With so many emerging market economies and currencies on the boil, it might be counter-intuitive to explore investing in markets that are even less developed. But in the realm of education, there are increasingly compelling reasons to do so.
Within Asia, so-called Frontier Markets began as a classification for financial portfolio investors and the indices that track investable assets in these countries. Although the boundaries are not uniformly agreed, countries on the frontier often exhibit higher GDP growth trajectories than emerging and developed economies due to favorable and young demographics, low economic bases, technological application with high initial impact, accelerating urbanization trends, and, importantly, steep literacy and education trajectories.
Indeed, education appears to be a key catalyst for countries to move from frontier to emerging market status. This brief survey suggests that Asia's frontier markets can offer well defined early-stage growth opportunities across the entire student cycle, from pre-K to corporate training. Yet understanding the complexity of these markets is critical, and not for the faint of heart.
Where is the Frontier?
In defining the frontier within Asia, we have selected nine countries for comparative analysis, four of which are included in one or both of the FTSE and MSCI indices—Bangladesh, Pakistan, Sri Lanka and Vietnam—and an additional three—Mongolia, Myanmar, and Nepal–which we think merit inclusion as potentially attractive education markets for interested investors, education providers and stakeholders.
Figure 1 provides a basic comparison of economic and growth indicators by country, together with references to key education demographics. This much is clear: these countries represent a sizable and dynamic part of the Asian economic landscape including above-average GDP growth, young populations, varying affordability thresholds towards “middle class” levels, and targeted foreign direct investment.
- Youthful populations of 540 million in aggregate, with a range of 23% to 34% under the age of 15 years.
- Projected 165 million students in the higher education pipeline--between the ages of 15 to 19 years--by 2030.
- Average GDP per capita in PPP terms of $6,163, which represents a threshold level for middle class growth in demand.
- Increasing, but by no means adequate female access and completion rates through high school.
- Rapid early increases in internationally mobile students in Vietnam, Pakistan and Nepal based on both higher educational attainment and lack of educational supply and quality
- Deepening technology application to learning at all stages.
But the counter-narrative is that education quality and provision is nowhere near sufficient to accommodate bulging populations under the age of 15 years and prepare them for future work. There are acute supply constraints of schools, universities and teachers both today and far into the future. Hence if dramatic solutions, innovations and education investment are not found soon in many of these frontier markets, then a demographic disaster awaits rather than demographic dividend.
Figure 1: Comparative Economic and Education Data by Selected Country
Asia's stark education imperatives
Six measures can help to fill in the details.
First, universal primary school completion—a key indicator of future educational attainment—was reached or exceeded in most countries by 2012 with the exception of Pakistan and Bangladesh (see Figure 2). Despite some effort, only 72 and 75 per cent of children finished primary school in Pakistan and Bangladesh in 2012, a level that puts these two countries at least one to two decades behind their peers and is likely to haunt policymakers for the foreseeable future.
At the high end of the spectrum, Vietnam has been far ahead of both Southeast Asian and other frontier neighbors, dating back to 2000 when over 97.8 per cent of children had already completed at primary levels. It is therefore no surprise that Vietnamese students have rapidly moved toward higher levels of academic achievement after primary school. As we will see later, the result has also put acute pressure on expectations for world-class educational quality, the willingness of households to invest in their children's future outside of formal schooling, and high labor productivity.
Following behind Vietnam are Myanmar and Nepal, both of which rose dramatically to primary completion levels of 95 and 101 per cent, respectively, in 2012. Sri Lanka has maintained near universal primary completion since 2000 as has Mongolia, the latter benefiting from relatively low population demographics. These developments have pushed education pipelines toward higher education demand and beyond the most basic needs.
Figure 2: Primary Completion as % Total Relevant Age Population, 2000 and 2012
Second, it is axiomatic that declining population pressures and less stress on educational systems can improve educational outcomes. To some extent the inverse may help to explain the lagging results from Pakistan and Bangladesh at the primary level--and a higher level in Sri Lanka--but is goes further. A study by the British Council has underscored the correlation between standardized test scores and falling birth rates in East Asia, a finding that may be even more relevant to Asian frontier markets where population sizes are considerably larger.
Consider that Pakistan’s birth rate per household has dropped from 6 in 1990 to 3.3 in 2012; Nepal from 5.2 to 2.4; and Bangladesh from 4.6 to 2.2 over the same period (see Figure 3). Vietnamese birth rates have dropped from 3.6 per household in 1990 to 1.8 per household by 2012. As a result, the majority of birth rates in Asian frontier markets have declined by over 50 per cent level in a single generation.
Directionally, this is positive for the simple reason that fewer children to educate equates to more potential support per child--financial, pedagogic or otherwise--and higher potential attainment beyond primary levels for these countries.
Figure 3: Changes in Birth Rates Per Household, 1990 v 2012
The third observation flows from the previous two: that is, observable trends toward longer student engagement cycles and higher educational attainment. We can see this at work in Figure 4, but the results are mixed. Vietnam, Pakistan and Bangladesh have experienced dramatic gains in tertiary enrollments to date, yet relative enrollment rates differ. For example, Vietnam reported a 24.3 per cent tertiary gross enrollment rate (GER) in 2012 which is about half of OECD levels but on par with China. There were lower GERs of 9.5 and 13.2 per cent observed for Pakistan and Bangladesh despite higher absolute student numbers, a function of lower secondary completion rates and limited university and other tertiary options.
Notably, Vietnam's higher education or tertiary enrollments increased from less than 700,000 in 2001 to over 2.2 million in 2013, with a significant amount of runway ahead. This enrollment level is now on par with Thailand whose tertiary enrollments peaked in 2007 despite being almost 3 times as wealthy on a PPP per capita basis than Vietnam (US$14,393 v US$5,294, respectively, based on World Bank estimates).
Elsewhere, enrollments in Myanmar and Nepal have grown incrementally from a small base but remain a fraction of Vietnam's participation at the college level. To cite one example, for all the noise around the opening of Myanmar, the country's tertiary students numbered approximately 666,000 in 2013 and any future "take off" timing is difficult to predict, although certainly not in doubt as the country begins to open to the outside world.
Figure 4: Tertiary Enrollments by Selected Country, 2001-2013
Fourth, the lack of domestic higher education capacity coupled with higher attainment levels, greater affordability and increased savings has traditionally propelled the movement of Asian students abroad to destinations such as the UK, Australia and the US.
As Figure 5 illustrates, Asia's frontier markets have all been increasing their share of students going abroad. Three countries stand out: Vietnam, where student abroad levels have risen by 5 times since 2000; and Pakistan and Nepal, where outbound enrollment levels have tripled.
In the US alone, Vietnam's dramatic rise in study abroad has risen from 9,851 students in 2001 to 16,579 in 2013, the eighth largest contributing source for international students. Over 11,500 students were enrolled in Australia that year. Since affordability matters greatly to offshore study trends, we can expect more frontier countries such as Myanmar, Mongolia and Sri Lanka to increase their share as income levels rise.
Figure 5: Offshore International Student Enrollments by Country, 2001-2012
Fifth, with fewer births and greater chance to educate a larger proportion of the population, labor productivity will benefit significantly.
At the leading edge of the frontier, Vietnam has consistently registered among the highest growth in labor productivity in Asia over the past two decades, averaging 5.0% per year between 1990 and 2000 and 4.8 per cent from 2000 to 2012, according to APO data in Figure 6 (which measures productivity using annual GDP growth at constant basic prices per hour).
This level of sustained labor productivity correlates to educational levels: only China/Korea (1990-2000) and China/India (2000-2011) exceed average Vietnamese growth levels over this time period. Further down the list in Asia, countries such as Sri Lanka have started to show stronger productivity since 2005 while others, such as Pakistan and Bangladesh, lag far behind the productivity rates in nearby (and better educated) India. Only improved education is likely to tip the balance.
Figure 6: Labor Productivity Growth: GDP at constant prices per hour, 2005 PPP data
Sixth, the propensity for emerging Asia to spend a significant proportion of household income on supplemental education is well established, as I previously analyzed in the case of both poor and rich students in emerging economies.
Increasing GDP per capita in Asia's frontier markets will only diversify and deepen student expenditure further, with Sri Lanka, Vietnam, Mongolia, and Pakistan exceeding the $4,000 PPP "middle class" threshold (see Figure 7) and Myanmar close behind. As such, the catch-up phase with more developed Asian markets is only just beginning, with the entire education ecosystem--from supplemental tutoring to English to degrees--to be driven by consumer-facing demand.
Figure 7: GDP per Capita at Purchasing Power Parity (PPP) levels, 2000-2013
In sum, these measures of educational and economic progress for Asia's frontier countries provide a broad map of emerging opportunities across the student spectrum, with varying levels of risk-return for education providers and investors.
In a perfect world, with Singapore-like efficiency and relatively tame population sizes, public sector solutions could suffice. But Asia's frontier, and its stark educational imperative, is far from ideal. What is needed are immense levels of private capital, innovative models of delivery, local entrepreneurial talent dedicated to managing the quality and scale of student outcomes, and corporate activity to meld learning to workforce needs. A deeper engagement from foreign education companies, universities, global start-ups and technology platforms is calling.