How state can fund higher education by Patrick Bond (The Mercury), 28 October 2015

29 October 2015

There’s plenty of money for students – and other poor South Africans – if we reprioritise

HOW to make good on the zero percent university fee increase committed to by President Jacob Zuma after the courageous student protests last week at the Union Buildings, ANC headquarters and Parliament?

South Africa’s R1.451 trillion state budget for 2016-17 must expand or be rejigged by just 0.3%. True, in addition to the immediate R4.2 billion shortfall, much larger sums will be needed to subsidise free tertiary education for those unable to pay, as well as end outsourcing of university workers.

So where can the state find the funds? According to some, Zuma’s government is just too broke. As my Wits School of Governance colleague Graeme Bloch claimed last week in The Conversation (albeit without supporting data): “There are many problems for the government, including the state of the world economy, which ensures that there is not enough money” for free university education.

But if a 2012 government commission set up by minister Blade Nzimande (and hidden away since) as well as even the conservative SA Institute for Race Relations agree that free tertiary education is affordable, why the resistance?

The vast power of financiers and international credit-rating agencies means South Africa suffers a slowmotion version of austerity. The threat of a “junk-bond” rating always looms, and last Wednesday, Finance Minister Nhlanhla Nene’s freeze on new state programmes and civil service hiring revealed the Treasury’s paranoid fear of Standard & Poor’s, Fitch and Moody’s.

So even while South Africa’s world-leading inequality is generating unprecedented public debate, Nene chose to squeeze 17 million beneficiaries of state grants, including children. “The old-age, war veterans’, disability and care dependency grants have each increased by R10 a month from October 1 to bring the annual increase in line with long-term inflation.” The goal, he said, was to “ensure that the value of grants keeps pace with inflation”.

Sorry, it isn’t: a year ago, the main old-age and disability grant was R1 350/month. In February, Nene announced a rise to R1 410, and last week to R1 420. The 2015-16 pro rata R65/month increase therefore amounts to 4.8%, yet the national Consumer Price Index inflation rate for the same period – according to Nene’s own budget document – is pegged at 5.5%, rising to 6% next year and 5.8% in subsequent years.

However, food and electricity prices are rising far faster than the overall inflation rate, and since they are a much larger share of a poor person’s income, an inflation figure closer to 7% would be more accurate. So Nene has, this year, effectively shrunk poor, elderly people’s budgets by more than 2%.

Where is the money then? A glance at the Treasury’s spending gives an indication of how to fund student fees, to end low-paid university workers’ outsourcing, and raise poor people’s grants.

First, if South Africa were a more peaceful society as a result of higher social spending and lower interest rates, two items could be cut quickly. Security cluster spending – R184 billion next year – is growing quickly in part because of the 20% rise in “violent” community protests last year, to nearly 2 300. The state allocated itself R3.3 billion extra for personnel and armaments against civilians, including highpitch sonic sound cannons.

The epidemic of self-destructive, extreme brutality suggests police weapons should be holstered, not amplified.

Another item desperate for a cut is payment of interest, which will cost R144 billion next year. Instead of raising interest rates to a level, now the world’s fifth-highest, the Reserve Bank should reduce rates and with them, repayment costs. (That would also require imposition of exchange to controls to halt the resulting capital flight.)

Also, the Treasury’s category “economic infrastructure” includes many ill-considered projects. Consider just two voracious white elephants promoted in the 2012 National Development Plan (NDP) and Presidential Infrastructure Co-ordinating Commission. As former boss Marcel Golding exposed in court a year ago, presidential infrastructure projects were promoted generously on eNews by Economic Development Minister Ebrahim Patel in exchange for favours never delivered.

The first such project is Transnet’s proposed 464km railroad link from the Waterberg coalfields in Limpopo to Richards Bay. With funding of R40 billion, the parastatal’s Siyabonga Gama reckoned four years ago that the line could raise the area’s coal exports from 4 million to 80 million tons a year. In reality, local coal prices peaked at $170/ton in 2008, but by 2012 had fallen to $80 and today are just over $50.

Nene’s budget document anticipates further decline in coming years, especially with climate change a growing crisis. Even leading expert Xavier Prevost admits coal exports are now a money loser. Should that vast project – plus the R60 billion worth of Chinese locomotives ordered for mainly coal transport – not be reconsidered?

The second presidential infrastructure project to rethink is Durban’s port-petrochemical expansion, which at a cost of R250 billion, the NDP estimated would facilitate an eightfold rise of container traffic: from 2.5 million annually for the past few years to an astonishing 20 million by 2040. Yet no one else thinks this is possible, given global shipping stagnation (not to mention resulting damage to South African manufacturing).

Moreover, using the old airport site for the new “dig-out port” is uncertain since the Department of Energy and the KZN provincial government also want it for a nuclear energy reactor.

The biggest infrastructure bill is for Eskom’s coal-fired power plants, backed by a World Bank $3.75bn loan (its largest, but one whose repayment should be discounted thanks to lack of bank due diligence). Eskom chairman Valli Moosa improperly allowed the ANC’s Chancellor House to front for Hitachi on a R60 billion tender that drove the price up by many more tens of billions, as 7 000 welds needed to be redone at Medupi, now seven years behind schedule. Recall too that the world’s biggest mining house, BHP Billiton, will continue to get subsidised Medupi electricity: in recent years it cost just 12c/kWh or a tenth of what we ordinary consumers pay.

Such generous “corporate welfare”, rife within Nene’s three-year R800 billion mega-infrastructure budget, makes it hard to end the white elephant breeding, to better insulate South Africa from adverse world economic trends and protect the environment.

And much larger beasts loom on the horizon: the R300 billion Pretoria has committed to capitalising a Brics bank for corporate infrastructure, a project that even its new South African director Tito Mboweni condemned in 2013 as “very costly”; and the trillion rand estimated for eight nuclear reactors, which in July Mboweni announced the Brics Development Bank could finance.

Subsidies gifted to the rich and powerful by corrupt politicians are typically ignored by commentators with a neo-liberal bias. But as Zuma himself said rather unguardedly last month: “I always say to business people that if you invest in the ANC, you are wise. If you don’t invest in the ANC, your business is in danger … This organisation does not make profit, but we create a conducive environment to those who make profit.”

The great merit of the fury unleashed by the students last week was not simply that their protest against Nene, Nzimande and Zuma and their short-term victory will inspire both a closer reading of the budget and a revolt against it.

It is also that the outrage society felt at how badly the students were treated has turned to confidence that protest works, redirecting funding desperately needed for social progress.

Bond is a professor of political economy at the University of the Witwatersrand and he also directs the University of KwaZulu-Natal Centre for Civil Society.