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Megatrends and Opportunities in Education

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Megatrends and Opportunities in Education OPPORTUNITY Megatrends and KNOCKS opportunities in education For many years, the education sector has been poorly understood, captured as a subset of business services or the media sector. Education does however deserve more attention. It continues to be a major area of investment for governments around the world, with increasing opportunities for private sector operators. Here, we focus on some of the key megatrends impacting the education sector globally and highlight some of the resulting opportunities. Our starting point is a recap of the objectives 1. DECENTRALISATION AND MARKET of educational reform. Cost containment and improvement of educational outcomes have BASED REFORMS IN PRIMARY been key factors shaping education trends in AND SECONDARY EDUCATION the developed world for a number of years, whilst in developing markets, policy makers 2.GROWING PARTICIPATION RATES are trying to determine how access to IN PRIMARY, SECONDARY AND education services can be extended to a HIGHER EDUCATION greater proportion of the population. Against this background, despite current 3.THE GROWING TECHNOLOGY pressures on public spending in developed INFRASTRUCTURE AND markets, public and private spending on ASSOCIATED DIGITAL CONTENT education is increasing, with growth driven by AND RESOURCES IN EDUCATIONAL a number of powerful, long-term global megatrends. INSTITUTIONS Areas of focus 4.A FOCUS ON EFFICIENCY AND for educational reform in the CHANGING FUNDING MODELS COST developed world What is (IN DEVELOPED MARKETS) the most cost effective way to organise the 5.INTERNATIONALISATION AND educational system? STANDARDISATION IN EDUCATION OBJECTIVES OF EDUCATIONAL These megatrends suggest that over the long REFORM term, the education sector will continue to ACCESS QUALITY OF How can access OUTCOMES benefit from robust growth, at a time when to services be How can learning many economies in the developed world are extended to cover be maximised a greater share of and standards struggling to emerge from recession, the population? improved? creating opportunities for the private sector. 1 An OC&C Insight Opportunity Knocks MEGATREND #1: DECENTRALISATION DECENTRALISATION AND MARKET BASED REFORMS IN PRIMARY AND SECONDARY EDUCATION Educational reform in primary and scale and experience benefits. For example, Sweden: Students in Compulsory Education secondary education in the developed Kunskapsskolan now owns and operates 33 in Independent Schools world, such as Voucher Schools in Sweden, schools in Sweden and is the sponsor and % of Students Enrolled Charter Schools in the US and Academies founder of the Learning Schools Trust in the and Free Schools in England, is emphasising UK, which recently opened three new 10% supply side reforms to promote parent / Academy schools in south west London. 8% student choice and competition in the Introduction of the voucher schools market. Decentralisation is leading The chart on the right highlights the growth programme in Sweden to more decision making and budget control in the penetration of independent schools 5% being devolved to schools, whilst funding operating under the voucher system in pools are increasingly being opened to both Sweden, where about 10% of lower 3% public and private providers. secondary aged pupils now choose to attend independent schools (for upper secondary 0% As more budget responsibility is devolved to students, the figure is over 20%). There is schools, suppliers to educational institutions, increasing evidence that the increased 1991-92 1997-98 2001-02 2006-07 2009-10 such as the publishers of text books, are competition created by the emergence of increasingly facing a more fragmented voucher schools in Sweden has increased Source: The Swedish National Agency for Education buying environment, with resulting levels of educational achievement, as implications for how they manage their sales highlighted in a recent study commissioned force and other channels to market. by The Institute of Economic Affairs. This suggests that these new schools are here to Whilst the implementation of market based stay. Closer to home, 24 new Free Schools reforms promoting growth in private opened for business in England in education provision are creating September 2011, with applications for an opportunities for the private sector, private additional 200+ Free Schools now being providers have had to focus on developing considered by the Department for new models to deliver operational efficiency, Education. Whilst Free Schools currently as revenue growth is typically capped. This represent only a fraction of the overall reflects the fact that in most cases of market number of schools in England and will based reforms, privately run (including for- continue to face challenges in areas such as profit) schools receive public funding for planning and finding suitable premises, they each pupil educated on the same terms as could become an increasingly important Local Authority or municipality schools. As a feature of the schools landscape in England result, revenue growth in the form of annual over the coming years, provided that they tuition fee increases has not been possible. can demonstrate that they can deliver a Despite this constraint, a number of private sustainable improvement in academic school groups have emerged to explore outcomes. An OC&C Insight Opportunity Knocks 2 MEGATREND #2: PARTICIPATION GROWING PARTICIPATION RATES IN PRIMARY, SECONDARY AND TERTIARY EDUCATION Tertiary Enrolment Ratio and Our work in the education sector around the A number of private operators in the GDP per Capita, 2008 world has highlighted the strong correlation education sector are benefitting from this between GDP growth and participation in megatrend. For example, Cognita owns 90 USA education. Using tertiary education as an and operates 54 schools (nurseries, pre- 80 New Zealand Iceland example, the top chart highlights tertiary prep, junior and senior schools) across the 70 Hungary Sweden enrolment and GDP per capita in 2008 for a UK, Europe and South East Asia, including Israel Italy Netherlands number of OECD countries. Here, GDP per Thailand, Vietnam and Singapore (with 60 Portugal Ireland capita is shown on the basis of purchase new schools added to the Cognita portfolio Czech Republic UK 50 Croatia power parity. Understandably, enrolment is in these countries over the past four Turkey Cyprus 40 Colombia higher in developed economies such as the years). During this period, Cognita has 30 Brazil US, New Zealand and the Netherlands than experienced rapid growth in revenues Enrolment Ratio % emerging economies such as Pakistan. from £65 million in the financial year 20 Bhutan ending August 2007 to £151 million in the 10 Pakistan We have also highlighted the historical 2010 financial year. Ethiopia 0 change in tertiary enrolment ratios for a 0 10,000 20,000 30,000 40,000 50,000 number of countries (bottom chart). This Of course, in many markets, the recent GDP per Capita $ PPP highlights the rapid growth in tertiary recession has adversely impacted the Source: UNESCO, IMF enrolment in those markets with faster disposable income of aspiring middle growing economies. For example, in Brazil, classes, with some parents switching their the growth in GDP per capita has been children out of private schools and back into Tertiary Enrolment Ratio and accompanied by an increase in tertiary public education. During the recession GDP per Capita, 1995-2009 enrolment from 15% in 2000 to 35% in therefore, a good understanding of price 90 2008. Poland and to a lesser extent Spain, elasticity was required to determine the USA 2009 have experienced similarly rapid growth, precise impact of the economic downturn on 80 2005 1995 whilst in contrast, the US has experienced private school enrolments. 2009 70 2009 much more gradual growth in the proportion 2005 2005 of the population attending tertiary Another example of the opportunities 60 POLAND 2000 SPAIN education institutions. associated with growing participation rates 50 2000 1995 can be seen in the higher education sector. 40 Quite simply, as average household income In markets such as Turkey, Romania, 2008 30 1995 rises, the number of households above the Bulgaria, the Czech Republic, Slovakia and Enrolment Ratio % Enrolment 2005 BRAZIL 20 private education affordability threshold Croatia, private providers account for about 2000 rises more quickly. Later on, as countries 15% of students enrolled in higher education. 10 become wealthier, the growth in their However, these private higher education 0 tertiary enrolment ratio decreases. institutions have contributed 0 10,000 20,000 30,00040,000 50,000 disproportionately to enrolment growth in GDP per Capita $ PPP This trend is understandably contributing to these markets in terms of new university Source: UNESCO, IMF a faster rate of growth in spend on education places created (over the period 2000 in emerging economies, with regions such as through to 2008). Laureate, the Asia, Eastern Europe and South America, international operator of private universities, expected to experience growth in public was able to benefit from these trends, by expenditure on education increasing by up to entering into a partnership with Istanbul Bilgi 12% per annum from 2010 to 2015, University in 2006, thereby tapping into this compared to 5% per annum in North growth. Bilgi University is one of the largest America and 4% per annum in Western private universities in Turkey, with 11,000 Europe over the same period (chart on p.4). students
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