Financing Continuing Training: Encouraging Enterprises’ Participation

A more in-depth involvement of employers in the provision of training, through in-service training has a significant potential to increase cost–effectiveness in the training system and specifically to reduce relative expenditure for public training institutions. During in-service training, the employer covers the trainees’ and instructors personal costs. It also provides for training facilities, either at a separate training workshop or integrated into the regular productive activities of the company. Encouraging in-service training was an important part of the Vocational Education and Training reform in Morocco, engaged since 1996, and an impact study reveal positive outcomes.

The investment of private enterprises in training can be favoured through a series of fiscal incentives, including direct subsidies (including subsidising apprentice wages), and fiscal deductions for training expenses, subsidies for capital expenses to improve training facilities, collective and individual agreements to insert training clauses into the labour contracts of trainees. The government of Botswana for instance provides a double tax-deduction scheme, which provided for a deduction of 200 per cent of expenses incurred by an employer on approved training of Botswana employees in their company. Nevertheless, the efficiency of the system remains limited since there is insufficient information available to potential users and it is complicated and cumbersome.

In general, international good practice shows that stimulating enterprises to invest in training requires continuous efforts by the governments to raise awareness about training programmes and their benefits. Beginning in the late 1990s most African countries have set up National Training Funds with the support of donors to generate sufficient funds to support skills training and to motivate enterprises to train their staff. The Funds are public bodies administered by a board comprising employers’ and employees’ representatives whose main objective is the financing of continuing training both in the formal and informal sectors.

The creation of such funds was seen as an important step towards achieving a more equal share between enterprises in financing training activities, and towards the transition to demand-driven training. An important objective of the funds was to create new opportunities in the training market, though enhanced competition and the setting up of more transparent rules for the selection of different training providers, based on competitive bids. Many funds were created at the same time as employment and training observatories in charge of supporting the funds in the identification of the needs of artisans and businesses, and hence better tailor the provision for training.

The National Training Funds are financed by payroll levies (which can range from 0.5 per cent to 5 per cent of total payroll) which provide dedicated funding for skills development both in the workplace and in the broader labour market (see Box 41). In general, payroll levies are linked to reimbursed mechanisms, whereby the funds provide firms with grants related to the amount of designated forms of training they provide. Firms could then invest in training their work force, through in-service training or by sending workers to train externally (dual apprenticeship between the work place and specialised training institutions). In many countries, in addition to training levies, the funds draw from a variety of income sources, including donor funding and government allocations.

While in Tunisia and South Africa applications made to the Sector Education and Training Authorities –SETAs- and to the National In-Service Training Programme- PRONAFOC-, respectively come mainly from the formal enterprise sector, in the large majority of African countries, the fund is also responsible for financing traditional apprenticeships and dual apprenticeship schemes for both craftspeople and youth. This is the case for instance, of the In-Service Training Development Fund (FODEFCA) in Benin, and of the Training and Apprenticeship Support Funds (FAFPAs) in Burkina Faso and Mali. The funds have played a crucial role in those countries in filling the gap left by the state in providing access to training in the informal sector, especially concerning initial training for youth.

In South Africa and Tunisia, the main beneficiaries of the funds coincide with the contributors; however, in West African countries, there is a substantial cross subsidisation of training in the informal sector by firms in the formal sector. The financial resources of the funds are drawn from enterprises in the formal sector which not only finance the continuing training for their own employees but also contribute to financing initial training and traditional apprenticeships in the informal sector. Overall, in Benin, Mali and Burkina Faso, artisans and apprentices remain the main beneficiaries of the resources of the funds. The funds also finance training programmes for defined target groups, including women entrepreneurs. In view of the growing funding needs for dual apprenticeships in the informal sector, the National Federation of Artisans in Burkina Faso is exploring ways of launching a mutual fund to finance apprenticeship, financed by its own members (through a tax on turnover). Nevertheless, in general, business and artisans should not be responsible for financing the initial training of apprentices, which should be a responsibility of the state. Indeed the financial burden on state training budgets cannot be alleviated by existing funds, whose primary mission remains that of financing continuing training.

Training funds sometimes fail to address the training needs of small and medium-sized enterprises. This mainly reflects the poor capacity of SMEs to comply with the administrative procedures required to access the funds. This is the case in Tunisia, for example. In 2004, out of about TND 40 million allocated to continuing vocational training, the vast majority of funds went to a few big public enterprises. Thus, of the 120 000 companies contributing to the payroll levy, only 1 700 of them took advantage of the grants, and 115 public companies received about 60 per of the total allocations of the fund. This situation is not uncommon; it shows that the identification of beneficiaries is a necessary prerequisite for the efficient use of training funds. SETAs in South Africa have adopted a pro-active attitude towards small businesses, through the issuing of cheques to be used for specific training by SMEs. In order to cater for the needs of small enterprises, other countries have also put in place voucher schemes. In Kenya, for instance a small and medium enterprises voucher programme was launched already in 1996 and has proved to be very successful in meeting the needs of informal-sector business. An important objective of the scheme was to widen the pool of training providers (including master craftsmen), capable of catering to the needs of SMEs. At the same time private providers were appointed to distribute and market training vouchers. The use of these intermediaries was crucial in ensuring that vouchers were taken up and that advice and assistance was available to potential trainee applicants.

Another main problem encountered by national training funds lies in the limited and delayed transfer of the total amount of the payroll levy from government’s budgets. There are several cases in which “earmarked” training taxes (which amount to 1 per cent of total payroll in South Africa, and Mali and from 1-2 per cent in Tunisia) are absorbed into general government revenues rather than being used for the financing of public training. To overcome this problem, some countries, such as Cote d’Ivoire, have assigned some agents of the fund to work with the finance ministries to monitor the allocation process. In addition, during the first years of the implementation of the funds, the World Bank and other donors have contributed substantially to increasing the resources of the funds, but this support has recently come to an end, for example, in Benin and Mali, leading to a sharp drop in resources. This raises concerns over the long-term sustainability of training funds. 

In general, most funds do not have genuine control over their financial resources, but remain dependent on uncertain and unpredictable disbursements from the finance ministries. In general, the functioning of the Funds would be enhanced by granting the greater financial autonomy since predictable resources are necessary for determining training strategies and priorities.

By and large, with the notable exception of South Africa, training funds are not integrated into an overarching national strategy, and lack a well-structured policy for continuing training and dual apprenticeship, as well as a clear definition of the target beneficiaries and procedures which need to be put in place to address their needs. Additional efforts are needed to improve the visibility and the outcomes of national training funds in TVSD strategies and action plans.