Speaking to Banker Middle East, Maya El Hachem, Principal at The Boston Consulting Group Middle East points out the pocket of opportunities in GCC’s private education sector.
How do you view the potential in this market?
The GCC education sector is riddled with untapped opportunities for investors. Across the region, the education market is expected to double from $13 billion to $26 billion over the next five years. Despite the fact that strong growth has been predicted across the region, investors must fine-tune their strategies to account for the shifting circumstances before committing to an investment opportunity. Having said that, each market has unique opportunities that are becoming increasingly prominent in the sector. In the UAE, for example, the $4.4 billion market in 2017 is forecast to grow to $7.1 billion by 2023.
The biggest opportunities lie in two areas—the increasing need for highquality schools, with fees in the lower range such as Indian curriculum schools Maya El Hachem for example, and with fees in the mid-level range for International Baccalaureate (IB) schools. Additionally, there is also a need for high-quality schools, with a rating of ‘good’ or better, that cater specifically to local Emirati preferences by offering gender segregation and adequate provision of Arabic and religious studies. Saudi Arabia is the biggest education market in the GCC and we foresee significant opportunities despite recent economic pressure.
Opportunities in Saudi Arabia arise from the education and privatisation reforms of the country. These are pushing for high quality and diverse offering, professionalisation of the sector, attraction and incentivizes to private sector and foreign investment, and encouragement of public private partnerships. There are also opportunities arising out of recent megaprojects such as NEOM.
What kind of challenges entail such investments?
We have identified five primary challenges for investing in education across GCC markets, these are: Market fragmentation: The educational landscape is still quite fragmented in the GCC region (except for parts of the UAE), with no dominant players, which makes it attractive for large-scale operators—but it can be difficult for new entrants to break in.
A shifting regulatory environment: The regulatory environment in the region can be restrictive and unpredictable, particularly when it comes to tuition fee increases and nationalisation requirements. Access to resources: In the GCC, it can be difficult to secure suitable land and obtain permits for construction since land is typically owned, controlled and assigned by governments. GCC banking practises can also make it challenging for private-school investors to access capital for financing.
Attracting talent: The number of qualified teachers are limited, teacher turnover is high, and competition for expatriate teachers is fierce. As UAE is often viewed as the most attractive market for teachers in the GCC, it is more difficult for other markets to attract teachers.
Data availability: Until recently, only limited data was made available to the public on school quality and types of schools needed, which made it hard to instil competition in the market and meet the demand of unfulfilled segments. There is a recent push, however, in many GCC countries to publish comparative school performance data and investor promotion information.
What key aspects should investors be aware of when evaluating these prospects?
While the private K-12 education market is large, its potential for growth varies significantly from country to country in the GCC market; hence, it is important for investors to understand the dynamics and size of each market and its potential for growth in the coming years and finetune their strategies accordingly. In fact, the private education market has become increasingly complex and competitive in recent years, particularly in mature markets, such as the UAE.
The market is shifting from being dominated by family-owned and individual schools to include financial investors and large-scale operators. Moving forward, we expect investor challenges to continue being addressed by GCC governments, who are increasingly offering incentives to attract private and foreign investment.
What is your outlook on this sector as an investment class?
Despite some current economic slowdown, there are a number of positive factors that are significant for a good investment opportunity. The market is expected to expand, driven by the population growth of the youth, increased enrolment (specifically in early school years) and some shifts from public to private schools.
In addition to this, the fact that GCC governments continue to give precedence to initiatives aimed at strengthening investor relations, while expanding the role of the private sector in education, as well as the highly fragmented education market giving an opportunity to consolidate schools into networks and scale up over time, all pose a good investment opportunity in the short term. And as governments continue to address investment challenges, the market will become even more attractive in the long term.