Galt&Taggart published a report on Georgia’s education sector. According to the report, total government spending on education tripled to GEL 1.8bn over 2010-19, increasing its share of total state expenditure by 3.7ppts to 11.9% over the same period. The government spent half of its allocated education budget on general education in 2019, while only 7.5% was earmarked for higher education and 2.8% for VET programs. The rest represented spending on pre-school education (15.3%), infrastructure (14.7%), research (3.4%) and other support programs (6.5%) at every level of education.
As a result of a favorable business environment and growing demand, the private (forprofit) education sector has grown rapidly, at a 16.3% CAGR to GEL 0.5bn over 2009- 19. The sector enjoys high profitability: the EBITDA margin reached 26.4% in 2018 and the net profit margin stood at 20.4%. Besides growing revenues and profitability, the education sector has a high level of liquidity: most educational institutions require annual or semi-annual fees to be paid in advance, granting operational and financial efficiency to the market players.
Salaries are the main cost category for the sector, comprising 65% of total operating expenditure. Notably, salaries in the private sector are 20-30% higher than in the public sector. Ongoing salary increases in public kindergartens, schools and universities are expected to push wages in the private sector up further (to maintain a qualified workforce). This might negatively affect profitability. According to our estimates, a 15% increase in salary costs will shrink the net profit margin by 7.0ppts if tuition fees remain the same or other costs are not cut.
