The silent tax on SA’s middle class

One of the biggest challenges facing South Africa is arguably its inability to keep pace with the international advancement in technology, Sasfin deputy chairperson David Shapiro recently argued during a panel discussion.

While there was a lot of excitement around developments on the political front, one had to be “very, very worried” about the structure of South Africa’s economy when some of its peers were educating hundreds of thousands of engineers and its own maths pass rate was 30%, he said.

“I think that if this country does want to change, it has to change direction.”

South Africa had to adapt, embrace a new technological world and align the education system accordingly, he argued.

Shapiro is not the first to highlight this issue. Newly-appointed joint-CEO of Investec, Hendrik du Toit, also noted his concern that South Africa was a quarter-century behind with regard to education and the development of its people during an interview in 2017.

In a world where computers and robots are reducing job opportunities, it is important to ensure that the population is competitive, he said. The issue is not about race or redistribution but about growing the economy to the benefit of all South Africans and ensuring that the poor and previously disadvantaged also reap the rewards.

Part-time NPC commissioner, Elias Masilela, also previously warned that South Africa feared to deal with its real issues including how it could provide good quality services like education.

Policy

There is concern that South Africa may be using business models and theories that applied to an industrial-era economy, while the world around it is rapidly changing. Would it be competitive if it stayed on this course, particularly without also taking radical steps to improve the quality of its education system?

Given South Africa’s mineral deposits and significant number of unskilled workers, it is not difficult to see why there have been on-going efforts at reindustrialisation. And while such programmes have merit, one has to ask whether the current scope and trajectory of policy implementation can lead the country to a place where it could still compete competitively on the world stage in ten or 20 years’ time.

Unfortunately, as the country has moved from one crisis to the next, efforts to truly transform the quality of the education system have fallen by the wayside. Instead – arguably to appease young voters – free tertiary education has been announced

In a recent Moneyweb radio discussion, a market commentator argued that if new ANC-president Cyril Ramaphosa replaced president Jacob Zuma, another cabinet reshuffle would follow. The first three portfolios that needed new hands were Finance, Public Enterprises and Mining, he said.

It is difficult to argue with that. Asking for changes to the education portfolio while South Africa is on the verge of another credit rating downgrade, Eskom about to default and the mining industry in the doldrums, is arguably akin to phoning a civil engineer to inspect the foundation of the house while there is a fire at the backdoor and a leaking pipe in the bathroom.

On-going efforts to put out the most recent fire or leak (think Nenegate, cabinet reshuffles, junk status, state capture, Eskom, SAA) have taken up so much capacity that quality education has become an after-thought. While access is an issue that has to be addressed, the introducing of free tertiary education is putting a roof on a property with significant foundational deficiencies.

The World Economic Forum’s Global Competitiveness Report 2017/18 ranks the quality of the country’s primary education 116^th out of 137 countries. The quality of the higher education and training system is ranked 114^th while the quality of maths and science education is placed in 128^th position.

Will South Africa still be in a position to undo the structural damage caused by a dysfunctional education system in ten or 20 years from now?

In the meantime, as South Africans gear up for significant tax hikes to be introduced in the upcoming budget, there is a silent “tax” quietly finding its way into the homes of many South Africans. It is the cost of providing a quality education.

While there are numerous public schools where the quality of education is at least on par with private schools, if not better, many South African families don’t have access to these schools and places may be limited. The number of private schools that have sprung up around Johannesburg in recent years, suggests that there is a significant appetite for private education in certain areas of the country. This is presumably – at least in some cases – an effort to overcome the shortcomings of the public education system.

But it comes at a significant cost – one middle- and even upper-middle-class families may struggle to afford. Moreover, it leaves low-income families at a disadvantage.

According to Old Mutual, the cost of education is expected to increase by around 9% per annum. The expected cost for one year of education is shown below.

According to Statistics South Africa’s General Household Survey, almost two in every ten potential learners cannot attend an educational institution due to a lack of money to pay for fees.

While a lack of funds should not keep any child from receiving a quality education, the sad reality is that as long as government neglects to address the quality issues inherent in the education system, it creates a vicious cycle which reinforces unemployment, poverty and inequality.

And it renders the country increasingly uncompetitive in a world where technological advancement continues to baffle the mind.

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