New qualitative research from International Research (IIR) Middle East outlines why the market is attracting private investors and how they should overcome the region’s barriers to entry, including unclear regulation, increasing competition, ownership dilution and staffing challenges.
So far 10 of 21 education business deals undertaken since 2003 were formed with UAE-based companies
It draws on insight from speakers at business forum Education Investment MENA.
One city that proves why the region is a goldmine for investors is the United Arab Emirates (UAE) – a top choice for private investors since demand there will soon outweigh the supply. So far 10 of 21 education business deals undertaken since 2003 – valued altogether at $141 million – were formed with UAE-based companies, according to the report by IIR ME.
Investors will be watching closely as new legislation calling all government employees to live in the Emirate of Abu Dhabi will see 20,000 school children migrate into the city. The inflow will require some 201,744 private school seats, exceeding the current supply of 175,441.
Parents also favour private education – enrolment rose by roughly 4% from 1999 to 2010 – because public institutions often lack qualified teachers. This is despite predictions that MENA governments will be shelling out some $29 billion on education over the next couple of years and maintaining the largest spend on education.
Add to this the fact that parents will pay for good quality education and often remain loyal customers because they are reluctant to move once children are settled in a good school and the market is a very attractive prospect for investors.
“In K-12 (primary and secondary education), your customer sticks with you for up to 15 years’ which ensures attractive revenue visibility,” said Jens Yahya Zimmermann, Managing Partner of New Silk Route Growth – an Asia-focused growth capital firm.
With gross profit margins ranging from 30 to 60%, the returns from a private education business are extremely lucrative. Experts however warn that entry into the market is complicated.
Dr Farzana Firoz, CEO Of The City School in Pakistan, said “start small and build on it – businesses are developed not established, and a school always grows at grassroots level.”
With gross profit margins ranging from 30 to 60%, the returns are extremely lucrative
Experts also said that having secure finances in place, recruiting experienced domestic teams and thoroughly researching the market are keys to successfully accruing profit in the private education market.
Another significant barrier to entry is the fragmented regulations governing the private education business within the MENA region.
“It is important for investors to get a deeper insight into the regulatory framework as each market within MENA has its own country specific regulation with its own set of nuances,’ said Fahim Muscatwalla, Associate Director of The Abraaj –a private equity investor.
With expatriates forming an increasing proportion of the populations and looking to enrol children in branch campuses of foreign universities, accreditation is also key, explained Amol Dani, Chief Operating Officer of Georgetown University’s Qatar Campus.
The report concludes by indicating that institutions that meet the growing requirements of evolving social and economic demands in the region, such as skills and vocational needs as well as academic requirements, are most needed.