Keynote at US-Sino Online Higher Education Conference: Shanghai, 2018

I was honored to keynote the US-Sino Online Higher Education Forum at Shanghai Jiao Tong University(上海交通大学)which took place on June 1, 2018.  My talk was focused on the next phase of collaboration between US and Chinese universities.  I have consistently thought that education remains a critical aspect of Sino-US relations and that the ability of universities to create innovative partnerships and investments in future years will have a profound impact on labor force development in both countries.

This Forum focused on the rise of online higher education partnerships as a way to accelerate and expand collaboration between the US and China.

Special thanks to Charlie NguyenCMS Global and Online Learning Consortium for organizing this timely event and inviting me to speak.  Participants included the University of California, Berkeley, the University of Florida, Tsinghua University(清华大学)and Peking University(北京大学), Online Learning Consortium (OLC) and others.

If you can read Chinese (sorry for those who do not, as that was how it was delivered) my Keynote slides are included below.

Sino-US Online Conference_2018 (Chinese)

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2018 GEI Rankings – Education Investment and Opportunity

2018 GEI Rankings – Education Investment and Opportunity

The latest GEI White Paper_2018 Rankings are available.  There were a number of changes this year with additional data related to PISA Science Scores and presence within the THE Global University Rankings, with a total number of measured data points rising to 21.

Below is a brief excerpt.

With its combination large populations, economic growth and high educational outcomes Asia dominates the top ranks with China, Korea, Malaysia, India, Thailand and Indonesia scoring in the top ten slots across the 49 countries included in the GEI.  This year Thailand and Indonesia moved higher in the pecking order, surpassing Vietnam. The balance is represented by leaders in Emerging Europe—Czech Republic, Poland and Hungary—and Qatar and UAE, each with strong fundamentals and highly developed investment environments for transnational education.  Estonia and Russia follow within the top 15 countries.

Countries such as Kenya, Nigeria, Bangladesh and Colombia placed close to the bottom of the scoring scale.

This full report will soon be followed by a number of related analyses.  Comments welcome.

 

Why all foreign students should be given a green card

US labor productivity is growing at its lowest rate, over an extended period, since 1948.  In the face of this multifaceted decline, the Trump Administration’s “New Foundationfor American Greatness” has explicitly targeted GDP growth rates of 3% by 2021 based on a raft of trade, budgetary and investment measures.  It has also championed an attempt to “Buy American, Hire American.” Yet any sustained and material increase in US growth rates will need to come from having either more people in the US or greater output per worker, and with promises of tightening both illegal and legal immigration, as well as international foreign student enrollments, accelerated population growth of skilled labor isn’t likely to happen.

That leaves productivity.  But as Figure 1 indicates, productivity has been particularly weak post-2007, where it has averaged around 1.2% for almost a decade and well below the average cycle 2.3% rate.

Figure 1: Annual Growth Rates – Productivity, Output and Hours, 1948 to 2016

Moreover, future challenges to sustain high-growth in the US are set to accelerate. As Figure 2 illustrates, annual changes in the resident US population have just begun their decreasing growth trajectory through 2050, when the population will increase by less than 0.5% per year. So unless American resident families suddenly begin to show higher fertility rates and super-size their households, this demographic is locked in. Either immigration is going to fill the gap with more people, or the ability for the US economy to grow will have to depend on currently undiscovered sources of productivity.

Figure 2: Percentage change in US resident population

Compounding this problem is that the US population is aging and estimated to experience declining employment participation rates for both men and women from now through 2060–and will dip below 60% as early as 2030 as the Boomer and X Generations retire in droves.  Driving this change will be declining levels of non-hispanic workers in the US economy since the hispanic population proportion of working age in the US actually rises through 2060 owing to its younger demographic profile.

US Employment Participation Rates, Projected through 2060

To say the least, this puts America in a dilemma with respect to immigration and skills. And “Hire American” is not the answer. Some may think that foreign workers are taking American jobs, and that is true and must be addressed in certain pockets of the economy. But the aggregate math is indisputable: we will need foreign workers to occupy, drive and create more jobs, as well as boost US competitiveness in the years ahead.

What kind of high-skilled foreign workers do we need and where do we find them? Part of the answer is staring us in the face: the pool of roughly 1.04 million students currently studying in the US, and future generations who will follow.

A Modest Proposal

What would be the impact on US economic productivity if every foreign student with a Bachelor’s and advanced degree were handed a green card after graduation to either work for a US employer or start a company?  And if all the OPT (Optional Practical Training) workers working toward or having US degrees (F1 visa holders) who are contributing to the economy on short-term visas were allowed to convert to permanent work status?

Here are a few things to consider.

First, the size and quality of the foreign student talent pool is non-trivial. In 2016, there were 1.04 million foreign students in the US (5.2% of total enrollments), of which 427,313 are undergraduate and 383,935 are postgraduate. Within the OPT category (eg. foreign students with more the 9 months of college and working in an training or internship structure) there are another 147,498 students.  Clearly not all foreign students are stellar academics but many come with superb qualifications which are at least on par with if not exceeding American applicants.

For the sake of argument, let’s assume that 75% of foreign students can add meaningful value to the American economy after graduation and don’t wish to return home.  If 300,00 foreign students matriculate every year and we add the 147,000 OPT class workers, this amounts to a mere 372,000 new workers per year to a total US workforce of 89.2 million (defined as workers over 25 years of age).  How difficult will this cohort be to absorb? Not very. Moreover many of these workers will be working in start-ups or SMEs, and some creating their own companies and future jobs for others , as had been typical in Silicon Valley and many other cities around the country.

Second, a heavy concentration of STEM majors among foreign students can help narrow high-end skills gaps in the sciences, from industry to applied research, without outsourcing. American industry constantly fumes about the lack of STEM skills, particularly at advanced levels and compared to global competitors.  If indeed there is a STEM skills gap–and this is not a settled issue across all industries–tapping foreign students for permanent work could yield immediate and direct results.  More pointedly, employing foreign graduates obviates the need to outsource such labor overseas in the first place and retains local economic benefits.

Consider that in 2016 over 20.5% of all foreign students were studying engineering and computer science, and 13.6% studied math, exceeding US student rates. If there is a rational argument that supports sending these foreign students home to work and for the US to give up their first-rate, American-trained skills–those we claim are in shortage and which would benefit the US economy and future productivity–I have yet to read it.

Third, naturalizing foreign graduates to work for US entities would immediately deepen linkages to emerging market consumers which enhance America’s global competitiveness. I’ve written in the past about America’s foreign language crisis across industry and government, and have seen these limitations first hand in many developing countries. American business is global by nature but often lacks the local acumen, networks and language capabilities to penetrate emerging markets across Asia, Latin America and Africa.  In this sense, foreign students can provide the “source code” for enhancing US competitiveness in these regions and open new markets.  They can also jump-start the application of technologies overseas, particularly within start-ups and early stage companies which often lack global resources.

Fourth, a study-to-immigration program could replace the need for H1Bs over the long-term and create a more stable labor market with predictable pathways. It is axiomatic that short-term, unpredictable talent acquisition is bad for both companies and countries. Establishing pathways to work for highly skilled foreign students would be (a) a fillip for US higher education which could then offer both a world-class education and a pathway to immediate economic participation (and perhaps citizenship); and (b) create opportunities for US companies to plan ahead and reduce their need of H1Bs applications year after year.  Why use H1Bs if there is the ability for all foreign students to obtain permanent work visas?

In today’s environment, many would like to take a pitchfork to immigration (but fewer for highly skilled immigration) and legitimate fears exist among workers being replaced by robots, competitors, technologies and foreigners.  But at an estimated 0.4% of the US adult labor force, and with 6 million people quitting their jobs every month in the US, a foreign student graduating class integrated immediately into the US labor market would hardly be a negative displacement factor.  On the contrary, their quality, background, and skills can enhance US economic and productivity growth with a positive impact on workers across the US. One thing is clear: “Hiring American” will restrict this talent pool and in the maw of US demographic, skills, competitive and productivity pressures, will not at all help the US economy reach its growth aspirations.

 

When Fintech Meets Education: An International Love Affair

Investors and entrepreneurs are usually exuberant about the 1.65 billion strong global student market until they hear the bad news: the majority can’t afford anything beyond basic education. This, of course, doesn’t include the 122 million illiterate youth in the world today or the legions of non-formal and professional learners who may want to improve their skills but have little financial support.  But what if they did?  Enter Fintech. mobile-money-concept-hori

In the US, a deep pool of $1.3 trillion in student debt, persistent resource inequality in schools and outright administrative waste have served as a catalyst for Fintech companies to provide solutions from alternative loan payback schemes to teacher-centric apps that help school budgeting decisions.  This is to be commended. Yet as difficult as domestic problems may appear in the US, they are only a sideshow compared to the immense problems bubbling up in emerging markets, from constrained government and personal financial resources to a future with near Malthusian population growth, poor education performance but high expectations for a better life.

Tackling affordability challenges, at home and abroad, often happens in two ways.  Companies can bend the cost curve by creating markets that didn’t exist previously or which circumvent and disrupt traditional institutions that stifle change. Or they can try to create easier and more effective ways for consumers to actually pay for these products and services.  Within the education sector, I have chronicled numerous examples of edtech ventures that have successfully lowered the cost of access to hundreds of millions of students, from “schools in the box” across Africa to adaptive and  e-learning concepts in Asia to alternative financial solutions for low income populations. Yet the vast majority of emerging market students remain severely underserved despite a massive opening for financial innovation.

So what might prompt the globalization of Fintech?

Geo-locating problems.

I would start with identifying areas of education finance that seem ripe for positive disruption around the world, such as creating alternative student finance and loan access; improving the procurement, management and use of resources in schools; making international study abroad more affordable and less cash-based; and increasing financial literacy.

Next, I would view these areas of potential business through the lens of developing economies. Figure 1 provides some basic perspectives:

  • In the US, college is comparatively expensive (measured in both absolute tuition levels and median income as % annual college cost, or 52% in the US) but local students generally have access to federal and other forms of financial aid.  In many emerging markets this is flipped: students across Asia, Latin America and Africa enjoy government subsidized tuition at leading state universities but the seats are limited.  For those less gifted students, alternative options do exit through private institutions but often at a significantly cost premium and with little or no government financial support.
  • Larger emerging markets such as India, Pakistan and Nigeria have a basic lack of school and teacher capacity at all levels, leaving millions of children on the proverbial street. Moreover, given the widespread household demand for basic education outside public systems, the need for fintech solutions at the K12 level–primarily funding both households and schools–is immense.
  • Financial literacy, from managing loans to understanding how to save and invest, is a universal challenge.  But it runs deeper in countries without sophisticated banking systems. An increasingly tech-savvy generation in search of alternative apps and tools, such as in Africa with mobile banking, provides a the perfect market opportunity for financial training.
  • Administrative waste and inefficiency is practically synonymous with large, complex systems, including America. I have no idea and could not find data which measures “administrative waste” in school systems for large countries such as China, India, Nigeria and Brazil. But know first-hand that these countries are not paragons of efficiency.

 

Figure 1. Comparative Opportunities for Fintech in Education, US v Emerging Markets (EMs) 

fintech

 

Developing a playbook

To develop some ideas further, globally ambitious Fintech competitors might take a look who has been doing what, and where around the world.  Here are some challenges to consider:

1. Providing more alternative finance sources in far away markets for students pursuing higher education, lifelong learning and workforce training. Many readers are already familiar with non-traditional student loan platforms such as Commonbond, Sofi, Credible and Earnest which provide a combination of student loan access, refinancing and consolidation using non-traditional sources such as outside pools of investors and venture capital.  This is now expanding to other stakeholders as well.  A recent article by the CEO of Sofi discusses 2017 student loan changes which may include income base repayment that places colleges with “skin in the game” and some responsibility for loan repayment, and the role of employers in how they manage employees with massive student deb. Internationally, a 2014 study by EY and IFC paper cited such examples Brazil and Africa (Eduloan (South Africa), IdealInvest (Brazil), Duco UC (Chile) and innovative loan repayment and financial support methods for higher education and professional training that included crowdfunding, social impact bonds and income-based repayment loan schemes.  But the amount of students serviced is a fraction of those in need, and it is largely local companies who are filling the breach.  Consider that China’s peer-to-peer lending market is far less regulated than US counterparts but has grown rapidly to over US$71 billion in online loans. Led by companies such as China Rapid Finance, Jimubox and Rong360, alternative lending has long been useful to individuals and families who require debt to fund tutoring and study abroad. New entrants such as e-commerce giant Alibaba, via MyBank, can now obtain loans of up to $805,000 based on a risk-adjusted online shopping history.  Chinese fintech firms are only one example, and far more sophisticated than many EM competitors.

2. Creating vehicles to fund international study abroad with the ability to track students into the workforce after graduation. The majority of the estimated 4.5 million students studying outside their home country do not rely on scholarships but pay in cash to universities and training institutes. As such, study abroad often resembles a luxury product which limits potential demand. Yet given the caliber and earning capacity of many international students, there should be more creative solutions available and some firms are responding.  Early entrants such as Flywire have flattened international payments networks for cross-border education tuition by providing peer-to-peer participation.  With a presence in 150 countries, Flywire is now collaborating with banks to achieve further scale and sophistication. Prodigy Finance in the UK focuses on funding foreign students who have been accepted at university but unable to get loans. Prodigy has been particularly successful–lending out $200m to 4,500 students since its launch in 2008–by using a model is that estimates potential earnings of graduates and use them for a proxy credit score that carries astonishing repayment rates of 99%.  It should come as no surprise that several large banks (Credit Suisse, Deutsche Bank) have signed up on this platform, which will significantly expand the amount of available capital to students worldwide.

3. Deploying student and school-centric financial tools that are localized to specific countries and regions. Student and school-centric financial tools are at the core of the US FinEdTech sector and have clear applications abroad. Firms such as Allovue provide solutions around school district budgeting that brings collaboration between teachers, principals and other administrators. ClassWallet is streamlining and localizing the management and procurement process for schools through an education funds tracking system. In the US context, Allovue’s  2017 predictions for EdFinTech suggest that the need to conform with new ESSA (Every Student Succeeds Act) regulations will necessitate greater autonomy and transparency at the local level, presumably where more efficient allocation of resources can occur.   In essence, the aim is to benignly decapitate the centralized bureaucracy and place financial choice and ultimate responsibility at the local classroom level, funded by teachers, for the direct needs of students.  This is something that all countries need, but have yet to successfully address.

4. Harnessing Edtech solutions to enhance general financial literacy and entrepreneurial finance in youth populations.  There are many cases to consider here and the international market is wide open.  For example, improving student loan management and budgeting is served by companies such as Student Loan Hero. In  Singapore, one of Asia’s leading financial centers, companies such as Knowlscape are providing immersive and gamified learning focused on financial concepts as well as digital curriculum for financial sector use in Asia and the Middle East.  Playmoolah is providing gamified financial education for kids. In Africa, a severe lack of financial literacy is being met locally through competitors such as Khonology, fintech incubators such as Village Capital, and start-ups MyBucks and Branch. Finally, India fintech companies such as BankBazaar and Capital Float are setting up education platforms to drive long-term customer acquisition strategy.  This list goes on.

***

In sum, both Western and emerging market fintech firms are racing to grab market share within a global education sector that is rapidly accelerating in the face of weak affordability and financial inefficiencies.  And as we have seen in many new industries, from social media to e-commerce platforms, building early and deep networks of users in these countries can be critical to future success.  With education demand rocketing in the developing world, today’s US and European fintech firms have a unique opportunity to extend their competitive presence to education consumers globally.  But the clock is ticking.

Will Trump’s “America First” Policies Disrupt International Education?

trump

In 2016, the United States hosted over 1 million foreign students at an estimated $32.8 billion economic impact and over 400,000 jobs, a level that could easily exceed $45 billion by 2025. Under the outgoing Obama Administration, international student enrollments grew five-fold from 200,460 international students in 2009 and left the US as the top destination for international study.  Moreover, education was a key policy platform.  Obama’s 100,000 Strong in the Americas initiative encouraged US
students to study in Latin America and his 1 Million Strong initiative was designed to expand Mandarin Chinese language study as much as five-fold by 2020.  Even Michelle Obama’s Letting Girls Learn initiative became a touchstone for finding long-term solutions for gender participation in economic growth, particularly in the more unstable regions of South Asia, the Middle East and in African countries such as Nigeria.

President Trump’s America First policy begins with a more divisive rhetorical message to the rest of the world. But it is the potential policy changes–in trade, economics, immigration, security, and targeting countries such as China–that may directly impact international study in the US and the projection of American higher education leadership abroad.  This much is known: shortly after President Trump’s inauguration, the White House posted some of its key policy priorities including an America First Foreign Policy, broad commitments to pursuing or renegotiating “trade deals that work for all Americans” and issues related to curbing illegal immigration. How might Trump’s policies impact international education and US higher education?

I’m watching four specific areas that can have a material impact on international education activities.

Immigration and Visa Issues

Former New York Mayor Michael Bloomberg once suggested stapling a green card to every foreign student’s college diploma.  Good luck with that under a Trump Administration.  In fact, if more xenophobic tendencies become policy it will more difficult for foreign students study in the US, find work-study internships or so-called Optional Practical Training (OPT) in the STEM fields, and to find employment after graduation.  In practical terms, approval of F1 and M1 visas for students in full time and vocational study are under the management of the Department of Homeland Security. There are a number of circumstances under which the department could take a harder line on certain regions such as South Asia, Middle Eastern countries such as Saudi Arabia (the leading source country for students studying English in the US) and students from Mexico.

Equally important, there is the impact on student decision-making psychology and whether they feel welcome in the country. Past history has shown that even the perception of anti-foreign attitudes–and possible incidents related to such a tense environment–can impact enrollments, sometimes seriously.  We saw this happen during the anti-Indian measures and violence in Australia in 2009 and, more recently, a clear trend of weakening UK enrollments following imposed limits on foreign visas and work-study programs. This last effect has been to stifle growth in the one of the world’s most popular study destinations, a trend that may be reinforced in the wake of Brexit preparations.

China.

The new administration’s trade czar, Peter Navarro, has well-known hardline views on China. His documentary, Death by China (which has a lead endorsement by then-businessman Donald J. Trump) focuses squarely on China as the villain of America’s manufacturing decline. His 2006 book, The Coming China Wars, was among the first to take aim at China’s rapid industrialization and the potential negative impact it has on the US and the world.  At the very minimum, we should expect a more confrontational Sino-US trade relationship.

How might trade friction and retaliatory policies might impact education dealing with China?  First, if even a portion of Chinese students vote with their feet and go elsewhere there will be a magnified impact. China accounted for over 378,000 students in the US in 2016, equivalent to one-third of all international student enrollments.  While it is doubtful that a Trump Administration will tamper with Chinese student visas, the more likely scenario could be a psychological change in the event Chinese students begin to feel less comfortable.

A second impact could potentially be on US educational institutions operating in or hoping to enter China.  US universities operate hundreds of academic programs, research centers and a number of high profile branch campuses in China, from NYU Shanghai to Duke, with many more in line for approval by China’s Ministry of Education.  China could retaliate by not approving US academic programs pending at the MOE, increasing the regulatory scrutiny or even shuttering existing programs. In fact, any increased bilateral tension would come in the context of Chinese President Xi Jinping’s recent moves to limit Western education and thought and give a pretext to such moves, thus increasingly the probability.

Expansionary Fiscal Policy and the US Dollar viz. EM Currencies

Trump is targeting a $1 trillion infrastructure spending plan with an ambitious goal of creating 25 million new jobs.  To what extent this stimulus will be cut down by deficit hawks in Congress is unclear, but at least directionally it points to a relatively higher inflationary environment, rising interest rates and a stronger dollar.  As I have written previously, the strength of the US dollar adversely impacts international student enrollments from emerging markets, the leading source for internationally mobile students. In the latest round beginning roughly in 2014, countries such as Mexico, Malaysia, Nigeria, and South Africa have been hit hardest while India and China only moderately. A further strengthening of the dollar by 15-20%  against selected currencies could have a wider and deeper impact on students and their family budgets precisely at a time when university admissions officers in the US are attempting to diversify enrollments away from China and into new markets.

Renegotiating Trade  

TPP is dead. America will now shift toward bilateral trade negotiations.  In my view, China’s trade relationship could hark back to the volatile and persistent Most Favored Nation (MFN) debates in the 1990s which pitted China against the US worker. If so, there the possibility of serious trade tensions that promise to derail parts of the bilateral relationship and invite tit-for-tat economic retaliation.  China’s neighbors, Korea and Japan, may also be in the crosshairs as both are serious global competitors in manufacturing and high-tech industries–precisely where Trump has pledged to rebuild America.  In Latin America, a pending renegotiation NAFTA could re-scramble trade relations that have been largely sedentary for decades with increased pressure on Mexico.

Why does this matter?  Apart from the fact the international education itself is a tradable service (referred to in the US as a “deemed export”), a country’s trade with the rest of the world is often correlated with international study activities.  Limiting trade flows impacts economic, human and technology exchange which logically feeds into international educational exchanges.  In more practical terms, trade deals relating to IP protection and knowledge industries–such as the TPP–were designed to form greater protections that include the ability for American universities to conduct research and development on a global basis. In this sense any future trade tensions may also impact America’s education presence abroad.

Final Reckoning?

It is too early to handicap how deep and fast such changes can impact America’s international education activities, and there are counter arguments to consider.  I remain cautiously optimistic that Trump will see the light on international education. This is because Trump’s changes to trade agreements and the international order may be more symbolic than substantive, and the time it takes to effect such change can be measured in years or decades rather than months.  Moreover, a stronger and more entrepreneurial US economy sits well with potential students around the world and could also reinforce the overall attraction of US study, despite the proclaimed focus on domestic revival.  Finally, the alternatives for international students looking for liberal, English speaking study destinations are limited:  consider that the UK post-Brexit is moving toward their own stricter immigration laws while Australia, a prime potential beneficiary from Asian students, has only one-fifth the level of foreign students compared to the US and a lot less infrastructure to sustain student growth. Canada, despite its attractions, represents an even smaller higher education market.

In the end, President Trump could also recognize that what makes America great is its universities and schools, at home and abroad, which play a critical role in creating knowledge, technology, scientific discovery, and of course, direct and indirectly–stable jobs and badly needed exports.

Russia’s Untapped Potential: Beyond Hacking

Russia is not an education superpower.  What if it were? This may not be an idle question as the country seeks to bolster its international position–no less under a Trump Administration–and to counteract the perception of either being a state-sponsored hacker or geopolitical bully.

Domestically, Russia’s persistent de-population trend over the past quarter century coincides with a global shift to renewable energy and a structural shift in commodities demand which injects long-term economic pressure on its growth trajectory, regional relationships and social stability.  But there is an opening for the Kremlin to revive foreign investment activities, scientific innovation and elevate Russia’s “soft power” status:  move toward a more open, privately-funded and globally engaged education sector.

Post-Soviet Education Measures

It has been 25 years since the fall of the U.S.S.R.  Based on a 1989 census the former Soviet Union had a literacy rate of nearly 100 per cent in urban areas with 60% of children over 15 years competing secondary school and 8 per cent completing higher education with a degree.  According to the OECD, nearly 52% of high school graduates were enrolled in tertiary education by 1992.  This placed Russia well above OECD averages at the time.  Since then, the introduction of private education models for professional training and K12 schools, and a partial opening to the West following glasnost, has improved Russia’s educational performance further.

Figure 1 summarizes this comparison over the past two decades.

Notably, certain measures–such as adult literacy, primary class sizes, secondary enrollment rates–have not changed much over the past 25 years given their already advanced levels. But other trends–affordability, completion of higher education (rocketing from 8% to 54% among 25-64 year age group between 1992 and 2015) and the number of foreign students at Russian universities (213,347 enrolled, placing Russia as the 6th largest higher education system for international students)–all increased markedly.

Figure 1: Selected Education Measures in Soviet-Era and Modern Russia: 1992 v. 2015

screenshot-2016-12-30-09-52-35

 

As a result, Russia is today among the most highly educated countries in the OECD.  Despite a recession beginning in 2015 and Western sanctions following its Crimea adventure, Russia’s economic competitiveness as measured by  the World Economic Forum Global Competitiveness Index improved to 45th position this year and the IMF is forecasting a return to growth in 2017 on the back of increased domestic demand.  Yet ask anyone if they can name any Russian companies with global influence outside of Gazprom and there is likely to be a blank stare.

This translates to education investment and activities as well.  Data compiled in the Global Edunomic Index ranks Russia as 16th out of 49 countries across emerging and frontier economies, which seems far below its potential. This is because the GEI’s latest reading has Russia scoring comparatively high on most education measures but falling behind from a foreign opportunity, policy and risk perspective.

Figure 2 sets out these comparative rankings against affordability (eg. GDP on a purchasing power parity basis) where Russia is highlighted (in yellow) behind Poland, Estonia and the Czech Republic, and has roughly the same ranking as much poorer (but rapidly educated) Vietnam.

Figure 2: GDP Per Capita PPP and Global Edunomic Index (GEI) Rankings

screenshot-2016-12-30-10-18-16                                      Source: 3/1 Global Research

 

Privatization and Investment

Lest there be any doubt, Vladimir Putin does recognize the need for education innovation, private sector solutions and the critical role of education to Russia’s future.  In 2012, Russia’s May decrees focused on raising the standards of living across Russia’s interior regions and highlighted the role educational disparities and the need to improve both the global rankings of universities and students in the provinces. But with a reduction in the current education budget for 2016-17 by 11.5%, falling university enrollments and the impact from Western sanctions, there are already calls to suspend the “privatization” of higher education.

Foreign collaboration and investment can fill the gap.  But how?

I recently completed some work on Russia that looked at potential growth areas using a small sampling (see Figure 3) of where Russia’s own investors and education entrepreneurs are moving.

They include:

In short, private education solutions directed at the professional employment market, more efficient tools to manage schools and students, online test preparation (with angles for Russians studying abroad), and edtech startup support is taking shape in Russia.  Moreover, these education ventures lie primarily outside the state sector and are focused on increasing efficiencies, student access and international collaboration.  Several emerging technology platforms such as Dnevnik.ru are exportable.

Figure 3. Selected Education and Edtech Investments in the Russian Federation

russia-comps

In higher education, Russia is already the 6th largest market for international students with roughly the size of Australia’s international student enrollments.  But more aggressive moves to globalize its universities through joint or branch campuses at home and deeper online collaboration with online providers could bring benefits. Coursera, which currently runs five university partnerships in the country, offers a early test case.

Outside of its borders, Russia already has fair amount of engagement through international branch campuses in Central Asia –according to C-BERT, Russia has 18 international branch campuses of which nine are in Central Asia and one in China but no campuses in Western Europe, the US, Africa or South America–and manages numerous dual degree programs in China based on a history of collaboration beginning with the Chinese Communist Party under Mao Zedong.  But its presence in the US and Europe continues to be limited, and its home universities attract a pittance of Western students.  While China, India and Saudi Arabia accounted for over half of international students studying in the US in 2015, Russia didn’t make the top 25 source countries.

Certain collaborations have already hit self-inflicted problems. Skulkova Moscow School of Management, a private and globally-oriented business school, has created a useful template for international cooperation yet its incubation project with MIT, after a terrific start, was beset by corruption and other issues.  There has been continued collaboration between US and Russian universities despite the past few years of bilateral tensions but also moves to crackdown on “foreign funding” and influence. Perhaps the most benign segment is the K12 level, where international private schools are thriving in large cities such as Moscow and St Petersburg.  As of 2016, there were 28 International Baccalaureate “World Schools” but the increasing demand for students to be “internationally tracked” to pursue higher education studies abroad (including to the US) will most likely reach far beyond this number no matter what the government does (to find a recent comparison, look to China’s recent international K12 policies).

Caveats

There are, of course, important reasons that most foreign investors don’t know or care about Russian opportunities in the education and related technology industries: they fear the IP theft, political risk, anti-foreign bias and corruption that might come with it.  One could do worse than to read Hermitage CEO Bill Browder’s hair-raising memoir Red Notice to see why such fears can be more than justified, even by the most savvy foreign investors in Russia.  As someone who has worked across the most challenging markets for my entire career, I’m not naive to that.  Yet changes are afoot.

I would submit that ventures lying far from the security-state apparatus or strategic industries (energy, telecommunications, defense, banks) could potentially provide an opening for foreign investors if the current pendulum swings and Russia seeks to engage more deeply–economically, financially and culturally–with the rest of the world. A more confident but economically challenged Russia, with renewed US engagement from the private sector, could open the door.

International education and and related technology would be the most obvious place to start.

Understanding the Global Edunomic Index (GEI)

What is the GEI?

The Global Edunomic Index (GEI) was recently published over at  3/1 Global Research.  Within it we analyzed education, economic and investment risk/environment data across 49 Emerging and Frontier Markets and then stack-ranked them using our internal scoring methodology.  Why? To help companies, universities and investors make sense of the world’s rapid development of human capital and how countries rank based on a selection of critical performance measures.

Here is what we asked:

  • How do educational achievement and skills correlate with an individual country’s economic growth trajectory, the quality and sustainability of its companies, its competitive positioning, risk profile and the potential returns to investors?
  • Which countries offer the most and least attractive environment for investment into human capital, education and related technology industries based on their size and development path, and how is this changing over time?
  • Where should stakeholders and investors look for the next set of emerging opportunities based on this data?

The GEI is premised on the idea–repeatedly explored by this blog–that private sector investment and innovation have a central role to play in the development of human capital in Emerging and Frontier Markets, acting both as a partner with the public sector and as an independent source of disruption and development.

2016 GEI Rankings and Results

With its combination large populations, economic growth and high educational outcomes Asia dominates the top ranks with China, Korea, India and Vietnam scoring in the top ten slots across the 49 countries including in the GEI. The balance is represented by leaders in Emerging Europe—Czech Republic and Poland—and Qatar and UAE, each with strong fundamentals and higher developed investment environments for transnational education (See figures below).

 

2016 Global Edunomic Index (GEI) Scoring 

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GDP v GEI Rankings

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Regional Notes

If we use a more narrow aggregation, a number of initial insights are revealed both across and within specific regions:

Americas

The Americas were led by Mexico (14) and Argentina (15), and further down the list, Brazil (24) and Chile (25). The contrast between Mexico and Brazil is instructive: each with large populations but a different set of education profiles and increasingly divergent economic paths in light of Brazil’s deepening recession. Separately, Argentina emerges as a relatively strong investment case within the Americas after a long period in the wilderness. Peru (33) and Colombia (34) rank in the middle of the GEI.

Africa

With the exception of South Africa (35), African countries scored at the lowest levels across economic inclusion and education attainment measures and thus were largely at the bottom of the rankings. This includes leading regional countries such as Nigeria (46), Ghana (47) and Kenya (48), a fact that becomes urgent considering that Nigeria and Kenya have among the highest percentage of youths under-14 years of age in their populations. Experienced observers of Africa should not be surprised by these results: a combination of poor performance in productivity, insufficient education access, and operating environments plagued by governance issues has marred sustainable, value-added growth opportunities across the continent, despite some success with private education and training investment.

Northern Africa, represented by Egypt (38), scored higher than most of African counterparts but still remained in the bottom quartile of the rankings. However both countries have more developed educational systems and the potential for gains in the years ahead.

Emerging Europe

In many respects Emerging Europe is a different comparative class to other countries in the GEI despite their inclusion as Emerging Market representatives. Several countries have small populations, strong educational achievement, an advanced EU-formulated operating environment, and highly productive economies. Yet rankings differ widely. Notably: Turkey (12) ranks high next to Czech Republic and Estonia and followed by Russia (16), while Southern European countries such as Greece (19), Romania (27) and Bulgaria (28) less so.

Asia

Asia’s lead rankings from China (1), Korea (2), Malaysia (3), India (5) and Vietnam (10)—and respectable showing from Thailand (11) and Indonesia (13)—contrast sharply with other regional participants further down the pecking order such as Philippines (29), Sri Lanka (37), Pakistan (42) and Bangladesh (43). These three laggards have one thing in common: youthful populations and increasing pressure on employment, but also an opportunity to move ahead if productivity and education intensity rises.

Middle East

Apart from the unique profile of Gulf countries UAE (4) and Qatar (9) mentioned previously, and to a lesser extent Bahrain (26), Middle East countries such as Jordan (36) and Oman (39) faced more acute economic challenges and generally lagged in terms of educational outcomes and productivity.

 

Read the full report and its methodology here.