The contribution of universities to the economy

Government expenditure on South Africa's universities should be boosted by 40% and an additional R3 billion (US$288 million) invested annually in research and development in higher education institutions if the country aims only to be on a par with world averages, according to a new study.

Research published in the South African Journal of Science March-April 2014 shows that despite evidence published by the OECD linking socio-economic benefits to higher education levels, the South African government has been neglecting universities.

Authored by Professor Anastassios Pouris and Dr Roula Inglesi-Lotz from the University of Pretoria, the paper - titled "The Contribution of Higher Education Institutions to the South African Economy" - showed that government expenditure on universities was well below the OECD member average.

Aiming only to reach that average demanded raising university allocations 40% on 2007 levels, while reaching the top quartile meant doubling investment.

The country's higher education research and development, or R&D, intensity of 0.18% of gross domestic product was also substantially below half the OECD average and had to be doubled to only reach the median - a task requiring an additional R3 billion annual investment towards higher education R&D.

Currently 20.7% of R&D expenditure in higher education comes from business. The country's science councils like the Council for Scientific and Industrial Research, Medical Research Council and Agricultural Research Council received 9.7% of their expenditure from business. But in OECD countries, industry funds 6.2% of higher education R&D and 6.6% in the 27 European Union countries.

Major economic contribution

South Africa's 23 universities contributed 2.1% of South Africa's GDP in 2009, which in value terms was marginally less than the gold industry and substantially higher than forestry, textiles, clothing and leather products, hotels and restaurants.

The institutions employed 228,978 people against 98,000 in the utilities sector and 296,000 in the mining and quarrying sector. While the economy shed 870,000 jobs during the 2008-09 global financial crisis, higher education raised its direct employment by 3.8%.

Pouris and Inglesi-Lotz argue that these findings mean South Africa's authorities must accept that without bold undertakings in the fields of science and technology, the country's socio-economic future would be undermined.

Traditionally, tertiary education contributed to social and economic development by forming human capital, building knowledge bases primarily through R&D, and disseminating, using and maintaining that knowledge. Internationally, governments supported higher education, driven by robust evidence that human capital was a key factor for economic growth.

The paper cited a KPMG report that showed raising university funding from 1.6% to 2% of Australian GDP and increasing the share of federal government grants from 42% to 50% triggered a 5.8% gain in that country's real GDP and 5.2% gain in long-term living standards.

Similarly, the OECD document Education at a Glance 2010 showed that someone with a tertiary education generated an additional US$119,000 in income taxes and social contributions over their working life than a person with an upper secondary education.

"The importance of higher education has never been more evident than in the recent international recession. Countries set R&D expenditure targets and used R&D expenditure as a stimulus for economic recovery," Pouris and Inglesi-Lotz say.

The European Union urged members to boost R&D and consider ways of increasing private sector R&D investments, while the United States increased its R&D spending relating to climate change by US$26.1 billion and to energy by US$6.36 billion. Another US$10 billion was allocated to the US National Institutes of Health for biomedical research and US$2.3 billion to research funded by the National Science Foundation.

While contributing 2.1% towards GDP in 2009, figures released by Statistics South Africa showed that the cash receipts from operating activities in higher education amounted to R36.89 billion (US$3.5 billion) - a figure equal to the sector's output.


Pouris and Inglesi-Lotz say the government's New Growth Path document published in 2010 recognised the importance of higher education, outlining that "a main strategy to achieve the country's objectives is greater support for R&D and tertiary education linked to the growth potential and development of South Africa as the higher education hub for the continent".

Consequently, the policy had four main thrusts, namely: to achieve targets for increased R&D; increase the number of patents from 91 in 2008 to 200 in 2014; increase the number of professionals and technicians from the current seven per 10,000 to 11; and translating these goals into costed and phased proposals from the relevant national education departments.

The New Growth Path document envisioned raising public and private spending on R&D from 0.93% in 2007-08 to 1.5% in 2014 and 2% in 2018.

However, in the decade to 2009 the country spent less than 0.4% of GDP on higher education R&D with the country in line with the rest of the world whereby the bulk of R&D expenditure came from business. Typically, the next highest contributor was the sector itself, but for South Africa the government and the higher education sector contributed equally.

"Universities are the main repository of knowledge in the country, producing more than 85% of publishable research. However, the findings raise several policy questions," Pouris and Inglesi-Lotz write.

Specifically, they question why the government provided limited funding for higher education institutions when they produced 85% of the research; whether the current model for supporting R&D was according to international best practices or due to historical misalignment; and the benefits of current government support for private sector research.

They argue that long-term evidence has shown countries and continents that invested heavily in education and skills benefited economically and socially from that choice. Translating that to South Africa's situation, every rand the government spent in attaining high-skill qualifications enabled more capital to flow back to economic growth and development.

"Moreover, this investment provides tangible benefits to all of society - and not just to the individuals who benefit from the greater educational opportunities.

"The Department of Higher Education and Training is currently adjusting the funding formula for universities, potentially offering an opportunity for South Africa to recognise the benefits higher education institutions offer the country and make appropriate decisions.

"The challenge for South Africa is clear, but so is the solution," they conclude.