Columnists

Shutting universities is bad economics

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University of Nairobi main entrance. FILE PHOTO | NMG

Summary

  • Much of the losses are attributed to operational issues like opening many satellite campuses and construction projects as well as a ballooning wage bill.
  • Education is a public good, so public universities which serve to meet that public good cannot simply be analysed through a profit or loss lens like a State-owned company.
  • Moving into the economics of higher education funding, public investment is needed in order to support equitable access to learning as a fundamental parameter in education policy.

A few days ago, it was reported that the World Bank was pushing Kenya into closing and merging cash-strapped public universities. The 102 public universities and campuses reportedly posted a deficit of Sh6.2 billion in the year to June and received nearly Sh70 billion from the Treasury to run operations and have turned losses for three consecutive years.

Consequently, the World Bank argues, there is a need to address these institutions’ overlapping mandates and consolidate them to improve the efficiency of public spending on higher education and reduce spending pressures.

This push for the closure of public universities was revealed in an advisory by the bank, which requires the government to fulfil targeted conditions of structural adjustments for a three-year loan arrangement. Kenya signed the loan deal to receive budgetary support and help the economy recover from the effects of the Covid-19 pandemic.

It is evident that there is a case about the sustainability of our public universities. The rate at which they have accommodated big losses in a very short period is a matter of public finance management concern.

Much of the losses are attributed to operational issues like opening many satellite campuses and construction projects as well as a ballooning wage bill.

The University of Nairobi (UoN) and Kenyatta University (KU) combined have a financial deficit of Sh4.3 billion, underlining the cash flow problems that have seen them seek to raise student fees. For KU the institution is relying on short-term loans to finance its operations.

But the demand by the World Bank is quite unrealistic at this point in time and stands to create a long-term problem in higher education.

First, the World Bank placing public universities in the same basket with State-owned companies making losses is like mixing apples and oranges. The two are different when analysing their public funding.

Education is a public good, so public universities which serve to meet that public good cannot simply be analysed through a profit or loss lens like a State-owned company.

Public investment in higher education is crucial because it improves the quality of education, which translates into benefits such as increased productivity, reduced income inequality, reduced poverty and improved overall economic growth.

So, the long-term effect of education addressing economic and social inequalities and transforming societies from a small elite system into a mass system should not be downplayed. Therefore, Kenya’s public universities and campuses increasing from 49 in 2010 to 204 in 2017 before falling to 102 last year isn’t the problem.

Moving into the economics of higher education funding, public investment is needed in order to support equitable access to learning as a fundamental parameter in education policy. With public universities already in a cash crunch position and running big deficits, asking them to take sharp cost-cutting measures is not the way to go.

This is basically telling the institutions to drastically fit within the budget by cutting programmes that are likely to compromise and risk eroding the quality of education. For example, some of these institutions will consider letting go of their well-trained and experienced lecturers and professors because they can’t afford them when they are important in the provision of quality education.

So, as we relook at the financial positions of these institutions, it is fundamental that we separate tuition costs and operation costs of the universities. Tuition cost is what the government is more concerned about because it’s the determinant of equitable access to learning, and channels funding looking at revenue per student.

So, the government should maintain or increase the revenue per student then give the institutions phased timeframes to cut their operational costs without creating a financial shock until they get to a cost-effective position. The danger of creating a financial shock is that it will make the universities inadequate in responding to the demands of the labour market, hampering the quality of education.