Update on the 2025 Council-approved General Operating Budget

Dear colleagues and students

The recent postponement of South Africa’s 25/26 National Budget’s tabling underscored a critical reality: the bedrock of effective governance lies in securing consistent and reliable revenue streams. This necessity is not merely academic; it is the linchpin of our ability to fund essential government expenditures and, crucially, to do so without imposing an unsustainable burden on taxpayers.

South Africa’s fiscal landscape is undeniably under pressure. This strain, consistently highlighted in previous budget presentations, is anticipated to be further articulated by Minister Enoch Godongwana’s 2025/26 budget speech, now scheduled for Wednesday, 12 March 2025. The persistent deficit, a recurring feature of our national budgets, indicates a trajectory that is unsustainable. It necessitates decisive and strategic action.

At university level, our financial management operates through a budget process that categorises funds as either Council-controlled or designated activities. In simple terms, Council-controlled activities encompass teaching, learning and related activities, forming what we call the General Operating Budget (GOB). The university Council, as our governing body, exercises oversight over this budget. Designated activities primarily pertain to research operations and earmarked projects.

The current geopolitical climate introduces both risks and opportunities that impact the sustainability of both Council-controlled and designated activities. We have developed strategic responses to these factors, and we maintain continuous monitoring.

In this inaugural edition of the CFO Desk, I will focus specifically on the GOB.

Since 2022, our GOB expenditure has consistently exceeded revenue. This situation arises from several key challenges:

• Lower-than-anticipated enrolment: This directly impacts our primary funding sources: subsidies and tuition income. Furthermore, the slow recovery of Semester Study Abroad (SSA) student numbers post COVID-19 exacerbates this issue. Quantitatively, a 1% change in tuition income (whether due to volume, rate or a combination) translates to a R20 million revenue impact.
• Revenue growth lagging behind inflation: Notably, government subsidies have not kept pace with inflation. Subsidy allocations are based on historical data (previous two years), and sector-wide enrolment growth diminishes our proportional share. Additionally, deviations from our enrolment plans communicated with the Department of Higher Education and Training (DHET) could result in penalties. A 1% change in our subsidy allocation represents an approximate R18.8 million financial impact.
• Tuition fee increases capped at CPI: The consumer price index (CPI) remains significantly lower than the higher education price index (HEPI), creating a financial gap.
• Suboptimal progression and throughput rates: These factors reduce both subsidy and tuition income.
• Changes to NSFAS funding: The introduction of an accommodation cap has negatively affected our financial aid budget. Our financial risk exposure was R160 million in 2023, and R140 million in both 2024 and 2025 (with the accommodation cap increasing from R45 000 in 2023 to R50 000 in 2024).
• Rising staff costs: These costs are outpacing revenue growth and increasing benefits expenditure.
• General operational cost escalations: In higher education, particularly in the Western Cape, these escalations have exceeded the national CPI.

Recognising the urgency of the situation, UCT’s Resource Allocation Advisory Group (RAAG) has been working diligently to ensure we operate within our means. This commitment to financial discipline has culminated in a Council-approved GOB that is cash neutral – a significant milestone in our pursuit of long-term financial sustainability. A cash neutral strategy ensures that our cash inflows and outflows are balanced, resulting in no net increase or decrease in cash reserves for the 2025 financial year.

Encouragingly, the actual financial results for 2024 are demonstrating a more favourable position than initially budgeted, affirming the positive impact of our focused financial management efforts.

To address our challenges and achieve this cash neutral position for the 2025 budget, we have implemented the following eight key strategies:

1. Strategic efforts to increase enrolment: This includes targeted initiatives to boost Semester Study Abroad (SSA) student numbers.
2. Improved student support to address progression and throughput rates: We are enhancing student support systems to improve academic progression and ensure timely completion of programmes.
3. Enhanced revenue diversification: We are actively pursuing revenue streams beyond traditional sources, particularly through commercial activities.
4. Sustainable NSFAS-related financial aid allocations: We are planning within the framework of revised policies, ensuring a sustainable approach to bridging funding gaps.
5. Conservative staffing cost budgeting: We have implemented conservative budgeting for staffing costs, with contingencies in place.
6. Rigorous cost containment: We are prioritising essential expenditure while identifying areas for efficiency gains, all these while preserving core academic and administrative functions.
7. Business plan-driven initiative assessment: New initiatives are rigorously evaluated for financial viability, ensuring they are self-sustaining and profitable in the medium term.
8. Restricted access to prior year reserves: The ability to effectively manage cash flow is fundamental to the university’s ability to meet its ongoing financial obligations and maintain uninterrupted operations. Access to prior year reserves represents a critical tool in mitigating potential cash flow shortfalls and ensuring the continuity of essential services.

While challenges persist, our collective efforts have yielded significant progress toward financial sustainability. The achievement of a cash-neutral budget is a testament to the commitment, resilience and strategic foresight of the UCT community. However, maintaining this progress requires continuous vigilance, efficiency and adherence to prudent financial management at all levels of the institution.

Every member of the UCT community plays a vital role in securing our long-term financial stability. For example, if you are a fee payer, please ensure timely payment of your fees. This directly impacts UCT’s cash flow. If you are a budget holder, please avoid unnecessary expenditure, adhere to financial guidelines and manage university resources responsibly.

As we navigate this journey together, we remain confident in our ability to safeguard UCT’s financial future while upholding our commitment to academic excellence and institutional integrity. I encourage you to continue working collaboratively to ensure we remain a financially sustainable institution, serving both current and future generations.

Sincerely

Vincent Motholo, CA (SA)
Chief Financial Officer

Read previous communications:

• From the UCT Executive
• Campus Announcements