Should investors rethink emerging markets?
This article first appeared in Investment Life & Pensions Moneyfacts Magazine, September edition...
I’ve written previously about the significance of education, and how important it is for my family. For starters, my husband is a primary school teacher. I’m also incredibly blessed to have had access to excellent education, without worrying about how to pay for it – no small thing when you consider I’m from the US where the average cost of college has hit $35,331 per student per year*!
Not everyone is so lucky. Putting the cost of education aside, there are many parts of the world where going to school still just isn’t something you do. It’s a privilege, and for some, it’s a foreign concept. Even before the pandemic, progress in education was already too slow to achieve the UN’s Sustainable Development Goal #4 by 2030.
“Education is not preparation for life; education is life itself.” — John Dewey, philosopher
The aim of goal four, quality education, is to ensure inclusive and equitable quality education for all. This includes targets such as ensuring all girls and boys complete free, equitable and quality primary and secondary education by 2030. It’s also about ensuring equal access for all women and men to affordable and quality technical, vocational, and tertiary education, including university. It even covers adult numeracy, global scholarships available in developing countries and, increasing, the supply of qualified teachers, especially in less developed countries.
Many of us will remember the e-learning during the pandemic with a sinking feeling. For many parents it was a key period of stress. Most children were entirely reliant on their parents for their early years’ education, and for some this meant being stuck in an unsafe environment for days on end. In some parts of the country, where vaccine distribution is low, many children continue to learn remotely. And although many students have been able to access this level of learning and continue their studies, it’s important to remember that this hasn’t been the case for everyone.
Children in poorer households with limited or no online access suffered significant setbacks. UNICEF found that 31%** of schoolchildren globally couldn’t be reached by internet-based or broadcast-based learning due to lack of technology or because they weren’t targeted by the relevant policies. And sadly, according to the UN, in the two years since the crisis began, all progress achieved in education over the past 20 years has been wiped out***. The poorest and most vulnerable children are bearing the brunt of the crisis, further exacerbating long standing inequalities.
School closures and lack of access to educational infrastructure puts girls at an increased risk of violence and exploitation. In 2021, the UN reported that 42%^ of schools around the world remained partially or fully closed. Worldwide, 128 million girls of primary or secondary school age were already out of school in 2018^. The pandemic will cause another 11 million to never return^.
Out of school, girls are at an increased risk of violence, child marriage (SDG 5), child labour (SDG 8), child trafficking (SDG 16) and early childbirth. Lost education leads to further setbacks along the way and further causes inequalities and gender disparities. According to the UN, a single additional year of schooling can increase adult earnings by up to 20%^.
Improving basic school infrastructure (SDG 9) is critical for school reopening. Globally, more than a fifth of primary schools lacked access to basic drinking water, more than a third lacked basic hand washing facilities and one in four didn’t have electricity***. In less developed countries, almost half of primary schools lack single-sex toilets*** – an important factor in girls’ attendance.
The economic fallout of the pandemic is likely to hit education budgets and affect the ability of the poorest countries to make any progress. For those in emerging markets, the primary barrier to entry is access to reliable internet. But as middle classes expand, smartphones could provide an unprecedented large number of the global population with access to the internet for the first time.
Therefore, internet and technology companies in emerging markets are primed to see a benefit, including the spread of access to the ever-growing online learning sector. For example, in India, the government is planning to create 200,000 digital villages to enable digital education. These villages will allow both e-learning and digital healthcare services in more remote areas.
Investors can also take action by filling in the gaps left by government funding by investing in services that meet the need for education aimed at lower-middle income or underserved populations. For example, Pearson, a holding in JOHCM UK Dynamic, was once the largest book publisher in the world, but today focuses solely on education. It even has its own private school called the Pearson Online Academy. The Artemis Positive Future has 6.7%^^ of the portfolio invested in quality education including a holding in IDP Education, a study abroad specialist company offering student placement from Australia and New Zealand to the UK and Canada.
I firmly believe that access to education is a fundamental human right. We as a global society can’t evolve and grow – sustainably or not – without an educated pool from where to learn. But vigilance from investors is also required. Last year we saw China clampdown on the education sector, banning companies from making profits, raising capital overseas or going public. Controversial, but I don’t think that’s a bad thing. Education costs in China are extremely expensive and stop lower income children from having the same access to education. The clampdown was in part to help ease that inequality.
As Rasmus Nemmoe, manager of FSSA Global Emerging Markets Focus, commented on the Investing on the podcast, “at the end of the day, more than 90% of the tutoring customers are disappointed because they do not get accepted to the schools or universities that they have applied to. Instead of helping grow the pie in China, some would argue that the educational companies were exploiting and capitalising on the inherent bottlenecks in the system, which is a proposition I would personally have my reservations about.”
It’s clear that education plays a fundamental role across a wide range of issues, including human rights, inequality reduction, social inclusion and poverty alleviation. The goals were meant to work together, and education is a prime example of how better rural connectivity (SDG 9) leads to reducing poverty (SDG 1) through access to education.
*Average Cost of College & Tuition, EducationData.org, January 27, 2022
**Source: The SDG Reckoning, M&G Investments, Oct 2021
***Source: UN Sustainable Development Goals, 2021 Report
^Source: UN gender snapshot report 2021
^^Source: Fund factsheet, February 2022