Malaysia's crisis gives UK universities money malaise

International students provide hefty funding for many educational institutions - pounds 100m from Malaysia alone.

But with financial crises besetting South-east Asia, many are likely to remain at home. It won't be fatal, Vincent O'Connell discovers, but it will be painful.

British educational institutions are scrambling to rewrite their financial plans to withstand the loss of millions of pounds in fee income from South East Asian students. The loss of the Malaysian market in particular, worth more than pounds 100m to British universities, will be hard on a sector already under stringent financial pressure.

"Malaysia was the goose that laid the golden egg. It is now dead and nothing will replace it," says David Ross, Deputy Director at the University of Portsmouth,one of the largest recruiters of Malaysian students, as he contemplates the effects of the crisis on Portsmouth's funding, where between 6 and 7 per cent is derived from Far Eastern fee income. "It will make things very difficult for some institutions. The market is decimated. We expect to lose between 80 and 90 per cent of our Malaysian students."

Middlesex, which has been the largest recruiter of Malaysian students, predicts the number of South East Asian students coming to the UK to fall by at least 40 per cent in September 1998. This equates to around pounds 120m of income, previously expected to pour into the coffers of British universities, which will now not materialise. The knock-on effects of a decrease in expected revenue will be a reduction in expenditure. This will hit not only capital projects, but also software upgrades and the resources used to recruit guest lecturers. "The `luxury goods' will go first," says David Ross. "Sports equipment, a coat of paint, computer upgrades. There will be a degree of hurt, but it won't be fatal."

The effects on British universities will vary, in line with their dependence on the big four; Malaysia, Indonesia, South Korea and Thailand, all of whom are suffering from punitive currency slumps. At Lancaster University, for example, 50 per cent of the Accounting and Finance department is made up of Malaysian undergraduates. Losing pounds 500,000 of funding and a significant proportion of its students would leave the department under-funded and over-staffed.

Dr Dick Collins, Director of Undergraduate Admissions at Lancaster, emphasised that most of the university would be unaffected, but it is unlikely that one department would bear the brunt of such a serious shortfall alone. "Plans that have been made over many years will have to be adjusted very quickly," he says.

The University of Birmingham is more concerned with the loss of good students than the financial implications. Frank Albrighton, Director of External Relations and Development, believes the university has diversified enough internationally to bear the blow. "We expect the market to virtually vanish. However, the income involved has not been built into our budget." Birmingham stands to lose between pounds 3m and pounds 4m. Whereas it will not greatly affect the core activities of an institution with an annual funding of around pounds 240m, it is not a figure that can be borne without some discomfort.

Leeds, Cardiff and Middlesex Universities are all putting a stoic public face on a very worrying situation. They will cope with the crisis, but it is more than a simple matter of recalculation.

Those with the most cause for concern will be institutions which have pursued students aggressively in the Far East and have become reliant on that income. Twenty per cent of The London Institute's pounds 60m funding comes from outside the European Union, with pounds 8m coming from South East Asia and Japan.

Professor John McKenzie, former rector and currently director of the London Institute's international office, is confident that the problems in South East Asia may be balanced by growth in Japan. In contrast to many of his competitors Professor McKenzie is optimistic. "We've achieved a 20 per cent annual growth for the last three or four years. We won't achieve that this year but we don't expect our international student numbers to decline." The London Institute's practice of encouraging direct application for international students, bypassing UCAS, may insulate it from the crisis.

Some institutions are not having to wait until September to feel the effects. Westminster is already reporting the withdrawal of international students. Exeter is receiving requests for financial support by way of cheaper accommodation or repayment of fees at the October 1997 exchange rate.

The falling markets of the Pacific are not the only reason for the downturn in international recruitment. Malaysia has seen its students courted by European, Australian and American universities, resulting in millions of pounds leaving their struggling economy. The government is determined to retain much of that currency by reducing tax incentives for study abroad and developing the country's own institutions in the hope that it can become the educational hub of South East Asia. Eighty per cent of its government-sponsored students will, from September 1998, study locally instead of abroad.

The choices facing British universities require more imagination than simply moving out of one overseas market and heading for the next cash cow, the hot new markets of China, South America, India and Pakistan. The Far East cannot be replaced overnight. It takes a long time - years even - to make fresh contacts and build new markets.

"The problem is significant, but we must look for solutions," says Professor Geoffrey Alderman, Pro Vice-Chancellor of quality and standards at Middlesex University. "There's no need to panic. We must be creative and look to minimising our losses." He suggests the provision of entire degrees taught in Malaysia. This however, would require legislation by the Malay government and is not currently permitted.

Along with Middlesex, De Montfort University hopes to ride the current storm through the use of distance learning and partnerships within the Pacific Rim. Many institutions claim they are protected from the crisis by maintaining that overseas income is not the bread and butter of their funding, it is the jam; a windfall with which they can finance projects outside their core activities. The windfall, however, is both annual and substantial. The need to use resources strategically means that financial plans for the next decade must include international fee income. The education sector braces itself for financial problems in September and prepares to adapt accordingly.

Additional research by Sue Beenstock