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Education is essential to the growth of developing countries. According to the Organisation for Economic Co-operation and Development (OECD), providing every child with access to the education and skills needed to participate fully in society would boost GDP by 28 per cent in lower-income countries and 16 per cent in high-income countries over the next 80 years.1
So which countries are successfully implementing educational programmes to improve the lives of their citizens, lift prosperity and boost growth? And what are the investment implications of the correlation between superior educational outcomes and economic success?
Education drives economic growth in a number of ways, according to the United Nations: it tends to lead to lower rates of childbirth and fewer dependents per family, and directly equips people with competencies that increase their income. On average, one year of education is associated with a 10 per cent rise in wage earnings.
For countries that do take the long-term view and make the necessary investments, however, the gains can be enormous. Consider the divergence between India and China. The economist Amartya Sen has argued that China’s superior record in educating its people goes some way to explaining why its growth has outpaced India’s by an average of one percentage point per year in recent decades.2
Like Japan at a similar point in its development, China’s government in the early 1980s acknowledged that investments in human capital are integral to economic growth – not a luxury that can be postponed until some later date while other development needs such as hard infrastructure are prioritised.
India’s record on education has been comparatively poor. Its literacy rate of just over 71 per cent lags well behind China’s 96 per cent; in fact, India’s literacy rate now is lower than China’s was in 1990. Perhaps it is no coincidence that China’s citizens, who earned less than India’s as recently as the early 1980s, now earn on average $8,250, far higher than India’s per-capita earnings of $1,718.3
The quality of education systems varies enormously across emerging markets. In 2015, the OECD conducted the biggest-ever survey of global schooling, ranking 76 countries on how well 15-year olds performed in maths and science. East Asian countries occupied all of the top five places; South Africa and Ghana were ranked 75th and 76th, respectively.4
These vastly different outcomes partly reflect relative levels of government investment in education – but not entirely. South African public schools, for example, do not suffer from a dearth of government investment – public spending on education amounts to 6.4 per cent of GDP, far higher than the 4.5 per cent average across OECD countries5 – but the poor quality of teaching and misallocation of resources are real problems.
Given the proven correlation between good educational outcomes and economic growth, it is logical for long-term investors to take a country’s record on education into account when appraising its economic prospects.
Progress is being made in Poland, for example, which recently overhauled its education system and improved results. Once considered below average among the OECD group of economies, Poland is now ranked in the top 10 of nations for reading and science and the top 15 for maths.6
Brazil is another good example. While much has gone wrong in the country over the last 10 years, the social investment made under President Lula’s government led to substantial growth in the number of students enrolled and improvements in educational standards, which could bring economic dividends over the longer term.
But in those countries where governments fail to design and implement robust education policies, parents are increasingly turning to the private sector. This trend may open up direct opportunities for emerging-market investors. Although private education providers must overcome considerable obstacles in order to succeed, once operational they can be highly profitable. For companies brave enough to take the risk, the rewards from private education in emerging markets can be substantial for all involved.
1. Universal basic skills, what countries stand to gain, OECD, May, 2015
2. ‘Why India trails China,’ New York Times, June 2013
3. World Bank
4. ‘Asia tops biggest global school rankings,’ BBC News, May 2015
5. Education: Back to basics, Citi, July 2017
6. Poland: education policy outlook, OECD, November 2015
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