SOUTH AFRICA: Third stream income a new priority

Under increasing pressure from the South African government to contain soaring tuition fees, universities are urgently seeking new ways of generating more third stream income through donations, investments and entrepreneurial activities. As higher education now receives less than half its funding directly from the state, universities also see raising alternative income as a way of bolstering their autonomy in the face of growing state intervention.

This week vice-chancellors attending a board meeting of their association, Higher Education South Africa (HESA), discussed convening a conference in the next few months on third stream income. And on 1 June the University of Fort Hare, an historically disadvantaged institution with little third stream funding, launched a Centenary Endowment Fund in an effort to attract income from its alumni and others.

HESA spokesman Patrick Fish told University World News it had become clear during recent meetings with Education Minister Naledi Pandor, and with the presidential working group on higher education, that the government expected the recently improved funding it is providing to higher education to be used to constrain annual above-inflation tuition fee hikes that have prompted student protests and hit the pockets of poor families hard in recent years.

"Universities need to either find alternative forms of funding or increase efficiency," Fish added. "So we are very interested in exploring ways of boosting third stream income. This is seen as important now and will become crucial in future."

A report published in February by HESA, Tuition fees: Higher education institutions in South Africa, revealed that on average 28% of universities' income was generated from third stream type activities in 2004 - up very little from 27% in 2000. By contrast, direct public funding, or first stream income, dropped to 43% of revenue - down from 49% in 2000 - while the proportion of second stream income from fees rose to 29%, up from 24% in 2000.

State spending on higher education fell from nearly 4% of total state finance in 1999 to 2.5% in 2007. South African universities, it appears, have largely relied on tuition fee increases to make up for this decline, rather than pursuing the more difficult route of donations and endowments, investments and entrepreneurial activities such as setting up companies and centres able to earn income from patents, products or research.

It is difficult for universities to generate third stream income in South Africa for several reasons, as outlined by Professor Rolf Stumpf, outgoing vice-chancellor of Nelson Mandela Metropolitan University and chair of the HESA task team that produced the fees report.

Stumpf has pointed to six main reasons: generally weak relations between universities and business; South Africa's limited industrial-business base; few tax breaks for companies and individuals; weak alumni and fund-raising structures and the absence of a culture of giving; the limited research capacity of some universities; and the impoverished geographic and economic environments of several institutions.

The last three problems are particularly acute for most historically black universities, which were created under apartheid for black students, were under-resourced for decades, and often located in poor rural areas. As a result, there are massive differences between universities in terms of their ability to generate alternative income.

So while some 'historically white' universities rely on the government for only a third of their income, others are far more dependent. Research for HESA found the highest proportion of state income for a university in 2004 was 57%. Looking at sources of income at 16 universities, it was revealed that while some institutions earned nothing at all from donations, contracts or research grants, at one institution investment income alone comprised 28% of total revenue and at another contract research generated 28% of total funds.

Of the national average of 28% of funds gained through third stream sources, nearly 8% is earned through investments, 6% through contract research and 4% through sales of goods and services. South African donations generate only 3% of university income while research grants make up 2% and international donations 1%.

HESA's Patrick Fish pointed out that universities employ very different means to earn extra income, from the University of Cape Town's ability to pull in alumni endowments and donations to the University of Pretoria's entrepreneurial approach to earning income through short courses.

It will be important, he added, for universities - perhaps especially historically black institutions with little third stream income - to develop a culture of giving among alumni and to attract donations from South Africa's new black economic elite.

Indeed, pressure is mounting on universities to reduce their dependence on government, even though the long decline in public funding of higher education is being reversed.

In the past year, the government has warned of fee-capping if tuition fees continue to escalate. At the ruling African National Congress' annual gathering in December, where a new and more left-wing leadership led by president-in-waiting Jacob Zuma was voted in, it became clear the new leaders will want higher education to accommodate more students while keeping a lid on fees. They might also want more control over the sector.

The ability of universities to earn sufficient income to maintain standards could become critical in the near future, and their continued autonomy could depend on relying less than they currently do on the public purse for financial survival.

karen.macgregor@uw-news.com