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FINANCING OF TRAINING IN THE MIDDLE EAST AND OTHER DEVELOPING REGIONS

A government may well encourage the formation of needed training provision (carefully located) and the weeding out of incompetent or deceitful provision in a number of ways...

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FINANCIAMIENTO DE LA CAPACITACIÓN EN EL MUNDO ÁRABE Y OTRAS REGIONES EN DESARROLLO
FINANCIAMIENTO DE LA CAPACITACIÓN EN EL MUNDO ÁRABE Y OTRAS REGIONES EN DESARROLLO

Por: Stephen Murray Kiernan

 The question of how training is financed has been the subject of a great deal of discussion, based on the clear realisation that the amount of funds available for training provision will affect its offering in the first place, its quality and thoroughness, and its sustainability.

In certain cases, TVET has the deserved reputation of being expensive. It was estimated that it could be up to 14 times more costly than general secondary education in Sub-Saharan Africa, though it normally is a lot lower than this. In Tanzania, recurrent expenditure per student at secondary level was a multiple of 7.4 (with primary taken as 1) and for technical training 75 (statistics from the ILO); in Senegal the technical or vocational secondary education only cost about 50% more than the secondary type.

A number of financial equations have been put forward to justify the amount of money invested. The many stakeholders involved – government, NGOs, enterprises, communities, even potential learners themselves – have to be persuaded of the practical investment that skills development represents; if not, little or no support in the form of direct funding or financial support mechanisms (e.g., levy on payrolls) will be forthcoming. For example, the concept of return of investment, though it can be rather difficult to properly quantify under many conditions, is a strong argument for the outlay that will be required right from the start.

A government, if it is an honest and competent public administrator, will regard the provision of training as a way of developing the otherwise unemployed and the poorly-skilled employed, of improving productivity, the national reputation for manufacturing and services, civic good order, the post-compulsory offering (along with upper secondary and tertiary), attracting investment from abroad, and increasing employment and the standard of living. These are not exclusively financial issues. It is an expensive type of education but the government may well see it as an appropriate educational provision in areas of generally low academic level and high under/unemployment even where little culture of vocational and technical work has already been established. An argument can be made that, in times of economic restructuring, vocational education may be a cost-effective instrument to keep people temporarily out of the labour market but in such a way that they can return with more relevant skills.

There has been a great deal said recently that the intervention of government should be reduced in actual provision (because of historically poor service and wastefulness) and enlarged in such areas as funding management and provision of those tasks that individuals and companies have neither the money, critical mass, talent, desire and above all capacity (competency frameworks, establishment of mutually supportive associations, and such like) to undertake.

A government may well encourage the formation of needed training provision (carefully located) and the weeding out of incompetent or deceitful provision in a number of ways: through legislation (both new rules and the reworking of older restrictive ones, such as those affecting apprenticeship) and some sort of quality assurance body with its own inspectorate (e.g., evaluation of trainers) as well as through relaying funds only to those institutes which comply with stated policies. The situation is heaving with dangers related to favouritism, incapable administrators, poor decision-making based on weak or manipulated data, undisbursed levy income (as in the case of the absence of a “mutualisation” mechanism), and the obstinate problem of funding based on supply-led priorities (easily done but often close to worthless) rather than demand-led ones, etc.

It would seem that in ideal terms, in the same way that learners and instructors are training within a competency-based structure, bona fide training providers and in-company training enterprises would receive some financial aid based on either their expected performance (at the start – funding that can be discontinued should reality not meet expectations) or continuous adequate performance. This would be part of the composite formula funding – based on inputs, outputs and outcomes – that governments could employ to set budgetary criteria. The query here is whether a system built on properly trained people, assessment methods and stakeholder cooperation can be assembled.

Box 13: Direct and Indirect Allocation of Funds by the State

 A. Direct Allocation of Funds by the State

  1. Traditional Budget Practices

Funding for state-sponsored training institutions based mainly on expenditure history and incremental annual increase.

  1. In-Put Based Financing

Based on formula or norms, such as the number of trainees enrolled multiplied by a certain unit cost. Weaknesses are lack of quality assurance mechanism and limited connection of training with employment needs.

  1. Output-Based Funding

Based on performance in meeting pre-determined training targets (e.g., number of programmes completed and pass rates). Weaknesses here are crucial need of performance criteria and their assessment, and the frequent lack of relevance.

  1. Composite Formula Funding – Based on a mix of the above.

B. Indirect Allocation of Funds by the State

Training Vouchers (still rarely used; a failure in Ghana due to absence of choice, unnecessary complexity and limited marketing; a motivator among MCs in Kenya), etc.

Governments have established a number of experiments in raising and disbursing

funding. They can bring together the relevant stakeholders to create a “sheltered” training fund with contributions from government resources, taxes and donations to form a source of financial aid in line with the specific needs of the state, its people and enterprises. South Africa’s National Skills Fund is a good example of this. They can also reimburse or exempt companies from tax payments if they undertake training.

It is not uncommon for several ministries to be involved in training provision but greater efficiency would be acquired by delegating responsibility to one individual department (e.g., within the ministry of labour) and by planning levy collection to be as simple and fair as possible, with one single national levy rate in operation rather than a complicated menu of sector-specific ones. Locating the funds in their own account, independent of other funds with their own priorities, would also be wise.

The affected enterprises will need to be convinced that a levy is a “benefit tax” rather than an additional financial demand that may influence wage levels and recruitment – if they are not won over, collection will be very difficult and also, curiously enough, participation by enterprises in the subsequent disbursement of largesse. Non-government stakeholders (unions, sector associations, etc.) can make a useful contribution to the management of funds; this has been successfully achieved in the case of Côte d’Ivoire’s FDFP.

Levy payments are carried out through either self-collection or collection by agencies (e.g., the National Pension Board has been a very successful collector in Mauritius). Savings can be made by managing the fund as a means to encourage private initiative rather than principally as a way to maintain a wasteful system that has secured little cooperation from stakeholders (this has been done in Chile and is under implementation in South Africa).

Two interesting examples indicate the different emphases in similar countries. In 2005, the sources of revenue for TVET in Egypt were direct budget allocation (92.7%), cost recovery (3.7%) and training levy (3.7%), which indicates the very under-developed state of funding mechanisms besides government subsidies. By contrast, in Tunisia the share was better spread: direct budget allocation (66%), cost recovery (3.8%) and training levy (30.2%). However, again there was little success in financing activities through some sort of cost recovery.

In Asia, some of the most influential funding systems have been Korea’s training-tax exemption and Singapore’s levy-grant scheme – Latin America has led the way in the latter funding method. The proper functioning of the levy-grant system requires the existence of a well-developed enterprise tax regime. In Cameroon, the Fonds Nacional de I’Emploi was established in 1990 to organise, finance and monitor skills development and employment creation programmes, especially for two target groups: the pre-employed youth and retrenched workers from the public and private sectors. Its financing comes from donations and a 1% contribution from enterprise payrolls – in addition, learners pay 20% of training costs. The word “contribution” is chosen carefully here: as in many countries, the “levy” that is exacted in this case devolves to general government account, rather than a special training fund, meaning that moneys collected in this way do not necessarily have to be reinvested in training (and in reality often do not) – so it is effectively a tax. It supports the training taken by FNE-registered job-seekers carried out by one of the institutions that are also registered with it (most of these are small, informal workshops).

Similar experiments to this fund in neighbouring francophone countries in West Africa are the ONFP (estd. 1986, Senegal), the ONAFOP (1998, Niger) and the FODEFCA (2001, Benin). As in Cameroon, they are characterised by a tripartite relationship of government-employers-workers; they aim to train for both the formal and the informal sectors and use formal and informal training providers to achieve this; to exact a 20-25% fee share by learners; and to encourage competition based on performance and efficiency to obtain funding. It has been said that they should implement the following measures to improve their functions: lower fees for the pre-employed, higher for those workers wishing to upskill; improve quality control mechanisms such as by clarifying their criteria for admission; and guide trainees in such measures as moving their enterprises into low-cost/high-production habits and high-value markets.

Further afield, the competitive element is again seen in Egypt’s Skills Development Project that gives funds not to training providers but rather to users of training services (enterprises), which then choose their preferred option. The initial target sectors are SMEs operating in construction, manufacturing and tourism. In its near neighbour Tunisia, the payroll levy operates as a rebate scheme awarded to enterprises which offer in-service training programmes; in practice, an enterprise will deduct what it owes through a monthly presentation of its approved training provision. Its coverage is quite wide: it pays for the costs of assessing training needs, the preparation of training plans, the salaries of those involved and the expenses of related skills development operations.

The inevitable weakness in the Tunisian case has to do with enterprise size: SMEs have no real incentive to train since their “professional formation tax” is so small. This is yet another example of the lack of motivations for SMEs to engage in training (indeed the situation where SMEs are paying levies but then not using the funds accrued is an argument for their exemption from this system). However, through the mechanism of “mutualisation”, a pool of unspent small contributions can be utilised by groups of enterprises wishing to establish training in a sub-sectoral grouping.

Other countries are still pushing for greater government support. In Ghana, there was recently a call for an Industrial Attachment Act by which a fund would be established to finance the work experience element of the Higher National Diploma. It is interesting to note that private contributions subsidise training for the public sector in some countries (e.g., Tanzania) as the latter does not pay levies; meanwhile in South Africa, government ministries invest 1% of personnel costs in skills development.

There are a number of other important effects of government intervention in this field of cost sharing. There are certain very significant reasons why the government must remain the main motivator and facilitator of TVET provision:

  • Guiding the training offer so that necessary skills are addressed (which might not be so easily identified or profitable enough to stimulate a market response);
  • Looking after the poorer sectors (e.g., providing expertise, capital and training-friendly legislation for the informal sector in general);
  • Refereeing between competitor ministries, providers or companies; creating a flexible and practical structure of qualifications and competency mechanisms, etc.

As a counter-argument to this, dependence on training subsidies (whether given by government, donors such as NGOs or enterprises with CSR pressures) will naturally stifle training innovation and market responsiveness (as was Mali’s experience in the 1990s). However, the same training funds can encourage innovation and cost-effectiveness if they are disbursed on a competitive basis using performance criteria.

The best option seems to be a performance-related funding diversification embracing four areas:

  • Fund augmentation through new contribution types (e.g., sector-specific taxation),
  • Cost sharing (e.g., fees),
  • Income generation (e.g., rents), and
  • Encouragement of new providers with their own income sources (e.g., companies could be supported by matching grants).

One interesting experiment is the training voucher system, which enables people to choose their own training provision in the formal and informal sectors. It will obviously work best where the choice is wide and people can make an informed selection based on well-publicised offers. It is a good example of trainee-centred funding in which, as in Kenya, beneficiaries might have to pay a percentage of the face value (10% of first voucher, 50% subsequently) or even the entire value should they be anxious to continue training and not wait for new vouchers to be issued.

The voucher requires as a minimum a critical mass of choices and well-informed customers for it to have the chance to function well. One innovative variation of this could be an in-company voucher system, financed by the enterprise: a human resource stimulant possibly part of wages or performance-related bonus. It would likewise give the employee purchasing power and so training is demand-driven; but one questions if it will be relevance-driven if employees are apt to make the wrong choices, there is no great training offer range, or they lack the time and motivation (as was the case of the lack of voucher use in the Small Enterprise Training Scheme in Mauritius). However, one could argue, why not just give cash? In this case vouchers are a training currency, solely acceptable to purchase training, while money is legal tender: with the latter anything can be bought, with the former, only training provision (that may come up to company-standards through vetting).

The setting of tuition fees by training providers (public and private non-profit and for-profit) is related to training costs and trainee demand, along with political or other constraints and equity issues. The authorities may wish to place a ceiling on the fees charged but this will diminish the interest of many entrepreneurs or MCs in setting up their own training centre. Participants may wish to pay fees in instalments or in kind, for example, but alternatives like loans are difficult to procure and manage if the capacity of the banking system is limited or collateral unavailable. The policy of an institute of setting its own expenditure ceiling can be a useful device in financial self-discipline (the Employment-Oriented Skills Development Project in Papua New Guinea does this, managing its funds from the Asian Development Bank). For related reasons, public vocational training institutes may not want to publicise their total income, particularly in times of relative plenty, for fear of a reduction in state funds.

The competitive situation among providers can of course be tilted in favour of one over another. These non-government for-profit providers will already have to compete with public providers receiving a state subvention, but their advantage lies in often having few or no effective strings attached as regards curriculum, equipment, trainer ability and mandatory access to disadvantaged groups.

The subsidising of private providers (and enterprises, especially SMEs) is worthwhile in terms of broadening the locations and content of relevant provision, equity (NGOs can be crucial here), and the possible knock-on effect on its competitors of quality private provision. The technical courses that are required by many people who work or wish to work in the extractive industry sector, for example, may not be available simply because private providers are scared away from high-cost and low-demand training offers. If companies do not step in, only government can and their polytechnics have often been found wanting. Providers themselves can augment whatever income they manage to acquire through state funding, donation and fees by renting facilities (like the Enterprise Centre in Barmer, India) or through the sale of services and products: Cameroon’s APME was said to earn the equivalent of 62% of the costs of its technical training through these multiple sources.

As far as contributing to training funds is concerned, petty jealousies are bound to surface as enterprises that appear on the fiscal radar screen (formal medium and large ones) will be the main contributors, with micro-enterprises availing of the workshop training that their richer colleagues help to finance. Likewise, as we saw, SMEs often do not bother to take advantage of levy rebates, etc. as the amounts are small and the paperwork daunting, and this may cause some annoyance. Most funding given to institutions and enterprises by government is aimed at pre-employment skills development, which might not meet a great deal of actual demand among the currently employed. Normally there is less financial assistance for the training of the employed, which naturally is a disincentive.

Donors are of course another very large source of funding for the new drive in TVET provision. Bodies like the World Bank have invested progressively more in primary education and “sectoral adjustment” to the cost of TVET since the 1970s but most have begun to appreciate the benefits of TVET provision, particularly now that improvements have taken root in the compulsory education field. Within the funds set aside by the World Bank for TVET projects, the upgrading of worker skills increased its share from 15% to 35% in the 1990s, reflecting a concern for productivity and income among members of the workforce. It has also tended recently to support a mix of clients rather than the previous onus on school-based providers. Both the Asian Development Bank and its African equivalent have pushed for more provision and have supplied cash to back this up.

It has been the complaint of many that donors have spoilt projects with excessive funding only to switch off the tap to leave projects prematurely dead and disillusioned locals. It certainly doesn’t breed a habit of self-reliance, especially if something like modern, formal training practices involve a frame of mind and an organisational discipline that are foreign to communities. The fact that donors often do not coordinate their support of efforts in general means that the impact on activities like training might be less than it could be due to project isolation. Their imposition of “best practices” tied to the awarding of funds is also another bone of contention (one “conditionality” being the reduction of pervasive government intervention).

The experience of the World Bank with TVET projects, for instance, has been that the chief cause of their limited impact is the lack of timely and competent cooperation from ministries, the private sector and the institutions themselves. However, the conditions that are integrated into general funding eligibility have had strong consequences on vocational education. For example, one perhaps lesser known reason for government intervention in TVET provision is related to the retrenchment imposed by poverty reduction commitments imposed by donors/lenders and multinational institutes that vastly reduced government-guaranteed employment and necessitated the retraining of many former public servants.

SPANISH VERSION – VERSIÓN EN ESPAÑOL

La Voz del Árabe (LVÁ) – ECONOMÍA – Cd. de México, agosto 2 del 2017

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