Much of this change is related to the global financial crisis. Indeed, given the focus on fiscal restraint in government, many jurisdictions have started to rethink the way they approach social infrastructure. In the UK, for example, the government has stopped their £45 billion BSF school investment program, to focus on a much smaller program that still uses Public Private Partnership (PPP) methodology. They have also switched from a more planned economy for local schools using an education partnerships’ approach, to instead free up schools from local government control, allowing for much more autonomy. As a result, we have seen a significant increase in the number of local academies and ‘free schools’ across the country.
At the higher education level, the financial climate has forced many institutions to refocus their priorities towards new areas of growth. In response, many higher education institutions are now looking to expand transnationally in an effort to grow their revenues in overseas markets. In some cases, these institutions are developing foreign satellite campuses to serve new markets (such as the Paris-Sorbonne University campus being developed in Abu Dhabi); in others, they are developing partnerships with existing overseas institutions to create jointly run ventures.
New innovations in technology are also changing the way that education is provided in many sectors and geographies. Distance learning and online programs are encouraging schools and universities to rethink their operating structures and their facilities. What is the optimal classroom size? Do higher education institutions still need residences? How does location relate to the ability to recruit students? Social infrastructure is often closely allied to regeneration objectives and both the repurposing of existing buildings into education facilities and targeted investment in more depressed urban locations are trends we can expect to see going forward.
Shifting demographics have also played a part in the current transformation affecting the education sector. In the developing world, the increasing pace of urbanization has created massive demand for urban schools, while high rates of youth unemployment are adding to the pressure on governments to deliver more efficient and effective educational services. In response, we are starting to see renewed activity in the education sector in places like China, India and Brazil (take, for example, the Belo Horizonte Schools PPP project highlighted on page 22). Emerging economies have also started to recognize the link between education infrastructure and economic growth. Indeed, this edition of Infrastructure 100 contains some wonderful examples of cities developed entirely around the provision of educational services. The Princess Nora Bint AbdulRahman University for Women in Riyadh promises to be the largest women’s university in the world; Bhutan’s Education City is envisioned to encompass more than 1,000 acres within the country’s capital; the Dantewada Education City will bring major educational infrastructure to a particularly underdeveloped Indian state.
Another more obvious outcome of the financial crisis is that funding models for education have started to shift. In part, this is because long-term bank financing has all but dried up: where projects could once expect to receive 25-year terms, today we rarely see projects secure more than five/ten-year terms. But education infrastructure generally takes longer than this to pay for itself, meaning that project owners will likely be looking at several rounds of refinancing if the current environment persists. We have, however, seen some progress being made in attracting institutional long-term funds (from pension funds and insurance companies) into the market, and these sources of finance could be vital in future to providing longer term capital.
None of this is to say that PPP models are not still effective approaches to fund and operate education projects. The UK continues to follow a PPP model in financing its planned school investment program and universities often use PPP structures; the US is just starting to move forward with a raft of PPP projects in the sector (see The Yonkers, New York Schools PPP project highlighted on page 22); Brazil and Puerto Rico have also both recently announced new PPP projects. Looking forward, it seems clear that – while some dramatic changes may be underway – the education sector will continue to provide opportunities: refocused schools and higher education projects in the mature markets; a steady growth in new school development in emerging markets; and even a number of significant new mega-projects in the form of new university campuses and education cities around the world.
By Bob Griggs, KPMG in the UK