FINANCING TVET TVET COSTING, DIVERSIFIED FINANCING SYSTEMS AND COST REDUCING STRATEGIES

Content Part 1: Formal, non formal and informal TVSD: characteristics and respective weaknesses Part 2: reforms, with a main focus on NVQF. Part 3: Proof of evidence? Part 4: Any alternative tracks to make NVQF work? BTC Education Sector Days - Burundi - 11 december 2012

Part 1: TVET COSTING TVET is more expensive than general education: Lower student teacher ratio (higher recurrent cost) Higher capital cost Higher cost of training material Higher administrative cost (curricula, standards, testing) Huge differences between tvet streams (source: adea): Center based: 61% en 267% of the GDP/student (mostly Input based financing) On the job training (apprenticeship, internship): 1/3 of center based training BTC Education Sector Days - Burundi - 11 december 2012

Tvet costing: continued What about the return on investment? Enterprises: Income through productivity of trainee Opportunity gains in case of recruitment (selection, lower additional training costs) Training institution Income through production during training For profit training courses Country level Lower social costs Higher taxation BTC Education Sector Days - Burundi - 11 december 2012

TVET costing Is there a formula to measure the costs and benefits of training? At a country level: Net cost of training= total gvt budget for TVET – gains of training (taxation benefits + less social expenses) At the level of the trainee Net cost of training= (tuition fee + opportunity costs + foregone income) – expected financial and social gains after training (= expected salary) At the level of a firm: Net cost of training = gross cost of training – (expected improvement of) productivity of trainee BTC Education Sector Days - Burundi - 11 december 2012

2. TVET financing: three main financing sources Houselhold contributions Government budget Private sector contributions How does this relate to formal, non-formal and informal skills development? BTC Education Sector Days - Burundi - 11 december 2012

TVET-financing: household contributions = Financial Contribution of parents/pupil Tuition fees +work for free (or salary < productivity during training) Demonstrate motivation (commitment to learn) Appropriate price for the individual return of training (increased job and income opportunities) Huge variation Between 1% of total training costs up to 50% or more Perverse effects: Higher tuition fees make TVET even more inattractive and less accessible Mitigating measures Loan schemes, exemption of poor trainees, public or private scholarships BTC Education Sector Days - Burundi - 11 december 2012

TVET financing: government budget = national budget allocation for TVET Source= taxation, donor funds, Often not sufficient to cover all costs Can be a ‘sheltered’ training fund (earmarked for TVET) Types: General allocation per TVET institution / can be differentiated TVET vouchers (funding the individual training demand) Strategies to Increase the available funding Higher tuition fees Introduction of training levy (training tax) National (all employers) Sectoral (only some sectors) BTC Education Sector Days - Burundi - 11 december 2012

TVET financing: private sector contributions Direct contribution Private scholarships Internships and apprenticeships In service staff training (continuous training) Direct donations / voluntary pledges private company training centre (large enterprises): in service and pre-service Indirect contributions (often forced) Training levy or other forms of taxation Sector training funds Incentives Tax deduction of training costs Training levy – grant scheme (exemption of paying levy if enterprise has invested in training) Public co-financing for training of employees BTC Education Sector Days - Burundi - 11 december 2012

TVET financing: what about income generating activities (IGA) =income for training institution through commercialisation of products and services Tailor made training programmes for a specific target group on a contract basis Evening courses for the general public Sales of products produced during training Training through off site production (construction work, …) Lending and commercial use of equipment Cost recovery rate varies between 10% and 80% Concerns: Balance between training and production? Unfair competition, child labour, … Allocation of the extra resources (investment, salaries,…) BTC Education Sector Days - Burundi - 11 december 2012

Management of TVET funding Often centralized (TVET body or ministry) and public Few examples of PPP in SS-Africa Input allocation: based on existing training supply, not on labour demand Often not based on a calculated unit cost Can be through (sector based) training funds BTC Education Sector Days - Burundi - 11 december 2012

How to raise efficiency, reduce costs and involve the private sector Decentralisation and autonomy for schools Privatisation of TVET delivery Increase share of on the job training (apprenticeship, …) Direct financing of the individual training demand Vouchers => social corrections => qualitative selection of providers by its users => competition between training providers BTC Education Sector Days - Burundi - 11 december 2012

Raising efficiency (ctd) Performance based financing Introduction of per capita funding Fixed amount per pupil per specific course Introduction of output and outcome funding Allocation per graduated student (improve internal efficiency) Allocation per graduate that has a job Tendering of training Based on a TNA For a certain cohorte (X students for Y profession for Z region) BTC Education Sector Days - Burundi - 11 december 2012

Group discussion Are there any examples of a balanced IGA – policy? What measures can a government take to facilitate IGA? What are the examples of private sector contribution for TVET. Are these legally enforced? How can we increase private funding? Are tendering of training or introduction of TVET vouchers a feasible strategy in SS-Africa (increasing competition between training providers) How can we help our partner countries in calculating the costs and benefits of TVET? Is this already done thoroughly? BTC Education Sector Days - Burundi - 11 december 2012