PROSPECTS

, Volume 41, Issue 1, pp 47–67

Adequacy, efficiency and equity of higher education financing: The case of Egypt

Authors

    • Economic Research Forum
  • Noha Sami
    • Economic Research Forum
Open File

DOI: 10.1007/s11125-011-9182-x

Cite this article as:
Fahim, Y. & Sami, N. Prospects (2011) 41: 47. doi:10.1007/s11125-011-9182-x
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Abstract

To meet its future challenges in financing higher education, Egypt has no option but to search for alternative funding arrangements. This article considers the question of how to do so, keeping in mind the need to ensure equitable access to good quality education for those who cannot afford it. To this end, the article begins by assessing public expenditure on higher education in Egypt, with respect to its adequacy, efficiency, and equity. Next, it analyzes the impacts that demographic changes, the demand for quality education, and the transition to private provision of education will have on the nature of financing higher education in the future. It concludes by suggesting alternative strategies to address the problem of financing higher education in Egypt.

Keywords

Higher education financeAdequacyEfficiencyEquityEgypt

It is widely agreed that education is critical for faster economic growth, and, when provided widely, it is also critical for more egalitarian distribution of the benefits from economic growth (Birdsall and Londono 1997; Pritchett, 1996). Not surprisingly, in the wake of their independence, most developing countries, including Egypt, have committed to providing free access to all levels of education for all their citizens. The legacy of this commitment continues today: the Egyptian government continues to be the main provider and funder of education, including higher education. In 2007–2008, public expenditure on education amounted to 4% of GDP; about 1% of GDP was allocated to higher education.

A double challenge now faces Egypt. Evidence suggests that the returns to investment in education are relatively low. Meanwhile, the government budget is facing increasing pressure given the ever-growing demand for higher education. According to a recent World Bank (2008), the returns from investment in education, in terms of economic growth, improved income distribution, and poverty reduction, are modest in Egypt and in the Middle East and North Africa (MENA) region as a whole. At the same time, the surge in the demand for higher education is fuelled by demographic changes, technological innovations, and a more competitive labour market environment at a time of tight budgetary constraints.

To meet its future challenges in financing higher education, Egypt has no option but to search for alternative funding arrangements. In this article we consider the question of how to do so, bearing in mind the need to ensure equitable access to good quality education for those who cannot afford to pay for it.

To this end, we begin by assessing public expenditure on higher education in Egypt, with respect to its adequacy, efficiency, and equity. Next, we analyze the impacts that three phenomena—demographic changes, the demand for quality education, and the transition to private provision of education—will have on the nature of financing higher education in the future. We conclude by suggesting alternative strategies to address the problems described throughout the article.

Adequacy, efficiency, and equity in financing higher education

In this section we assess expenditure on higher education, looking at the adequacy, efficiency, and equity of that spending. Most of the analysis is of public expenditure, but we also attempt to capture private spending by drawing on available data from household surveys and on private provision of higher education. We also make this a comparative analysis, placing Egypt in the context of a set of comparable countries as far as the data permit.

Adequacy

In 2007–2008, total government expenditure on education at all levels in Egypt was around 4% of GDP. In addition, the World Bank (2004) estimated that households spend approximately 3.6% of GDP on admission fees, textbooks, supplies, and private tutoring. This brings the total spending on education to about 8% of GDP. This figure is more than the 2004 OECD average of 5.8% and the 2005 average of 5.4% for lower middle income (LMI) countries, including public and private sources (UIS 2007a; World Bank 2010b). As a percentage of public expenditure, Egypt allocated 12% to education in fiscal year 2007–2008 (MoF 2008); this is almost equivalent to the corresponding percentage for the OECD (13.4%) but less than the average for the LMI countries (15.3%), according to UIS (2007a).

The share of public expenditure on higher education in Egypt was about 1% of GDP in 2007–2008. This figure is close to the corresponding 2005 averages for the OECD countries (UIS 2007a) and the LMI countries (UIS 2007b), which spent an average of 1.4% and 1% of GDP, respectively, on higher education. Figure 1 shows the comparative expenditures on higher education for the LMI and OECD countries and Egypt. It is evident that in comparative terms Egypt outspends both groups of countries with respect to the proportion of the education budget that goes to higher education.
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Fig. 1

Share of higher education spending within total education budget: Egypt, LMI, OECD countries (%).

Sources: Calculated average for OECD and LMI countries from World Bank (2010b); Egypt data calculated from CAPMAS (2007)

As Fig. 1 shows, between 1995 and 2005 public expenditure on higher education in Egypt declined relative to total public expenditure on education and relative to total public expenditure. It picked up in 2006, but these ratios did not return to their 1999 peak. Relative to GDP, spending on education remained more or less the same (see Fig. 2).
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Fig. 2

Public spending on higher education in Egypt (%).

Sources: Calculated from CAPMAS (2007), MoF (2008)

The relative decline in the allocations of public expenditure to higher education may reflect the slow but steady increase in the private provision of higher education. Still, the private sector plays only a small role in providing higher education. In 2006/2007, the number of students registered in private universities in Egypt was equal to about 5% of all students enrolled in public universities: 48,000 students in private universities versus 1.8 million in public universities (IDSC 2008). Also, while the number of private faculties rose from 32 to 51 between 1999–2000 and 2005–2006, the number of public ones rose from 266 to 300 during the same period. In general, the percentage of students enrolled in private higher education in Egypt, including technical institutes and other tertiary education institutions, is about 17%, including 5% enrolled in universities (MoHE 2008). The comparable percentages are 25%, 26%, and 28% in the OECD, MENA, and LMI countries respectively (World Bank 2010b).

Although Egypt’s constitution declares that education is free, the 2000 Household Survey indicates that the share of household spending on education at all levels is about 3.6% of GDP (World Bank 2004), and that spending on higher education (tuition and admission fees paid by households) represents 8.2% of total higher education spending (World Bank 2002a). More recently, El-Araby (2009) estimated that, in 2007, households devoted about 1% of their overall household spending to higher education.

Despite the fact that Egypt spends relatively high amounts on higher education, compared to OECD and LMI countries, it does not fare well if we look at the expenditure per student in higher education in terms of purchasing power parity (PPP), measured in U.S. dollars, across countries with similar per capita income. Indeed, the figures in Table 1 indicate that Egypt’s higher education institutions spend much less per student than comparable institutions in OECD countries and considerably less than those in LMI countries.
Table 1

Expenditure per student in higher education in 2005 ($ PPP and %)

 

US$ PPP

(%) GDP per capita

Egypt

902

23.38

OECD countries average

9,984

36.65

LMI countries average

2,712

55.66

Sources: Calculated using CAPMAS (2007) for Egypt data, World Bank (2007a, 2010b), UIS (2007a)

Note: OECD average includes all OECD countries except Canada, Germany, and Luxemburg; LMI average is calculated from 20 selected LMI countries

In short, compared to the OECD and LMI countries, the government of Egypt allocates relatively similar resources to higher education as a percentage of GDP, and an even higher proportion of its total education expenditures, but it spends far less per student. Therefore, the current level of funding of higher education in Egypt may be inadequate to deliver high quality education.

Efficiency

Turning to internal and external efficiency, in this section we trace how resources are allocated across different categories within higher education as well as the extent of the match between graduates of higher education and the labour market demand. Internal efficiency can be measured as success in keeping costs down, while external efficiency can be measured as return on investment.

Internal efficiency

Looking at Egypt’s pattern of spending on higher education, some indicators suggest that it is not as internally efficient as it could be. For example, most of the resources are allocated to current rather than capital expenditures. In 2007–2008, current expenditures accounted for 78% of the total, leaving a modest share for capital expenditure. Current expenditures include wages, salaries, benefits, grants, subsidies, and other operating costs, while capital expenditures go to purchase assets, and maintain and update infrastructure. Moreover, the trend is worsening over time, as can be seen from Fig. 3. This pattern of expenditure may not be supporting the infrastructure that is needed to guarantee a high quality of learning.
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Fig. 3

Distribution of current and capital expenditures (%).

Source: Calculated from MoF (2008)

Perhaps more worrisome, the pattern of current expenditures does not necessarily favour the teaching staff. For the period 1990–1991 to 2000–2001, wages and salaries represented, on average, about 75% of public current expenditure in higher education, but a large proportion of that amount was not allocated to the teaching staff, who are relatively underpaid. Universities are crammed with administrative staff whose hiring process is comparable to that of the civil service. Indeed, in 1998–1999 third-level institutions in Egypt employed about 48,000 non-academic staff, compared to about 63,000 academic staff. This is a ratio of 1:1.3 and it diverts a considerable share of the resources away from the more important academic functions of teaching and research (El-Baradei and El-Baradei 2004).

According to more recent data from the MoHE (2008), this ratio has improved, reaching 1:1.07 in 2005–2006. Still, further improvements are needed if Egypt is to motivate its teaching staff to improve the students’ educational outcomes and to avoid the practice of “moonlighting”: making extra money by selling lecture notes, taking on consulting work, etc. Such activities lead to widespread absenteeism, and render teachers too busy to focus on teaching and evaluating student performance.

Another issue that exacerbates the inefficiency in higher education is the relatively high student to teacher ratio which does not provide students with a conducive environment in which to learn, or even inspire them to attend class. In 2005, Egypt had a student to teacher ratio of 32:1; that is much higher than the averages for MENA (23:1), the LMI (17:1), or OECD countries (14:1), or the world (16:1).

In conclusion, the misallocation of public funds suggests that in institutions of higher education, the infrastructure is not being adequately maintained and updated due to the modest and decreasing appropriations for investments; this is also causing the high ratio of students per teacher. In addition, the diversion of a large share of the current expenditures away from academic staff is sapping the motivation of the teaching staff, which in turn leads to a low quality of teaching in higher education.

External efficiency

In Egypt, a positive relationship exists between the returns to education and the level of education. Available evidence indicates that the private rate of return to higher education in Egypt is consistently higher than for employees with a secondary education, but is consistently lower than the rates for those who are merely literate (El-Araby 2009) (see Table 2). However, data from the 2006 Egypt Labour Market Panel Survey (ERF 2006) indicate that there is a positive relationship between the rate of return and the educational level. Male secondary school graduates earn 23% more than illiterate males, and about 16% more than males with a primary education. Also, university graduates earn 65% more than secondary graduates and those with intermediate education earn about 29% more. Similar results hold for females: females with a secondary education earn about 73% more, on average, than illiterate females, and about 48% more than females with a primary education. Finally, a female university graduate earns about 34% more, on average, than a female secondary graduate (El-Araby 2009).
Table 2

Private rate of return to education in Egypt

 

1995–1996

1999–2000

Literate

13.2

11.8*

Secondary education

−0.7

2

University education

7.1

8

Source: World Bank (2004)

* Returns could not be calculated for all areas because costs could not be identified; therefore this is an average for areas where some costs could be identified: returns were 12.6 (lower rural Egypt in 1999–2000) and 7.1 and 15.8 (urban and rural Upper Egypt respectively, in 1995–1996)

Across countries, however, the data indicate that the return to higher education in Egypt is relatively low. As Carnoy (2006) reports, Egypt’s 8% rate of return to higher education in 2000 was slightly below the 9% of both Morocco in 1999 and Jordan in 2004. However, it is much lower than that in the more open and reformed economies of South America: there the rate was 16% in Argentina, 20% in Chile, and 12% in Uruguay as of 1996, and 12% in Peru in 1997.

Another indicator of external inefficiency is the distribution of unemployment by level of education; Table 3 shows this for Egypt for the years 1995, 2001, and 2005. A clear pattern emerges: unemployment is consistently lowest among those who have less than a secondary education, followed by those with university degrees and finally those with secondary education. This pattern is growing stronger over time. Thus, Egyptians are not benefitting from much of the resources spent on education, including higher education. For example, unemployment among university graduates more than doubled during the last decade. This is also accompanied by a consistent mismatch between graduates’ skills and the labour market demand, as revealed by business sector surveys conducted, for example, by the World Bank (2010a).
Table 3

Unemployment rate by educational level in Egypt (%)

 

1995

2001

2006

Less than secondary

0.7

1.5

2.33

Secondary

31.5

22.4

61.81

University

11.8

8.8

26.8

Source: UNDP (1996, 2003, 2008)

Equity

Equity in public spending can be viewed from several perspectives, including spending by levels of education and across income groups, regions, and gender. In this section we consider the possibility of bias in each area.

Level of education

Table 4 shows that Egypt dedicates a relatively high share of its total public spending on education to higher education, compared to other countries. However, while the share of spending on higher education in Egypt has remained the same in recent years, other countries, such as Morocco and Brazil, have tended to decrease their amounts of public spending on higher education over time. Access to higher education is inequitable and favours those in the privileged socio-economic strata and in urban areas. It is, however, more equitable in terms of gender.
Table 4

Expenditure on tertiary education as a share of public education expenditures (%)

 

2000

2002

2004

OECD countries

23.5

24

22

LMI countries

18.43

16.64

18

Egypt

29

28

28

Morocco

18

16

15

Brazil

22

24

19

Source: Author’s calculations using data from World Bank (2010b) and OECD (2010). Data for Egypt calculated from CAPMAS (2007)

Income level

Here, our concern about bias stems from the observation that students from wealthier backgrounds tend to enter higher education in larger numbers, compared to those from poorer backgrounds. The financing of higher education in Egypt is biased against the poor. As shown in Table 5, most of the public spending on higher education goes to students in the richest quintiles1 because few university students come from the lowest income brackets.
Table 5

Public education expenditures received, by population quintile, 2000, in %

 

1

2

3

4

5

Total

Basic

15.6

19.5

22.2

22.6

20.1

100

Secondary

17.2

20.6

20.3

20.9

21

100

Higher

14.2

19.3

20.3

21.1

25.2

100

Source: World Bank (2004)

Looking at enrolment rates by income level (see Fig. 4), we reach the same conclusion. The poor have less access to higher education than the non-poor. This occurs because entrance to universities is constrained by very restrictive grade requirements and students from wealthier families have a better chance to of earning good grades because they are able to afford better quality secondary education as well as private tutoring.
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Fig. 4

Enrolment rates by income quintile, 2004–2005 (%).

Source: CAPMAS (2005)

This situation resulted in the trend toward decreasing enrolment with increasing educational levels. Egypt has achieved near universal school attendance at the primary level; the gross enrolment ratio (GER) at primary level rose to 102% in 2005. However, the GER declines to 86% at the secondary level and to only 35% for higher education (World Bank 2010b). Furthermore, enrolment rates are declining more for poor households than for other households; a World Bank study (2002a) found that children from the poorest population quintile represent 25% of primary school students, but only 14% of secondary school students and 4% of higher education students. This confirms that public expenditure on higher education is effectively a subsidy to the middle class.

Region

In Egypt, the allocation of public higher education expenditures among governorates, or administrative regions, also tends to favour some regions at the expense of others. On average, 28% of Egyptians of the appropriate age group are enrolled in higher education, but this average hides a wide disparity across governorates. For example, this percentage is 70% in Cairo, 57% in Port Saeed, and 47% in Alexandria, but it is 10% or less in Fayoum, Behaira, Luxor, and Minya (El-Araby 2009), as Fig. 5 shows.
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Fig. 5

People aged 18 to 23 enrolled in higher education across different governorates, 2006–2007 (%).

Source: El-Araby (2009)

Consequently, as Fig. 6 shows, the proportion of university graduates in urban governorates was higher than in rural areas throughout the period from 1988 to 2006, according to ERF (2006).
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Fig. 6

University graduates by urban and rural areas in Egypt: 1988, 1998, and 2006 (%).

Source: ERF (2006)

This inequality of enrolment opportunities across the different governorates highlights the fact that Egypt invests less in higher education in rural areas. In addition, correcting such imbalances will impose an additional financial burden on the state and on the higher educational institutions.

Gender

With regard to gender equality, during the past 20 years the number of female students enrolled in Egyptian universities has been increasing continuously, as the average literacy rate among females has increased, from about 30% to 59%. As shown in Table 6, the gross enrolment rates for females at the third level increased continuously during the 1990s; however the gender parity index (GPI) remained almost stagnant over the decade.
Table 6

Male and female tertiary gross enrolment rate and gender parity index in Egypt (%)

 

1994

1995

1996

1997

1999

Gross female enrolment rate, tertiary

14

16

18

20

20

Gross male enrolment rate, tertiary

22

24

27

30

30

Gender parity index

0.636

0.667

0.667

0.667

0.667

Source: World Bank (2010b)

No recent data are available on the GPI in higher education. In 2004, however, the GPI for the secondary level was 1; that means that females are at par with males at the secondary education level (World Bank 2010b). Therefore we expected that this would reflect positively on the GPI at the tertiary level.

In fact, the proportion of female university graduates has come close to that of males. This progress is stronger in urban areas where the proportion of female university graduates actually surpassed that of male graduates in 2006, as shown in Fig. 7. It is also interesting to note that in 2005 the ratio of females to males in tertiary education reached 56 in science fields and 99 in the humanities (UNDP 2008).
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Fig. 7

University graduates by sex and urban vs. rural areas: 1988, 1998, and 2006 (%).

Source: ERF (2006)

In summary, the financing of higher education in Egypt is not equitable, as it is biased against the poor; the education available to them has been of such low quality that it has provided little real economic benefit and they still have very limited access to higher education institutions. This leads to a vicious cycle of poverty, and may be perpetuating the current class structure. One positive aspect with regard to equity is that women’s participation in higher education has increased significantly over time.

Challenges

Not only will the financing of higher education in Egypt require adjustments to make it adequate, efficient, and more equitable. Additional pressure is likely to mount in the near future to find alternative financing arrangements, for several reasons. First, the demand for higher education will increase due to the so-called “youth bulge”. Second, more funding will be needed to improve the quality of education to meet the demands of a more sophisticated labour market. Finally, as the country increasingly relies on the private sector to provide higher education, it will need to ensure that equitable access to higher education is available for those who cannot afford to pay for it. Without a shift in the modes of financing higher education, expansion may occur at the expense of quality and access to higher education may become increasingly inequitable. We elaborate on each of these challenges below.

The demographic challenge

Demographics plays a large role, as key educational policies are affected by the pace and the dynamics of population growth, and the composition of the population. These variables are crucial to planning and financing education, as the size of the school-age population, and hence the potential demand for education, affect educational decisions.

Over the past 20 years, Egypt has experienced a declining total fertility rate (TFR), down from 5.3 births per woman in the 1980s to 3.1 in 2005 (World Bank 2007). In spite of this decline, fertility rates in Egypt are still higher than in the LMI countries (2.1), and the high- income OECD countries (1.7), as shown in Fig. 8.
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Fig. 8

Fertility rate (births per woman) in Egypt and in MENA, LMI and OECD countries.

Source: World Bank (2007)

The fertility rate in Egypt is expected to decline further by 2035, to 2.2. However, this rate is close to the current rate for the LMI countries and much higher than the current rate for the high-income OECD countries (Fig. 9). When the World Bank (2007) translated these rates into projections for Egypt’s population, it estimated that the population will rise to about 112.5 million by 2035, from the current figure of about 80 million.
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Fig. 9

Fertility rate projections 2005–2035 (births per woman).

Source: World Bank (2007)

With nearly 35% of its population below age 15, Egypt is going through a demographic transition known as a “youth bulge”: a period during which youth represent a significantly higher proportion of the population than other age groups. As can be seen in Fig. 10, the population in 2005 was dominated by the younger age groups, the largest being children under 4, at the base of the population pyramid. This youth bulge will make its impact felt on the demand for education, including higher education, in the years to come.
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Fig. 10

Egypt population projections, by age groups, in thousands.

Source: World Bank (2007)

Universities, which traditionally educate students aged 18 to 25, will obviously be affected by the increasing numbers in their traditional target group in the next few decades: the numbers of people aged 20 to 24 will increase from about 7 million in 2005 to about 9 million in 2035. In fact, during the past decade, universities have seen a trend of continually increasing demand, with the number of students in higher education increasing by 115% (CAPMAS 2007) and the gross enrolment rate rising from 25% of the age cohort in 1997 to 35% in 2005 (World Bank 2010b). This growth is expected to continue in the future, with the projected number of students in higher education rising from the current 1.8 million to 2.6 million by 2015 (World Bank 2002a).

How will universities meet this increase in demand for higher education, unless they receive a matching increase in resources? They may well have to sacrifice educational quality, as they are placed under considerable strain to provide infrastructure, resources, and expertise. Moreover, this strain will directly impact their decisions about what courses cost, what types and locations are possible, and what academic staff are recruited.

It can of course be argued that this youth bulge is a positive feature, from the point of view of generating economic growth and additional funding for education. This is the so-called “demographic dividend”, which results when a high proportion of the total population is in the most productive age group, with fewer dependent children thanks to the reduced fertility rate and the numbers of dependent elders not yet significant. According to Bloom, Canning and Sevilla (2003), this demographic transition contributes to economic growth by increasing savings, which improves a country’s prospects for investment and growth. The young and old consume more than they produce, whereas those of working age tend to have higher levels both of economic output and of savings.

Nevertheless, the demographic dividend is not automatic. Its impact on economic development is not the same in different regions of the world. The East Asian nations have experienced the most success in achieving the demographic dividend produced by reduced fertility rates. This achievement has been less pronounced in other areas. For example, Latin America has undergone a fairly sharp demographic transition but, because of a weak policy environment, has not capitalized on it (Bloom et al. 2003). This suggests that if timely policy initiatives are adopted and correctly applied in Egypt, the population dividend will be delivered through an enhanced labour supply, higher rates of savings, and more skilled human capital. In turn, this is expected to ease the pressure to find alternative financing for higher education.

Indeed, Egypt will not automatically receive the positive effects of the demographic dividend unless, for example, it transforms additional savings into productive investment, and absorbs the extra labour force through efficient public employment. Unless the country takes the right steps, these demographic trends may impose a fiscal burden on the economy, becoming a curse rather than a blessing.

The demographic dividend offers a chance of increasing growth, if, and only if, the right policies are adopted to capitalize on it. Such policies include investing in human capital and at the same time enhancing the flexibility of the work force. The quality of education must be high enough not only to meet today’s economic needs and realities, but to also meet those of the future.

Quality of higher education

Upgrading quality is costly. And given the current poor quality of higher education in Egypt and the increasing demand for highly skilled labour now and in the future, finding the necessary resources to upgrade the quality of education is another major challenge that must be addressed.

The deteriorating quality of the higher education system is reflected in the results of the World Competitiveness Report for 2008–2009 by the World Economic Forum (WEF 2009), which ranks the quality of public higher education institutes in different countries. Egypt ranked 126 out of 134 countries around the world. In the same report, it also ranked low on another indicator of quality: the degree to which the higher educational system satisfies the needs of a competitive labour market. Here Egypt ranked 128 out of 134 countries. Perhaps these results are not surprising since universities in Egypt stress routine learning and memorization of facts, while employers increasingly need employees with skills in “expert thinking” and “complex communication”, and less of the ability to conduct routine tasks (World Bank 2008). Hence, graduates are unable to cope with the rapidly changing needs of the technology age, and cannot respond adequately to labour market demands.

Moreover, growth is increasingly dependent on investing in the knowledge economy (World Bank 2002a) and technological adaptation. Unfortunately, the majority of university students in Egypt tend to specialize in the fields of humanities and social sciences (79% of total graduates), instead of science and engineering or other practical fields (22% of total graduates), unlike the pattern of student specialization in the OECD and LMI countries (see Fig. 11). Not surprisingly, recent studies in Egypt point out a great mismatch between the skills demanded by new enterprises and those available in the work force, leading graduates to an extended and difficult transition period as they try to find work (Assaad and Roudi-Fahimi 2007).
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Fig. 11

Graduates by field of education in Egypt and OECD and LMI countries, 2005 (%).

Sources: UIS (2007b), CAPMAS (2007)

Concern for quality led Egypt to establish a National Quality Assurance and Accreditation Committee (NQAAC) in October 2001. This committee was charged with several tasks: promote quality assurance in higher education; encourage improved academic standards and quality of learning; facilitate the development and application of national reference standards, taking international standards into account; and support institutions, both public and private, in developing their internal quality assurance systems. In parallel, the government, with the support of the World Bank, embarked on the Higher Education Enhancement Project; its objective is to improve efficiency by reforming the governance and management of the higher education system, improving the quality and relevance of university education to respond to labour market needs, and improving the quality and relevance of mid-level technical education (El-Berr 2004). However, these initiatives have yet to produce tangible results.

In short, improving the quality of higher education and meanwhile ensuring that university graduates possess a wide range of problem-solving and world-class professional skills will pose a challenge: they will require substantial resources to finance the technological upgrading and adaptation of higher education institutions, and meanwhile also update curricula, instruction techniques, and learning methods, and improve the skills of academic staff as well as increasing their salaries. This is especially true in view of the expected future increase in the demand for higher education, the desire to improve the competitiveness of the Egyptian economy, and the need to maintain a high level of economic growth.

Transition from public to private provision of higher education

In many countries, higher education has long been viewed as a public service to be provided by the government. However, it has increasingly been forced to compete for limited public resources with other important public services, including health care, infrastructure, and primary and secondary education. Gradually the private sector has begun to play an important role in financing and providing educational services. This shift brought to the forefront the issue of equity of access to higher education, especially by those who are qualified but cannot afford it. This challenge is likely to increase in the future for most developing countries, including Egypt.

Until 1996, no private universities were allowed to operate in Egypt, except for the American University in Cairo, established in 1919. Since 1996, the private sector has taken on a growing role in providing education. By 2006/2007, the number of private universities had risen to 16, according to the MoHE (2008), and the number of students in private higher education tripled between 2000 and 2005, from about 11,000 to about 33,000. In spite of this trend, enrolment in private universities remains low, at only about 17% of the total enrolment in higher education.

As the private provision of education increases and some public universities begin to charge fees, the main concern is maintaining equitable access to higher education, and preventing private institutions from skimming off the best students. Since less affluent students will not be able to enroll in these institutions, they will be at a disadvantage compared to their wealthier peers. Moreover, private universities, if not well regulated by the state, may be biased against the poor and disadvantaged groups, and may even allow entry only to students from high socio-economic backgrounds as well as to those who have good grades, which will reflect well on these universities and thus enable them to attract more and more such students in the future. This problem is particularly acute in Egypt, which has no loan or voucher programmes. Nor does it have an explicit strategy on the division of labour between the public and private sectors. Moreover, no decision has been made about abandoning the policy of free education for all in public universities. Given the limited resources allocated to public universities, it is not surprising that some of them are trying to be at least partially self-sufficient, by creating departments or divisions that are able to charge some fees.

In summary, then, the government will rely increasingly on the private sector to provide higher education. However, concerns for equity remain a real challenge in the future.

Alternative financing strategies

The public provision and financing of higher education in Egypt suffers from inefficiencies, as well as deteriorating quality and inequality in access. In view of the increasing demand for higher education, the public sector can no longer afford to be the main provider. Moreover, the country’s constrained resources, combined with the fact that basic education offers a higher social rate of return, lead to three suggestions. These are: focus scarce public funds on basic education, allow the private sector to play a larger role, and charge fees in public universities when doing so is socially and economically justified.

The government recognizes these concerns and has already taken steps to reform the financing of the higher education system to allow the private sector to play a larger role. But can the state leave the provision of higher education entirely to the private sector, that is, to market forces? Obviously, doing so is likely to result in uneven provision and access by different socio-economic groups. It may also cause rising public resentment and protests. State intervention is necessary to guard the collective social interests and ensure a balance, particularly in favour of the underprivileged who may not be able to afford the market cost of private education.

A balanced approach is more desirable. This approach would encourage the private provision of higher education through a favourable legal and regulatory framework so that it becomes the main supplier of higher education, but would simultaneously rationalize the public provision of higher education in a way that makes public higher education institutions more efficient and equitable. In this scenario, the government will have to play a supervisory role to ensure equity so that students of low socio-economic status will benefit. Below we discuss the reforms undertaken in this direction so far, and then describe the features of this dual approach.

Attempts to reform higher education financing

The Egyptian government recognizes the shortcomings of the current system, and has taken steps to address some of the challenges facing the higher education system. For instance, to address the issue of efficiency, it has tentatively attempted to apply cost-sharing to special programmes in public universities. It has also attempted to link the salaries of academic staff with their levels of performance, and has encouraged the private provision of higher education to meet the challenges of increased future demand for higher education.

Indeed, in recent years it has allowed public universities to charge nominal tuition fees for academic programmes that are in high demand and seen as high quality. For example, state universities have introduced foreign language programmes for which students pay tuition to cover at least part of the cost. Also, some degree programmes in public universities attract more applicants than they have spaces available; this gives them the opportunity to charge tuition. This system, applied to admission to the faculties of law, commerce, and arts, allows less qualified students to obtain places by paying relatively higher admission fees. While the tuition charged in this case is still only about one third of the actual cost of the programme, this arrangement sets a precedent for cost recovery in public institutions (World Bank 2002b). We suggest gradually applying this approach to encompass more programmes.

In addition, the government has introduced a new salary structure for faculty members as of July 1, 2008; it raises university staff salaries and aims to link their income to performance. Thus, university professors may be able to earn more than their basic salaries, depending on their performance. However, this new scheme is optional, a fact that casts major doubts on its merits, and on whether it will actually have any impact on the performance of the academic staff or the quality of education. In addition, the general attitude towards this scheme has so far been one of resentment and lack of cooperation, mostly for cultural reasons.

Turning to private provision of higher education, it has been increasing since 1996, as discussed earlier. However, it still provides only 17% of tertiary enrolment; considering the expected increase in demand, more private involvement is clearly needed. In addition, most of the new private institutions are located in Cairo and geographical balance should be considered before new institutions are approved.

Moreover, most of the new private institutions are profit-making institutions, though Law 101, which establishes private universities, stipulates that they are essentially not-for-profit. The word “essentially” means they can make a profit, and indeed most of them aim to. To address the shortcomings of Law 101, and to allow a larger role for private higher education, a new form of private university is under consideration through a new draft law, which is awaiting approval from Parliament. The articles of the new draft law stipulate that private universities are not profit-making institutions, and that they can be established by one or several legal entities or individuals. They also stipulate that the funds for private universities come from contributions to their endowment funds and from investing their assets.

Thus the government has attempted to address some challenges, such as issues of quality and meeting the ever-increasing demand. So far, however, these attempts have produced few tangible results, as solving these problems requires considerable financial resources, well beyond the current means of the government.

Rationalizing and diversifying the public financing of higher education

As indicated above, public financing of higher education is inefficient and produces poor quality outcomes. The public financing mechanisms are rigid, making them inefficient: the financial resources of public universities are primarily government funds (especially for wages), very modest student fees, and limited funds obtained from research activities. Moreover, universities do not enjoy financial autonomy. Their budgets are allocated in a line-item format and they have no authority to allocate resources among different budget lines or across different faculties based on their own needs, student or faculty numbers, or academic offerings. University officials have limited freedom in personnel management, which is constrained by regulations similar to those in the civil service where salaries are not linked to performance. Once a person has been appointed, termination is very difficult. Consequently, funding levels and staffing reflect neither the demands of students nor the country’s changing needs (El-Baradei and El-Baradei 2004), which in turn affect the quality of education.

To become more efficient, the system of public higher education needs to adopt more rational mechanisms for allocating resources. It would also help for the state to reduce its financial control and devolve responsibility to the universities themselves, permitting public universities to use their financial resources freely, to achieve efficiency and improve quality. We see six changes that could help in this process.
  • Reduce the numbers of redundant non-academic staff to the actual level that is needed.

  • Shift more current resources towards paying academic staff and link all promotion and salary increases to performance.

  • Allocate government funds to universities on the basis of student enrolment numbers, weighted to reflect cost differentials across faculties, as some faculties require more resources than others.

  • Allow universities both autonomy and the accountability to reallocate budgets across expenditure items and across faculties, or for development purposes such as academic development, faculty and staff upgrading, refurbishing of facilities, and procurement of instructional equipment according to internal policies and goals.

  • Develop new forms of accountability by reporting on performance and outcomes in achieving nationally-set goals for the sector, as well as institutionally-set targets for quality and performance.

  • Provide financial incentives for universities to respond more quickly to changes in the labour market demand and for upgrading teacher skills.

Moreover, public higher education institutions must be allowed to diversify their funding sources in addition to government funding, and to achieve full autonomy over their assets. This opens the way for them to use a variety of funding sources, including the four below.
  • Adopt tuition charges that reflect the actual cost of programmes, and limit subsidies in conjunction with a system of scholarships for honour students. Apply a quota of grants for each faculty for poor students, and develop a special student loan system for public universities, one with favourable terms and low interest rates.

  • Allow public universities more freedom to generate revenue by providing scientific and technical assistance, consulting services, and educational training programmes. As faculty members compete with those at other institutions, this may lead to more and better contracted research and consultancy work.

  • Create endowment funds for public universities, financed by donations from alumni and other benefactors as well as grants from charities or foundations.

  • Establish long-term contracts with private sector organizations in which they build, operate, and maintain student residences and recover the costs by charging students rent.

These measures will increase the share of income that higher education institutions get from non-government sources, and allow them much-needed flexibility to allocate or reinvest the money they have earned. Universities can use the funds from these income-generating activities to boost quality and efficiency by improving curricula, infrastructure, equipment, and student services and developing instructional and research skills.

Looking ahead: Alternative financing measures

While looking ahead and trying to meet the many challenges involved in financing higher education, one must keep the issue of equity in mind. Most higher education students come from the middle class and higher education has the highest private rate of return. Therefore, private universities can charge students what their education actually costs. Meanwhile, public universities can engage in some cost-sharing. Rather than giving public subsidies to all students, the government must target them to the most disadvantaged to ensure more equitable access. This would be a shift from supply-side funding, in which the government allocates funds to universities, and toward demand-side funding, in which public funds go directly to students.

Several studies (Calero 1998; Friedman 1963; Friedman and Friedman 1980; World Bank 1994) explain the reasoning behind providing the funds to those who demand education and not those who supply it. If economically disadvantaged students are allowed to take their assistance package to any institution of their choice, they will have the freedom and the opportunity to make the same choices as their higher-income peers. Moreover, demand-side financing can ensure quality education, as it will stimulate competition among different institutions to attract students by delivering the best and most up-to-date curricula and advanced programmes (Al-Lamki 2006).

In addition, to meet the increasing demand, the private sector in Egypt should play a larger role and expand its provision of higher education. However, if the entire process is left to the private sector, students from disadvantaged groups may not be able to enter higher education institutions and the gap between rich and poor will widen.

Therefore, it is crucial that promoting private participation does not turn higher education into a profit-making business. It is important to encourage private-sector contributions to higher education through non-profit, philanthropic institutions. Such institutions are owned and operated by trusts that rely heavily on endowments and fees collected from the students, and most are self-financing. Many of the best universities in the United States, such as Harvard, MIT, and Princeton, are private and have large endowment funds. In Egypt the American University in Cairo operates under the same system. It is encouraging that the government is moving in this direction, as the draft law on private universities encourages the establishment of this type of private institution.

To achieve the concept of equity, then, those who benefit from higher education and have the economic ability to pay should bear at least some, if not all, of the costs of their higher education. This concept of cost-sharing is now accepted worldwide, and the burden of paying for higher education has shifted from exclusive dependence on the government to the students, through tuition payments. Many developed and developing countries (see Box 1) are introducing tuition payments, and phasing out student grants, for example in the United Kingdom and Austria. Tuition payments are being introduced in China and other nations still holding to some elements of Marxist-Socialist ideology. Countries throughout Asia and Latin America rely heavily on private, tuition-supported colleges and universities.
Box 1

Examples of cost-sharing and its worldwide growth

Cost-sharing takes many different forms, but it is generally increasing around the world. Four examples follow

 The United Kingdom In 1998 the UK became the first European country to impose more than a nominal tuition fee. The tuition fee is high but is deferred for all students and repaid after graduation as a portion of earnings, at a rate of interest equivalent to the then prevailing rate of inflation, i.e. a zero real rate of interest

 Japan With one of the world’s largest higher educational systems, and one of the world’s highest rates of higher education participation, Japan has fully adopted the principle of cost-sharing. It also depends on the private sector which, in 2006, absorbed more than 73% of all graduates. Most financial assistance is in the form of low-interest loans capped by law at 3% and repayable over 20 years

 Latin America In much of Latin America, cost-sharing and revenue diversification have generally taken the form of increasing reliance on private higher education, in which students pay tuition, with the public universities continuing to feature either no, or very low, tuition charges

 China Since 1997, China has charged tuition to nearly all students. New forms of student loans and means-tested grants begun in 2003 were still being developed in 2006–2007

 What these and countless other examples show is that governments throughout the world are embracing, albeit tentatively, policies like tuition fees and student loans, and employing some version of cost sharing in the forms of tuition, user fees, and official encouragement of a tuition-dependent private higher education sector

Source: Johnstone and Marcucci (2007)

In Egypt, the concept of cost-sharing should be introduced gradually through adjustments to the tuition fees at the public institutions of higher education. In order to ensure accessibility and equity, however, this paradigm shift must introduce a parallel system of financial assistance, such as student loans and grants given directly to the poor in the forms of vouchers and scholarships.

Student loan programmes can be used as an important policy instrument to promote equitable access to higher education; indeed, many countries rely on them to do so. Such student loan schemes are reasonably comprehensive and conventional (i.e., are repaid on a fixed schedule) and have been operating long enough to be considered an established part of a total policy of cost-sharing and student finance policy. These include the government-sponsored student loan schemes in, for example, the United States, Canada, Japan and South Korea. Other examples are the more discretionary loans, repaid on an income-contingent basis, in South Africa, Australia, and Chile (see Box 2).
Box 2

The student loan system in Chile

 As one approach to cost-sharing, more and more countries are looking to student loan schemes that allow students to bear a portion of the costs of their higher education. Chile provides a good example of student loan programs that have achieved some stability

 Chile has two principal student loan programs: the University Credit Program and the Credit to Finance Higher Education Studies. Both are means tested and cover only tuition fees. In both, the higher education institutions share the risk of students not repaying their loans. The first is an income-contingent loan with a real interest rate of 2%. Repayment begins after a two-year grace period at a rate of 5% of income. Any loan balance remaining after 15 years is written off. The universities are responsible for collecting payments

 The second is a conventional loan with an in-school grace period. Students begin repayment 18 months after they finish their degrees in a series of 240 monthly installments divided into three periods in which payments rise gradually from one period to the next. The loans are partly guaranteed by the higher education institutions

Source: Johnstone (2004)

It is worth noting that in 1998, the International Finance Corporation conducted an extensive feasibility study on the market for student loans in post-secondary education in Egypt (World Bank 2000). It recommended against launching a student loan programme for four reasons: limited market size; underdeveloped debt/credit market; a cultural attitude uncomfortable with personal debt and loans; and the lack of a consumer credit agency.

The above recommendations notwithstanding, many of the reasons mentioned above no longer apply, as financial institutions have developed in Egypt over time with the presence of foreign banks, offering new financial products such as car loans, personal loans, and mortgage finance. Thus, the market has changed drastically since 1998.

In Egypt, loans or grants could be provided to disadvantaged students from low-income families. But without government support, students who have no collateral may not be able to borrow; in these cases the government must function as the guarantor. Among possible sources of finance are private sources such as commercial banks, and firms that allocate student grants. In response to the country’s needs for skilled labour (Perrot 1988), they could finance students in higher education and training in certain relevant fields and then hire them to fill their own needs.

Repayment of student loans can take various forms based on students’ social and economic backgrounds. Students from families with enough collateral can take out loans and pay them back over a fixed period of time. For those from families with insufficient collateral, the government can play the role of guarantor; these students can either take out an income- contingent loan or engage in a mixed grant/loan scheme. With the income-contingent loan, the repayment amount is a function of the amount borrowed and a percentage of the income that graduates earn once they complete their education and become employed. In this system, students may choose to repay either in fixed amounts, or gradual amounts, or as a graduated tax. However, for this system to work efficiently, individual students’ debts and graduates’ incomes must be recorded accurately, and the system for collecting repayments must be efficient and legally binding, like the income tax system in Australia, or the system of employer deductions in South Africa. In a mixed grant and loan scheme, student financial aid may be provided as part scholarship and part loan.

On the other hand, grants and scholarship schemes for the most needy and academically qualified students, unlike student loans, are free monies made available to the less economically advantaged students who have demonstrated potential for academic success and to scholars based on academic merit or other specific attributes such as athletic scholarships. A quota of grants could be specified each fiscal year. To make grants more efficient, vouchers, generally cash or coupons given directly to students, can be used. Students can then submit these vouchers to the higher education institution of their choice (Varghese 2004).

Conclusions

The current system for financing higher education in Egypt is inadequate, inefficient, and inequitable, and is helping perpetuate the rigid class structure, creating a vicious cycle of poverty and regional imbalance instead of contributing to social mobility and equality of opportunities.

Egypt needs to face the challenge of financing higher education, while satisfying the criteria of equity, efficiency, and quality. To achieve this, a reformed education system is needed, in which the government limits its subsidies, targeting needy students, and also increases student fees in public higher education institutions to reflect actual costs. At the same time, it should encourage an expansion of not-for-profit private higher education in a well-regulated framework that is also concerned with equity and quality. Public and private institutions must be allowed to generate their own funds. Implementing cost-sharing while developing student loan programmes and grants will help ensure equity, as wealthy students will pay tuition amounts that reflect the actual costs of higher education, while disadvantaged students can apply for loans or grants. This would help expand access to higher education to include those of low socio-economic status who currently under-enroll in higher education.

Footnotes
1

We calculated the public expenditures by quintile based on the data from the Egyptian household survey, which identifies levels of education per quintile. We then multiplied by the corresponding cost per student.

 

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