OPINION: The very large, and expensive Charles Darwin University Darwin CBD campus is too risky and the institution should be focusing on its wide-ranging educational and skills development responsibilities to Territory residents, former Professor of Governance and Head of the Schools of Law and Business at CDU, Don Fuller argues.
Background – Financial position of CDU
As reported by the ABC in August 2019, Prime Minister Scott Morrison arrived in the Top End in 2018 to announce $100 million to go towards an expansive new education precinct, for Charles Darwin University’s (CDU).
However, the ABC went on to state that “debt-laden CDU’s newly released annual report for 2018 revealed a drop of more than 500 international student enrolments in three years, despite a 2015 pledge to grow international numbers 100 per cent by 2025”.
Last week CDU vice-chancellor Professor Simon Maddocks, wrote in an email to staff the university could have a debt of more than $22 million because of the coronavirus, if they did not make cuts.
International students in fact fell from 2,566 in 2015 to 2,051 in 2018, annual reports show. A new auditor-general’s report also showed CDU saw a decrease in $2.2 million in fees and charges in 2018, “due to a decline in the number of courses in which international students enrolled”. President of the NT branch of the National Tertiary Education Union, Darius Pfitzner, was reported as stating that this drop in international student numbers was “concerning”.
In July 2019 it was reported that staff were left devastated by news of sweeping job cuts at CDU, with about 100 positions likely to be axed by the end of the year. The university had recorded a $21 million deficit and outlined significant job cuts. Course offerings were to be ‘restructured’ for both higher education and vocational education and training (VET).
Professor Maddocks said the educational facility was facing an unprecedented financial challenge.
“We, for the first time, got to the position where our operating cash position moved into a deficit, and that’s not a long-term sustainable position,” he said. “The university has had a problem over the last couple of years, where expenditure has continued to increase and this has not been matched with increases in revenue.”
It appears to a number of people, that there is a deliberate strategy in play, to unload and turn into desperately needed cash, the substantial campus and community assets at Casuarina in order to relocate the university in high-rise building blocks in the city.
Much of the advantages of the attractive tropical campus at Casuarina with its community based assets
would be lost forever.
It should be noted that the university has been involved in similar decisions that sold-off land for building blocks, previously owned by the university at Palmerston. This was seen by some residents as a betrayal of the vision for a sustainable campus for the Palmerston community – as population grows further into the future.
In general, such a strategy to cover the operating losses of an organisation by selling down assets, is not regarded as viable or compatible with a longer term vision to promote a vibrant, healthy organisation.
The reasons for debt
There have been two main reasons advanced for the current financial malaise that CDU finds itself in. The first is due to the cap placed on funding for domestic undergraduate places by the federal government. The second is due to the rising costs of delivering VET courses.
Both of these reasons seem to be insufficient to explain the serious situation.
With respect to the first reason, it needs to be established and explained whether in fact, CDU has a record of actually filling its quota of domestic undergraduate students.
Second, in the context of skills development in the Territory community, it seems far from wise to attempt to restructure courses in the VET sector without a proper examination of the demand for such courses and the impact on Territory businesses and students. It appears for example, that there is a substantial and increasing demand for many of these courses through private providers, who appear to be performing at more successful levels than the university.
Important reasons leading to the current financial situation of CDU are more likely to be linked to, for example, failed joint venture operations involving large start-up investments in staff and operating costs.
In the case of the key student areas of business and management – joint ventures have been attempted with educational institutions in both Sydney and Melbourne. Both of these arrangements have collapsed with substantial implications for the financial position of CDU and the students affected. It is important to note that these partnership arrangements were thought necessary during a period where a cap did not apply to enrolments of domestic students. Without such a cap in place CDU does not appear to have been able to attract a sufficient number of domestic students.
For example, the arrangement in Melbourne with the Australian Technical and Management College (ATMC) was responsible for funnelling a relatively large number of international students into the business and management programs at CDU. The arrangement terminated due to a number of grievances between the two parties about the implementation of the program, including whether CDU or ATMC should pay for the organisation and support of the work placement unit.
By summer semester 2018, the ATMC students enrolled with CDU were given the option of relocating to Darwin at CDU’s expense, or continuing with CDU at rooms rented from Swinburne University. Such an example illustrates the high levels of expense and failed management strategies associated with such partnership arrangements. The collapse of such an arrangement has resulted in a sharp decrease in international students enrolling in business and management at CDU, as most of these students were from India and Nepal.
While such partnerships had the temporary advantage of increasing international student numbers at CDU, there was substantial concern amongst teaching staff about the standards achieved by these students before acceptance by CDU. As a result, failure rates were relatively high. Such standards imposed significant pressure on existing staff who found many students unable to comprehend the concepts and principles taught.
The collapsed arrangement with ATMC also resulted in the loss of around 500 students in what was regarded by many as a successful nursing program in Melbourne. This program was moved at a relatively high level of expense to Sydney. Many have argued that the program could have continued in Melbourne with appropriate management support and been duplicated in Sydney.
It is of concern that similar failures may occur with partnership arrangements that have been set up. These include the acquisition of the International College of Hotel Management in Adelaide in January 2017, the Cairns Language Centre acquired in June, 2017 and the Cairns Business College acquired in June 2017.
This also raises the important question of just what accountability universities face, as a result of the potential loss of substantial amounts of tax-payer funding.
Partnership arrangements have the potential for success. However, they require far more understanding and skill from management to ensure the challenges are dealt with in a satisfactory manner. In particular, management needs to demonstrate a higher ability to develop what has been termed ‘relationship skills’ to support such partnership arrangements.
Failure to develop competitive advantages
There have been other examples of significant resource wastage and muddled approaches to management and decision-making at CDU.
An important example involved the development of an innovative, and effective online teaching tool for distance students enrolled at CDU. This tool was to be first developed and tested by the School of Management and Business and then adopted by other units within the university to boost student numbers to acceptable levels. The development attracted substantial attention from a number of major educational institutions and private organisations throughout Australia and internationally and was known as the ‘Evolve’ system.
After placing significant resources and staff effort into the development a sudden decision was made to discontinue further work. This decision was made even though much of the system had become operational and implemented within the School of Business.
Given the geographical position of CDU and the relatively small population of Darwin, this appears to be an important strategic error. Such a vehicle would have proved particularly valuable in increasing student numbers at CDU. It appears clear that too little priority has been given to such online learning development at CDU, as a valuable means of building student numbers across the university.
The VET arm of CDU should also provide the university with a major competitive advantage. This is one of the few universities in Australia that has both vocational education and training and higher education within the same organisation.
Such an advantage should enable the university to make a major contribution to education and skills training, given the particular demographic structure found in the Territory. Those who enter tertiary education with lower scores from secondary education and who have developed particular and specialised skills suited to employment through the VET system, should in principle, be able to transit to higher education subjects to further develop their skills set within the same university.
However, there has been insufficient management focus and effort aimed at taking advantage of this competitive advantage.
To date, numbers transiting from VET to higher education within CDU have remained low. Unfortunately, this affects the education and skills development of a number of people within the Territory.
It does not seem realistic therefore, to blame higher operating costs of VET as one of the main reasons for the financial outcomes facing CDU.
More importantly, it is likely to be due to an inability to utilize this substantial competitive advantage of CDU in order to increase student numbers in both the VET and higher education sectors. Attempts at achieving a closer degree of integration between the VET and higher education sectors of the university appear to have been based to date, largely on the hope that by co-locating the two at the Waterfront, somehow, magically, this would result in the merging of two quite different and sometimes competing, operational and management regimes.
In addition, it was thought that the relocation of the business and management arms of VET and higher education at the Waterfront would prove a more attractive location for students than the Casuarina campus. Unfortunately, some staff indicate that students avoid the Waterfront ‘like the plague’.
This university development has proved to be both a failure in terms of achieving a closer integration of VET and higher education and in terms of staff and student satisfaction. It has also proved to be another example of wasted investment and wasted resources.
The VET restructure
The decision by CDU to ‘restructure’ VET drew comment from the NT News in November 2019, where it pointed out that CDU was the only Territory provider of more than half the qualifications to be cut. These courses included one on the NT Government’s ‘Hard to fill jobs’ list.
The decision by CDU to restructure and cut a number of VET courses has led to substantial, expected negative reaction from the community.
For example, the NT News reported that students in the automotive electrical technology course at Certificate 3 level, had expressed concern and disappointment at the decision by CDU to cease offering the course. A concerned business person was reported as saying: “No consideration had been put into the implications these cuts could have for students and Territory businesses. The Territory will stop over the next few years because there will be no one to service these businesses. We can’t get tradesmen now across the board. It’s not just us.”
There have also been letters to the editor of the NT News expressing substantial disappointment over the lack of concern provided for current Territory students and how cutting courses will not provide a solution, given the Casuarina campus appears to be characterised by a large number of empty buildings and low student numbers on campus.
Such statements highlight the impact decisions to cut VET courses is having on student satisfaction, employment and business in the Territory. They draw into sharp relief the community costs of a focus on international students compared with the training of Territory students.
Some estimates put the cost of the CDU central business development at $430 million.
Likely impact of coronavirus on international student flows
Before Christmas 2019, then Minister for Northern Australia Matt Canavan announced in Darwin that the Northern Australia Infrastructure Facility had given conditional approval for a $150 million dollar concessional loan to build the CDU facility in the Darwin CBD. This would add to the $97 million in Commonwealth funding through the Darwin City Deal.
Now with the international impacts of the coronavirus, the Australian border is effectively closed to all international students, new and enrolled. It is unclear when the restrictions might be lifted.
The vice-chancellor of CDU, not to be deterred, has been quoted stating that these impacts will not affect the university’s development plans centred on the Darwin CBD.
Opponents to this approach argue it is clear coronavirus is having major economic impacts in the Territory, Australia and the world. Such major impacts, with their significant effects for individuals and families, leading to far reduced international student numbers, are not likely to have disappeared by the time the development is due for completion in 2024. CDU is banking on an additional 5000 students over five years from 2024.
Published international university rankings by Times Higher Education, available on the web and used extensively by prospective international students, also indicate that while the international ranking of CDU increased in 2015 and 2016, it fell sharply in 2018, 2019 and 2020. This is likely to have an important influence on the amount of international students wishing to choose CDU as a place to study.
These effects include substantially reduced family and business budgets on an international scale, reduced government funding available for university developments, continuing low-levels of economic activity both in Australia and source countries for overseas students and continuing uncertainty and concerns about international travel restrictions likely to affect student arrivals in Australia. Because of this they have argued that the money would be better reallocated by the government to more productive, valuable and less risky alternatives.
Respected economic commentators point to the likely protracted climb out from the very high levels of unemployment and very low levels of economic activity. Unemployment levels are predicted to be as high as those experienced in the Great Depression, nearly a century ago. There seems little hope that the economy will bounce back quickly and that businesses will suddenly reawaken. There were signs even before the impact of coronavirus that the international and Australian economies were threatening to stall and weaken.
Rather than a sudden surge back in economic activity in Australia and elsewhere, with international students for example, confidently returning to their previous plans once the virus has passed, the more likely scenario will be for a far more subdued return of confidence as the global economy attempts to restart.
As a result, far lower levels of international students are likely to be available to the Australian university sector than in previous years.
Experts warns universities need to diversify incomes
According to the Centre for Independent studies, universities need to diversify their revenue sources far more. There will need to be a reduction in the current over-dependence on international students to bolster revenue streams.
While the coronavirus has shown the clear need for such diversification, any external crisis could have produced a similar result – such as a war, currency collapse or a major economic slowdown or global financial crisis.
Such over dependence by universities such as CDU on international students to justify further large-scale infrastructure developments, undercuts one of the key tenets of sound business practice – the management and avoidance of high levels of risk.
This view is supported by the internationally respected business economist and former senior university researcher and teacher, Judith Sloan. She has pointed out that universities are suffering substantial revenue falls because of the loss of international student income and that their position may be expected to worsen. As a result of her extensive high level university and business experience she believes that the higher education sector in Australia is about to be transformed.
This may mean some universities failing completely, while others may be forced into mergers with larger organisations.
“Gone will be the heady days of substantial international student income with its high margins and financial prosperity,” she states.
“There will be plenty of cost cutting, job losses and a focusing of efforts on a smaller number of activities.”
In her view, it’s difficult to see the economy charging back to life any time soon. “The likelier outcome is a weak and patchy performance with much higher unemployment — above 10 per cent — and anaemic consumer confidence,” she states.
Even considering the more optimistic view on the speed of the recovery, held by the governor of the Reserve Bank, it needs to be recognised he said, that international travel restrictions are unlikely to be removed any time soon.
That means far less international students for Australian universities in general and CDU, in particular.
Yet such a predicted boom in international student numbers has formed the underlying justification for the CDU development.
Ms Sloan also points out that Australian universities have invested more heavily in international students than any other country. International students made up 1.6 per cent of the Australian population — in Britain, our nearest competitor, it is 0.6 per cent. The largest source of international students to Australia in general, has been China, followed by India. Other important source countries are Nepal. Chinese students have disproportionately enrolled in the more highly ranked universities.
Janet Albrechtsen, states that in the last ten years, ‘Australia has gone from being the most exposed university system in the world to being right off the charts.” International students have been used as the main basis of university revenue models. This has led to a rapid and unacceptable increase in the financial risk universities are facing.
The impact on university finances of the sudden reduction in international student numbers has been severe.
For example, The University of Sydney announced it would lose $200 million from the reduction in first-semester enrolments. UNSW has estimated $150 million.
It would also be valuable for CDU to release such estimates to the public. So far, no such information has been forthcoming. There has only been an email to staff, which Professor Maddocks sent last week, saying while there was little reduction in international student numbers in semester one, next semester it would be severe.
He said they estimated 2020 revenue would fall by between $20 million and $30 million causing a debt of more than $22 million, which he said, if they took no action, would place the university at serious financial risk.
It is likely that the overall financial losses to the university sector will be much greater and extend over several years. One estimate indicates that between $10 billion and $19 billion could be lost between 2020 and 2023 for all universities.
“This is not a one-off hit,” Western Sydney University (WSU) Vice-Chancellor Barney Glover – the previous Vice-Chancellor of CDU – told staff via video link, recently. The challenge is bigger in 2021 [and 2022] than it is in 2020.” The university has flagged a $90 million shortfall in 2020, which could grow to between $120 and $130 million in 2021 and 2022 as travel restrictions remain in place.
Western Sydney University has warned staff it will cut casual workloads next semester as it faces mounting financial shortfalls over the next three years due to the coronavirus pandemic.
Such cuts he has indicated, will likely be increased throughout the university sector for the foreseeable future.
It comes amid mounting concern about workforces across the state’s universities, with The University of Sydney slashing 30 per cent of its arts courses and one-third of casuals at the University of NSW reporting they’ve lost work. Wollongong executive leadership will take a 20 per cent pay cut for 12 months and freeze non-essential external recruitment. Professor Glover said WSU would compensate by increasing domestic student numbers and reducing expenditure significantly.
The effect of increasing levels of government debt
While most universities in Australia are revising their student and workload plans drastically, CDU appears not to have such contingency planning in place.
With Commonwealth and NT debt likely to further balloon out to mountainous levels, can the CDU development really be regarded as a wise spend of the taxpayer dollar, given the high level of risks involved?
How indeed, is such a project thought to be feasible in the current health and associated financial crisis?
The Commonwealth’s net debt had been projected to peak this year at $392 billion and then decline. It is now predicted that this level of debt will double. Paying off such a high level of government debt will take decades. The burden will fall mostly on younger generations, through higher taxes and reduced public services such as health care and education.
According to the last budget handed down by the NT government the Territory’s debt was expected to grow by $6.2 billion in 2019-20. This is a very large debt, when compared with the total expenditure for the year of $8.4 billion. The projected return to surplus was so far into the future that it did not appear in the budget forward estimates.
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Is it financially responsible then, for the senior management of CDU and the NT Government to continue to talk up the prospects of the CBD proceeding, when future international student enrolments are likely to be far less than in the past and in the face of the major financial difficulties confronting both CDU and the Territory Government?
Is it likely that the Commonwealth and rest of Australia will continue to wave this particular project through, given the level of risk and substantial shortage of resources available for projects fundamental to the health and security of the country, as a whole?
The transformation of universities will be painful. There are likely to be job losses and pay cuts. In two to three years universities, including CDU, are predicted to look very different.
One important benefit will be that universities will be forced to reverse the established trend toward declining standards and a proliferation of sub-standard courses. Domestic students deserve far better than they have been offered in recent years.
In the case of CDU is it possible to continue to buck the information now available on the need for universities to sharply and rapidly refocus their operations?
Is it possible for CDU to continue to attempt to swim against this powerful tide and not acknowledge or explain the riskiness of the business model they seem determined to maintain in the face of such changed circumstances?
How should CDU refocus?
The irony is that it would appear to be far easier for CDU than many southern universities to refocus away from large, potentially irrelevant large-scale developments built for international students, to its mainstream responsibilities as a regionally based university. This is possible precisely because of the wide range of educational and skills development responsibilities of a regionally based university, such as CDU. There is considerable further room for addressing such responsibilities and functions.
However, this does require an organisation that understands and has empathy with, the educational and skill requirements of the Territory.
For example, the university is in a unique position to assist far more with the investigation and on-the-ground implementation of key initiatives in the field of economic, educational and human development in Territory communities than has been achieved to date.
The constraints and special characteristics confronting economic and human development in the Territory need to be further addressed. This involves building extensive partnerships, relationships and understandings with business and industry in the Territory to assist devise and implement possible solutions to overcoming the cost and distribution barriers that impede economic and business growth and development. It also requires far more involvement and commitment to the education and training of Indigenous Territorians.
Before turning to make the university a place that focuses on international students, it needs to be evaluated why Territory students are not enrolling in sufficient numbers in courses offered by CDU. Why are some families continuing to incur substantial additional costs to have their children study in southern universities?
In association with the Federal Government, stronger, more enduring partnerships, need to be developed with our major neighbours including Indonesia, Brunei, Sabah and Sarawak.
In addition, there would appear to be an increasing opportunity to work closely with the Federal Government to build increased education, training and research linkages with Pacific Nations – including Papua New Guinea, Fiji, and Vanuatu, for example, given heightened international strategic concerns with this region.
More students are choosing to study online because it enables them to both work and study. CDU should develop an increased capacity to deliver attractive, high quality online learning options. Insufficient attention has been given to continuing development and improvement of these key systems.
A regional university such as CDU needs to be in a position to develop a strong competitive advantage in innovative, relatively low cost, technology-based learning rather than the conventional, high cost ‘bricks and mortar’ approach.
CDU needs to adjust to a rapidly changing environment that makes the proposed city development even more fragile in terms of successful economic outcomes. Effective risk analysis and management decision making involves the intelligent and astute use of currently available and rapidly changing information, to avoid business failure. Such major and changing information flows cannot be ignored.
Business failure, in the university sector as elsewhere, most often involves the demise of an organisation, or at best a merger or takeover, by a stronger, more agile organisation.
In the case of CDU this would see a further diminution of educational focus on the priorities of the Territory.
In this context it is important to appreciate that there have been discussions on more than one occasion, between Charles Darwin University and southern-based universities, with a view to combining some courses and operations.
Flinders University in Adelaide, already has an important facility in the form of a Medical School located adjacent to the CDU campus at Casuarina.
A number of us, including Ms Sloan, are currently wondering: “What will become of all those architect-designed masterpieces with their empty offices, built on the rivers of gold from international students. It’s hard to think of an alternative use.”
CDU has recently claimed that there has been increased interest by international students in coming to CDU.
However, there is a large difference between ‘interest’ and actual attendance, particularly now – given the financial difficulties for individuals and families and the health restrictions in place. It is to be expected that international students are currently investigating studying at a range of university options in Australia, as the international travel restrictions begin to bite.
However, it is far more likely that the predictions outlined in this article by senior university administrators elsewhere in Australia such as Professor Glover, who headed CDU during a period of increasing international university rankings, will prove correct and that there will be a sudden reduction in the international students studying in Australia over the foreseeable future.
What is required at CDU is a focus on management arrangements, infrastructure and technology that give particular attention to the requirements of the Territory – not large, high risk, potential white elephant developments, offering little prospect of return to the people of the Territory, particularly in the current environment.
In the case of CDU it would be far wiser not to continue to add to the white elephants now appearing within the university sector.
There are likely to be far more valuable and productive projects that should be considered by governments to boost the construction sector and wider economies of Darwin and the Territory.
Dr Don Fuller holds a first class Honours degree and PhD in economics from the University of Adelaide. He has worked as senior public servant in the Territory and as Professor of Governance and Head of the Schools of Law and Business at Charles Darwin University. He grew up in Darwin and attended Darwin High School.