Opinionista Francis Petersen 13 October 2020

Universities and the private sector must put their heads together to rebuild the South African economy

A powerful and effective educational experience is developed when academia and a strong private sector and industry work side by side. Such a collaborative and co-created model results in breakthroughs and overall advancement of higher education institutions, business and industry and, most importantly, students.

It is well known that the South African economy was in deep trouble before the Covid-19 pandemic, with unsustainable levels of debt, a growing budget deficit and an 8% projected contraction of the economy post the pandemic. There is a clear realisation that the economy needs a recovery plan, with the significant expansion of productive employment opportunities for South Africans.

In fact, the Social Partners’ Economic Recovery Plan, coordinated by Nedlac, was developed to increase investor, consumer and public confidence, and to turn the economy around in the short and medium term. The plan provides specific interventions and, although the actions as specified are not new, it argues for “significant convergence among the Nedlac partners on what needs to be done to set our economy on a new accelerated, inclusive and transformative growth trajectory”. President Cyril Ramaphosa will present the plan to Parliament this week.

The private sector, industry and business are key components of the economy, primarily driven by manufacturing, financial services, transport, mining, agriculture and tourism. Although I believe that government can and should contribute to economic growth, the private sector, business and industry are the components that will generate real growth in the economy. Business for South Africa (B4SA) has pledged its commitment to work with the social partners to implement these action steps – and it needs to be emphasised that these interventions are not new!

However, the dilemma lies in the implementation of these actions in terms of inaction, urgency and effectiveness. Whether it is to address the energy crisis (more specifically, the security of energy supply), local manufacturing, supporting the recovery and growth of tourism, and investment in the mining, agriculture and infrastructure sectors, adversarial relationships, egos and political rhetoric need to be replaced by collaboration, co-creation and action.

Lack of action threatens livelihoods

It is clear that the political, business and societal spheres do not need more workshops, conversations, policies or plans – these are all available and known. We need to build a capable state (which includes the architecture of the SOEs) and introduce appropriate labour reform. Corruption across all spheres of government, business and social partners is unacceptable and needs to be decisively addressed, policy and regulatory certainty and proper fiscal reform are required.

Why is it then so difficult to implement these if all stakeholders are in agreement, even if everyone is aware that lives and livelihoods are threatened every minute when these actions are not implemented? Is it the lack of political will, or lack of political leadership?

Although B4SA also places emphasis on the implementation of these actions, I find the individual voices of industry, the private sector and business leaders absent. In my engagement with some of these leaders, they have stated that although their responsibilities are to their boards and shareholders, two sets of principles drive their business agenda: doing more with less (effectiveness and efficiency) and doing good while doing business (community upliftment through social performance), underpinned by a green focus. Although international leaders in the mining industry, such as Mark Cutifani (Anglo American), Mark Bristow (Barrick), Mick Davis (ex-Xstrata), and many other business and industry leaders argue for foreign investment in South Africa, certainty in the country’s regulatory framework is required for this to materialise. 

A strong economy is also important for graduates 

It is obvious why the South African economy needs to recover, and that the existence of a strong private sector, industry and business is critical in achieving this recovery. From a higher education perspective, a powerful and effective educational experience is developed when academia and a strong private sector and industry work side by side. Such a collaborative and co-created model results in breakthroughs and overall advancement of higher education institutions, business and industry and, most importantly, students.

The continuous contraction of the South African economy further lends itself to the unemployment crisis, where the weak economic performance is not sufficient to create jobs in line with the population growth, which in itself presents a massive challenge for university graduates. A strong focus on employability as part of the core business of a university, and the ability to equip graduates with the necessary skills to navigate the future world of work, will remain crucial factors – not only now, but also in the coming years, and a relationship with a strong industry, private sector and business is pivotal in driving this.

The financial model used in a South African (residential) university consists of three main income sources: (1) the state or government, through a subsidy (the so-called block grant); (2) tuition fees; and (3) third-stream income (which is mainly a cost-recovery component from contract research, donations and interest on university investments). The National Student Financial Aid Scheme (NSFAS) contributes to the tuition fees through a Department of Higher Education, Science and Innovation Bursary Scheme, providing fully subsidised free higher education and training to poor and working-class South Africans (recipients will typically be students from households with a combined income of less than R350,000 per annum).

Negative impact of Covid-19

The negative consequences of Covid-19 on the income drivers of the university can be severe. The subsidy from the state or government has already been cut, with potential further cuts in both the subsidy and specific earmarked funds. The pressure on income derived from tuition fees (that component which is not funded through NSFAS) will increase, as households would have been affected by the nationwide lockdown and the economy in deep recession, and a significant number of jobs would have been lost.

The economic downturn, due to both Covid-19 and a sovereign downgrade by all rating agencies, has already negatively impacted local financial markets and the global economy. The multiplier effect of this would be that the value of investments and endowments would decrease, and philanthropic organisations and foundations would most probably reduce or even terminate “givings” to universities. Although industry, the private sector and business will reassess their funding to universities, whether for research or bursary support, it is also an opportunity for such a strong sector to at least assist universities to “fill this financial gap” in the short and medium term.

Although it is not expected that business and industry will just “fill this financial gap”, institutions of higher learning need to argue and demonstrate a value proposition to these sectors. Covid-19 has clearly demonstrated the focus of collaboration and co-creation among different stakeholders – these should be explored more concretely. Should vice-chancellors (a representative of this group) not be part of Business Unity SA or Business Leadership SA as a first step to bring higher education institutions and the different leaders of the economy closer?

Although Covid-19 has negatively impacted the financial position of the industry and business sectors, my assessment is that these sectors would recover faster than expected, but the effective and urgent implementation of a “state economic recovery plan” is essential – every day that this implementation is stalled, it is affecting the country and its people severely.

Public-private partnerships key to economic growth

Government and the industry and business sector need to work together to foster economic growth – now more than ever. The plans to achieve this are available – the implementation thereof, however, is lacking. A strong industry and business sector have major benefits for the country, among others, for the higher education sector. Let us not delay this further. Political leadership needs to be decisive, and the industry and business sector must continue to speak out – this sector is too important to be neglected. DM

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All Comments 3

  • Prof Petersen raises the obvious problems with the present circumstances of South Africa, and skips across the nature of the multiple relationships between Higher Education, Business, Government and Civil Society. In so doing, he just touches on what is (in my view) the most important single relationship that offers real possibilities: the third stream income and new knowledge that comes from contract research.
    In my own experience (prior to emigrating to South Africa) well-defined, well-negotiated and well executed shared-research projects benefit stakeholders in many different ways: postgraduate students get real on-the-job experience addressing real-world problems, undergraduate students have an education that is informed by teachers with first-hand experience of problem solving, and business, government and civil society are assisted in moving issues forwards and sharing the benefits of new knowledge.
    To illustrate the point, this idea comes into sharp focus in MBA teaching. In an MBA class, a ‘teacher’ who cannot refer to their recent experience, good and bad, working on actual problems with actual organisations, risks losing the respect of the class. Graduating with an MBA *from an institution that has a reputation for real-world relevance* is a huge advantage for the job-seeking student.
    Of course, higher education is about much more than business management, but I would argue that in our present circumstances *every subject area* needs to be extremely clear about its relevance to business, government or civil society, or some combination.
    Coming to Higher Education in South Africa for the first time in the late 1990s, I was shocked that the potential for third stream income from contract research was *severely* limited. Business leaders seemed to consider higher education solely as a target for charity, not partnership; government was still formulating its approach to much more pressing, basic issues; civil society was still celebrating freedom.
    Those days are past, and I would recommend Nedlac and all other policy-making bodies to recognise the vast potential of the talent and ambition that exists in senior students of all varieties. Where departments, faculties and schools that have the ambition and capability to undertake useful research, a modest investment to cover their costs and real support in undertaking the work will pay handsome dividends to society at large.

  • A radical mind shift is required whereby the private sector as seen as the saviour and not the enemy. Union action needs to be contained and way way less legislation that creates barriers to entry and other obstacles for a flourishing private sector. BEE in its current form scrapped, accountable educationalists and an independent civil service with merit based appointments sourced from public service higher education institutions.

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