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Regular version of the site

There is a Growing Demand for Good Social Infrastructure

‘Private investment is ready to enter the social sphere – if supported by the state them,’ said Yaroslav Kuzminov, HSE Rector, at ‘Russia Calling’, an investment forum organized by VTB Capital.

According to researchers’ evaluations, (in particular those of Rostislav Kapelyushnikov, who analyzed data from 2002-2010), the human capital potential in Russia exceeds 600 trillion roubles (around $18 trillion) – this is the total potential income in earnings from the country’s working population. This figure is approximately 6 million roubles per capita and is 13 times higher than the annual GDP and 5.5 times higher than the total physical capital.

Over the last ten years, human capital in Russia has more than doubled, which means that the annual growth rates are about 10%. Only one factor – population ageing – has had a considerable negative impact on human capital.

But human capital is reproduced mainly at the state’s expense, since the social sphere is the last sanctum of Soviet socialism in Russia. The share of commercial and private sector services in education and health care, even taking into account a significant shadow economy, does not exceed 20% for education and 30% for healthcare. The reason for this is that the country lacks the effective tools for private investment.

Health care and education: where is the growth potential?

Only 8% of the population use the Voluntary Medical Insurance (VMI) scheme, and in money terms this translates to less than 150 billion roubles for this sector, or 0.2% of GDP. By 2020 this indicator may see some growth: 12-15% of the population may take up VMI, and the share of this sector in GDP would reach 0.35%. The shadow economy makes up 30% in this field. At the same time, we can evaluate the real scale of the country’s spending potential if we look at the example of the pharmaceutical market which alone makes up 1.5-1.7% of GDP.

Considerable sums of private money in education are visible only in the area of further education: in all, 35% of students pay for their studies. Compared to health care, in education there are no adequate investment tools in place. Loans are available only for a tiny proportion of students from the top universities – banks have no faith in the creditworthiness of graduates from ordinary universities.

If we compare these figures with the size of the middle class in Russia (and it makes up about 25% of the population), we can see the growth potential for private investment in human capital in these sectors – but only if effective tools are created.

Private investment in the social infrastructure has not been in demand yet, since state policy has been focused on citizens from lower income brackets who are unable to pay for education and health care. Today the state is in the process of tackling this task, and results should be seen by 2018 especially if President Putin’s election agenda will be implemented by then, and education professionals in these sectors will have had their state salaries increased.

But the demand among the middle class for higher quality education and medicine has not yet been met. And taking into account state underinvestment in these sectors, it is impossible to achieve a globally competitive quality of service. This leads to a high demand for the creation of institutions which are capable of solving the problem of quality for large groups in the urban population.

‘It is highly likely that during the current political cycle the state will decide to set up such institutions, with the guarantee of secure and profitable social investment for private individuals. And there is an 80 percent probability that this will come to fruition by the beginning of the next political cycle, no matter who becomes president’, emphasized Yaroslav Kuzminov.

New challenges and opportunities

‘There is one area of opportunity which has been missed by investors – not only in Russia, but in other countries as well ’, said Yaroslav Kuzminov, ‘and this is investment directly in higher education programmes’.

Up until now they have not been profitable but the situation is about to change.

Development and promotion of Coursera (the largest international project in online education which involves world -leading universities) and other open university online courses available to all (MOOC) will lead to huge changes in higher education. Up to 30-40% of courses will be available on MOOC. This, on one hand, will make the courses profitable, and on the other hand will cut the costs for state educational programmes.

There will be a mass consumer demand for specific courses provided in English, Spanish, and Chinese (up to 1-3 million student users of each course) in the higher education sector. Courses conducted in Russian will, of course, take up a smaller market share, but, taking into account the former Soviet countries, potentially we could be talking about 10 million users as a whole, and hundreds of thousands users on a multitude of courses.

‘It is difficult to evaluate the potential of a brand new market such as MOOC, it is a thankless task and fraught with risk’, summarized the HSE Rector. ‘The most conservative forecast is for several billion dollars by 2020; the less conservative is for tens of billions of dollars. The companies and investments in this sector will be from a global and international background, and this should be taken into account’.

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of families do not reject the idea of higher education for their children if they are unsuccessful in enrolling for a tuition-free spot. They either look for another university with less demanding requirements or enroll as tuition-paying students.


is the additional compensation that graduates with Master’s degrees earn already in their first place of employment in comparison with those who have regular diplomas. 

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