Summary
Achieving any of the United Nations Sustainable Development Goals will require significant investment from the public and private sector – particularly SDG 4 (Quality Education). Fortunately, private industry is stepping up, providing more ways for investors to help improve the education system, reduce poverty and promote sustainable growth – all while seeking attractive returns.
Key takeaways:
- Education is critical for economic growth, but change is needed everywhere: developing countries need better access, developed countries need to reduce costs, and employers need better-skilled workers
- Promoting quality education requires tremendous investment from public institutions and private capital; in return, investors get both growth potential and the chance to improve the world they live in
- Investing in education aligns with several important UN Sustainable Development Goals, including SDG 4 (Quality Education), SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth) and SDG 10 (Reduced Inequalities)
Education is essential to reducing poverty and promoting sustainable economic growth: each additional year of education is associated with 13%-35% more GDP per capital1. But not everyone has access to quality education. More than 262 million school-age young people don’t attend school, six out of 10 children are not acquiring basic literacy and numeracy after several years in school, and 750 million adults are illiterate2. This is why the United Nations’ Sustainable Development Goals (SDGs) include “quality education” as one of the 17 highest priorities – and it points to the critical role that investors can play.
Around the world, there is a wide disparity in education levels
Source: Our World in Data/Lee-Lee (2016), Barro-Lee (2018) and UNDP, HDR (2018). Graphic shows average number of years of total schooling across all education levels, for the population age 25+.
Investors can help expand educational opportunities for all
Annual spending on education globally was estimated at USD 5.9 trillion in 2018 and could reach USD 10 trillion by 20303. Within this market, several sub-segments show promising growth potential:
- Spending on digital education – where lessons are delivered online – is expected to grow at 12.5% per year from now to 20254.
- In China, vocational schools (also known as trade or technical schools) could see double-digit growth in the next years5.
- The revenue of global online degree providers is set to reach USD 7.7 billion by 2025 – a significant step up from the figure of USD 3.3 billion in 20196.
Still, there are a few education-related topics that are relevant across multiple regions – in particular, education access and education technology. Investors who allocate funds to these areas can contribute towards several UN SDGs – including SDG 4 (Quality Education), SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth) and SDG 10 (Reduced Inequalities) – while seeking attractive financial returns.
For example, China’s private sector is playing a significant role in improving the country’s education access. Although China has lifted its population’s average education level in recent years, it’s not yet able to accommodate all who seek post-secondary education. This can be measured by a statistic called the gross enrolment ratio of tertiary education – which was only 48% in China in 2018, compared with 88% in the US7. Since public funding for education is constrained in China, private providers of higher education services are helping to fill the gap. Tuition fees are regulated but companies are given ample room to generate reasonable profits. This helps keep the cost of both public and private higher education in China relatively low.
There are also exciting developments in the field of education technology, which can help address pressing challenges such as affordability and accessibility. But currently less than 3% of overall education expenditure worldwide is allocated to digital8. To fill this gap, private education companies are stepping in – for example, by working with universities to help them develop and deliver degree programmes online. This growing field of “online programme management” reduces the cost of learning while making it easier to access. Other educational technology companies are improving the efficiency and effectiveness of learning with artificial intelligence – including with new software solutions that can analyse a student’s homework and automatically adjust the next assignments to tackle specific problems.
A growing number of publicly traded education companies
Achieving any of the UN SDGs will be a challenge that requires heavy participation from the public and private sector – and SDG 4 (Quality Education) is no different. Fortunately, private industry is stepping up, providing investors with an increasing number of ways to participate. Consider the number of publicly traded education companies worth over USD 1 billion: there were approximately 10 such companies in 2015, but this number grew to 30 in 2018 – and it’s expected to exceed 100 by 20259.
Venture capital (VC) is playing a large role as well: in 2018 and 2019, global VC investments into education were USD 8.2 billion and USD 7 billion, respectively, up significantly from USD 4.4 billion in 201710. With VC the driving force behind many new initial public offerings, a growing number of education companies are coming to the public market, providing investors with a broader opportunity set.
There are many important lessons for investors to learn about investing in education – from improving access to education to exploring new technologies – but the most valuable may also be the simplest: investing in education allows investors to seek attractive financial results while aligning with the SDGs.
Shibo Wang
Associate Portfolio Manager, Global Thematic Equity
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About the United Nations Sustainable Development Goals The United Nations Sustainable Development Goals are 17 goals that were adopted by all United Nations Member States in 2015 as part of the 2030 Agenda for Sustainable Development, which set out a 15-year plan to achieve the goals. The UN SDGs address a range of social needs, including education, health, social protection and job opportunities, while tackling climate change and environmental protection. They serve as a framework to promote prosperity while protecting the planet to achieve a better and more sustainable future for all. |
1 UNICEF, Heckman and Klenow (1997), Crespo Cuaresma, Lutz and Sanderson (2012), Thomas and Burnett (2013), Patrinos and Psacharopoulos (2013)
2 UNESCO, Leading SDG 4 – Education 2030
3 HolonIQ, Smart Estimates, January 2019
4 Ibid, Allianz Global Investors
5 Global Silicon Valley, Citi, Allianz Global Investors
6 HolonIQ Smart Estimates, February 2019
7 China Minister of Education, UNESCO; UNESCO officially defines the gross enrolment ratio as “the number of students enrolled in a given level of education, regardless of age, expressed as a percentage of the official school-age population corresponding to the same level of education.”
8 HolonIQ, 10 charts that explain the Global Education Technology Market
9 HolonIQ, 10 charts that explain the Global Education Technology Market
10 HolonIQ, USD 4.5 billion Global EdTech Venture Capital for 1H 2020
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