree with the Moneyweb contributor on the topic of SETAs. Because seriously: we all pay a skills development levy, and we can’t have: “Sector Education and Training Authorities (SETAs) have consistently failed to produce credible estimates of skills shortages in their respective sectors, and probably for this reason the National Skills Fund has failed to disburse more than R3,5 billion in funds available for skills development.” Come now.

Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.