The­matic In­vest­ing: Mer­rill Lynch Re­port Pri­vate sec­tor still un­der­de­vel­oped in MENA

Kuwait Times - - BUSINESS - By Felix Tran

In the Mena re­gion, the public sec­tor which is the tra­di­tional em­ployer of univer­sity grad­u­ates is over­crowded and the pri­vate sec­tor is largely un­der­de­vel­oped to create suf­fi­cient for­mal jobs. The re­gion has one of the high­est rates of youth un­em­ploy­ment in the world where many young peo­ple there­fore end up in in­for­mal work or in­ac­tiv­ity.

55 per­cent of Saudi Ara­bia’s em­ploy­ers feel that do­mes­tic grad­u­ates are pre­pared for the job mar­ket; amongst the high­est in the world. Youth un­em­ploy­ment in Saudi Ara­bia ex­pected to in­crease 33.50 per­cent in 2015 to 42.40 per­cent in 2030.

MENA re­gion spends $84 bil­lion on ed­u­ca­tion; 9 per­cent of to­tal global ex­pen­di­ture.

Tick­ing time bomb for global dis­con­tent: Ac­cord­ing to the UN’s Ed­u­ca­tion Com­mis­sion, fail­ing to re­me­di­ate the ed­u­ca­tion de­fi­cien­cies in low/mid­dle in­come coun­tries could pose a se­ri­ous threat to se­cu­rity in the Mid­dle East, South Asia, and Africa if chil­dren and young peo­ple are left with­out skills or on the streets with­out prospects of ed­u­ca­tion and em­ploy­ment. This could in­crease the po­ten­tial for in­ter­gen­er­a­tional cy­cles of poverty to per­sist and the youth of tomorrow to be left with­out the skills and knowl­edge they need to con­trib­ute to their so­ci­eties and economies. This could then lead to un­prece­dented so­cial un­rest.

Ed­u­ca­tion for All (EFA): Fall­ing short on build­ing blocks

The world has made mas­sive strides in ed­u­ca­tion - in lit­er­acy (85 per­cent adults, 91 per­cent youths), en­rol­ment rates (90 per­cent of school-age chil­dren) and mean years of school­ing (12.2Y). How­ever, we are still fall­ing short of meet­ing Ed­u­ca­tion for All goals. There re­main 263mn chil­dren out of school, 758mn il­lit­er­ate adults, and a 100Y ed­u­ca­tion gap be­tween DMs and EMs. At the cur­rent pace, univer­sal pri­mary ed­u­ca­tion will be achieved only by 2042E and se­condary by 2084E. Fail­ure to act on EFA could cost $1.8 tril­lion in global GDP by 2050E, the brunt of which will be borne by low-in­come coun­tries.

In­vest­ing in ed­u­ca­tion: Strong ROI for coun­tries & peo­ple

The case for in­vest­ing in ed­u­ca­tion is strong, with ev­ery $1 in­vested gen­er­at­ing up to $10 in eco­nomic re­turns. At the global level, 1Y of school­ing has raised GDP by c.0.6 per­cent p.a. over a 40Y pe­riod - and EFA could in­crease low-in­come EM per capita GDP by 70 per­cent by 2050E. Clos­ing the global gen­der gap in ed­u­ca­tion and work could boost world GDP by $12-28 tril­lion. For in­di­vid­u­als, ev­ery 1Y of school­ing pro­duces a re­turn rate of up to 16 per­cent - with a 4Y col­lege de­gree prov­ing a bet­ter per­sonal in­vest­ment (c.15 per­cent) than the stock mar­ket (c.7 per­cent) p.a. on av­er­age over the past 60Y.

Mis­match: 20th cen­tury ed­u­ca­tion vs 21st cen­tury work

How­ever, ed­u­ca­tion is not keep­ing up with the chang­ing face of 21st cen­tury work, re­sult­ing in a grow­ing skills gap that could have far-reach­ing so­cioe­co­nomic con­se­quences. 50 per­cent of em­ploy­ers and grad­u­ates be­lieve ed­u­ca­tion is not ad­e­quately pre­par­ing them for the world of work, work­place skills are chang­ing at an un­prece­dented pace, and up to 2bn jobs could be at risk by 2030E via au­to­ma­tion and ro­bots. Transforming ed­u­ca­tion mat­ters more than ever - and while there is no sil­ver bul­let, we be­lieve ar­eas for fo­cus must in­clude STEM (sci­ence, tech­nol­ogy, ed­u­ca­tion & maths), vo­ca­tional ed­u­ca­tion, life skills, greater af­ford­abil­ity, and tech­no­log­i­cal in­no­va­tion. With­out ac­tion, the mis­match could stunt eco­nomic growth, worsen in­equal­ity, and ex­ac­er­bate so­cial un­rest and de­glob­al­iza­tion by cre­at­ing a tick­ing time bomb of world­wide dis­con­tent.

$6.3tn mar­ket by 2020E: Four en­try point for in­vestors

The global ed­u­ca­tion mar­ket is ex­pected to grow from $4.9tn in 2015 to US$6.3tn by 2020E, a CAGR of 5 per­cent. K-12 and ter­tiary are the largest mar­kets, but we see the fastest growth com­ing from EdTech (Ed­u­ca­tional Tech­nol­ogy), life­long learn­ing, MOOCs (mas­sive open on­line cour­ses), and non-de­gree and cor­po­rate ed­u­ca­tion. Driv­ers in­clude: govern­ment spend (c.US$4tn or 5 per­cent of global GDP), pri­vate spend (c.$1 tril­lion), de­mo­graph­ics (EMs make up 82 per­cent of the world’s 1.5bn stu­dents) and ris­ing in­comes (3 bil­lion en­ter­ing global mid­dle class by 2030E). We high­light four en­try points: 1) EdTech; 2) Pre-K12 to Ter­tiary; 3) Pub­lish­ing & Con­tent; and 4) Stu­dent REITs & Hous­ing.

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