Higher Education Financing in Ethiopia: Revenue Diversification Strategies

Kennedy Munyua Waweru (corresponding author)

Bahir Dar University,
Department of Accounting,
P.O. Box 79, Bahir Dar, Ethiopia.
Tel: +251 (8) 20 01 43, Email: [email protected]

Sewale Abate
Faculty of Business and Economics, Bahir Dar University
P.O. Box 79, Bahir Dar, Ethiopia.
Tel: +251 (8) 20 01 43, Email: [email protected]

Abstract
This paper explores revenue diversification strategies being instituted by Ethiopia public
universities to bridge the financing gap occasioned by the limited public funding and
resource utilization by the universities The study which is exploratory in nature samples the
eight public universities that have been in existence for more than three years leaving out
the remaining thirteen public universities that were set up two years ago. Among the
strategies employed to varying degrees include: private sponsored students programs such
as the extension, summer, distance programs, and short term trainings, commercializing
service units such as student and staff lounges and farming. It is however only the private
student programs that were found to significantly contribute to internally generated
revenue.
JEL Classification: GO
Key Words: Financing, Diversification

1.0 Introduction
1.1 Background
Ethiopia has an area of 1.1million square kilometers and an estimated population of 80
million with diverse languages, culture and topography. The male/female proportion is
roughly the same. 15% of the population is urban and 85% is rural (Ministry of Education,
2005:5)

The country is currently engaged in a highly ambitious effort to expand and re-align its
higher education system in more direct support of its national strategy for economic growth
and poverty reduction (Yizengaw, 2003). 21 public universities now stand in the place of
the previous two-university ‘system.’ An aggressive expansion policy designed to raise the
country’s insignificant tertiary enrolment ratio to more respectable levels is producing
results. Total tertiary enrolments in universities and non-university tertiary institutions,
both public and private, surged from 42,132 in 1997/98 to 192,165 in 2002/05 (Ministry of
Education, 2005:12), more than quadrupling in seven years. The annual enrolment growth
rate of 50.86 per cent was possibly the highest in the world during this period, Ethiopia’s
tertiary-level gross enrolment ratio (GER) was 1.5 per cent in 2005 which was a great leap
from the GER of 0.8 in 2003, which placed it among the lowest ranking countries of the

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world. In comparison, the current tertiary level GER for sub-Saharan Africa is 4 per cent
(Saint, 2005:5). [Note1]

Over the past six years, government has boosted its financial effort on behalf of education.
Public investment in education has risen as a share of GDP from 3.2 per cent to 4.5 per
cent. This level of financial effort is higher than the 3.9 per cent registered for sub-Saharan
Africa as a whole (World Bank, 1998). Education expenditure has also increased as a
proportion of the overall government budget from 9.5 per cent to 16.8 per cent. Such
increases still fall short of reaching the general range of 20 per cent to 25 per cent for most
developing countries, suggesting that scope remains for further increases in the
government’s education financing effort over the coming years (Saint, 2005:7).

1.2 Current Financing Arrangements

The Government provides virtually all of the financing used to run the public tertiary
system. This includes the provision of free non-academic services to regular students:
meals, lodging and health care. Full-time students (39 per cent of all students) pay no
significant tuition fees, although part-time and private students (the majority of the total
enrolled) do pay. Part-time students are charged tuition of Birr 30 to 50 per credit hour, or
Birr 90-150 (US$10–17) for the normal three credit course load taken each semester. Some
institutions charge evening students additional fees of Birr 26 to 58 per credit hour for
laboratory courses (Ibid) [Note 2]

Annual recurrent expenditures per university student are roughly Birr 7,457 (US$860)
when government-provided food, lodging and health care are included and Birr 5,500
(US$636) when student welfare subsidies are excluded. This latter level of educational
investment is low in comparison to sub-Saharan Africa (US$1,500) and to neighboring
nations like Kenya (US$1,800), Tanzania (US$3,236) and Uganda (US$800). Experience
indicates that it is extremely difficult to provide higher education at an acceptable standard
for less than an annual per-student expenditure of US$1,000 (Association of African
Universities and the World Bank, 1997).

Student welfare subsidies and fee-free higher education are increasingly at odds with
prevailing practice in other African countries, especially in the Anglophone sphere, where
various forms of student cost-sharing are emerging (Johnstone, 2003). The government has
recognized this by indicating in the new Higher Education Proclamation that cost-sharing
will be a key component for the future financing of tertiary education development.

Consequently, the government introduced a university graduate tax in September 2003

designed to re-coup gradually the cost of meals and lodging, together with a small portion
of tuition costs. The mechanism of cost-sharing via a ‘graduate tax’ deserves recognition
for its innovativeness both in Ethiopia and more generally. Cost-sharing based on the
current ‘graduate tax’ will not immediately relieve the financial pressures on the system
produced by rapid enrolment expansion. By the year 2020, for example, the share for
higher education in total education spending would be some 4 to 5 percentage points lower
with cost-sharing than without it. The income from cost-sharing would then represent a
significant and fairly reasonable 20 per cent of the total cost of running the higher
education system in the outlying years, say towards 2015 (Saint, 2005: 25).

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2 Experience on revenue Diversification Strategies in Sub-Sahara Africa
2.1 Encouraging privately sponsored students.
This strategy has been the main source of alternative financing for most public universities,
there is need to institute demand driven academic reforms, if this alternative is to be
sustainable. Demand driven academic reforms are the most effective way of attracting
private students to courses for which individuals, families and companies are willing to
pay. (Court, 1999:6)

In Makerere University for instance the change in the student body since 1993 has been
intertwined with an explosion of new degree and diploma courses. The university now
offers bachelor’s degrees in business administration, nursing, tourism, urban planning,
biomedical laboratory technology and many pursuits not previously available or
contemplated. Their practical and professional career purpose suggests than an estimate of
demand rather than a prescription of supply is influencing the academic curriculum.
However, demand is not confined to the vocational and the practical; bachelor’s degrees
with specializations in drama, music and dance can also be pursued through evening
courses. Another way to encourage self-sponsorship as well as utilize available facilities is
to offer courses during evenings and weekends when working people can attend (ibid).

2.1 Commercializing service units and enforcing user fees.

In Makerere University units previously subsidized from central university funds have been
contracted out to private management. Notable examples here are the bookshop, which
brought a return to the University 6 million shillings in 1997, and the bakery which
provides bread to the student halls of residence. Other formerly subsidized units, such as
the guest house and printing shop, are now run by the university on commercial basis.
Previously diverse non-tuition user fees were often waived in the past and are now strictly
applied and constitute an additional source of revenue for the institution (Court, 1999:5).
Other areas with potential for commercialization include: library services for the
community surrounding the universities, agricultural technologies extension services such
as banana tissue culture, mechanical and electronic and electrical repair and maintenance
for engineering faculties.

2.3 Institutionalizing consultancy arrangements.

While demand for consultants from East Africa universities has grown greatly in the past
ten years and individual staff members have profited, few universities have been able to put
in place a system that retains some of the profit for the institution that houses the
consultants and provides their overheads. Makerere is making the attempt through the
establishment of the Makerere University Consultancy Bureau, a limited liability company
with 51% of shares owned by Makerere staff as individuals and 49% by the university as
an entity. The bureau engages in merchandizing and provides consultant service lines in
business, organizational development, water and sanitation, and public health. It also
maintains a data base that is used to link consultant skills to task requirements (Court,
1999:6).

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2.4 Contracting Out Non-Core Services
The contracting out of the non-academic services needed by the university is increasingly
frequent in Africa. Among the more common contracted services are the following:
provision of student meals, management of residence halls, computer maintenance, campus
security, university vehicle maintenance and repair, care of the grounds and gardens and
minor facilities maintenance. (Kigotho, 2000)

These arrangements facilitate university management by lessening the supervision burden

for university staff, reducing the non-academic workforce with its associated personnel
management responsibilities and social benefits, improving performance levels (poorly
performed contracts are not renewed) and introducing greater flexibility in the application
of university funds. The University of Dar es Salaam is a particularly good example of
achievement in this area (Mkude 2003). The University of Nairobi has already contracted
out campus security and is also in the process of contracting out other non-core services
(Kigotho, 2000).

2.5 Establishing enterprise services.

Many universities maintain farms to generate revenue, which carry out dairy farming,
floriculture, dry crops farming, and cereal seed multiplication. Other income generating
sources include petrol stations and mortuary services the University of Nairobi has
incorporated an enterprises company (the University of Nairobi Enterprises and Services)
headed by a competitively sourced chief executive, to identify and exploit the university’s
revenue generating potential (ibid).

f) Instituting overhead charges.

In majority of Kenyan public universities, individual professors with external research
contacts, for example, surrender a percentage of the contract to the university (Sanyal and
Martin, 1998)

4. Findings
4.1 Revenue Diversification Strategies
Though it was possible to ascertain the actual revenue generated by most universities,
Addis Ababa and Gondar Universities while willing to reveal all the sources of internally
generated revenue blatantly refused to reveal the amounts of internally generated revenue.
It was however possible to estimate revenue generated by the extension and summer
programs. This was done by multiplying the number of students in the respective programs
by the normal credit hour load per academic year and the cost per credit hour. The
strategies are described in detail below.

4.1.1 Extension Students Program

The extension students program is offered to self or company sponsored students outside
the regular working hours i.e. 5pm to 8pm, Monday to Friday and on weekends. The
program targets workers who wish to upgrade their qualifications and high school
graduates who met the minimum university entrance requirements but could not meet the
target set for government sponsorship.

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The survey results indicate that all the universities employed the extension students
program as a key strategy for revenue diversification. The contribution of this revenue
source to total revenue generated by the university ranged from 14% in Jimma University
to 61% in Hawassa university (see table 1). In general most of the revenue from the
extension program was generated from the social sciences oriented faculties.

While faculties in the social sciences such as the faculty of business and economics had
extension students enrolled in almost all the courses offered, the natural sciences oriented
faculties had very few courses on offer in the extension program. The medical science
faculty for instance could only offer medical laboratory course and in some cases
pharmacy. The cost charged by the universities for the extension program ranged from 38
birr per credit hour for social sciences related courses to 61.28 birr per credit for health
related courses such as medical laboratory

Due to the times in which this program is offered, the catchment for the program is limited
to the cities/towns where the universities are found. It is surprising that though the
universities charge different fees for similar courses, they donnot advertise their programs.
Since different cities/towns have different costs of living, in part due to the cost of housing
and food, this program could attract more students (outside the catchment areas) especially
the high school graduates who do not qualify for government sponsorship, if the
universities were to advertise their programs.

4.1.2 Summer Students Program

The summer/kiremt students program is offered to self or company sponsored students
during the summer i.e. mid July to mid September. During this period the regular
(government sponsored) students are on vacation. The program targets workers who wish
to upgrade their qualifications and cannot enroll in the extension program due to the
distances from the universities. The catchment for the program is therefore not limited to
the vicinity of the universities.

5 Recommendations on Revenue Diversification Strategies

5.1 Supportive Legal and Regulatory Structure

A review of the Higher education proclamation and the various proclamations for the
establishment of the universities with regard to revenue diversification reveals that: that
among others the universities are legally empowered to own property, provide
consultancies. It can therefore be argued that the legal and regulatory environment offers
more support than constraints to revenue diversification. This concurs with World Bank,
(2000:47) argument that higher education institutions flourish in a legal and regulatory
environment that encourages innovation and achievement, while discouraging corruption
and duplication of effort.

5.2 Decentralized and Participatory Management

The Higher Education Proclamation has decentralized much of the administrative, budget
and other authority to individual universities in the interest of greater institutional
autonomy, flexibility and responsiveness. In order to realize these benefits,
decentralization requires committed and visionary leadership.

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Much of the reform accomplishment with regard to Makerere University which has been
hailed by the World Bank, (2000:50), has been credited to the commitment, energy and
imagination of the university leadership. As a result of government support, the university
management had greater autonomy than ever before to make structural decisions affecting
the institution, including the ability to raise funds from private sources.

5.3 Flexibility
Findings of the study indicate that the universities rarely or never conduct market and labor
studies, if the revenue diversification strategies are to be sustainable, universities They
need to be able to adapt quickly to changing enrollment levels, to the rise and fall of
different fields of study, and to changes in the mix of skills demanded in the labor market.
They need keep pace with significant external changes. Basic demographic data can help
forward planning; enabling institutions to prepare for changes in cohort size, secondary
school enrollment, and graduation rates World Bank, (2000). More needs to be done by
universities in Ethiopia on this score.

References
Court, D., 1999. Higher Education Financing in Africa: Makerere, The Quiet Revolution.
Washington DC: The World Bank and the Rockefeller Foundation

Kastbjerg, G., 1999. Financing Higher Education in Ethiopia. ddis Ababa. Ministry of
Education.

Okwach, A., 2001. Revitalizing Financing of Higher Education in Kenya: Resource

Utilization in Public Universities. Association of African Universities,
http://www.aau.org/studyprogram/pdfiles/abagi.pdf (Accessed June 5, 2007)

Saint, W., 2005. Higher education in Ethiopia: the vision and its challenges. Washington,
DC: World Bank

Notes
Note 1: This is an example.
Note 2: This is an example for note 2

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 22
20
18
16
14
12
10
8
6
4
2
0

Jimma

Gondar
Haromaya

Adama
Mekele
Addis Ababa

Hawassa

Bahir Dar
Extension program
Summer program
Distance program
Short term trainings
Consultancy
Maintenace w/shops
Farming
Leases & rents

Figure1: The amount of revenue generated by each revenue diversification strategy

(million birr)
Description of the Figure above

Table 4.1.1: Revenue Generated from Extension Students Program

Contribution to total
University generated revenue
Addis Ababa University *
Haromaya University 30%
Mekele University 17%
Jimma University 14%
Hawassa University 61%
Bahir Dar University 27%
Gonda University *
Adama University 29%

Description of the Figure above