Johan Fourie's blog

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Posts Tagged ‘matric

Can private schools save South Africa?

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When I was an Economics student 12 years ago, the academic literature we read, by South Africa’s leading economic thinkers and social scientists, were lamenting the poor performance of the then South African school system. There was little doubt that what needed to happen was to improve the quality of the schools for the 80% South Africans who were still stuck, despite massive transfers of resources to these schools, in a system that had been crippled by apartheid-era policies.

Fast-forward to today.  A generation has now passed through the system, and there has been almost no improvement. Of 100 Grade 1-students that go to school, only 37 can hope to pass matric. With teacher trade unions opposing policies that might improve teacher quality, our Minister of Basic Education seems paralyzed. Corruption often means that budgets are either unspent or spent inefficiently. There is little hope that things will soon improve.

But there is an alternative. Over the last few years, private schools have become an alternative for middle-income families that want a better future for their children. Take Northern Academy in Polokwane, run by the JSE-listed Curro Group. Despite school fees that are around R21000 per year, with a similar amount for boarding, the school has more than 5000 students, 111 classrooms and 66 hostels. In the 2016 matric exams it was the top-performing independent school in the province.

Curro now has schools across all nine provinces. In the last four years, its share price has tripled. Its profit motive means that it must satisfy its client base: if it performs poorly by employing poorly-qualified teachers, its clients will go elsewhere. That is the miracle of the market-system that Adam Smith identified: profits are a way to signal that a firm is doing something right. If profits fall, the firm better improve its products or services or it will go out of business. If profits rise, like in the case of Curro, other firms will notice and enter the market, offering their own product and service which they hope will eat into the profits of the dominant firm.

One fear is that Curro will monopolise the market, charging fees that allow them to earn monopoly profits. This is unlikely in the education sector, though, as there are few barriers-to-entry. Consider the SPARK schools, with tuition also around R21000 per year, that have opened since 2013 in Gauteng and the Western Cape.

A second fear is that a well-run private school system will create further divisions in a country characterized by high levels of inequality; those that are able to afford the high school fees of good education will stand to benefit vis-à-vis kids from poor households forced to attend poor-quality public schools. This is likely to happen if private schools are limited to those that can afford to pay for them. But they need not be.

In Sweden, where equality-of-opportunity is almost a religion, more than 10% of kids are enrolled in private schools. A major education reform in 1992 allowed primary and secondary schools to receive public funding based on the number of students they have enrolled. These schools are not allowed to discriminate or require admissions exams, and they are not allowed to charge parents additional school fees. (They are allowed to accept donations, which are often used to expand school facilities or offer financial support for the poorest students.)

Anyone can start a for-profit school in Sweden. Many offer an alternative curriculum, or provide a service to international, religious or language groups. Others are designated sports or artistic schools. The point is simple: if a public school is not providing the services its community wants, an entrepreneur with the ability to identify a gap in the market will step in to deliver a better service.

This is what we need in South Africa too. The 2017 Budget allocated R243 billion to the Department of Basic Education, which is 16% of our total consolidated spending. With 11.2 million school-going kids in South Africa, that is slightly more than R21000 per kid.

What if every parent in South Africa received a government voucher of R21000 per student which they could deposit at any school they want, public or private? A larger amount could be given to those living in rural areas, and possibly those living in previously disadvantaged areas. This empowers parents to choose the schools which they believe will serve the interests of their kids best.

There are concerns with private education too, of course. One would want to make sure that facilities are of good quality, that teachers and curricula meet certain standards, and that there is some security that students’ interest will be served if a company that provides these services goes into liquidation. But those concerns pale in comparison to the atrocious outcomes of the current school system, where facilities are often non-existent and teachers unqualified.

Imagine the opportunities this will create for entrepreneurs. A community leader in an area with poor public schools can now take the initiative, appoint educators from within the community and use the vouchers to pay their salaries. Imagine Cricket South Africa partnering with an entrepreneur to build a chain of elite cricket schools, with CSA providing the facilities and coaches and the vouchers paying for high-quality education.

An important research literature suggests that mother-tongue education is critical for student success: with a voucher system, if there is a demand for secondary education in Sesotho in a specific community, expect an entrepreneur to spot the gap. Another concern for the near future is the dearth of university-trained teachers: private school chains will have an incentive to fix this, either by training their own teachers on the job, or by investing in teacher training colleges.

We need a new plan for education. I’d hate to see my colleagues 12 years from now write papers still lamenting the poor state of the South African education system. We keep throwing money at a problem that cannot be fixed by money alone. The Basic Education budget grew 7.3% in 2017. If we continue doing this, we are likely to fail a second post-apartheid generation.

*An edited version of this first appeared in Finweek magazine of 23 March.

What can you do with only matric?

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Of the 1 252 071 South African students who entered Grade 1 in 2003, only 150 752 (or 12%) matriculated with access to a Bachelors degree at university. That single statistic encapsulates the sad reality of the South African education system. Even worse, a large proportion of the 12% won’t ever make it to university, either because they have alternative plans or, more likely, because they cannot afford it. Those who make a success of their university education will go on to find well-paying jobs; those without access (or who fail) will have to compete with the 88% remaining 18-year old’s for a job in a country with a broad unemployment rate of close to 40%. The severe income inequality in South Africa today is perpetuated by the inequality of our education system.

In addition, fewer unskilled and semi-skilled jobs are being created. Mechanisation and computerisation mean that robots are increasingly doing the jobs of unskilled workers; walk into a motor vehicle assembly plant, or visit a maize farm, or go to a supermarket in a developed country and you can easily see how robots and machines are replacing human labour. I even get phone calls from electronic telemarketers (surely, those can’t be successful?). So, given the large supply of unskilled labour in South Africa and the dearth of demand for such workers, what can those matriculants without access to university do?

A lot. Although there are many jobs that are becoming redundant because machines can perform them better, technological innovation can also be complimentary to unskilled labour, i.e. robots can also create jobs for poor people. In contrast to the first phase of industrialisation – when poor, unskilled (blue collar) workers worked on farms or in mines and (manu)factories and rich, skilled (white collar) workers had cosy desk jobs in the services industries like banking and insurance – the trend is reversing: the highest paying jobs are now building and programming the robots who do all the farming and mining and manufacturing, while poorer, less-qualified workers work in the services industries. Yes, some service industries, like lawyers and accountants and dentists, are still incredibly well paid, but other service industries that provide work for unskilled labourers are also flourishing.

Consider cellphone repair shops in townships. A decade ago, only fixed-line pay phones were available in poor areas, and they were serviced by technicians of Telkom. Now, with a little bit of ingenuity and experience, anyone can be a cellphone (or laptop) repair man (or woman). Smart phones are not only connecting companies with clients, but also with a work force they would never have had access to. As The Economist writes this week, the future of work will increasingly be outsourced. That is true both for skilled occupations, like lawyers and HR and management consultants, but also for unskilled labourers. Consider Uber, a car service which was founded in San Francisco in 2009 and which already operates in 53 countries including South Africa. Technology allows anyone with a decent car to act like a taxi service, creating jobs for people that only need a drivers license. It will certainly injure the existing taxi services. But it is generating far more new jobs than it is destroying, simply because far more people will use the new (cheaper and more efficient) service. (Unfortunately, government regulations are very slow to adapt to new technologies, and it is incredibly disappointing that Uber cars are now being pulled off Cape Town roads simply because government officials are unwilling, or unable, to understand the immense benefits of the new service, killing jobs for those who need it most.) Or consider Handy, a company where you can find someone to clean your house, or do small plumbing jobs, or paint, or fix the paintings to the wall. Technology (such as smart phone apps) now allow the providers of such services to be matched to the suppliers of such services at very low cost, creating jobs for the unskilled.

What can be done to encourage more of this behaviour? Governments could ease regulation to make such exchanges legal and less complicated. Entrepreneurs should build apps that allow people to match their needs (dog sitters, electricians, massage therapists, tattooists, midwives, house cleaners, snake catchers, whatever) to those who can provide it. What we need is a Gumtree for the service industry, with an interface like Uber.

But kids leaving school can help themselves too. They can start by acquiring basic skills that will be needed in a future where robots are our friends. A drivers license can still get you a job (especially working for yourself through Uber), but perhaps Google’s self-driving car will make that obsolete in ten years’ time. So here is my advice: think about what services cannot be done by machines. Sport coaches. Au pair services. Beauticians. Chefs. Wedding planners. Gardeners. Music teachers. Barbers. Paramedics. The best thing is that none of these require a university education. And these jobs will be in-demand for a long time to come; in fact, chances are you are more likely to find a job qualified in one of these professions than if you were to leave university with only a Bachelors degree. Often they will require extremely hard work and long hours, but in most cases you will be able to work for yourself, which means you determine the lifestyle you want.

Robots are not the evil things that will destroy the jobs of the poor. They may destroy some jobs, yes, but they will create far more jobs in other places; in fact, they may be the saving grace for our faltering education system. To identify the opportunities new technologies offer, matriculants without a university access will have to innovate, experiment, be entrepreneurial and dedicated. They will also have to learn to work with robots, not against them.

*If you want more advice on what to study, click here. If you want more advice on what to do when you get to university, this might help.

Written by Johan Fourie

January 11, 2015 at 07:08

Five wishes for the new year

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FireworksI’ve always struggled with New Year’s resolutions. The struggle wasn’t so much in actually achieving the resolutions, but thinking about new one’s every year was tiring (especially when you’re supposed to be on holiday). So I’ve decided to just stick with my only one last year: In 2012, I decided to never read News24 comments again, and managed to hold out until February. This year I’ll aim for March. Unless news sites disable comments, or South Africans miraculously become literate and open-minded, I won’t have to think of a New Year’s resolution ever again.

Instead, this year I’ve decided to make a list of five things that would make South Africa better. There are constraints: I’m not allowed to say fluffy things, like wishing for greater social cohesion, or less corruption, or fewer racist comments on News24. These things would be nice, but there is no clear policy prescription to achieve them. Also, I cannot choose things that benefit me only (win the lotto), or things that benefit some South Africans at the cost of others (which rules out any dreams of Super 15 glory for the Stormers). And, given that I’m an economist and believe that economic growth is the best way to address the social challenges around us, most of the things on my Great List will be those that, I believe, can make all South Africans more prosperous in the long-run, even if it may not be immediately apparent. Here goes:

1. Open migration

South Africa already attracts thousands of African immigrants, but there is no reason why we should not encourage the immigration of highly-skilled people. The low growth rates of the developed world have forced many to find work elsewhere: why not encourage the highly-skilled to settle in South Africa? African migrants are often also exceptionally skilled, but without a work permit or the option of a South African passport after a period of residency, these skills are suppressed. Skilled immigrants are most likely to become entrepreneurs: if they are here legally, they pay tax and can expand their business, providing jobs and reinvest their profits in their new home. If they’re here illegally, they tend to remain under the radar, and their earnings are remitted to their origin country. It might be difficult to sell to an electorate, but it’s fortunately not too difficult to implement; more open immigration policies is just as easy to implement as the current ambivalent attitude towards foreigners. As a famous Nando’s ad once quipped: we are all immigrants in our own country. It’s time we realise that migrants can greatly contribute to South Africa’s success, and that we demand their equal rights.

2. Competition in education

The annual mourning of the matric results passed relatively smoothly this year. The pass rate was up, although the key statistic that most ignore is that close to 90% of all matriculants scored less than 50% in the final exams. And that doesn’t include the thousands of students that never reached their final year. So what to do about the dire state of our education system? There are no easy answers, of course, and there are plenty of clever people thinking about this, but my suspicion is that the answer lies in encouraging competition.  Unions are often blamed for allowing bad teachers to go unpunished: well, why not let students vote with their feet: parents will realise that if they send their child to a school with zero pass rates (yes, in South Africa we have schools where none of the final year students pass the national exam) there is a very high probability that their child will fail matric too, so they will could send them to the better school. Poor-performing schools (those with fewer and fewer students) could then be closed down. The best way to do this is to set a rule up front: if the number of students falls to lower than x, the school closes down. Or why not give kids a voucher? They can then choose at which school they’d like to spend the voucher: the successful one’s will attract more students, which will give the school greater resources to improve further (and higher more teachers, or pay their teachers more). Here the private sector and civil society can join in: schools that grow quickly can receive additional support in the form of new facilities sponsored by business, or perhaps even hostels managed by church groups. Such support would provide further incentive for schools to do well – and the kids to choose well. The bad schools will inevitably see their numbers decline and, if the rules are strictly adhered to, these schools will be forced to close down. This empowers the students to demand the best education their voucher can buy. (This is, of course, much easier to do in urban schools than in rural schools, where substitutability between schools are low because of geographical distance.) The key is that bad performing teachers (and principles) must go down with the bad performing schools.

3. Broadband for everyone

I’ve argued this before, and will do so again. Part of the bad performance in education, I believe, has to do with kids (and their parents) not demanding better education. And the lack of demand is because they don’t believe they will require the skills taught at school for their future jobs. If you believe that your only job after school will be as a farm hand, or unskilled miner or taxi driver, then why study at school? At the cost of sounding fluffy, students need more, well, hope about the future. The internet can help with that. It’s not only the greatest library that there’s ever been, but it’s also the greatest tool to discover and develop your own passions, skills and interests. And, here’s the catch, it’s relatively free – if only the infrastructure is put in place to allow access to it. In a very interesting recent experiment, kids in two Ethiopian villages that have never seen books in their life, were given boxes of tablets, taped shut, with no instructions whatsoever. What happened? In five months, they were programming and teaching themselves English. Just imagine what they would do if they’d been given five years. Providing broadband to every South African household would be an expensive undertaking, but it would be the best investment the government can make in our future. Kids could learn to code at a young age, which is, aside from English, the most important language of the future. It allows entrepreneurs, even the most isolated and under resourced, access to a global market. It makes South Africa, truly, alive with possibilities.

4. Keep minimum wages to a minimum

The Economist recently wrote a review article about minimum wages that argued that, at least at low levels, minimum wages aren’t that bad. But nearly all the papers The Economist use as evidence consider only the developed world; high minimum wages in a country with an unemployment rate of above 25% will only protect the high-paying jobs of a few at the cost of many. The reason for the high minimum wages in South Africa is clear: Unions – with their interests in protecting the salaries of their members – argue that workers must earn a ‘living wage’. (This sounds very much like the labour arguments of the 1920s, when white workers agitated for ‘civilized wages’ to the detriment of the large pool of unemployed black workers.) Unfortunately, unions in South Africa, for historical reasons, have exorbitant political power, which means that the interests of the unemployed lose out to the interests of those fortunate to have a job. COSATU has already announced that farm workers in the Western Cape will strike from the 9th of January demanding a R150 minimum wage; the sad reality is that at that price, farm owners will have to let thousands of workers go – if we assume that the daily wage would have to double from the current R75 to R150 and a wage elasticity of -0.71 (as calculated by Fallon and Lucas for South Africa), then a back of the envelope calculation will show that the number of farm workers will fall from 116 000 to 70 000, i.e. the destruction of 46 000 jobs. Political parties, unions and the media would want to find a scapegoat for this destruction of jobs and farm owners will probably have to bear this burden. But it won’t be their choice: it will be the consequence of power hungry individuals demanding higher minimum wages in a market that cannot afford it. No research about the impact of the minimum wage, no sense about the opportunity costs of forced higher wages, just politics and foolishness. And 46 000 people without a job. That is not only sad, it’s also incredibly unfair.

5. Saving the savings rate

Imagine filling in an online application for a home loan, and as soon as it appears online, you have thousands of potential lenders screening the application and deciding whether to support your project. Call it crowdbanking. With South Africa’s saving rate appallingly low, one initiative to get South Africans to save more, I believe, is to show them the consequences of their savings. So, if you’ve just matriculated with seven distinctions but none of the banks are willing to offer you a study loan (you don’t have any collateral), then why not go to The Crowdbank. The interest rate is determined through an auction process of potential suitors. And the transaction is administered through a reputable financial institution. Something like this already exists in a slightly different format for African entrepreneurs: is a platform that connects entrepreneurs in several African countries with investors from across the globe. Entrepreneurs would visit a local MYC4 office, explain their financing needs, and if the MYC4 partner agrees that it is a worthwhile project, the project will appear on the website (this video explains it well). Anyone can now invest in the project, stipulating how much money they are willing to invest and at what interest rate. If enough people support the project and the borrower is satisfied with the interest rate, the funds are transmitted to the entrepreneur. I’ve been investing since November 2012, and although two borrowers are behind on payments, I’m due to make a positive return by the middle of this year. But it’s not only about the positive return: I’m investing in Emmanuel R. Wambura’s fish shop, in Michael Kalenga Bwana’s bar, in Rose Wangui Mwaura’s farm (she has three cows), in Howard Shimba’s wholesale store (all in Tanzania), in Theogene’s Magnifica Hotel in Rwanda and several others. It’s not just business, it’s personal. Given South Africa’s extremely high inequality, this is one way of “redistribution” that promotes entrepreneurship and economic growth for those outside the formal economy. And, by the way, it’s a lot of fun.

Here’s to a productive and prosperous 2013!

Written by Johan Fourie

January 5, 2013 at 16:04