Scholarly Technical Education Publication Series (STEPS) Vol. 1

Towards a New Architecture of Sustainable TVET Financing: Some Issues, Concepts and Strategies

Author:

    Dr. Pramod Shrestha
    Former Professor
    Institute of Engineering, Tribhuvan University, Nepal
    [email protected]

Abstract

This paper underscores the need for a sustainable TVET (Technical and Vocational Education and Training) financing and its significance in bringing about improved effectiveness, efficiency, transparency, relevance and confidence in TVET systems in many developing countries. To achieve this goal, one of the biggest challenges ahead is the sustainable financing of the reform process and of the actual operation of the TVET system. The main underlying principle is the need for efficient and effective use of diverse resources in order to be able to provide more and better training to the youth.

The paper also provides insights on some guiding principles, implementation strategies, mechanisms and instruments and some initiatives for performance based funding for sustainable TVET financing.

Key words: sustainable financing, TVET reforms, financing patterns, mobile society

Introduction

The sustainable financing of TVET is often complex and dependent on various facets. In most of the developing countries, the state plays a predominant role in the financing and provision of TVET

In terms of accountability, it is stipulated that TVET in the region is not based on performance or outcomes. TVET operates without monitoring results and with quantitative expansion (input based financing) as their main strategic objective. It is also noted that TVET institutions have weak incentives for change and relevance, having guaranteed public subsidies.

Hence, TVET has become an increasingly important issue among its policy and decision-makers in most of the developing countries. In any TVET reform initiative, quantitative increase is expected to be accompanied by quality improvement, which will require new occupational standards and curricula, modern training equipment, more and updated training materials, more and competent teachers/instructors, etc. All these require more resources to be mobilized.

In this context, there is an urgent need for conceptualizing and implementing new sustainable financing architecture, instruments and mechanisms and mobilizing additional resources (from both public and private) to appropriately and sustainably fund any planned TVET expansion and quality improvement.

Context and Purpose

Any new venture for sustainable TVET financing must be able to provide a set of principles and standards that will assist TVET leaders and stakeholders to develop, improve, reform and assess the present financing system for TVET system. The framework should be flexible in order to respond to the varying needs and circumstances. It needs to be capable of application at both the central level (macro) and TVET training provider levels (micro), and it should aim to bring benefits such as improved effectiveness, efficiency, transparency, relevance and confidence in TVET systems within and across its various sub systems.

Whenever we talk about TVET and economic development, we generally cite examples of countries such as South Korea, Taiwan, Singapore, Hong Kong, Japan and Germany. Their cases show that the improvement of human capital played a pivotal role in advancing economic and social development. In the case of South Korea, this includes advancing from a largely agrarian to an industrybased economy. In all these countries the development of middle level skilled workers to satisfy the labor demand of the different sectors of the economy was a vital factor.

In this context, in all the developing countries it is important to build a demanddriven, flexible, integrated and high quality TVET system. The need is to involve all stakeholders in the planning, policy making, training delivery and monitoring and evaluation of the TVET system. The on-going reform should seek to increase the engagement of the private sector – both of private TVET providers and enterprises as future employers of TVET graduates – and to provide students and trainees with knowledge, skills and abilities relevant for the world of work. To achieve this goal, one of the biggest challenges ahead is the sustainable financing of the reform process and of the actual operation of the TVET system. The main underlying principle is the need for efficient and effective use of diverse resources in order to be able to provide more and better training to the youth.

The 3rd TVET World Summit held in Shanghai, China from 13 -16 May 2012 provided significant inputs on the development of TVET. It was organized in eight themes such as:

  1. Skills development for youth employment: Youth unemployment can be traced back to a number of economic, political and social factors. It is now commonly accepted that youth unemployment is a structural concern that requires long-term solutions. In the skills development field, a mismatch between demand for skills and the lack of appropriately skilled young workers has often been a root problem.
  2. Building the responsiveness of TVET systems: It is generally accepted that quality TVET must be responsive to changes in the demand for skills, whether these are economically, socially or politically generated. The employers’ responsibility in terms of responsiveness to the changes in TVET’s programs, projects and activities is growing. There are also questions regarding the extent to which TVET responds to the needs of individuals and communities, as well as for self-employment, complex livelihoods and non-wage work.
  3. Revisiting TVET funding and enhancing efficiency: TVET is under heightened pressure to demonstrate value for money. Recent years have seen increasing use of a diverse range of funding mechanisms and diversification of sources of financing for TVET, as well as a growing emphasis on relating payment for provision more closely to learning and outcomes in the world of work.
  4. Tackling social inequities and exclusion: TVET should promote the skill of all learners regardless of gender, class, ethnicity, age or other social characteristics. While TVET can empower excluded individuals and groups both economically and socially, skills are only one aspect in promoting social inclusion, so TVET policies need to be located within wider public policies.
  5. Changing governance and widening stakeholders’ engagement in TVET: Many TVET reforms have resulted in the development of new national organizations and new coordination and oversight structures. Attention is often given to the involvement of employers, while at the same time there is growing emphasis on the importance of making TVET more accountable to other stakeholders such as learners, parents, unions, communities and elected representatives.
  6. Promoting innovation and sustainable development through TVET: TVET has a valuable role in contributing to economic and social innovation. The rise of the sustainable development agenda suggests that TVET must engage more systemically with social, cultural and environmental issues, in terms of its own ways of working, its contribution to sustainable development, and in response to new skills needs.
  7. Achieving better quality teaching and learning: The multiplicity of learning sites and modes in TVET brings policy challenges for achieving better outcomes of teaching and learning. There are very wide differences in TVET learning opportunities across sectors and occupations. In the formal TVET sector, there is a growing awareness of the changing role of teachers and trainers and the need for a systemic view of staff development needs, qualifications, career paths and remuneration.
  8. Qualifications systems for connecting skills development and lifelong learning: There is a growing realization that learning takes place in multiple settings that go far beyond formal TVET. This requires establishing flexible and open learning and qualifications systems able to reduce the barriers between education, training and work, and to increase access and progression in initial and continuing TVET.

All these eight themes are related directly to the financing mechanisms and instruments and mainly tackle issues of equity, quality, relevance, efficiency and effectiveness of the TVET systems and its delivery.

The issue of financing is directly related to the overall status of the TVET sector. It is related to the quality, relevance, equity and governance of the TVET system as a whole. The following eleven necessary conditions/elements (but not limited to) should also be considered while formulating and implementing a successful sustainable financing TVET system.

Guiding Principles (4Ps, 4Es, 4Cs and 4Vs) for Sustainable TVET Financing

There is now considerable agreement among TVET policy planners and leaders on what are the major ingredients for success in the National TVET Policy. For national training systems, to successfully achieve the aim of meeting the skills needs of the economy, society and of individuals, five factors should be present: (Ziderman, 2001)

  • Effective: offering meaningful, quality skills development, avoiding timeserving and irrelevant training
  • Efficient: avoiding high cost, inefficient provision
  • Competitive: to counter supply-driven training tendencies and facilitate the development of training effectiveness and efficiency
  • Flexible: technically able in the short term to change the scope and direction of outputs - training provision - if necessary
  • Responsive: designed to be responsive to the changing demands of the market and needs of the economy.

Ziderman (2001) also articulated that a sustainable TVET finance mechanisms, in addition to supplying funding for the National TVET System, also have a central role to play in achieving the above five overall policy objectives.

Financing mechanisms and instruments are powerful tools to shape the social and economic impact of the TVET system: the way a country chooses to finance its TVET system has a significant impact on its governance, direction, equity, quality, efficiency and relevance. This will influence the potential of TVET to foster fair social and economic development and – ultimately – to reduce poverty.

The Four Ps for TVET Sustainable Financing:

  1. Performance - creating the right incentives for better results, excellence and quality
  2. Partnership – creating the right environment for active involvement of the private sector and communities in governance, financing and delivery
  3. Positioning – lifting the status of TVET in the society
  4. Poverty Alleviation - assuring attention to the poor (excluded should be included)

The Four Es for TVET Sustainable Financing

  1. Excellence – achieving and assuring quality and relevance
  2. Effectiveness - fulfilling national developmental goals
  3. Efficiency – increasing outputs and outcomes per unit costs
  4. Equity - degree to which students from different background have access to good quality training.

The Four Cs for TVET Sustainable Financing

  1. Competition – incentives/rewards based on agreed evaluation mechanisms
  2. Cooperation – fair and transparent collaboration amongst all stakeholders (private, public and communities)
  3. Consistency – quality assured and reliable training delivery
  4. Commitment – long term funding assurance from all the stakeholders

The Four Vs (related to TVET courses) for TVET Sustainable Financing

  1. Value (benefit/cost)
  2. Velocity (speed, flexibility, agility)
  3. Volatility (uncertainty in demand, risk management)
  4. Variability (market signal/outcome based)

The choice of any sustainable TVET funding mechanisms should have leverage on the achievement of national development goals and objectives (effectiveness, commitment factors), on outputs and outcomes per unit costs (efficiency, value factors) and on the degree to which students from different backgrounds have access to good quality training (equity, consistency factors). They should also assure the quality and relevance of the products (excellence, performance factors).

Similar factors using the three P’s (poverty, performance, and partnership) and three E’s (equity, efficiency, effectiveness) were also introduced by Adams, A.V. & Mulaw D. (2007) and Gasskov, V. (2007) as a frame of reference for TVET Financing.

TVET should be a holistic undertaking to develop the “complete TVET graduate” with the passion for what they do and with confidence and care for the community and society. These attributes underpin a comprehensive TVET where the environment is competitive. TVET should also integrate theory with practice through coursework, projects, industry partnership (cooperation), community service and global education with the intent to produce committed graduates that possess employable characteristics such as: market-relevant, enterprising and adaptable as lifelong learners in a global economy. The reliability and its consistency are judged by its quality assured programs.

TVET, in most societies is productive, mobile and competitive, but in most developing countries, TVET is still a second priority. TVET students are considered to have much less status than those in the mainstream academic path. Another misconception is that TVET courses tend to draw students of less academic ability (and from more disadvantaged income groups). Currently, TVET is still an undervalued part of the total education system despite its importance of improving the economic and social situation. From the perspective of a TVET development worker, a critical question becomes ‘How do we effectively and efficiently manage our TVET development initiatives to ensure a balance of the ‘Three Es’ – Economy, Environment, and Equity – in governance, decentralization (empowerment) and development?’

Sustainable TVET Financing for Developing Countries – Some Implementation Strategies

In the past, the analysis of financing patterns used to focus only on collection and allocation mechanisms. Now, these concerns are being linked to the wider question of organizing TVET systems and particularly with the sharing of responsibilities between key stakeholders (private, public and communities). The question of supply driven and demand-driven systems is clearly too simplistic in the TVET sector. The performance of a TVET system as a whole and its capacity to meet the needs of both the market and individuals require that interfaces be set up between the supply and the demand side. In this context, intermediary bodies, such as groups of employers, trainees, government and communities have an important role to play in achieving a balance between needs and provision through constant consultation and dialogue.

Hence, sustainable financing strategies for developing countries should be taken as a part of a broader effort to engage all concerned parties, particularly industries/ employers and learners, in a dynamic process of skills acquisition. Achieving such a mission requires maintaining a careful balance between incentives and constraints in TVET financing according to national circumstances. Generally the debate on sustainable TVET financing typically turns around two key questions (Atchoarena, D. 2009):

  1. Who pays for skills development in running a TVET institution?
  2. What mechanisms can be put in place to develop and implement a sustainable financing framework for running TVET programs? What works best, in particular as far as spending public money is concerned?

The new skills requirements linked to globalization, the constant search for competitiveness, quality, equity and relevance and the preservation of social cohesion clearly require new sustainable TVET funding mechanisms and instruments.

Financing Mechanisms and Instruments

Traditionally, governments directly finance TVET providers and training delivery. Financing mechanisms and instruments are generally seen as a way to mobilize additional resources. Payroll taxes and training funds constitute the most significant attempt to involve industry in the financing and regulation of a training market. Financial arrangement can also contribute to improving the efficiency of public spending. They are often part of a broader body of reform inspired by the new public management principles.

1. Establishment of a Central Training Funds and Provincial/District Training Funds

Training funds are powerful tools to expand training provision. These will stimulate employers’ investments in training and skills development and will contribute to the establishment of a market for training when resources are also allocated to private providers, which can lead to a competition between public and private providers. This system cannot operate on a sustained basis without sufficient support from the industries, employers and communities. It is, thus, required that the industry and the employers be willing to participate in contributing to the Training Funds. Government policies should encourage enterprises to invest in skills and subsidize the cost of this investment through various measures. The incentives may vary in their impact on the actual amount of training done. These funds could also reimburse enterprises for the cost of qualified training undertaken. A co-funding arrangement is highly dependent on the existence of sufficient participating enterprises. In addition, contributions by the enterprises and redistribution mechanisms must be appropriate. The administration of a ‘training fund’ has to be efficient as it otherwise induces costs.

The sources of funding for the National and Provincial Training Funds could be:

  1. Foreign Donors
  2. Central Government/Provincial /District Government annual funding.
  3. Enterprise Compulsory Contribution. The contributing enterprise will get tax reductions/ tax rebates. Tax reductions and tax rebates (tax deductibility) provide an incentive for firms to cover the costs of training by reducing their net costs. In the beginning, we could have a tax rebate of 100%.

2. Combine TVET Training with Micro-Credit

TVET providers should consider the Training with Credit (Loan) schemes to start small and medium scale enterprises. The Training Funds can also have a Micro Credit Revolving Fund and through that, Micro Credit facilities can be given to eligible TVET graduates who have successful completed their training from designated TVET institutions (both public and private).

3. Start TVET Training Vouchers System

Training vouchers are instruments used by governments and training funds to subsidize the cost of training by enterprises and individuals. TVET vouchers can help pay for training selected by the trainees. The cost of training through TVET Vouchers can also be subsidized by governments by allowing enterprises to deduct eligible training costs from their income for tax purposes or that can provide tax credits for qualified training expenses.

This method empowers the trainees with vouchers that can enable them to select the well-performing institute that delivers quality training. National TVET authorities should benchmark institutes trade wise on yearly basis in partnership with industry for the guidance of trainees, parents and employers.

The TVET voucher can be redeemed in four parts:

  • 25% on admission and joining
  • 25% on course completion
  • 25% on trainee OJT (on the Job Training)
  • 25% on employment

4. Initiate Performance-Based Funding Formula

The government purchases the training outputs and outcomes. This is especially relevant to shaping incentives and accountability for state-sponsored training. Norms for financing can be established using inputs, such as trainees enrolled; outputs, such as trainees graduated: outcomes, such as trainees employed.

References

  1. Adams, A. V. and Mulaw D. (2007). The Ethiopian approach to financing TVET. Proceedings: International symposium on Implementation issues of diversified financing strategies for TVET. Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH - German Technical Cooperation.
  2. Atchoarena, D. (2009a). The Economics and Financing of TVET. In Maclean and Wilson (Eds.). International Handbook of Education for the Changing World of Work.
  3. Gasskov, V. (2007). Promoting efficiency, effectiveness and equity in public TVET institutions Proceedings: International symposium on Implementation issues of diversified financing strategies for TVET. Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH - German Technical Cooperation.
  4. Ziderman, A. (2001). Financing Vocational Training to Meet Policy Objectives: Sub-Saharan Africa. Bar-Ilan University, Israel. Paper prepared for the World Bank.