By: Murray Hunter

An imminent collapse is pending within Malaysia’s private higher education sector that could potentially permanently close the doors of up to half of the country’s private institutions, leaving only a few with strong backers to financially guarantee their survival.

The onset of the Covid-19 coronavirus, which has closed more than half of the country’s small and medium enterprises and almost certainly plunged the country into recession, is exacerbating the outlook for a university sector already in deep trouble. According to research by Professor Geoffrey Williams, a former deputy vice chancellor at University Tun Razak, on Malaysian private higher education institutions, 55 percent are making trading losses.

Around 44 percent are technically financially insolvent, with debt levels continuously increasing in order for these institutions to continue operating. That resulted in a situation in 2018 in which 64 percent were in dire debt distress and current and fixed assets were less than balance sheet debt, eroding the value of shareholder equity.

The only way the majority of private universities and colleges are continuing to operate is through continuing new funds from lenders, and/or continual equity injections by shareholders.

Williams undertook a sensitivity analysis on private higher-educational institution finances and found that a 5 percent drop in revenue would turn 70 percent of Malaysia’s private higher education institutions into money-losing entities. A 10 percent loss of income would mean all Malaysian foreign branch campuses operate in the red. With a 15 percent drop, more than half of Malaysia’s private higher education institutions would be insolvent.

The above analysis is not hypothetical. Some have already either closed or are under severe financial stress. Allianze University College of Medical Sciences, with a campus in Kapala Batas, Penang, and Kangar, Perlis, shut its doors permanently in 2016, leaving staff unpaid. Albukhary International University in Alor Setar, Kedah, after only two years of operation, terminated all staff, and closed its doors in 2014, only to reopen a couple of years later. The International University College of Arts and Science closed its doors permanently in 2016.

The University of Reading, which opened a branch campus at planned EduCity within the Iskandar development project in 2014 has lost more than RM 120 million, according to Times Higher Education. According to the report, university management grossly overestimated potential enrolments and the nature of the Malaysian business environment. The university has had difficulties getting courses accredited by the local Malaysian Qualifications Agency (MQA), and student visa difficulties. With only 684 registered students left in the 2018-19 academic year, 50 percent staff cuts, and a large number of courses cancelled, the survival of the branch campus is in question.

University of Reading is not the only foreign branch campus in trouble, Nottingham University Malaysia has also made massive course and staff cuts to try and survive.

The backdrop to this is an overly-optimistic Malaysian Education Blueprint 2106-2025, launched by the former Barisan Nasional government under then Prime Minister Najib Razak in 2015, which foresaw the creation of a higher education environment that would accommodate 2.5 million students. The number hinged on the premise that some 10 percent or 250,000 would be international students, and that the Malaysian economy would continue to grow at a rate that would absorb new graduates.

Although primary attention has been given to Malaysia’s public universities in these plans, currently almost half of Malaysia’s tertiary education students attend around 105 private universities, university colleges, colleges, and branches of foreign universities. Around 70 percent of Malaysia’s foreign student population of around 130,000 attend private institutions. Approximately RM2.6 Billion, 60 percent of Malaysia’s National Higher Education Fund Corporation (PTPTN) loans to students comprise around half of private university income.

Of the approximately 105 private higher education institutions (HEI), most have been awarded the designation of either university or university college over the last decade in the Ministry of Education’s frenzied attempt to put the best persona on local institutions. According to Professor Geoffrey Williams in a public lecture at Monash University Malaysia, late in 2018, about half of private campuses have less than 3,000 registered students, where the 25 percent have less than 1,000 students. Some institutions only have a couple of hundred registered students on their campuses.

About 45 percent of private universities are individually or family-owned. Lim Kok Wing University would be one of the larger examples. Around 30 percent, including Taylors University are corporate-owned, and around 20 percent, including Universiti Teknologi Petronas, Universiti Kuala Lumpur, Universiti Selangor are either government-linked companies, or GLC’s; government agencies, or state government-owned. Foreign campuses like Monash University Malaysia, Swinburne University and Nottingham University Malaysia are either directly owned or joint ventures with local partners.

Universiti Tunku Abdul Rahman (UTAR), was rated by The Times Higher Education world rankings as Malaysia’s second-best university behind Malaysia’s oldest public university, Universiti Malaya. Other private universities like UCSI University, Taylors University, Swinburne and Sunway University also appeared in Malaysia’s to 10 on QS International Rankings. On Malaysia’s local university assessment scheme SETARA, two private universities gain six stars, 14 gained five, 25 gained four and 13 gained three or two stars, with the remaining 50 percent gaining no stars.

The Covid-19 crisis is potentially catastrophic. Private institutions rely on receiving income twice a year, with September student registration coming up. However, with foreign students all out of the country and not knowing when they can return, and many students deferring their studies a year over the uncertainty, incoming revenue will be extremely low. This will present cash flow challenges far beyond what has ever been faced before. Many institutions don’t have any unencumbered assets as security for further loans, so they will rely on increases of shareholders equity, or government emergency grants to survive, which would be improbable.

Private universities have already laid off the majority of part-time teaching staff, and fulltime staff on zero-hour contracts. Balance sheets are extremely fragile, where many are unable to pay trade creditors. The situation with small independent vocational colleges is even worse, with rents to pay, and no students due to the Movement Control Order (MCO), most likely about to be extended a month. In many cases, it's not possible for vocational colleges to utilize online teaching as an alternative to being physically present at practical classes.

The larger institutions with strong local backers will form the residue of what will be left of Malaysia’s private higher education sector. Monash and Sunway Universities are both owned by the cashed-up Jeffrey Cheah Foundation. Swinburne University of Technology Sarawak Campus and Curtin University Malaysia are primarily owned by the Sarawak State Government and has distinct local markets to service. University Selangor is owned by the Selangor State Government. University Petronas Malaysia is own by the Malaysian oil company Petronas, and University Kuala Lumpur is owned by the federal agency MARA.

Former Pakatan Harapan finance minister Lim Guan Eng used funding as a political tool to force the rival political party the Malaysian Chinese Association (MCA) to divest assets, throwing the institution into a shaky financial situation.

When the private higher education sector rebuilds itself after the shakeout, many quality issues need to be addressed in order to prevent the same mistakes happening again. Institutions have to see staff as an asset rather than an expense, nurturing career paths. Curriculum, pedagogy, and classroom standards require a completely new approach. The sector has lost its reputation with Chinese students and needs urgent repair if it is to lure back foreign students. Visa streamlining and police harassment issues also need to be addressed with, for example, a Nigerian student dying in police custody in July of 2019.

After the Covid-19 crisis, opportunity can be expected to emerge for the private higher education sector as the weak elements of the sector are destroyed and the stronger elements regain their footing. But that is liable to take considerable time as the global economy faces a coming downturn.

Murray Hunter is a Southeast Asia-based development expert. He is a frequent contributor to Asia Sentinel