R700 million wasted on an organisation that outsources its work

South Africa’s government is spending R700 million on the administration of the National Student Financial Aid Scheme (NSFAS). 

A large chunk of this money goes to three service providers appointed by NSFAS to do the job that it is supposed to do – distribute funds to students to gain access to education. 

This has led to Finance Minister Enoch Godongwana saying the institution of NSFAS has no value, as it is not able to do its primary job. 

These comments were made by Godongwana at a post-Budget event, where the minister detailed the opposition some of his proposals have faced in recent years. 

“We must remove unproductive expenditure and redirect those resources to productive expenditures. It is good to say it, but politically it is a difficult task,” Godongwana said. 

“I mean, I am known, for example, for saying that I do not see the value of NSFAS. Not the bursaries it gives out, but the institution.” 

Godongwana explained that NSFAS provides an important function in funding access to higher education, resulting in a more skilled workforce. 

However, the institution itself, over the past decade, has suffered from mismanagement, leadership instability, and mounting political pressure. 

“I do not see its value as an institution. In fact, we are spending R700 million just on the administration of NSFAS,” Godongwana said. 

“If you were to take that money and give it to students, you would have paid fees for 9,000 of them. Just with the money for the administration of NSFAS.” 

While it is clear to see that spending on NSFAS is highly unproductive, Godongwana explained that there are many people who oppose scrapping the institution. 

“There are many people with sentimental attachment to NSFAS, and they are attacking me. I have learnt that to be the Finance Minister, you don’t have to be loved by everybody. You have got to state facts as they are,” Godongwana said. 

“NSFAS is supposed to be paying universities for student accommodation and everything else, but, in turn, they have employed three other service providers to provide the service they were created to do. Why should we keep them?” 

Former FNB CEO and current Bank Zero co-founder, Michael Jordaan, said in a social media post that Godongwana was spot on. 

Jordaan said that universities or banks could easily handle this and say yes to funding the education of 9,000 more students in South Africa. 

South Africa should close most universities

NSFAS’ struggles tie in to South Africa’s education crisis more broadly, with access to education greatly increasing in the country, but the quality of that education remains poor. 

This results in a widening mismatch between what skills are demanded by the country’s labour market and those produced by universities. 

Ultimately, this ensures that many graduates, despite their high level of education, cannot get jobs in South Africa. 

This has led some, such as Efficient Group chief economist Dawie Roodt, to say that South Africa should close many of its universities and replace them with technical colleges. 

These colleges should focus on skills development to ensure more graduates are employable, with their skills matching what is in demand from the labour market. 

Universities, in this scenario, should focus on offering courses in certain areas where they have expertise and the skills taught remain relevant, such as medicine, accounting, economics, and the hard sciences.

These institutions should also focus on research in these spheres, instead of offering a wider range of courses and degrees that are largely irrelevant to a modern economy.

“There are many skills that universities teach that are very well suited to a modern economy, such as medicine, engineering, economics, and many other things,” Roodt told Daily Investor. 

“Unfortunately, there are plenty of other degrees that are also offered that there simply isn’t demand for, such as political science.” 

Roodt explained that this results in significant resources being spent at universities to teach degrees that are not relevant to a modern economy.

“Only approximately 10% of the population should attend university, and it is crucial that these institutions produce high-quality graduates,” Roodt said. 

“There are so many degrees that are offered, and people only take them because they just want a degree, regardless of what it is.”

South Africa has 19 public universities and 7 universities of technology, totalling 26 state-owned institutions. Many of these institutions are poorly run. 

“The quality of South Africa’s universities has also deteriorated quite significantly in recent years, slipping down international rankings,” Roodt said. 

“Our universities still provide good quality education and skills development, but they are slipping and quite often offer stuff that is not relevant for a modern economy.” 

“I have said previously that many universities should be closed down, and they should, without a doubt.”