Education, CAs and how long is long to study

A recent Moneyweb article poses the question of whether Chartered Accountants in South Africa should study longer.

The problem is that high schools are failing learners and many accounting students start out with significant literacy and numerical weaknesses in their learning.

Now, as it turns out, I’m not a supporter of increasing the required length of study because some students (even, perhaps, a majority) need more time to complete the work.  I see no reason to enforce an arbitrarily longer study period on students who are perfectly capable of making it in the current and long-standing term of the programme just because some students are entering with inadequate preparation.

I’m not oblivious to the challenges of education in South Africa. I’ve blogged regularly on how education shortcomings are the number one cause of economic challenges and unemployment in South Africa. I’m also not saying that we should simply raise entry requirements as that would exclude many students with the potential to be successful CAs because of imperfect high school level preparation.

What I suggest is an optional (at the choice of students or the university) post matrix, pre-CA year to cement the basics.

The nature of this course would be that the majority of candidates electing or being required to attend this extra year would be previously disadvantaged. I also see it as a perfect opportunity to make tuition cost for this pre-CA year count fully towards cost in the first year of the BComm or BBusSci course should the student meet the requirements. Thus, there is no free year of university grade education for all and sundry, but rather for those who benefit from the programme and successfully enter the mainstream CA stream studies their will be limited financial penalties.

In some ways, this subsidy could potentially save the universities and National Treasury some money – better pass rates in later years should shorten the amount of time to graduate, reducing other university and government subsidy costs.  I haven’t worked the numbers, but it is an offsetting impact to consider.

I understand that UCT, certainly for actuarial students, has a very successful programme of tweaking the education route for this with poorer preparation. I don’t have the numbers at hand, but the results apparently have been quite staggering.

Of course, SAICA has a somewhat silly response:

Saica’s senior executive for professional development, transformation and growth Chantyl Mulder said the duration to qualify as a chartered accountant (CA) is already seven years and thus lengthening university studies is not viable.

Stating that it isn’t viable doesn’t actually say anything. The same could be said against a seven year study period of the current were six years. The same could be said against the seven to twenty (and beyond for an unlucky few) years of study for actuarial students and medical specialists. As it is, my understanding is that UCT students pursuing their CA career via B.Bus.Sci have a four year undergrad degree (and what a magnificent degree it is too) and then a final year of GDA study before starting a three year articles period.

The recognition that some CAs take longer than seven years could be taken as evidence that some students need longer. Surely it’s better to prepare a robust eight year programme for those very likely to take longer than seven years rather than leave them to the wolves and an eight or nine year struggle with inadequate preparation? Or even if a parallel rather than serial solution to improving the basic skills is the answer, this has nothing to do with seven years being the magical “right” number.

The final worry itching at the back of my head is that we have all accepted the pernicious degradation of matric quality and have therefore already become used to lower entrance requirements at universities, adding pressure to admissions and possible decreasing the average level of learning. This route as only one destination – lower skilled employees, less international competitiveness, lower economic growth and higher unemployment.

Zim cash shortages


Zimbabwe seems to be experiencing some isolated (for now) cash shortages.

This was a concern around election time. There was a risk that citizens, fearing uncertainty around the reintroduction of the Zim Dollar might have withdrawn their deposits and borrowed as many dollars as they could. There has been limited talk of the reintroduction of the Zim Dollar, but I hadn’t expected these scenarios just yet.

Hopefully this is just a logistics issue ahead of Christmas shopping and year-end pay.

When is revenue lost?

In respect for Nelson Mandela’s death and funeral, many retailers closed yesterday for the day. This Business Day article claims a R300m loss for the retail industry as a result.

Except, no. Some fraction of those sales might be permanently lost, but the income hasn’t been spent and the cash still sits in shoppers’ pockets. The R300m is mostly just delayed.

There will be some impact where closed shops sacrifice sales to open shops.

There might even be some small amount of decreased consumption and therefore increased saving. The article headline wasn’t, “Retailers sacrifice means an increase of R300m in personal savings.”

This is part of an ongoing trend (probably for hundreds of years) for journalists, even respected financial journalists working at a respect newspaper, to seek the most impressive headline. It also reflects our very human tendency to ignore second order effects. Which is a pity because that’s where the really interesting analysis lies.

Sewing seeds of manufacturing growth

The NY Times has a fascinating article on the increasing demand for American made goods, particularly textiles, and the limited supply of labour with the relevant skills.

There is plenty more to the story than just manufacturing increasing in the US – it also includes an historical perspective on the sources of labour in the textile industry over the last two centuries.

The relevance for me and South Africa is – even with our 40% duties on imported textiles, why are we still shedding jobs? In the US, it’s been a desire for higher quality, more reliable quality, shorter turnaround times, cheaper transport costs and a growing discomfort with safety conditions in Asia.

The higher average incomes in the US also make price less of a overriding factor than in South Africa. The COSATU t shirts that were made in China at least once is a clear reminder of how cost impacts buying decisions above almost all else in big parts of our economy. I don’t know whether the quality of our production and the appreciation for buying locally made products is great enough locally yet. The NY Times article spend several paragraphs talking about the need for strong English and Maths skills. We’re still struggling with our legacy of broken education even while we fail current learners. None of this helps to take advantage of these trends.

Manufacturing growth in the US and other developed markets is also driven by increased automation. Higher real wage are less critical when automation in eras decreasing the amount of labour required. Possibly counterintuitively, this increases the demand for labour in developed countries even while decreasing global demand for labour.

Wages for cut-and-sew jobs, the core of the apparel industry’s remaining work force, have been rising fast — increasing 13.2 percent on an inflation-adjusted basis from 2007 to 2012

If you look at a graph of the share of US GDP that goes to labour compared to capital, it’s been a steady decrease for decades. I can only imagine the same is true in South Africa. The increased use of automation (including new robots that work more interactively with humans in auto plants) may drive this even further.

So is this a story that bodes well for South Africa? We should be a low (lower than the US and Europe anyway) wage producer so developed market manufacturing should hurt our export industry. Given that we import textiles from China, should we maintain hope – against all experience of the last two decades – of regaining a meaningful textile industry? Or do we need to recognize that Africa should be our biggest export area and we should leverage our proximity, both geographical and cultural, and focus on our competitive advantages over the Chinese? Where is our Industrial Policy in any of this?

How to force a conclusion from a study [updated]

So a study commissioned by the alcohol industry demonstrates that banning alcohol adverts will be a bad thing.  Consider me unsurprised and cynical.

I don’t know that the impact would necessarily be positive. I don’t know how much of an impact banning ads will have on consumption, but it does seem that the alcohol industry lobby, cunningly called the “Industry Association for Responsible Alcohol Use”, which is a bit of ridiculous PR spin, doesn’t seem shy to manipulate each part of the debate in their favour.

From the article:

“Qualitative and quantitative research by Econometrix shows that alcohol advertising is not a significant factor in determining consumption and has little or no effect on alcohol consumption per capita in South Africa,” said Jeffrey at the press briefing.

And then, some harder stats on the economic impact

  • Gross domestic product: An estimated reduction of 0.28% of GDP was to be expected.

  • Employment: 11 954 jobs was estimated to be cut.

  • Fiscus: Total tax income will decrease by R1 783-million; and

  • Trade: Exports would decrease by R225-million and imports would decrease by R304-million.”

There’s almost certainly an inconsistency here.  Let’s take that third bullet first. How is tax income decreasing? Since there is “no impact” on alcohol consumption from advertising, there will be no lower volumes of booze sold and therefore no loss of sin taxes. Ceteris paribus, alcohol industry companies will make higher profit, resulting in higher income taxes. Nowhere is there mention of higher profits to shareholders, greater returns on investment or reduction in prices. So I don’t see how the quantitative work here talks to the earlier conclusion that there won’t be a reduction in volumes consumed.

Again, it’s not that I alone possess perfect knowledge of what will happen to alcohol consumption, but it’s disingenuous to claim that it won’t lower consumption but then model the impact of lower consumption!

The other bullets are also interesting. Lower GDP and lower employment says something important and subtle or important and wrong about our economy. If consumers simply spend less, their savings will naturally increase and imports will decrease (based on the mix of imported versus locally produced alcohol). An enhanced savings rate is a key ambition of National Treasury. It’s not clear that this scenario is based for our economy at all. We haven’t yet talked to the higher profits to shareholders and investors, or more likely, price reductions in booze, resulting in an off-setting increase in consumption but possibly even greater savings, depending on the price elasticity of booze. Again, potentially further good.

Now in reality, it’s very likely that consumers will substitute at least a portion of their alcohol consumption with consumption of other goods and services. And what we’re saying is that whatever these things are, they will employ fewer people and contribute less to the economy that the production of alcohol. This just seems a stretch that really needs to be justified.

It’s also fairly clear that the analysis has not considered an increase in labour productivity through lower alcohol consumption, which will increase GDP.  Additionally, I see no analysis of the possible savings in healthcare costs associated with alcohol consumption (both medical things like heart disease and accidental death and injury).

The thing is, until the report is released in detail, all we have is an attention grabbing headline with no way of evaluating whether it’s actually carefully thought through and objectively evaluated, or whether it’s just massively disappointing work.

Update: Full report is available here

While the report is quite extensive and covers some of the points I’ve raised, it reads clearly as a piece of propaganda rather than objective research.