SA education finance after apartheid: features, donor support, and capacity building

1. A biased practitioner’s notes SA education finance after apartheid:features, donor support, and capacity building Luis Crouch Draft version as of January 10 EDUCATION FINANCE AND DECENTRALIZATION CONFERENCEWashington D.C., January 13-14, 2005

2. The task at the end of apartheid - 1 • Re-unify something like 18 racial “ministries”: put together all the administrative systems, policies and procedures, information systems, exam systems, etc., into 9 provincial “ministries” • Begin to equalize funding in a system where some 15% of the children had 5X to 10X more funding than the other 85% • Do this without “losing” the top 15% to the private sector

3. The task at the end of apartheid - 2 • Where teachers cost 4.5 X GDP per capita, yet there is large-scale coverage, so the majority (the poor) get covered with a tax based paid to a large extent by a minority (the rich) • And where there is also a “modernization” agenda • Similar reforms needed in all non-financial areas: curricular reforms to get rid of racism in curriculum, language policy reforms, etc. • And in all other sectors: health, electricity, water, etc.

4. Elements of the fiscal solution • Three tiers, only three actors involved: nation, province, and school • national to provincial fiscal transfer system • provincial to school resource transfer system • No role for local or district government in education: a conscious decision (educational districts exist, but as administrative convenience only, no governance or finance role) • National: policy • Province: important role (contractual employer) • Schools, also powerful • Municipalities: no role • Take each in turn

5. National to province: the “equitable shares” system • Vertical division between national and provincial spending: non-formula, driven by expenditure assignment, negotiation, analysis • Horizontal division: Largely block allocations to provinces • Horizontal division of the provincial portion: via a formula that transfers SHARES of the funding, does not produce bottom-line amounts • Allows for fiscal neutrality and more flexibility in the vertical division, since it makes no promises in terms of absolute amounts • Not really built on cost basis or “adequacy”: source of debate

6. National to province: the “equitable shares” system • Some earmarking for education - infrastructure • Formula very simple: 9 components, one or two fixed, most population-driven • Each component or sector has a simple “weight” that represents a notional sense of how much each province might spend on the sector – education’s is 41% and actual spending has been 35% to nearly 50% • Each component also has “drivers” – in education the driver is 1/3 enrollment, 2/3 population • Aimed at reducing repetition (very high enrollment, E/P in Grade 1 was 166%!!!) • Coordinated with policy on age-for-grade • Very successful

7. Some problems and concerns, mostly resolved (?) • Unfunded mandates and provincial authority: P/T ratio mandated nationally by Dept of Ed, provinces all too happy to hire. But funding from equitable shares might not cover a low P/T ratio. • Not just unfunded mandates but “plots” between sub-sectoral interests at provincial and national level to create mandates to protect turf • Debate around “costed norms” and “adequacy” as opposed to a “shares” approach • Increase in data requirements (enrollment, population of school-going age), not satisfactorily resolved – surprising lack of concern, no real audits

8. 2nd level: province to school fiscal transfers • Considerable school autonomy • Can hire extra teachers at market wages (using standard employment Act, not Teacher Act) • Have some vetting power over state-paid teachers • School councils have majority parents (by 1) • Public schools allowed to charge fees, fees not considered fiscal revenue, are set at, and stay completely at school level • Autonomy is statutory and universal (unlike Nicaragua or El Salvador)

9. 2nd level: province to school fiscal transfers • Two main types of resource transfers • Non-teacher, non-capital costs: • Allocated according to an incidence table • The incidence goal is the allocation principle • 35% of resources must go to poorest 20%, 25% for next 20%, 5% for richest quintile • Teachers: • Allocated physically, not as a budget for schools to hire teachers (unlike, say, Nicaragua) • At first, not pro-poor • Then, 20% of teacher fund is “top-sliced” and distributed preferentially to the poor with same incidence table as non-personnel costs

10. 2nd level: province to school fiscal transfers • Pro-poor targeting is internal to each province, out of respect for provincial power (?) • This has led to problems in horizontal equity • Provinces allowed to determine their own intra-province targeting approach, recognition of a practical targeting reality • Targeting is 50% based on existing infrastructure, 50% on poverty of community, but provincial leeway in what variables to use • To compensate for withdrawal of public resources from rich schools, public schools allowed to charge fees. • This has been most controversial innovation

11. 2nd level: province to school fiscal transfers • Private schools also subsidized • Subsidy calculated to somewhat equalize funding, but to put private schools at a bit of a disadvantage • Simple system (2 pages or so) • School with fees < ½ public cost of a public school gets subsidy = 60% cost of a public school • Schools with fees > 2.5 X public cost of public schools get no subsidy - This caused a lot of controversy • Fee level grandfathered in to prevent gaming – causes a bit of a problem • In spite of subsidy availability, existence of fee option in public schools has done much to prevent “middle class flight” to private schools – this was an important goal – prevent US inner city or Latin America syndrome.

12. Donors’ role • Pre transition: preparation • Transition well planned in many respects (compared to Eastern Europe) • Advisors started arriving 1991 • Many provided ongoing continuous support with lots of institutional memory, through to elections in 1994 – three years of preparation, dialogue • Many then came invited by new government as long-term advisors • Donors typically funded advisors, particularly in early days, and NOT the usual “kitchen sink” donor projects • Advisors typically selected by GoSA, not donors, and often given nearly line-staff senior roles

13. Donors’ role • Later, after policy environment defined (roughly 1994 to 1997 or 1998) there were more typical donor projects to drive pilot projects that exemplified the policy designs • Advisors then often turned to a capacity-building role • Many of the advisors provided training • My case: two years advising, then two years training (40 officials in 2 groups, 190 hours contact time per group, with certification by Univ of Witwatersrand) • In my view, this is a nearly ideal sequencing for policy reforms: advice, then reform and pilots to exemplify the reform and capacity building in how to implement the reforms, all done by the same people – of course this sequence not always poss.

14. Themes of advice, capacity-building • A series of topics: • Setting up the actual fiscal transfers and explaining their rationale to those that had to actually implement • Setting up the budgeting and tracking systems, e.g., expenditure tracking down to school level • Setting up and providing advice and training on how to target • Tying funding to quality control and notions of output/input tracking, simple notions of value-added analysis, etc. Setting up league-table sorts of exercises, performance-oriented prizes, etc.

15. Admissions (bias?): • I am hardly an unbiased academic analyst – I was a “guest bureaucrat” and played role in design of all these systems • I’ve lost touch a bit in last year or two • SA not borrowing from Bank, at least for education, so not much interaction with me since I’ve been at Bank • There may have been some changes not reflected in this presentation • There has been discussion of not allowing fee-gathering at school level among the poor • There has been discussion of using a national poverty targeting list, rather than allowing province-specific targeting • Not sure where this has ended up