The Transaction Costs of the South African Levy– Grant System for Skills Development

Abstract

In this article, I seek to explore the ratio between the administrative transaction costs faced by organisations in South Africa for claiming skills development grants and the grants that they achieve. This simple trade-off of costs versus gains is a key factor in whether firms choose to participate in the training-related activities targeted by this system. Anecdotal sources have claimed that excessive administrative costs have led firms to under-claim grants available to them. However, no prior empirical research exists on such costs, presenting a gap in the literature. Accordingly, in this article, I explore the proportion of administrative transaction costs to direct gains in 14 case studies of South African organisations regarding their 2016 activities and expenditures. The results found half of the firms studied to have costs in excess of direct gains from grants. The remaining firms exhibited extreme variability in the cost–gain ratio from very low to near parity. Some evidence suggests that larger firms may enjoy a slight cost–benefit advantage. This research provides some support for the claim that the levy–grant system for skills development may present many organisations with excessive costs compared to gains. The high levels of variability suggest that policymakers should consider cost structures carefully and mitigate policy instruments.