SOUTH AFRICA: Universities taking financial knocks

The international financial crisis is impacting on universities in South Africa in various ways, including lower returns on investments and a weakened currency that is making imports more expensive. The crisis is exacerbating pre-existing strains on finances while the prospect of cuts to public spending on universities as a result of an economic downturn is of great concern, says the vice-chancellors' body Higher Education South Africa.

South Africa's currency, the rand, has plummeted against strong overseas currencies, weakening from R8 to R11 to the US dollar in the past month. Professor Derek Swemmer, registrar at the University of the Witwatersrand in Johannesburg, said the weak rand was having a "huge impact".

"So many operational costs of universities are based on imports, with institutions buying in everything from equipment, chemicals and text books from abroad," Swemmer explained. "All core activities of universities will be significantly affected."

Worryingly, universities will struggle to afford to keep up journal subscriptions if the rand does not strengthen. Further, a few universities with substantial investments have been affected by drops in the value of their equity and in investment returns.

Universities with strong portfolios have investments in and outside the country, though not externally to the extent of many universities elsewhere in the world. Their international investments have suffered and, although the Johannesburg stock exchange has not been greatly affected by the international crisis, internal investments are also under-performing.

Before the financial crisis, universities were already under financial pressure from electricity hikes, rates hikes and rising inflation. The recapitalisation of South Africa's electricity grid will continue for the next six to seven years and will continue to affect universities. Earlier this year, after a series of crippling power cuts, it was estimated the power crisis would cost universities up to R1 billion, including having to establish alternative power supplies.

As importantly, Swemmer pointed out, a downturn in the economy following the financial crisis has implications as less activity in the market means less income for government. This will curtail state spending - including on higher education - and all these factors, he said, "will impact significantly on the efficacy of higher education".

Higher Education South Africa spokesman, Patrick Fish, said the prospect of less public money for universities - just as the sector's share was beginning to recover from decades of real terms decline - was extremely worrying.

Also, consumer inflation, currently running at around 13% after years of sticking below 6%, has been hitting university operating costs and is likely to drive up student fees next year. But after public outrage over the rising private costs of higher education, universities have been warned by the government to clamp down on fee increases.

On average, universities in South Africa earn around 43% from direct public funding, 29% from tuition fees and 28% from 'third stream' income. Unable to raise fees in line with inflation and rising costs, institutions would need to receive more public funding or generate more income from other sources to maintain their current, already insufficient, income levels.

"But more money will not be coming from government and, in the current economic climate, it won't be coming from 'third stream' income either," said Fish. "This is a major concern."

karen.macgregor@uw-news.com