Only one in 20 black South Africans succeeds in higher education, and more than half who enrol at university drop out before completing their degree, according to research published this week.

"Access, success and completion rates continue to be racially skewed, with white completion rates being on average 50% higher than African [black] rates," says a damning report by the country's Council on Higher Education (CHE).

The body calls for a radical overhaul of curriculum structures still rooted in the colonial education of a century ago, most importantly by extending undergraduate courses from three years to four.

The 260-page document paints a gloomy picture of South Africa's education system nearly 20 years after the end of racial apartheid. The country's needs are not being met "largely because much of the country's intellectual talent is not being developed", it warns, leaving a shortage of skilled graduates in the labour market.

The report uses the term "African" to refer to black students and "coloured" to refer to those of mixed race ancestry. "No group is performing well," it says, noting that more than a third of white students, the best performing group – who mainly study at historically advantaged universities – fail to graduate within five years.

"However, African and coloured student performance remains the biggest cause for concern," says the report. "The net effect of the performance patterns is that only 5% of African and coloured youth are succeeding in higher education. This represents an unacceptable failure to develop the talent in the groups where realisation of potential is most important."

South Africa's higher education system has grown by more than 80% since the dawn of democracy in 1994; total enrolment now stands at more than 900,000. This has helped redress inequalities in admissions, with black enrolments reaching 79% and female enrolments 57% of the total by 2010. However, of the best-performing cohort analysed to date (that from 2006), only 35% of students graduated within five years, and it is estimated that 55% will never graduate – a loss of some 70,000 students.

The CHE, a statutory body that advises the higher education minister, acknowledges that universities do not exist in a bubble. The governing African National Congress is accused by critics of failing to bridge the gap between rich and poor, with its persistent racial dimension, and has also been charged with presiding over woefully inadequate schools that deny millions the chance to realise their potential.

"Access to and success in higher education is strongly influenced by the socio-economic background of individuals," the report states. "This is especially so in the South African context where the large majority of black students come from low-income families that do not have the financial resources to support the pursuit of higher education."

Increasing access and completion rates depends largely on addressing the apartheid legacy, it continues. "It is clear, however, that whatever the merits or otherwise of policy interventions that have been put in place thus far, there has been limited success post-1994 in addressing these challenges."

The World Economic Forum's 2013 global information technology report ranks South Africa 140th out of 144 countries in terms of the "quality of the educational system", below all other African countries surveyed except Burundi and Libya.

The CHE says starkly: "It is common cause that the shortcomings and inequalities in South Africa's public school system are a major contributor to the generally poor and racially skewed performance in higher education."

But with little prospect of an improvement in schools in the short term, universities must come up with their own remedies, the CHE contends. Funding students alone is not the answer, since many who fail to complete their studies are not indigent. "Equally important is addressing the affective or psychological and social factors that are also a barrier to success in higher education."

The University of Cape Town (UCT), ranked the best in Africa, has a controversial policy of admitting black students who have substantially lower test scores than whites. But the CHE's task team, chaired by former UCT vice-chancellor Njabulo Ndebele, stops short of recommending positive discrimination.

Instead, it urges an overhaul of a curriculum structure that evolved from the adoption, early in the 20th century, of the Scottish educational framework. This lineage is explained by colonial ties and, specifically, the fact that the South African school system – like Scotland's – ended a year below the English A-level.

The CHE calls for an additional year as the norm for core undergraduate degrees and diplomas, within a flexible structure that allows for high-achieving students to finish more quickly. "The projections presented indicate that the flexible curriculum structure would produce 28% (about 15,000) more graduates than the status quo from the same intake cohort, at an additional subsidy cost of only 16%, reflecting a significant increase in efficiency," it says.

Some experts have questioned universities' admission policies, however. Jonathan Jansen, vice-chancellor of the University of the Free State, has warned that schools and universities have adjusted expectations downwards, especially in relation to black students who enter higher education underprepared. "If a black student requires from you different treatment and lower academic demands because of an argument about disadvantage, tell them to take a hike," he said.