International education - the new boom?

Australia is transitioning away from mining-led growth and into services such as tourism. Cadence Economics has previously discussed the economic impacts of aspects of this transition, including the rapid growth in Chinese tourism.

More evidence of our transition recently emerged with the latest international trade data from the ABS. The official statistics indicate international students spent $19.2 billion in the year ending December 2015, a real increase of 11% from the previous year.

Student tourism growth has been stronger than expected

In February 2013 the International Education Advisory Council (IEAC) produced the report Australia - Educating Globally, to assist government long-term strategy and planning. As part of the report the Council produced a number of projections of international students to 2020.

After three years of strong growth we are out performing the projections made in early 2013. Data from the Department of Education and Training shows there were about 550,000 international students in the year ending November 2015, almost 80,000 more than the 472,000 anticipated under the medium projection set out by the IEAC.

What does this mean for our economy?

We estimate that, for 2015, the higher than expected international students contributed an additional $2.9 billion dollars in spending and $2.5 billion to Gross National Income over the IEAC's medium projection. This equates to $106 of additional income per Australian in today's dollars.

Moreover, we estimate the additional expenditure has increased employment by 3,670 full-time equivalent workers and is contributing to relatively strong labour market outcomes.

What could this mean for our economy going forward?

If the international education sector grows at the long-run average of 6.3% the number of international students will rise to over 745,000 by 2020, an increase of 27% over the IEAC's medium projection of 587,000.

Were this growth realised, we estimate student expenditure would be $5.9 billion higher in 2020 in real terms compared with IEAC's medium projection. This additional expenditure would increase Gross National Income by $4.7 billion, or $179 for each Australian, and employ an additional 6,334 full-time equivalent workers in 2020.

The impacts set out above only include the increased expenditure from international students. The contribution international students make to Australia runs deeper than spending. Many students decide to work while studying and may decide to stay in Australia, thus contributing to growth in the labour force. These effects are not considered in our modelling but are likely to be substantial.

The opportunities and the risks

The total number of students choosing to study abroad is set to increase rapidly, The Economist suggests the market for international students is set to expand globally from 4.5 million today to 7-8 million by 2025 as population and incomes rise in developing countries. But as The Economist highlights, competition is coming from English-speaking markets like Canada as well as from other Asian countries, with students from Asian countries showing a preference to study closer to home.

Recognising the opportunities and challenges ahead, Prime Minister Turnbull recently appointed a dedicated minister for international education.

As the Productivity Commission has highlighted, Australia's place in the market will depend on "how well education providers respond to students' expectations for their learning experience and provide a value proposition as technology and business models evolve."

A valuable lesson from the Tourism 2020 strategic plan is the importance of addressing regulatory and supply side constraints in the context of delivering growth, particularly accommodation.

Some regions have recognised the opportunities international students deliver and are responding to the challenge. In relation to education, as an example, Brisbane City Council has established the Student Accommodation Initiative to deliver 10,000 new beds. The initiative has been set up to meet the international student accommodation needs; Brisbane's number one export market. Currently there are 7,500 new beds in the pipeline including UniLodge's 850 room $110 million greenfield development in South Brisbane and the repurposing of Boeing House into student accommodation.

Throughout history, Australia has had a mixed experience in managing various export-led 'booms' - a challenge for the new minister will be ensuring that Australia's international education offering remains competitive as other countries catch up, to avoid squandering this next export boom.

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