Business to the rescue

Johannesburg - An official launch for the eagerly anticipated Ikusasa Student Financial Aid Project was postponed this week, despite the pilot plan amounting to R200m being set aside for up to 2 000 students this year.

Ikusasa (an isiZulu word meaning “the future”) is the private sector’s solution to the so-called “missing middle” problem at universities and colleges: the large proportion of the student body too rich to qualify for funding from the National Student Financial Aid Scheme (Nsfas), but too poor to access commercial student loans.

Details of the scheme’s progress were revealed this week at a meeting of the Association for Savings and Investment SA (Asisa).

This followed a meeting by the CEO Initiative, the group of major companies which have joined forces with Finance Minister Pravin Gordhan – and gathered periodically since January 2016 – to devise ways to avoid a downgrade of South Africa’s credit rating and spearhead inclusive economic growth.

Asisa CEO Leon Campher said the target was to launch Ikusasa next year, following the pilot plan.

“They are still working on the modelling and have to make certain brave assumptions,” he said.

Roughly speaking, though, it could cost R30bn to R40bn a year to cover the whole cohort of students falling into the missing-middle category.

“In essence, government and the private sector will divert money into this vehicle,” said Campher.

The private money is meant to come from two sources.

First, the idea is that money already earmarked by funding companies for internal staff development – in terms of the BEE Codes – gets diverted into the new fund instead.

This would be based on a percentage of payroll, similar to the skills levy that is used to fund the Sector Education and Training Authority system.

The skills levy, which comprises 1% of companies’ payroll, is estimated to total R16 billion a year by now.

If 1.5% of payroll could get diverted into Ikusasa, this would amount to R24 billion, covering a large part of the required funding.

The hope is that Ikusasa can “build its own balance sheet” with contributions from the private sector until it is able to issue bonds.

Whether Treasury will back these bonds is one of the aspects being negotiated, said Trevor Chandler, Asisa’s senior policy adviser.

“The bonds will have to meet funders’ requirements,”
he said.

Like Nsfas, Ikusasa will work on a combination of grants and loans, with the emphasis shifting to loans the higher the income of a student’s household gets.

Chandler stressed that Ikusasa would not replace Nsfas.

“The question will arise where one mandate ends and the other begins,” he told City Press.

The economic modelling is holistic in that it considers Nsfas and Ikusasa at the same time, but the former remains focused on students from homes with an income below R122 000, while Ikusasa is earmarked for the missing middle with incomes of up to R600 000 a year.

“The financial model is substantially different,” he said, adding that the Nsfas model was inherently unsustainable since it converted loans into grants – which are not repaid – for successful students.

While this was a good incentive, said Chandler, it meant that the students most likely to be able to repay their loans were intentionally exempted from having to do so.

CEO Initiative's other plans

The CEO Initiative’s so-called Youth Employment System (YES), may be launched in July, Campher said.

The goal of YES is to put 1 million people through paid internships within three years.

The cost will be borne by the private sector and supported by a negotiated package of government incentives.

Companies backing this plan won the major concession they needed from government last year – a scrapping of the cap on the employment tax incentive they can claim.

This incentive, better known as the youth wage subsidy, is expected to substantially subsidise the YES campaign.

The CEO Initiative is the group which has been accused by the Gupta family’s Oakbay Investments of being the source of a conspiracy to boycott all their businesses.

It was at an early meeting of the CEO Initiative in January last year that Oakbay claims Gordhan “instructed” corporate South Africa to destroy the Gupta family.

On Monday, about 120 CEOs met with Gordhan at Nedbank’s Sandton offices, where progress with the initiative’s various “work streams” was reported.

Most of the ventures being born out of the CEO Initiative involve packaging public goods as projects that private investors can put money into.

Accordingly, Campher described the mission of almost all the initiatives as “crowding in” funding.

There are plans to crowd in funding for diverse projects, from bulk water infrastructure to student housing.

There is also a plan to crowd in funding for emerging farmers and for a “redevelopment” of the Vaal Triangle.

“The idea is to crowd in funding to relieve the fiscus,” said Campher.