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