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AN ALTERNATIVE COST ANALYSIS OF THE NPP FREE SHS POLICY

AN ALTERNATIVE COST ANALYSIS OF THE NPP FREE SHS POLICY

We have taken note of the alternative costing of the NPP Free NHS policy
produced by the Center for National Affairs (CNA).
http://edition.myjoyonline.com/pages/news/201203/83411.php

This is a very welcome development, since it heralds a new era of
competitive policy-based political debate in this country.

In the specific case of the CNA’s intervention in the SHS debate, however,
there are simply too many gaps in their analysis to allow for its use as
an effective tool in interpreting the financial impact of the proposed
fee-free SHS policy.

We however welcome their suggestion to use primary Ministry of Education data and the results of the Ghana Living Standards Survey – round 5. Indeed, we have overcome our earlier concern about the Ministry’s dataset not being up to date by using careful projections. This has enabled us to follow an identical approach to the CNA’s, and also provided further
corroboration of our earlier analysis. We are now proceeding to publish the results.

We had chosen to use JHS enrolment data in our earlier analysis because the treatment is smoother that way. The critical impact of the policy is derived from its objective of ensuring seamless “transmission” from JHS to SHS. In that light it makes sense to focus on that level and to “stretch out” the average per capita costs to accommodate the analysis. That
notwithstanding, the approach used by the CNA, provided the shortfalls in their methodology are remedied, should lead to outcomes similar to those produced by the original IMANI approach. We will now proceed to identify some of the most worrying gaps in the CNA analysis.

1. CNA claims that according to GLSS data the amount spent by households on each secondary student is $148. This is odd since the actual average amount indicated on page 124 of that document is GHC244. This figure is converted to $148 by the CNA, wrongly. The CNA should have used 2008 constant dollar rates rather than the early 2012 dollar-cedi conversion rates that they used. Had they done so, the figure would have come to: $256. Indeed, the GSS data dates back to 2005, so a truly robust treatment would have projected to 2011 in Ghana Cedis before commencing the dollar conversion. Again, the final sum would have been more than twice what the CNA claims.

2. The CNA assumes that the total cost of catering for the expanded intake of students is limited to Government’s absorption of household expenditure. They do not account for the fact that for each new student beyond fixed enrolment, the existing costs ALREADY borne by the government has to be considered as “additional” when evaluating how much more new
students would cost the nation. Page 135 of the 2008 Preliminary Educational Sector Performance Report provides the 2008 per capita costs over a period of 5 years. Using the same rate of growth over that period to project current government expenditure (usually called ‘subvention’) yields an average expenditure of more than $840. This gap in the analysis
alone, sadly, completely derails the CNA’s conclusions.

3. The notion that over the next two years the Ghanaian economy will double (from about GHS45billion to more than GHS92billion) cannot be based on any realistic projection of current growth trends. At best a 25% expansion in GDP (as opposed to the CNA’s 100%) can be expected. Any expanded oil revenues will be based on current planned investments in the
oil resource (i.e. we need to pre-invest in oil infrastructure for fresh output to come on board) giving us a clear view today of what oil revenues are likely to be over the life of a prospective NPP government, should they win the 2012 general elections.

These grievous gaps, unfortunately, makes the CNA’s figures untenable in the current debate. Below, we have proceeded to use the same methodology and data sources as they did (but only after closing the critical gaps in their analysis).

ENROLMENT ISSUES

Because there is no headcount of Secondary High School (SHS) or even Junior High School (JHS) students this year or the year before, the analysis has to be based on projections from the available data. The Ministry of Education (then Ministry of Science, Education, Sports & Science – MOESS) published the now widely referenced, “Preliminary Education Sector Performance Report (PESPR)” in June 2008. In that report the Ministry provided the following enrolment figures at SHS:

2003/2004 – 328,426

2007/2008 – 454,681

These data points suggest a compound growth rate of 38% over 5 years. 5 years is a good time span to average out year to year fluctuations. Using the same growth rate trends, it is safe to assume that current enrolment, in 2012, is about:

2011/2012 – 630,000

It is important to note that while this data includes figures for private SHS students, it does not include information on the technical, agricultural and vocational (TAV) sectors, where data is weakest (the 2008 PESPR report provides an estimate of about 70,000 “trainees” in public TAV institutions, but the sector is treated in such a peculiar fashion that it is perhaps best to leave it out of this analysis.) We hope to show later in our discussion that it does not really matter which proportion of total student enrolment relates to the private sector as opposed to the public sector. This is simply because we will be using pre-calculated average expenditure per student, which already takes into account the fact that the central government spends very, very, little on students in private SHS schools. In considering enrolment for the coming analysis, we shall be using the transmission rates between JHS and SHS instead of gross and net enrolment rates. The proposed NPP policy has as its core objective the extension of “basic” education to cover SHS, and sees therefore a seamless
“transmission” of JHS students to SHS, in very much the same way that Primary 6 pupils “transmit” automatically to JHS today. We should, hence, in our analysis be interested in:

1. The certain increase in the number of JHS students that shall enrol in SHS in 2013/2014 should the NPP form the next government.

2. The fact that JHS enrolment itself is likely to expand further considering the huge numbers of potential JHS enrolees who are currently not in school. This shall feed into even higher enrolment at SHS in due course.

With that in mind, we can now examine the JHS enrolment figures provided in the PESPR report:
2003/2004 – 986,111
2007/2008 – 1,224,964

Using the same 5-year compound growth rate, we can project current total enrolment at JHS, i.e. in the 2011/2012 academic year, as follows:
2011/2012 – 1,525,000

Consequently, at the commencement of the 2013/2014 academic year, assuming the same rate of transmission as primary-to-JHS (67%), the total number of enrolled students in SHS1 shall expand from the current roughly 210,000 to about 342,000. [One can increase the total enrolment in SHS2 and SHS3 by the historical trend of annual increases. Let’s however leave the figure static for clarity of analysis.]

On the above assumption, it is estimated that upon the commencement of the policy in 2013/2014, roughly 762,000 students shall be enrolled overall. This is a very realistic projection.

We could however also, for future reference purposes, assume a more conservative transmission rate, of 58%. That shall imply an SHS1 enrolment level of 300,000 students upon the policy’s commencement, and an overall SHS enrolment level of 720,000. Based on identical projections, the realistic scenario suggests a total SHS enrolment figure in year 4 of the NPP administration (year 3 in the policy’s lifecycle) of 1.28 million.

Based on identical projections, the conservative scenario suggests a total SHS enrolment figure in year 4 of the NPP Administration of 885,000. It is important to point out that even ignoring the likely effects of the policy current growth trends suggest that the SHS enrolment level in 2016/2017 shall be approximately 790,000.

COST ISSUES

For ease of analysis, we assume that in year one, all “additional” costs as a result of the policy shall arise because of the additional 90,000 students (in the conservative model) or 132,000 students (in the realistic model). The other cost item, unexamined in this analysis, to keep in mind is the “cost of adjustment”. The cost of adjustment includes light capital
expenditure such as desks, learning materials (including text books), public education, supervision, etc. but not heavy capital expenditure such as classrooms, dormitories, dining halls, transport equipment, workshops and laboratories etc.

THE ALMIGHTY EQUATION

To determine the additional (or combined marginal) cost due to new students joining the secondary school system in year one, we employ an elementary arithmetic relation:
Unit Current Govt Subvention (CGS) + Appropriated Household Expenditure (AHE) = Public Sector Student Per Capita Expenditure (SPC) That is simply to say that the cost of the current subsidy or subvention per student at SHS plus the expenses currently borne by households but transferrable to government in the wake of the policy equals the additional cost per new student enrolled as a result of the policy. Both the government’s average expenditure per student – CGS – and the private expenditure per student – AHE – must be adjusted year by year for inflation and currency depreciation costs in order to obtain the “real” amount in the future. Based on historical trends, a conservative 15% compound annual growth rate might suffice for direct analysis. We however chose to rely on implied projections in this narrative, thus enabling us to relax this assumption. Let us now examine one after the other the two inputs in the arithmetical relation above.

CGS (Unit Current Government Subvention)

According to the Ministry of Education itself:

The Per capita (the Ministry distinguishes this from the ‘unit’ cost) public sector expenditure – the ‘CGS’- in 2003 was GHS191. By 2007 the corresponding figure was GHS523. It is instructive to note however that these figures did not include ‘personnel emolument’, essentially the cost of salaries paid out to teachers and other public sector educational workers.
The combined growth rate in the CGS government expenditure over the time-span under consideration is thus 273%. It can be safely projected that the corresponding 2012 figure is GHS1,452, which is in turn equivalent to $842 in 2012 prices. It is acceptable to use this as the initial CGS figure for the 2013/2014 commencement year. While this figure may come across as aggressive given other estimates provided so far in this debate, it is important to note that it is derived by sound principles from the Ministry’s own base data, and that it does
not even include personnel emolument costs. The terminal CGS (government average expenditure per student in 2016/2017) can be derived by projecting the 2008 figure at 2012 prices yielding $1,220. It is interesting to point out that at 3% per annum the dollar inflation rate is not completely negligible but for clarity of analysis we will leave it static. We now need to compute the AHE.

AHE (Average Household Expenditure)
We use the GLSS-5 data (notwithstanding the widely known concerns about occasional granularity issues at district level). The average secondary school expenditure per student per household is provided in the September 2008 GLSS-5 report as follows: GHS244, which corresponds to $256 (at 2006 dollar prices of 0.95 GHS). If we were to follow the CNA’s lead and assume that government shall assume 85% of the costs involved, then the adjusted AHE figure for this analysis comes to $217. Given the breakdown of costs in the GLSS-5 however, there is no reason why government cannot choose to absorb the entire cost if the policy is to boost enrolment. Since boarding students outnumber day students, the transport component of the AHE build-up, the one cost item easily discounted, is very small.

SPC (Total Policy-Related Cost Burden Per Student)
From an abundance of caution, we have decided to use the 2008 CGS level throughout the remaining analysis, thus producing ultra-conservative results. In that light the cost per each new student is $1100 (CGS + AHE). In the scenario where government chooses not to assume the full complement of direct household costs the corresponding figure is: $935.

TOTAL POLICY-RELATED COST BURDEN – CONSERVATIVE
In the ‘conservative scenario’, this amounts to $134 million or $114 million, should government assume only partial responsibility for private costs. Note however that this figure relates strictly to additional enrolment “following the introduction of the policy”. The government must also absorb the household expenditure of those SHS1 students who “would were enrolling anyway”. This is an additional $54 million, bringing the total cost to $184 million or $168 million in the conservative model. In the ‘realistic scenario’, this amounts to $154.5 million or $133 million plus $54 million, bringing the total cost to $208.5 million or $187.5 million.

TOTAL POLICY-RELATED COST BURDEN – REALISTIC
At this point, the analysis is more straightforward because we shall be able to use total SHS enrolment to compute the total cost burden. Based on assumptions already discussed, total JHS enrolment shall stand at 1.906 million students. In the conservative model, total enrolment at SHS level shall come to 1.1 million. Total expenditure shall therefore come to $1.216 billion or $1.0285 billion (in the scenario where government assumes partial responsibility for private costs). In the realistic scenario, total enrolment at SHS level shall stand at
1.277 million. Total expenditure shall therefore come to $1.404 billion or $1.1934 billion. The median projection is thus: $1.340 billion or $1.1115 billion.

ADDITIONAL NOTES

These calculations do not explicitly accommodate the policy’s adjustment and administration costs, defined above to include learning materials, furniture, public education etc. There has furthermore been no accounting for capital expenditure such as buildings and transport equipment etc. No personnel emolument or training costs are included in the CGS calculations providing additional latitude for any downward adjustments due to error. Because the data used for the CGS calculations are already averaged out, there is no need for specific disaggregation of rural – urban, private – public, or day – boarding sub-data. Clearly, the use of GLSS-5 and Ministry of Education data, and the narrow focus on SHS intake analysis in no way revises the earlier estimates downwards. If anything at all, the higher averages, due to higher resolution data, merely exacerbate the cost implications of the fee-free
SHS policy.

In future commentary, we shall investigate the capital costs of adjustment, before moving on to examine the cost-benefit matrices and overall structural and other objective social and economic merits of the proposed policy.
IMANI Center for Policy & Education (www.imanighana.org); syndicated by
AfricanLiberty.Org

Written by iselorm

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