28.Jul .2020 17:36

Galt & Taggart: Georgia’s education sector revenues totaled GEL 2.0bn or 4.1% of GDP in 2019

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Galt&Taggart published a report on Georgia’s education sector. According to the report, Georgia’s education sector revenues totaled GEL 2.0bn or 4.1% of GDP in 2019, with private sector generating GEL 0.5bn. The private education sector enjoys growing revenues and strong financial performance, recording a 20.4% net profit margin in 2018 – 3x higher than that of total business sector in Georgia. Even though, government expenditure on education has tripled over 2010-19 standing at 3.6% of GDP in 2019, the indicator is still low compared to Western European countries, where education expenditure accounts for over 5% of GDP. The government plans to increase spending on education to 6% of GDP from 2022 to enhance human capital and support economic development. We expect the education sector to grow at a high single-digit annual rate in the medium term, backed by increased state financing and strong demand for educational services.

General education is the largest sub-sector, accounting for 78% of total enrollment (excl. pre-school) and 46% of total industry revenue. General education in Georgia is still concentrated in public schools, but the private sector enjoys rising enrollments and tuition fees due to a higher perceived quality compared to public schools. We believe this trend will continue, backed by increased disposable incomes, urbanization and positive demographic trends in the medium term. M&A activity is heating up, enhancing operational performance. Quality of education is still a challenge; however, a planned increase in teacher salaries and other reforms in the sector will hopefully improve educational outcomes.

 The number of pupils is expected to reach 634.8k by 2024 from the current 592.9k
 We expect the private enrollment rate to rise from the current 10.6% to 11.5% in 2024
 Average revenue per pupil in private schools reached GEL 3,700 in 2019
 The net profit margin of the private sector hit 19.7% in 2018

VET programs are not prestigious among Georgian youth, with only 15.6k registered students or 6% of the eligible age group as of 2019. Vocational education enrollments are concentrated in public institutions. Despite improvements, state expenditure on vocational education remains low, accounting for only 3.2% of total state spending on education in 2019. The low geographic coverage of institutions is another factor limiting accessibility. With planned reforms and an increase in public spending, enrollments in vocational education are expected to grow.

 6% of youth and 3% of upper secondary pupils participate in VET in Georgia vs. 48% of pupils in the EU
 Despite inequal opportunities in financing, the private sector grabs 35.4% of enrollment
 State spending on VET education is planned at GEL 54.3mn in 2020, which is still low at 3.6% of total spending

The higher education sector has seen a strong and improving financial performance. Our outlook on the sector is optimistic, sustained by (i) increasing household incomes (ii) rising intakes from older age groups and foreign students; and (iii) low penetration compared to peers. We believe large players in the private market will keep gaining share versus smaller players and continue growing above the market due to their superior operational practices and economies of scale. We expect consolidation in the sector as it is still highly fragmented. On the one hand, the sector can benefit from a rising number of international students and older age groups; on the other, the stable level of high school graduates and limited affordability may drag growth down. Tuition fees are a heavier burden on students in Georgia compared to peer countries, as they are mainly financed by households, while public financing remains low and students have low or no self-earned incomes.

 The gross enrollment ratio in higher education exceeded 60% in 2018
 We estimate that the number of students will rise to 160.3k by 2024 from the current 152.8k
 Private penetration is high at 35.4% of total enrollment, and is anticipated to reach 37.4% by 2024
 Public financing of tertiary education is low by international standards
 The net profit margin of the private sector hit 25% in 2017-18

Higher education in Georgia has low economic return. It barely improves employability and adds a low salary premium to degree holders compared to peer countries. The reasons for the poor payback are complex: 1) the higher education system continues to provide an excessive number of graduates to an economy with a high job concentration in low-skill, low-wage sectors; 2) school and higher education graduates make uninformed career decisions; and 3) general and higher educational institutions in Georgia provide inadequate technical, cognitive and social skills. As a result, the unemployment rate is high for Georgian youth, there is a significant mismatch between professions and occupations and self-employment is widespread.

 Every 4th of all 15 to 24-year-olds are not in employment, education, or training
 C.60% of entry-level jobs do not require higher education degree
 Most employees are concentrated in lowproductivity, low-wage sectors
 Only 13% of employees are working within their field of specialty