Private sector takes over: Following the government’s kick-start, education as enterprise is increasingly becoming the norm

Over the past 15 years, the private sector has been widely credited as increasing access and choice for education options in Malaysia. However, the picture is more complicated. Everything from government incentives to changes in the public sector, the opening of new niches, and the introduction of private players in the primary, secondary and tertiary level institutions, have all come into play in reforming Malaysian education.

PRIMARIES & SECONDARIES IN FULL BLOOM: Private primary and secondary schools have increased in numbers, including international schools (which may or may not be receiving funding from foreign governments). The reasons why these private institutions are becoming evermore popular, numerous and complex, but one thing is clear from the Malaysian analysts, press, parents and private school operators: there is a growing demand for private education. According to LCCI’s director, Mark Disney, the public system is “over 90% bumiputera(indigenous Malaysian).

Minorities and foreigners have largely left the public sector in favour of the private schools.” This sentiment is mirrored even by the former prime minister Mahathir Mohamad, as he criticised the “vernacular schools” (i.e. Chinese and Tamil national-type public education) for “keeping (Malaysians) apart” and advocated that all children should be taught in Bahasa Malaysia. Parents of Chinese and Indian minority pupils are voting with their wallets on this issue and are flocking to private institutions that teach in Mandarin, Tamil and/or English. However, private schools are out of reach for most of the Malaysian population. For example, enrolling a year-12 student at the International Australian School Malaysia can cost over RM75,000 ($24,200) for one year. With the average monthly wage (according to the International Labour Organisation) at $961, some of those in the education community have been calling for the creation of low-cost private schools (“AirAsia-type” schools), along the lines of those crated with success – and profits – in countries such as Ghana and India. Making good on these intentions would be one means of offering parents more options for their children’s education, something which most Malaysians have yet to have the opportunity to consider.

GOVERNMENT GENEROSITY: Government incentives to help develop private sector primary and secondary education have mushroomed over the past couple of years. Tax incentives under the Malaysian Investment Development Authority (MIDA) are given to private schools and international schools registered and compliant with the Ministry of Education. Under the government’s scheme, private and international institutions are exempt from income tax to the tune of 70% for a period of five years. Unabsorbed capital allowances, as well as accumulated losses incurred during the pioneer period, can be carried forward and deducted from the post-pioneer income of the firm. Alternately, income tax exemptions are offset against 70% of the school’s yearly income for the first five years, which can also be carried over, if it is unutilised, as a form of tax credit.

This is further complemented by the exemption of import duty and sales tax for educational equipment, with particular emphasis on life sciences (e.g. molecular biology, health sciences, biotechnology, etc.), as well as a double deduction for overseas promotional expenses. Institutions that file applications before end 2015 are eligible for these incentives, which explains the high numbers of applications currently in the pipeline (the scheme was introduced in 2009).

TURNING DEFICIT INTO SURPLUS: In 1995 20% of Malaysian students went abroad to study. Over $800m per year left Malaysian pockets for the benefit of foreign institutions around the world. This represented a staggering 12% of the country’s current account deficit, and since study abroad often leads to relocation, it also resulted in significant brain drain from key sectors of the economy. In order to reverse these trends, the government started implementing a plan to liberalise the education sector in 1996 by partnering with foreign competitors. The plan called for the creation of special co-operative degree programmes within the nation’s existing state-run universities. Additionally, it promoted the creation of new domestic private colleges, which were allowed to offer the first two years of a degree programme in Malaysia, while the last two years and qualifying exams were offered by a foreign institution through a twinning programme arrangement.

A decade and a half later, many of these “two plus two” twinning programmes have transformed into “three plus one” or even “four plus zero”. The choice for degree programmes and credit transfers include partner universities in Australia, Canada, the Czech Republic, India, Indonesia, Jordan, New Zealand, Poland, Switzerland, the UK and the US. The goal now is to attract 200,000 students from abroad to Malaysia’s burgeoning higher education sector by 2020 and become the world’s sixth-largest education exporter. In 2012, the target of 85,000 was exceeded as 86,890 overseas students enrolled in institutions based in Malaysia.

INTERNATIONALS GOING NATIVE: As a result of the government’s opening to foreign and private sector institutions, there are now over 70 international schools in the market. These schools are a key component of the high-quality English-language education, operating in Malaysia. They are de facto private institutions, although some may be foreign-government-backed and not teaching in English, e.g. the French school. A further 24 such institutions have been granted licences but have not started operations as of the 2011/12 academic year.

Student enrolment in these schools has grown considerably from 8924 in 2002 to 27,804 in 2012, an average of 16.7% each year. Although ratios are difficult to ascertain, it is clear that more and more Malaysians are choosing this type of education for their children, as expatriate student numbers alone do not account for this high a level of growth.

Additionally, at the tertiary level, American, Australian and British universities such as the Massachusetts Institute of Technology (MIT), Johns Hopkins University, Monash University, the Royal College of Surgeons, Newcastle University, Southampton University and Reading University have each set up branches or launched partnerships with Malaysian counterparts, and several additional deals are in the pipeline. The EduCity Iskandar project, which is expected to be finalised by 2015, is attempting to meet exponential demand by housing several branches in a single 305-acre campus.

UNIVERSITY CHALLENGE: Since the government liberalised the sector in 1996, Malaysia has seen 26 universities offering bachelor’s, master’s and doctorate degrees, as well as 23 “university colleges” offering only bachelor’s degrees. Over 400 private colleges offering a wide variety of certificates and diplomas have also started business. Foreign universities are opening branches in Malaysia to tap into this growing market – a tough competition for Malaysia’s homegrown institutions, but one which may spur better-quality education and benefit the pupils.

The main challenge for the private (and, to a lesser extent, public) universities and colleges in Malaysia is that of the quality of education. The issue of inadequately trained human capital is one that tops concerns of businesses operating in Malaysia according to the World Economic Forum’s “Global Competitiveness Report 2011-12”. The government is therefore increasing its oversight and has started cracking down and issuing fines on institutions that were less than well managed.

LEVEL UP: Skills development is also a means for addressing this issue. The 10th Malaysia Plan (10MP) asserted that only 28% of Malaysians were sufficiently “skilled” in 2010, but did not set goals for 2015 – nor did it acknowledge that its 12 National Key Economic Areas (NKEAs) would require a great deal of skilled labour to be implemented. However, institutions such as the Skills Development Fund, under the Ministry of Human Resources, are being reinforced to deal with this problem by providing education grants for non-graduates (i.e. young people who did not follow a technical or vocational route) to train for middle-management positions in either public or private jobs.

The SDF’s director, Ali Gadaruddin bin Abd Kadir, told OBG that, “Our fund is largely geared toward the private sector. Out of the RM300m ($96.8m) that we are spending during 2012, only RM28m ($9m) will go to public institutions.” The government is therefore helping solve the human capital deficit through private schools and colleges, which is another example of the growing symbiosis between the public and private education sectors in the country.

In July 2012 an upgrade took place under the Ministry of Education’s vocational education transformation programme, which turned 78 private vocational schools into fully fledged colleges. The programme is another of the strategies the government is employing to develop the nation’s workforce.

The vocational schools, which up to now offered a limited “stepping-stone” qualification for students to pursue studies elsewhere, will now provide full diploma qualifications for an estimated 13,000 graduates by 2017. Oil and gas, renewable energy and biotechnology will be the main focus of these diplomas, as per the strategic direction set in the 10MP and NKEAs.