‘Frontier markets’, the International Finance Corporation, and development

The University World News is carrying a report this week on a conference to be held (14-16th May, 2008) in Washington DC, hosted by a less well known outfit in the World Bank Group – the International Finance Corporation (IFC). Better known to most is the IFC’s cousin, the International Bank for Reconstruction and Development, generally referred to as the World Bank.

The conference, titled ‘Investing in the Future: Innovation in Private Education’ will invite participants to discuss what the IFC regards as the significant benefits for developing countries of engaging the (for-profit) private sector in delivering tertiary education.

The IFC is currently the largest multilateral agency funding private education in the world. One way of understanding the difference between the World Bank and the IFC is that while the World Bank finances projects with sovereign guarantees, the IFC finances projects without sovereign guarantees.

In other words, the IFC is primarily active in private sector projects, and in this respect it is a profit-oriented financial institution. Like a bank, IFC lends or invests its own funds and borrowed funds to its customers, and expects to make a sufficient risk-adjusted return on its global portfolio of projects.

Over the past decade, the IFC has taken a keen interest in the education sector. In 2001 the IFC published its Education Sector Strategy (with advice from the Education Sector of the World Bank). According to the IFC, the role of the private sector lies in both the provision and financing of education. This role is expected to grow, with increased pressure for more education as a result of the Education for All initiatives, and as human capital formation is advanced as a result of knowledge economy policies.

From 2000 to 2007, IFC provided $237 million in financing to 37 private education projects in 20 developing countries. The projects had a total value of $839 million.

However, rating agency Standard and Poor’s 2007 Annual Report on the IFC has suggested the most profitable and secure investments are likely to be in the higher education as opposed to the schooling sector.

Its current medium term investment strategy is to open up ‘frontier markets’ in Africa and the Middle East (Standard and Poor’s, 2007).

In an interview with the University World News, IFC Executive Vice-president Lars Thunell is quoted as saying:

Global spending on education has risen substantially over the past decade. There is a demand for more and better services, and governments are embracing private sector participation as a way to increase quality and efficiency. Nowhere is this felt more keenly than in the emerging markets, where demand is presenting significant opportunities.

Claims that for-profit private firms necessarily provide more efficient and better quality services, including in sectors like education is vague, and the evidence provided to date is thin.

However, the more important issue is that, like the World Trade Organization’s (WTO) General Agreement on Trade in Services (GATS) (see our recent report on the GATS), the IFC sees education as a ‘frontier market’ in the emerging economies, and is willing to lend funds to investors in order to advance this project. It is also ready to ‘up’ its levels of investment in order to help this project along.

We will likely see more of the IFC as efforts to advance the privatization of education move ahead and developing countries are seen to be ripe for the picking. What is crucial, then, is that we become better informed about actors, like the IFC, and their role in the global governance of higher education. This will enable us to see the very complex way in which this sector is not only developing but is being strategically progressed by actors that are often off the analytical radar of many people and institutions.

Susan Robertson

15 May update: see Inside Higher Ed‘s story ‘The private sector role in global higher education‘ for a report from Day 1 of the conference. See also this report on the conference by World University News.

UK universities research funding too inflexible warns US uni president

Today’s Financial Times story by David Turner is likely to set the ‘cat amongst the pigeons’ in terms of US-UK higher education relations. Turner reports on an interview with USA Yale university president, Richard Levin, who argues that the UK research funding model simply is not up to the task of delivering world class globally ranked universities. Contrasting the US funding model with the UK, he argues the US model, of selective funding to reward ‘merit’, means that this model is more flexible and “it is also more meritocratic”. The Financial Times reports the Yale president as arguing that

…allocating a large block grant to a university after assessing it for quality department by department results in the weak being pulled up by the strong.

The evidence Yale president Levin points to in support of his case for a more individualistic approach to funding for the UK is that by comparison with the UK, there are a high number of US universities clustered near the top in the global university rankings.

While Levin is of course right, that the US does particularly well on the global university rankings, it is not evident that is is directly an outcome of the individualistic funding strategy for university research by US funding bodies. Rather, the global university ranking system tends to reflect US university strengths and interests (for example, patents, science citation indexes, Nobel awards).

The more important point to be made is how the top US universities do fund their research, as opposed to UK universities. The top US universities have generous endowments, alumni and funds from patents and spin-out companies, while selected universities, such as Stanford and MIT, continue to be the recipients of research funds for military purposes. Top-up research funding comes from various funding agencies, such as the National Science Foundation.


By contrast, in the UK the government funds research intensive universities through the Higher Education Funding Council (HEFCE), whilst top-up funding to specific research projects and centers comes from the various funding councils.

Where the US and UK do differ is in how the funding is allocated. In the UK it is the result of a Research Assessment Exercise (RAE) where departments are assessed by panels for the ‘quality’ of their research.

Talk about what will happen to the RAE in the future suggests that it will likely be more individualised assessments, for instance through scores on the various citations indexes. This would then bring the UK’s research funding model more into line with the US, though it is difficult to see how this will be a more meritocratic approach unless there is a reworking of what constitutes merit.

Taken together, unless the UK can challenge and change the basis on which universities are currently ranked globally, it is not likely to alter much the UKs overall place in the global university rankings.

If the UK’s RAE system does more toward a citation/global universities ranking approach, it is likely to embrace a system that neither places a high value on critical and innovative thinking in areas of the social sciences and humanities that are outside of the US’s sphere of intellectual interest and nor on areas of scholarship that do not score well on the global ranking scoreboards. This will surely be a disaster for realising a knowledge society.

Susan Robertson

6 November update: see Martin Knight’s (Chief Operating Officer, Imperial College) 6 November response in the FT.