Russia’s Untapped Potential: Beyond Hacking

January 4, 2017 — Leave a comment

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.

Advertisements

No Comments

Be the first to start the conversation!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s