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The Benefits of Going Private
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Keen to provide their citizens with skills to compete in increasingly global economies and to meet global poverty reduction goals—yet strapped for funds—governments around the world are exploring private sector involvement, from profit—oriented and nonprofit organizations, to finance and provide education services.
In the district of Lahore, 24 nongovernment organizations (NGOs) have adopted 369 government schools. The NGOs manage the government—staffed schools; bear the costs (aside from staff salaries); and aim to enhance enrollment, decrease dropout rates, and raise performance.
As measured by an 80% overall pass rate on 2004 matriculation examinations (up from 46% in 1999), the adopted schools are a success. CARE (International) is the biggest provider, helping educate about 95,000 students with 820 trained teachers in employment.
Throughout much of Asia and the Pacific, governments remain dominant in providing basic education, which is widely considered a basic right for which state involvement must remain dominant to ensure it is free and accessible to all. However, as one climbs the "ladder" of education into more expensive secondary and tertiary levels, the role of the private sector expands dramatically. In Bangladesh, for example, it is the dominant force, where about 98% of secondary schools are in the nongovernment sector.
Private sector groups can help improve educational efficiency and accessibility and, by forming partnerships with them, governments can help iron out inequities in the system that work against the poor from advancing into the higher levels of education.
"Lending in education is expanding beyond the basic levels, and as more students come out of the early levels, it is creating demand for secondary, technicalvocational, and tertiary education. Due to limited resources to meet that demand, the scope for private sector involvement must therefore be expanded"
Leah Gutierrez, ADB Senior Social Sectors Specialist
ADB must pay closer attention to such private sector involvement if it is to boost its influence in the education sector. "Lending in education is expanding beyond the basic levels, and as more students come out of the early levels, it is creating demand for secondary, technical—vocational, and tertiary education. Due to limited resources to meet that demand, the scope for private sector involvement must therefore be expanded," says Leah Gutierrez, an ADB senior social sectors specialist.
According to ADB’s education sector policy, about 72% of education financed globally is provided by governments, 25% by the private sector (including parents and communities), and about 3% by development agencies. About 5–6% of ADB’s lending portfolio has been for education—related projects in the last 5 years.
The policy states: "ADB will support the improvement of the quality of secondary education, with particular attention to cost sharing, private—sector provision, and special programs to increase access by the poor and women." Likewise, in higher education and skills development, including technical and vocational education, ADB would enhance "the role of the private sector" and develop government capacity to determine and monitor standards.
Many have forecast more private sector involvement globally in social services in the current decade, emanating like a wave from the privatization in many countries of industry in the 1980s and infrastructure in the 1990s.
In Bogota, Colombia, for example, the government turned over management of some of its schools to private sector groups by awarding concessionary contracts, through competitive bidding, to private institutions with track records of delivering high—quality education.
However, with a few such exceptions, the wave has failed to carry through into education, according to an October 2005 presentation by the International Finance Corporation (IFC), which actively promotes public—private partnerships in the education sector.
IFC analysts say that may be due to several factors, including that education is generally not facing the same capital shortages as infrastructure and other areas; in many countries, consumers can choose private schools; education is more politically sensitive (and not perceived as a commercial service); and there may be resistance from teachers’ unions in some countries.
Among the social services, private sector involvement has been bigger in other areas. In health, contracting out services has successfully improved health services to the poor in many countries, including in Bangladesh and Cambodia, where ADB has supported projects.
Yet, because governments focus heavily on basic education, there is a substantial gap for exploring the role for the private sector in other areas of education. The developing knowledge culture, and trends toward the use of computer technologies in classrooms, in particular, pose more complex challenges and demand the financial assistance and innovation of the private sector.
Among recent projects promoting publicprivate partnerships is ADB’s support for a Japan Fund for Poverty Reduction project in Mongolia to help provide out—of—school youth and poor adults in Ulaanbaatar with construction skills. The project complements a loan for the Third Education Development Project, approved in June 2006, which includes a component to help the government reform the vocational and technical education system
The project, Promotion of Nonformal Skills Training for Unemployed Youth and Adults in Mongolia, will promote shortterm skills training, focusing on nonformal skills for dropouts and adults in the construction sector because it offers significant employment opportunities. It will test demand—driven, short—term skills courses; upgrade training facilities of public and private training providers; and establish institutional arrangements for project management, monitoring, and evaluation.
Among those aims, the first component is designed specifically to strengthen management and entrepreneurship among public and private groups providing training. It will encourage construction companies to share resources in designing, conducting, and financing short—term skills training courses.
Public—private partnerships can take many forms. Under a service contract, for example, a public sector body pays a fee to a private sector organization to manage some aspect of a public service. Under a management contract, the service provider is responsible for management but not for operational finance, maintenance, repair, or capital costs.
Under lease agreements, the service provider pays rent for the facilities, while build—operate—transfer (BOT) agreements contract the service provider to design, build, manage, operate, and repair a facility for delivery of a public service. The agreement transfers ownership to the government at the end of the contract.
Concessionary agreements, such as in the Bogota case, keep ownership with the government, while the contractor collects and retains service tariffs and pays the public sector a concession fee.
The role of private sector involvement in providing and financing social services in Pakistan gained urgency in 2001 when the government began a sweeping devolution of authority for social services to local governments, including education, health, and others.
Under the centralized system, social sectors were poorly planned and administered and there was very little partnership with the not—for—profit or for—profit private sector organizations.
In the wake of devolution, however, many local governments found themselves poorly prepared for new and larger responsibilities. In search of solutions, many began enthusiastically to turn to private groups to improve efficiency, quality, and reliability.
ADB has been promoting and supporting the devolution process, among other ways, through the Punjab Devolved Social Services Program, which aims to ensure the equitable and effective delivery of basic social services—including education—through an assistance package approved totaling $200 million.
Not all schemes involving the private sector are entirely successful. One district in Lahore banned concessionary schemes that allowed private sector groups to use public schools in the afternoon sessions and to charge approved fees, in exchange for upgrading the schools and providing funds to the government.
The private partners were to pay the utility bills for the schools for both shifts (morning and afternoon) and to deposit 10% of the gross income into a school fund, but many private partners failed to live up to the agreement. Subsequently, many such schools closed.
Private sector groups can help plug financing gaps for governments keen to boost education but without the funds to do it
However, other schemes have succeeded, including one typical plan to upgrade the dilapidated and uninhabitable Islamia High School Bhati Gate, which belonged to the city district government of Lahore. Under a BOT agreement, an NGO—using its own funds—reconstructed, fitted, and furnished the building, and also funded the school’s operating costs. The school has achieved high enrollment, controlled dropout levels through careful selection of students, and produced a sizable saving for the government.
Various reasons justify greater use of the private sector to boost the quality of and access to education services in Asia and the Pacific. Private sector groups can help plug financing gaps for governments keen to boost education but without the funds to do it. They also bring in fresh ideas, skills, and expertise that can complement those of governments and development agencies. ADB can help by encouraging innovations that improve opportunities for publicprivate partnership in the education sector.
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