How much can Brazil grow? For any economist studying the country, this is the key question. Brazil has demography on its side, but how does this booming economy remain on its growth path and continue to bring more Brazilians into the nova classe media (emerging middle class)?

Take the case of Pedro. He was born in 2004 in Carajas, a rural city in northern Brazil. Close to four million of his peers are not in school, but he is part of the 91.5% of those ages four to 17 who are. Unfortunately, by third grade, only 34.2% of his class will have attained the expected grade-level skills in math and language. By ninth grade, only 26.2% will have mastered the expected level in language and only 14.2% in math. In actuality, there is just a 50/50 chance that Pedro will even graduate from high school. Will he ever be part of the 69% of adults who are functionally literate?

The lack of qualified workers, whose ranks Pedro is likely to join, is nothing new in Brazil. It has three principal impacts on the country’s economy: the attraction of foreign human capital, unnecessary salary inflation and under-qualified managers. According to BRAiN’s (Brazil Investments and Business) publication, Talent and Human Capital for the Brazilian Investment and Business Hub, the shortage of qualified personnel in Brazil is affecting inflation. For 2010, the research cites a 10.4% increase in the cost of labor and a 36.0% increase in the compensation paid to company directors over the previous year.

These conditions make it possible for Brazil to take short-term advantage of current opportunities, including the demographic bonus and economic growth. However, the country requires a long-term solution that could come from within. To accomplish this, it is essential to educate the country’s young population properly and prepare them for the labor market. This is not an easy task, given the current state of education, the growing population and the increasing immediate demand for quality education from the emerging middle class. What opportunities are available to Brazil in the short and medium term? How can the country best harness its demographic bonus, and what business opportunities does the education sector currently offer?

The Nonprofits Step In

Considering the reality of education in Brazil, nongovernmental organizations have thrived and are making an active effort to change the perspectives of some Brazilian students. A genuine interest in making a difference is a strong driver for all of these NGOs, and they have impacted the lives of many students in a positive way.

For example, since 1999, iSmart has been selecting some of the best students to attend private schools where they have the opportunity to receive a quality education. The results are outstanding, with 80% of these students being admitted into institutions of higher education. However, iSmart and similar organizations share constraints when it comes to expanding their models. Invest, an NGO based in Rio de Janeiro, has remained the same size for 15 years, and the current staff agrees that, among many possible explanations, the lack of a business-management perspective is one of the most important impediments.

Furthermore, these organizations face bureaucratic barriers that stall or prevent their growth This is the case with Teach For All in Brazil, where the organization had to go through several time-consuming processes in order to set up a model that, due to legal constraints, does not resemble the model established in other parts of the world as closely as the founders had desired.

Despite a number of positive results these organizations have seen, the reality is that they have difficulty scaling or generating the level of impact the country requires. When analyzing different possible approaches for transforming education in Brazil, three specific and easily scalable options should be considered: public-private partnerships, technology implementation and for-profit initiatives.

Is Privatization an Option?

Privatization might provide a quick fix to the country’s inefficiency when it comes to delivering on the promise of education. Often heralded as a solution to the failure of the public school system, the charter school model is interesting to analyze. Although government-funded, charter schools are run independently and, theoretically, with greater efficiency by a private board and management team. When this model is proposed to education experts in Brazil, the collective reaction is that it is bound to lead to greater inequality. At the same time, others doubt that the model itself is a success. Andrea Bergamaschi, general coordinator of Todos Pela Educação — an NGO focused on the quality of education in public schools that closely works with the government — is adamant that “the charter school model is not yet proven.”

An explanation for this can be found in Chile’s experience in implementing charter schools. The pilot program there proved to be biased and only accentuated the inequality between urban schools, where the model was profitable, and rural ones. Beyond the caveats of proper allocation, education observers have little confidence in the Brazilian government’s ability to control and demand accountability for the results of the charter model. Brazil’s excessive bureaucracy, lack of qualified public employees and poor track record in public-private partnership management (e.g., in the healthcare system) explain this reluctance.

Recognizing the success of the model in some cases, Denis Mizne, director of Fundação Lemann, a nonprofit organization that works to improve the quality of public education in Brazil, suggested experimenting with a charter-type model in early childhood education “where there is huge demand and the state is unable to correctly deliver.” He pointed out that charter schools could build and complete the new structure of education in Brazil.  

If the charter-school model is to succeed, Brazil must address the concerns that have arisen and work on improving the framework to ensure that the risks are allocated efficiently between the private and public sectors. Incentives must be integrated to assure that the private sector targets both the richest and the poorest areas of the country. Finally, it is essential that performance indicators be designed and reported properly to control the performance of the private sector.

Technology in the Spotlight

The use of technology in the classroom has been implemented in different parts of the world. Brazil is moving toward this scalable solution, with an eye toward improving the quality of education on two fronts: better-managed schools and innovative systems for student instruction.

One relevant factor is the quality of school management. The use of technology in this area is still in the experimental stage in Brazil, but improvement is expected when it comes to helping teachers spend less time on paperwork and grading exams, and more time preparing or teaching classes, observers suggest.

Another important factor is the classroom dynamic. Traditional models are being challenged by innovative systems. Different technological platforms are working to create alternative ways of learning and can help keep track of students’ advancement. These new systems are encouraging a blended learning method where the traditional and the technological classroom experiences can co-exist and generate mutually positive relations.

Many interesting efforts are evolving in Brazil on the student-learning front. Co-founded by Claudia Massei, QMagico is an education-technology company that provides videos and interactive exercises covering academic content. In addition, Fundação Lemann started translating and has implemented a well-known online platform, Khan Academy, for some Brazilian schools as a pilot for technology-based learning and tracking systems.

When discussing the use of experiments and innovative approaches to enhance education, Mizne mentioned that Brazil has some of the same problems other countries have faced in the past, meaning it can leverage the research, testing and learning being done worldwide. In addition, technology is one of the most easily scalable innovations.

The use of technology is still in its experimental stages, but results to date are positive and there is hope it can actually be one of the main drivers of educational change in the coming years.

For-profit Initiatives

Gera, a venture capital fund based in Rio de Janeiro, offers its own perspective on the opportunities available in the area of education in Brazil. Established in 2010 with the goal of becoming Brazil’s leading private investor in education, the fund has made three investments to date, totaling R$60 million (US$28.8 million). The largest is in a network of model schools for children between the ages of 8 and 12 in the Rio de Janeiro region. Targeting the emerging middle class, Gera has helped to expand the model to 14 schools serving 9,000 students and has provided the capital and business acumen to scale the original concept. For this fund, investing in education can offer competitive financial returns as well as impact the educational system in Brazil.

Founder and managing partner Duda Falcão, a former McKinsey consultant and private-equity banker at UBS Pactual, decided to found Gera after recognizing that education “is the only way to change the country.” She maintains that an inefficient educational system will be the principal factor in preventing Brazil from reaching its full potential.

This field is also a great opportunity for financial return. With an acute shortage of talent, few good ideas are executed properly. Falcão suggests that there are incredible opportunities to develop a scalable model that provides quality education. She insists that these opportunities are not revolutionary; they differ because they provide something the government does not: “They teach students to read, write and dream.” With a culture of performance and the motto that money attracts talent, Gera’s stated goal is to be a transformative force for Brazilian youth.

Yet Falcão does not believe that the private sector alone can fix the problem. Rather, the private and public sectors each have collaborative roles to play. While Gera believes the private sector in Brazil will eventually dominate higher and nontraditional (prep courses, English language, 21st-century skills) areas of education the same way it does in some other parts of the world, the government will remain the driving force in the 8-to-12-year-old segment.

Gera aims to scale the model from 9,000 students up to 100,000 students — barely a dent in a country with 50 million children. Scaling private-sector initiatives is not the ultimate solution, but these for-profit models can provide a design the government can then follow to offer a solid education at a low cost. Gera believes the private and public sectors will work together and develop many synergies. The government has already begun to move in this direction, but the challenge remains enormous. For Falcão, this is a “20- to 30-year play.”

This time frame may be too long for the emerging middle class — where the opportunity for savvy investors lies. Gera has understood that the middle class now has the ability and willingness to pay for quality education. According to official data from the Secretary of Strategic Affairs of the Presidency of Brazil, the country’s middle class currently numbers 95 million, or about half the population. To serve this gap, Gera is building an expertise at pairing innovative business solutions with qualified entrepreneurs. This bottom-up approach has been facilitated in the last few years as more and more qualified college graduates are looking past mature industries to focus on exciting ventures that can contribute to the country’s improvement.

Capital and opportunities are not the hurdles today. Falcão insists that the greatest challenge is recruiting the professional investors who naturally see the opportunity and who combine business expertise with a passion for education in Brazil. Gera and its investors are gearing up for the next round of funds, in the range of R$100 to R$150 million.

The solution to enhancing Brazil’s education system is a very complex issue that depends on many variables. The public and private sectors must work together on a long-term solution, according to most education observers. The former must improve its management efficiency, reduce bureaucracy and work on giving the latter a suitable playing field to invest in education and put in place mechanisms to control the private initiative effectively. To that end, the private sector has to take advantage of this investment opportunity. However, it must do so while understanding the country’s problems and coordinating its efforts with the public sector. Both sectors should allocate the risks to the party that is in a position to better manage them and come up with the most beneficial action plan — a plan that will give Brazil the level of education it needs so it can grow and offer its people a better standard of living.

This article was written by Karine Alyanakian, Devin Blondes, Matias Boker, Zuriñe Eguizábal, Victoria Salcedo and Víctor Valverde, members of the Lauder Class of 2014.