February 22, 2024

Why are our universities so strapped for cash?

And how can the sector become more resilient?

Before the COVID-19 pandemic interrupted cross-border movements between New Zealand and the rest of the world, international education was one of our biggest export earners.

In 2017, before COVID-19 disrupted the world, New Zealand’s international education exports were valued at $5.1 billion. The university regions of Auckland, Canterbury, Wellington, Waikato, and Otago received the bulk of this revenue.

The pandemic has upended the global international tertiary education industry

Many had hoped that the COVID-19 related disruptions were no more than an extended pause on the trends seen previously. A different economic landscape has emerged, however, and the drivers and incentives underlying decisions to study abroad have changed. Rather than a pause, the pandemic seems to have hit the reset button. 

New Zealand competes closely with other advanced English-speaking countries in attracting international tertiary students. The big four markets – the United States of America, the United Kingdom, Canada, and Australia – host over 40 percent of the 6.4 million international students globally. At the individual institution level, each of our eight universities is not just competing with comparable institutions overseas but also with the other New Zealand universities. 

New Zealand universities are on shaky ground. A number of Asian countries, such as Singapore, are emerging as potential competitors for students in that region. Additionally, the outlook for the New Zealand economy, including future job prospects, also falls behind in comparison to most of our strongest competitors, including Australia. While many other countries, such as Australia and Canada, are experiencing a surge in international students, surpassing pre-pandemic numbers, this hasn’t been the case for New Zealand.  

The faster-than-expected economic recovery has not worked in the universities’ favour

The tertiary sector tends to be countercyclical, meaning that people are more likely to study during recessionary periods when unemployment tends to be high, and jobs are harder to come by. In 2020 and 2021, the universities experienced a jump in domestic student enrolment. This masked some of the losses in revenue from international fees, which can be more than four times higher than domestic fees. However, in the context of historically low unemployment and high youth employment, domestic and international student enrolment fell in 2022 as young people flocked to the labour market. 

Source: Tertiary Education Commission (TEC)

Previous tertiary sector reforms laid the foundations for intense competition

The New Zealand tertiary sector underwent a major reform in the late 20th century. Under the new rules, universities were encouraged to compete with one another, and there was an increased focus on the recruitment of international students. This focus on competition has resulted in a strong drive to establish an individual and identifiable brand, with large amounts being spent on marketing and branding. The universities have prioritised expensive capital projects over the years. In 2022 alone, the combined spend on purchasing property, plant, and equipment was $830 million, or 58 percent of operating revenue for the sector for the year. Moreover, the universities are now offering a broader range of courses and expanding beyond the regions they traditionally served, pointing to intensifying competition. 

But this is what the reforms were designed to do. From a university’s perspective, the only way it can remain competitive is by continuing to capture a larger share of the market by gaining an edge over the other universities. Somewhere along the way, polytechnics have entered the same race, increasingly offering courses that compete directly with university courses. This has led to a devaluation of vocational education. 

Our tertiary education sector is at a tipping point. The pandemic has helped highlight the university sector’s dependence on international student tuition fees, and the flaws in the competitive model that do not quite align with the universities’ primary purpose of advancing learning and conducting world-leading research.  

Where to from here?

The International Education Strategy 2022-2030 clearly sets out the vision for the sector. While “building a new future for international education” is a shared goal, the universities’ recent responses to emerging challenges appear fragmented and shortsighted. These individual reactions might inadvertently hinder our long-term prospects and international competitiveness. 

Many of our key competitors have developed concrete strategies in this area. These include efforts to diversify source countries, presenting a united front internationally at events overseas despite domestic competition between institutions, and offering a wider range of scholarships for international students. All this stems from the recognition that international education is an important tool that can support key policy priorities beyond export, including productivity growth, innovation, skills transfer, workforce diversity, and even building soft power in foreign diplomacy. From an economic perspective, international students are not just export dollars. New Zealand has so far been highly successful at attracting students who stay in the country and fill shortages in much needed industries and occupations. In these challenging times, the universities must be more strategic in working with industry, and, to some degree, each other, to cement the vital role they play in enhancing New Zealand’s economic and social well-being.