Investing in the future: Growing foreign investment and increasing competition for university admission drive change

A sizeable influx of foreign investment has been seen in Turkey’s education system in recent years, helping to meet demand from a growing population with rising disposable incomes. Extreme competition for admission to top universities has encouraged many Turkish families to send their children to private schools or a private tutor. This trend has encouraged the growth of the private education sector. After a period of rapid construction in the 1990s, the rate of new private schools openings has slowed, but remained strong in the past decade. The number of private primary schools in the country grew over 40% between the 2003/04 school year and the 2010/11 school year, from 613 to 898. The number of private secondary schools also increased, from 6941 to 9281 in the same period.

FOREIGN INVESTMENT: With demand on the up, more private schools have emerged. Regulations allow for foreign investment, and outside funding has been flowing in to support the growth of private institutions. The Washington, DC-based private equity firm Carlyle Group acquired a 48% share of Bah çeşehir Koleji, a private education group, on December 27, 2011. “Demand for private education in Turkey is increasing, driven by a number of factors, including a growing student population and higher incomes,” Walid Musallam, Carlyle’s managing director and head of Carlyle Middle East and North Africa, said following the sale. Although primary and secondary schools have seen significant investment from the private sector, education legislation has prevented universities from accepting private investment. The only non-state universities allowed to operate in Turkey are non-profit institutions known as foundation universities. This state of affairs, however, is beginning to change. In late spring 2011 the head of Turkey’s Higher Education Board (YÖK), Yusuf Ziya Özcan, announced changes to higher education regulations that could pave the way for private universities with more liberal investment requirements. If regulation continues to be liberalised, an increase in private investment in the segment is almost certain to result. There are opponents to such measures who fear that allowing private and foreign firms to invest in universities may harm the integrity of provision. Continuing growth in demand, however, is necessitating greater investment. In the last decade the number of public universities has doubled, but these universities’ primary source of funding is the state, which has not kept up with rising demand, according to a review of university facilities published by the OECD.

PRIVATE TUTORING: With a shortfall of private financing and national funding and rapid student population growth, there has been increasingly stiff competition to gain admission to prestigious schools in Turkey. As a result of this, there has been significant growth in private tutoring institutions that help students prepare for the Student Selection Test (ÖSS). These schools, known as dershanes (literally “lesson houses”), emerged to serve students who wanted to have an extra edge on the ÖSS, and the industry has since blossomed. In the 1970s, just 10 years after the exam was introduced, there were more than 150 dershanes, with over 45,000 students. Growth has been steady in the years since: between 1975/76 and 2010/11, the number of dershanes and students grew by about 9.5% annually, with the number of schools rising from 157 to 4099 and the number of students reaching 1.2m, up from 45,600, according to the World Bank.

Annual gross revenues for dershanes have reached more than $1bn, according to estimates from the Private Dershane Union (ÖZDEBIR), the country’s largest private tutoring union. For the past 40 years, families have been willing to invest money and time in what they see as the best chance for their children to secure a spot in one of the country’s leading schools. Three key factors continue to drive the market: the soaring demand for higher education, the static number of places available at top universities and the importance of the ÖSS in admissions decisions. As long as these three factors are present, demand, and revenues, for private tutoring services are likely to continue growing.