LIFE IN SA ac­cord­ing to the OECD

From stu­dent fund­ing to trade deals, the eco­nomic or­gan­i­sa­tion has a few sug­ges­tions for the coun­try

CityPress - - Business - DEWALD VAN RENSBURG dewald.vrens­burg@city­press.co.za

South Africa should con­sider a state-backed deal with banks to pro­vide “uni­ver­sal” stu­dent loans, said this week’s sur­vey of the coun­try by the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment (OECD). The sur­vey iden­ti­fies ma­jor prob­lems and ad­vo­cates a num­ber of so-called struc­tural re­forms, many of which are es­sen­tially the same as the rec­om­men­da­tions that were made in the or­gan­i­sa­tion’s sur­veys in 2010 and 2015.

One new pro­posal is to take the ex­ist­ing Na­tional Stu­dent Fi­nan­cial Aid Scheme and the planned Ikusasa ini­tia­tive for the “miss­ing mid­dle” to their log­i­cal ex­treme.

“To cover univer­sity fees for all stu­dents, a fi­nanc­ing mech­a­nism in­volv­ing banks, gov­ern­ment and stu­dents could be the so­lu­tion,” reads the re­port.

The idea is that banks pro­vide “uni­ver­sal loans con­tin­gent on fu­ture in­comes” and that the state un­der­write all this debt with guar­an­tees. Re­pay­ments would be linked to in­come tax to min­imise the risk, and the in­ter­est rate could be cen­trally ne­go­ti­ated by gov­ern­ment, sug­gested the OECD.

How­ever, it does ac­knowl­edge the ob­vi­ous prob­lem – the “se­lec­tion bias” caused by South Africa’s high dropout rate.

Many re­cip­i­ents of the loans will not be able to re­pay them if they do not grad­u­ate and get a job. Then there is the fact that not all grad­u­ates are able to find a job, a con­se­quence of which would be that a fair amount of the gov­ern­ment guar­an­tees would be called on ev­ery year.

To mit­i­gate de­faults, the guar­an­teed stu­dent loans should only be of­fered to second-year stu­dents, and other sup­ports for poor stu­dents should re­main, said the re­port.

The Ikusasa scheme, which is be­ing pi­loted this year, is meant to col­lect some part of the ex­ist­ing skills levies on busi­nesses and even­tu­ally is­sue bonds to fi­nance its stu­dent loans.

The is­sue of guar­an­tees has been raised around Ikusasa as well.

“It is very wide­spread in the world to pro­vide guar­an­tees to back stu­dent loans,” said OECD sec­re­tary-gen­eral Angel Gur­ria at a launch event this week.

When asked about the wis­dom of cre­at­ing a whole new cat­e­gory of guar­an­tee, Gur­ria said that “con­tin­gent li­a­bil­i­ties are a fact of life”.

“Where we are is where we are. It doesn’t mean that you are not go­ing to make a proper de­ci­sion re­gard­ing the next gen­er­a­tion and give the poor­est ac­cess to higher ed­u­ca­tion with­out mak­ing the ex­che­quer bank­rupt. I think this is an ut­terly good idea. This is some­thing I would def­i­nitely en­cour­age them to pur­sue,” said Gur­ria.

As City Press re­ported ear­lier this year, only cov­er­ing the “miss­ing mid­dle” stu­dent pop­u­la­tion would re­quire up to R40 bil­lion a year.

Un­sur­pris­ingly, the same re­port flags gov­ern­ment’s ex­ist­ing guar­an­tees to state-owned com­pa­nies as the main risk to state fi­nances.

Eskom may be the largest re­cip­i­ent of guar­an­tees to­talling

R350 bil­lion, but it is SAA that poses the great­est risk of de­fault, said the re­port.

With Eskom, the risk lies in tar­iff in­creases be­ing too low, leav­ing South Africa with an un­ap­peal­ing choice be­tween eco­nom­i­cally dam­ag­ing power price in­fla­tion and eco­nom­i­cally dam­ag­ing pay­outs of Eskom guar­an­tees.

BAD TRADE DEALS

The Eco­nomic Part­ner­ship Agree­ments that South Africa and its neigh­bours have been sign­ing with the EU are bad for the big­ger project of re­gional in­te­gra­tion – and prob­a­bly put the African side at a dis­ad­van­tage, the OECD sur­vey also con­cluded.

By now, six coun­tries, in­clud­ing South Africa, have Eco­nomic Part­ner­ship Agree­ments, which fur­ther frag­ments the South­ern African De­vel­op­ment Com­mu­nity re­gion’s trade pol­icy.

“Ben­e­fits from the trade agree­ments may be greater for the Euro­pean Union coun­tries,” it said.

The part­ner­ship agree­ments would make the trade relationship less con­ces­sional, and the African part­ners’ rel­a­tively weak com­pet­i­tive­ness would most likely see them gain less in in­ter­con­ti­nen­tal trade.

The South­ern African Cus­toms Union, which con­sists of Botswana, Le­sotho, Namibia, South Africa and Swazi­land, also wasn’t help­ing re­gional in­te­gra­tion, said the OECD. In prin­ci­ple, the cus­toms union should be mak­ing trade easier, but be­cause it has be­come cen­tral to the gov­ern­ment fi­nances of the smaller mem­bers, ev­ery­one in­volved keeps the bor­der posts up and run­ning.

This “per­verse in­cen­tive” has to be ad­dressed in the long-over­due rene­go­ti­a­tion of the South­ern African Cus­toms Union sys­tem, said the OECD.

Swazi­land gets half its gov­ern­ment bud­get from the union and Le­sotho gets about 45%. For Namibia and Botswana, the bud­get is more than 30%.

PHOTO: AP / RE­BECCA BLACK­WELL

NO DEAL Farm­ers don­ning Mex­i­can straw hats took part in a protest march against the North Amer­i­can Free Trade Agree­ment in Mex­ico City on Wed­nes­day. More than 1 000 farm­ers from mul­ti­ple Mex­i­can states railed against the treaty that has al­lowed in lower-priced im­ported grains from the US, which, the farm­ers say, have harmed their abil­ity to make a liv­ing

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