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Rising Education Standards in Emerging Market Economies Will Support Income and Economic Growth

By: Lan Ha

    Education standards in emerging market economies (EMEs) are improving significantly on the back of economic growth and strong public investment. This will help to boost labour productivity, employment and competitiveness, with positive knock-on impacts on incomes, consumption, middle class expansion and economic growth. Businesses will, however, see labour costs rising, while unequal access to education and a lack of education quality are the challenges for filling the skills gap in EMEs.

    Key points

    • Adult literacy rates have been rising in all EMEs, averaging 93.3% of population aged 15+ in 2015. In the same year, 50.7% of EMEs’ population aged 15+ had a secondary education (up from 49.6% in 2010), while the share of adult population with a higher education was 10.2% (from 9.5% in 2010);
    • A better educated workforce will benefit businesses in EMEs, while boosting the countries’ competitiveness in attracting investments and thus economic growth. Higher education standards are also vital to emerging countries as the economies are shifting towards more value-added sectors. EMEs accounted for 51.0% of the world’s total manufacturing production in 2014 (latest data available), up from 42.8% in 2009;
    • Better education will also contribute to rising incomes as it enhances employment opportunities. This will in turn help to fuel the middle class expansion and consumption in EMEs. Meanwhile, the growing demand for education will provide great business opportunities for the education sector in EMEs. In Indonesia, consumer spending on education increased by 52.8% in real terms between 2010 and 2015;
    • However, access to education remains unequal between regions and genders in many EMEs, hindering a faster improvement in education standards. In Egypt, 60.6% of the female adult population was literate in 2015, much lower than 81.3% for the male adult population. Also, rising income inequality is resulting in a widening education gap in emerging societies, as the costs of getting education, especially of higher education, are growing fast in many EMEs.

    Education standards rise owing to higher living standards and public spending

    EMEs are catching up with developed countries in terms of education standards:

    • In 2015, EMEs’ adult literacy rate averaged 93.3% of population aged 15+, significantly up from 91.3% in 2010 and 87.6% in 2000. Among all EMEs, Eastern European emerging countries had the highest adult literacy rates (eg Russia: 99.7% in 2015), while countries such as Morocco (68.5% in 2015) and India (71.2% in 2015) had the lowest rates;
    • The population with secondary education is also increasing fast in EMEs. In Brazil, for example, 52.8% of all adults aged 15+ had a secondary education in 2015, compared to 40.0% in 2000. Similarly, the share of adult population with secondary education in Egypt also soared from 32.9% to 47.9% during the same period;
    • Driven by a growing demand for skilled labour, the number of people pursuing higher education in all EMEs is also on the rise, reaching 127 million in 2015. This represents a 20.8% increase over 2010. Overall, 10.2% of all adult population aged 15+ in EMEs attained higher education in 2015, compared to merely 6.3% in 2000;

    Higher Education Students and population in emerging markets 2000 to 2015

    Source: Euromonitor International from national statistics/UN

    Note: Emerging market economies cover 25 key countries which include Argentina, Brazil, Chile, China, Colombia, Egypt, Hungary, India, Indonesia, Kazakhstan, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, Saudi Arabia, South Africa, Thailand, Turkey, the UAE, Ukraine, and Vietnam .

    • Rapid economic growth, rising living standards, strong government education spending and an expanding middle class have been among the factors contributing to the rise in education in EMEs. Between 2010 and 2015, the number of households with an annual disposable income over US$10,000 (constant) in all 25 key EMEs grew by 39.0% to reach 539 million by the end of the period. As in developed countries, middle class households in EMEs put a high value on education for their children;
    • Despite a slowdown in economic growth, most EMEs still posted healthy rises in government education spending during the 2010-2015 period. In Chile, for instance, government expenditure on education grew by 51.9% in real terms between 2010 and 2015 and reached 5.4% of total GDP in 2015. For comparison, developed countries’ government spending on education stood at 3.9% of total GDP in the same year.

    Implications for consumers, businesses and economies

    • The rise in education standards in EMEs means a higher quality of workforce, thus benefiting businesses in the countries. EMEs accounted for 60.9% of the world’s total population aged 15-64 (the working-age population) in 2015. On the other hand, businesses in EMEs will face rising labour costs as labour productivity improves. China’s wage per hour in manufacturing rose by 59.4% in real terms between 2010 and 2015;
    • Higher education standards will enhance EMEs’ competitiveness on the global market, helping emerging economies to attract more investment. Foreign direct investment inflows to all EMEs reached US$459 billion in 2014 (latest data available), equivalent to 35.2% of the world’s total, up from 29.0% in 2009. Partly owing to a better quality workforce, EMEs have played an increasing role in the global manufacturing sector, as it made up 51.0% of the world’s total manufacturing production in 2014 (latest data available), up from 42.8% in 2009;
    • Better education will also improve employment opportunities for the population in EMEs and contribute to rising incomes, with positive knock-on effects on middle class expansion, consumption and economic growth. In India, the unemployment rate declined from 9.4% of the economically active population in 2010 to 5.1% in 2015, while per capita annual gross income grew by 22.7% in real terms during the same period;
    • The fast growing demand for education in emerging markets provides great opportunities for businesses in the education sector, ranging from suppliers of education materials to private education institutions. In fact, between 2010 and 2015, most EMEs (except for some Eastern European emerging countries) recorded double-digit real growth in consumer expenditure on education. Among all EMEs, Egypt posted the fastest rise in consumer education spending, at 73.9% in real terms over the 2010-2015 period.

    growth in consumer expenditure on education in emerging markets 2010-2015

    Source: Euromonitor International from national statistics/Eurostat/UN/OECD

    But inequalities and education quality remain concerns

    While education standards are improving rapidly, EMEs still face several challenges in improving the quality of their workforce:

    • Inequalities in accessing education between regions and gender still exist in many EMEs, as rural areas and females often lag behind urban regions and the male population due to poverty and existing social barriers to women’s education. In countries such as India and Egypt, the gender gap in literacy rates is large, with only 60.6% and 60.4% of the female adult population being literate in 2015 respectively, compared to 81.3% and 82.2% for the male adult population;
    • Also, rising income inequality has also resulted in wider education gaps among the population in EMEs. In some countries such as Vietnam and China, relatively high school fees and living costs in cities have prevented children of low-income households from going to university. Vietnam’s Gini index (a standard measure of income inequality with a score of zero indicating total equality) rose remarkably from 42.5% in 2010 to 45.0% in 2015;
    • Meanwhile, the shortage of qualified local teachers, lack of investment in school facilities and shortage of technical and vocational training continue to restrain the education quality in many EMEs, making it difficult for the countries to provide the right kind of training required by their labour markets. In many emerging countries including Brazil and Turkey, companies complain about the poor quality of graduates.

    Unequal access to education and a lack of education quality will restrain the potential of EMEs’ vast labour force, while resulting in skills shortage problems and undermining the countries’ growth potential.

    Prospects

    • Supported by economic growth and rising incomes, education standards in EMEs will continue to rise fast in the coming years. According to Euromonitor International’s forecasts, 52.4% of the population aged 15+ in EMEs will have a secondary education, while 11.7% of them will attain higher education by 2030. This will give a boost to labour productivity and income growth in EMEs, thus supporting economic growth and the expansion of the middle class;
    • Governments in EMEs will increasingly support and invest in education, as emerging economies are shifting to more value-added sectors and moving up the global supply chain. In order to fill in the skills gap in emerging economies, governments also have to reform the education systems to both improve quality and widen the populations’ access to education. Meanwhile, global companies in emerging markets should be active in building up their own training programmes or coordinating with universities in order to help graduates gain the skills required by the labour markets.

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