Supply-side and demand-side approaches to financing early childhood care and education in South Africa

Abstract Public financing of early childhood care and education (ECCE) in South Africa follows a supply-subsidisation model where finance flows to the provider of services. This paper considers whether there could be merits to an alternative demand-side approach to public financing of ECCE in South Africa where finance follows those benefitting from these services such as parents or caregivers. We identify key arguments for and against demand-side subsidisation from the existing international literature against the realities of ECCE provisioning in the local context. Specifically, the paper explores the suitability of two demand-side financing approaches, namely conditional cash transfers and demand-side vouchers for early childhood care or education. A key conclusion is that demand-side subsidisation approaches cannot replace existing supply-side approaches to public ECCE financing. A primary concern is that demand-side subsidisation in the absence of supply-side support is ineffective if supply-constraints are binding. Supply-side responses to support widening ECCE access are likely to be further limited as the COVID pandemic exacerbates information asymmetries rife in childcare markets. Concerns also pertain to the ethics, feasibility and efficacy of attaching ECCE attendance conditionalities to the receipt of existing cash transfers. In moving forward, implementing financial and administrative reforms of the existing supply-side model, including raising finance allocations for ECCE and resolving current administrative challenges in the sector, is simply unavoidable.