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Life in SA according to the OECD

Jul 30 2017 06:00
Dewald Van Rensburg

A protester holds up a placard indicating his opinion on NSFAS during an EFF march in Johannesburg. (EWN, Twitter)

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

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%.

oecd  |  economy  |  fees


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