Opportunity Costs in terms of Educational Spending

Education is an equally powerful instrument to expand the economic opportunities for poor people and to underpin growth prospects in low income countries. In addition, good education is a prerequisite in enhancing people’s capacity to participate in political decision-making processes and to ensure effective social institutions and sound governance. Similar to the daunting challenges in the health sector, the current educational situation in most developing countries is still far from satisfactory. Based on estimates presented at the 2000 World Education Forum in Dakar, at least 880 million adults worldwide are illiterate, of whom the majority are women, more than 110 million children (60 percent of whom are girls) have no

Chapter 3: Quantitative Analysis of Energy Import Dependency access to primary schooling and less than one-third of the more than 800 million children under the age of six benefit from any form of early childhood education (Dakar Framework for Action 2000: 12). The global demand for education is still on the rise. This is mainly due to the fast growing populations in many developing countries. To give an example, in 2000, there were 30 million more children of primary school-age in Asia and 24 million more in sub-Saharan Africa than in 1990 (UNCESO 2000: 3). The investment needs to achieve at least universal primary education –a goal firstly agreed upon at the World Conference on Education for All in Jomtien, Thailand (1990) and meanwhile incorporated in the Millennium Development Goals (Goal 2)– are immense. A recent World Bank report assumes that developing countries need around $33 to $38 billion per year in additional spending on primary education to meet the Millennium Development Goal on education (Bruns et al.

20003: 14). This finding dwarfs earlier assessments, which estimated additional funding needs to be below $10 billion per annum (Oxfam 2000: 3). If additional targets to improve the educational infrastructure in developing countries are taken into consideration (e.g. in the fields of childhood care, education quality and adult learning), the financing gap may turn out to be even far larger. Foreign assistance alone will not be sufficient to close this gap. To raise the necessary funds, developing countries will be required to reallocate more domestic resources towards the educational sector. However, such efforts will be hampered by scare budgets and conflicting spending needs in other social sectors. Once again, I suppose that a reduction of energy import expenditures could be an appropriate mean to generate part of the urgently needed funds. The opportunity costs of energy import dependency with regard to education were calculated in exactly the same manner and for the same time period as for the health sector. The data on education expenditures was taken from the WDI 2002. It includes public spending on public education and subsidies to private education at the primary, secondary, and tertiary levels, but excludes any form of private expenditures.

The results of the opportunity cost analysis are summarized in Table 3.4.2-1 and very much resemble those for the health sector. The opportunity costs in high income countries are on average far lower than in developing countries. To give an example, Sweden, Chile, Sri Lanka and Nicaragua all had to import roughly one-third of their commercial energy needs during the 1990s. But the ratio of public education expenditure to net fuel import expenditures varied remarkably across the four countries. Sweden paid on average 7 times more for education than for energy imports, Estonia 2 times more and Sri Lanka about 1.2 times more. In Nicaragua, public education spending amounted only to half of net fuel import expenditures.

Even industrialized countries with higher levels of physical energy import dependency like

Chapter 3: Quantitative Analysis of Energy Import Dependency Germany (58 percent) and Ireland (72 percent) fared better than the three mentioned middle and low income countries.

Table 3.4.2-1: Education - Opportunity Costs of Fuel Imports (10-year averages from 1991-2000) Country Examples Energy Imports,

net (% commercial

Country Income Group Public Spending on Education

Source: Own Calculations based on World Development Indicators 2002 and UN Comtrade Data

When country income groups are compared, it can be observed that around 50 percent of the LICs (19 out of 33/35) and LMCs (13 out of 28) designated more financial resources to the import of foreign energy sources than to the investment in the public education sector. For UMCs, this was the case for roughly 20 percent of the countries (4 out of 19). In the HIC group only one country can be singled out as having spent less on public education than on energy imports. According to the latest available World Bank country data from the early 1990s, New Caledonia spent only half a percent of its GDP for public education. At the same

48 Please note that the country group means are sensitive to outliers. Especially the Education/Fuel-Import Ratio can take high values when the value of net fuel import expenditures (% of GDP) -the denominator of the ratio- is close to zero. This is for example the case for Sudan. During the 1990s, Sudan was a net fuel importer with net import expenditures of around 2 % of GDP annually. However, in 2000, Sudan turned into a net exporter earning more than 8 percent of its GDP from fuel exports. This change makes the 10-year average value of net fuel expenditures close to zero (0.38) and leads to a considerable high Education/Fuel-Import Ratio. The same applies to Cote d'Ivoire. Such high ratio values distort the average value for the low income group. To illustrate the potential distortion, I calculated the averages with (values in parentheses) and without these two countries.

With the inclusion the ratio value nearly doubles, from 0.97 to 1.88. For the same statistical reason, I excluded Denmark in Table 2. Over the last decade, Denmark paid more than 8 percent of GDP per annum for public and private health. The average 10-year value for net fuel imports was virtually zero (0.007). Consequently, the ratio of both values would reach a value of around 1,240 totally biasing the mean value for the high income country group.

Chapter 3: Quantitative Analysis of Energy Import Dependency time, the sparsely populated French overseas dependency paid almost 4 percent of its GDP for fuel imports. This resulted in an opportunity cost ratio of a meagre 0.13.

3.4.3 The Poverty Reduction Potential of reduced Energy