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Higher education’s impact on SA’s economy is dwindling

As thousands of tertiary students across the country have embarked on the new academic year, research at the University of Stellenbosch Business School (USB) has found that the certificates and degrees they aim to earn may have little impact on South Africa’s economic performance.

In contrast, the USB study found that school-leavers with grade 8-11 have the most significant, “concretely positive” impact on economic growth, while those with matric, post-school certificates or degrees are “not significant drivers of national economic output”.

Despite spending a greater proportion of the national budget on education than many developed countries,1 and minimum education levels and matric pass rates steadily increasing since the advent of democracy,2 South Africa consistently falls in the bottom end of international rankings of education quality.3

Minister of Finance Enoch Godongwana announced increases to the basic and higher education allocations in the 2022/23 Budget recently – but, says the University of Stellenbosch Business School MBA graduate researcher Pieter Bruwer: “Simply throwing money at South Africa's education problems does not work.”

“The challenge for South Africa is not in the size of the budget allocation, but rather in the impact that results from the expenditure,” said Bruwer.

Bruwer said the lack of impact of tertiary qualifications on economic growth highlighted that education policy aimed at closing the gap between skills supply and demand was not currently working in practice.

“South Africa’s poor economic performance negatively affects employment, and rising unemployment in turn hampers economic growth, but one cannot discuss either without looking at the impact of education. The three are interdependent, and poor education is seen as being the root of many of South Africa’s problems, influencing continued inequality and the socio-economic wellbeing of future generations.

“The continued mismatch between skills supplied by the education system and the demands of the labour market contribute to South Africa’s economic and employment challenges,” he said.

Through statistical analysis of 25 years of post-apartheid data on education levels, unemployment rates and GDP, and correlating the links between them, Bruwer aimed to understand the workings of their interdependent, “triangular relationship” and to calculate the impact of education on the economy.

He found that substantial progress in raising the minimum level of education of the South African population since 1994 has increased the employment prospects of individuals with matric certificates or matric plus a degree, but these groups of better-educated people have not contributed significantly to raising economic output.

He concludes that “higher education appears to have no significant economic value” – while improving an individual’s employability, there is no positive link between increased numbers of people holding post-school qualifications and national unemployment or increased economic growth.

“Matric or a degree has individual value, increasing the person’s chances of employment but, as a group, the holders of these qualifications add little economic value,” he said.

Education accounts for 20% of government spending,4 the second highest sector of expenditure behind general public services and debt repayments. South Africa’s spending on education as a percentage of GDP has consistently exceeded the UNESCO benchmark of a minimum of 4% since the late 1980s, reaching close to 7% by 2020.5

But, says Bruwer, the quality of education “does not appear to be benefiting from its generous budgetary allocations”.

“The research findings are a stark reminder of the poor quality of our education and highlight that education policy is not meeting the country’s needs to ignite economic growth and reduce unemployment,” he said.

Education policy has attempted to address the country’s skills shortages with its stated aims to strengthen the Technical and Vocational Education and Training (TVET) sector and striving for closer collaboration between educators and employers to ensure that post-school education and training better meets labour market demands.

“While it is gratifying to note that policymakers are attempting to address the skills mismatch and gaps in the current education system, this strategy is yet to bear fruit. It is questionable whether these policies are translating into improved unemployment figures and better economic performance.

“In order to address the needs of the struggling South African economy, education policy should be evaluated differently, as the current methods of judging it on pass rates are not bringing rewards,” Bruwer said.

He emphasised that improving post-school education alone would not be enough to drive labour absorption and economic growth.

“There are many dynamics at play – better alignment between skills supply and demand is but one aspect. As the economy shifts to the services sector, with demand for skilled and educated workers, there are fewer opportunities for youth and lower-skilled people in manufacturing and mining. Small-scale agriculture and the informal sector are not creating similar employment opportunities as they do in many other African countries.

“We need a more diverse and favourable labour market, foreign direct investment policies that favour labour-intensive sectors, and a labour law environment more conducive to job creation,” Bruwer said.

The loss of high-level skills and experience due to the increasing “brain drain” out of South Africa would also not be easily or quickly replaced by new graduates, he said, and it would take time to rebuild the skills to reverse this negative impact.

The study confirmed that reducing the proportion of people with lower levels of education, as in primary school or no education at all, has a positive effect on economic growth. In that regard, South Africa has done a good job of lowering the proportion of people with Grade 7 education or less to under 20%.

This would increase the proportion of the population with at least grade 8-11, in turn contributing more significantly to the growth of the South African economy.

The proportion of the population with at least a matric certificate has gradually increased from 20% in 1993 to 40% in 2019, while the proportion of adults with no schooling at all has shrunk to less than 3%.

The research found that those with a Grade 12 certificate do not add more to economic growth than those who have left school after passing at least Grade 8 and up to Grade 11, although those with matric are more likely to be employed than those without.

However, Bruwer said that lowered matric pass requirements since 2007 meant that an improved pass rate did not necessarily equate to improved cognitive abilities and skills of matriculants.

“Literacy and maths skills are cemented in the grade 8-11 phase, and grade 12 is just a milestone of completion, not a sign of increased knowledge or skills.

“Matric as a milestone of the secondary school system does not convert to economic value to society. It does give value to the individual in increased employability, but at the same time matriculants are competing for similar, unskilled work with people of lower levels of education,” he said.

References:
  1. Our World in Data. Education spending as a share of total government expenditure, 2019. Data source: UNESCO via World Bank. https://ourworldindata.org/grapher/government-expenditure-education
  2. Pieter Burger Bruwer. Exploring the relationship between education, unemployment and economic growth in South Africa. MBA research dissertation. 2021. University of Stellenbosch Business School.
  3. Mlachila M, Moeletsi T. 2019. IMF Working Paper. Struggling to Make the Grade: A Review of the Causes and Consequences of the Weak Outcomes of South Africa’s Education System. https://www.imf.org/en/Publications/WP/Issues/2019/03/01/Struggling-to-Make-the-Grade-A-Review-of-the-Causes-and-Consequences-of-the-Weak-Outcomes-of-46644
  4. Stats SA. What does government spend money on? 2018/19 Financial statistics of government. 26 November 2020. http://www.statssa.gov.za/?p=13805
  5. The Global Economy. South Africa: Education spending, percent of GDP. Data source: UNESCO. https://www.theglobaleconomy.com/South-Africa/Education_spending/

Useful resources:
Stellenbosch Business School
The internationally accredited Stellenbosch Business School offers MBA, Master’s, MPhil and PhD programmes as well as executive education programmes – all focused on the development of business leadership.
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