The mining boom is winding down. But one Australian export is still growing.
It’s Australia’s largest service export. And the fourth largest overall export, trailing only iron ore, coal, and gas. It generated $20 billion in revenue last year.
I’m talking about education.
Australia is ranked third in the world when it comes to attracting international students. (The US and the UK are number one and two respectively.) English speaking universities are the biggest draw since foreign students are eager to learn English.
In the last five years, the sector has been growing at 4% per year. The depreciation of the Australian dollar against the greenback has certainly helped growth. So have the relaxation of visa rules and the high quality of Australian universities. Not to mention how close they are to large emerging markets.
Revenue from foreign students is filling the gap left by the sinking mining commodities.
And it’s a very profitable business.
Over the past five years, Australian universities received $18.5 billion from international students. China is by far the major source of students, followed by Malaysia and India. Just like the miners, Australian universities need a healthy Chinese economy to help grow profits.
Two main factors drive the education demand in China.
The first is a growing Chinese middle class craving high end goods and services.
The second is that the brutal gaokao is excluding students from universities in China. That’s the Chinese university entry exam. Many students choose to study abroad after failing the exam.
Foreign students only represent 30% of Australia’s total. Yet they create more revenues than the Aussie students. Why? Higher tuition fees. In fact, they subsidise each Australian student by around $1600.
Aside from tuition, foreign students need housing. They also help drive tourism. When family and friends come visit, they spend an average of $2000.
What this boils down to is 2.9 new jobs in Australia for every 10 international uni students. Not only in the education sector, but across different industries.
Many international students get permanent residency after graduating. This is a great way to attract young, skilled immigrants. It saves companies time and money if they don’t need to recruit internationally.
There are 4.5 million international students in the world today. Population and income growth in developing countries should see that number reach 7-8 million by 2025.
With those numbers in mind, you can see how Australia might get ahead of the US and the UK.
Especially as both the US and UK have imposed stricter visa conditions and raised costs — while Australia recently loosened its visa conditions.
So no surprise that Australian universities are collaborating with education agents abroad. And they’ve got a big edge on US universities, who refuse to pay education agents. As these agents work on commission, they are less likely to recommend studying in the US.
Not only that, but both the US and the UK have restricted students’ rights to work.
In the US, students need permission if they want to work off campus. Aussie student visas allow students to work 20 hours a week, and they don’t need permission to work off campus. Another perk is Australia’s temporary graduate visa. This allows students to stay and work for up to four years after graduating.
Education will play a key role in Australia’s development. With an eye on capturing more of the growing Latin American and Middle Eastern markets, the education system looks set to boom.
The Daily Reckoning