WHERE to INVEST NOW in GCC PRIVATE EDUCATION by Dr

WHERE TO INVEST NOW IN GCC PRIVATE EDUCATION By Dr. Leila Hoteit, Maya El Hachem, C. Patrick Erker, Serene Farah

he K-12 private education market in Four Drivers of Growth in Pri- Tthe Gulf Cooperation Council (GCC) vate Education countries has become a magnet for inves- Private schools in the GCC region educate tors and school operators, and rightly so. approximately 30% of K-12 students (2.5 This market is expected to double over the million of 9 million students), and the K-12 next five years, from $13 billion to $26 private education market is expected to billion by 2023. In Saudi Arabia alone, the grow quickly over the next five years owing K-12 private education market is poised to to four factors. (See Exhibit 1.) catapult from $5 billion in 2017 to $12 billion in 2023. •• Shift toward private schools: For decades, GCC public schools were free But new developments, such as evolving of charge and GCC nationals were not demographics, government interventions, allowed to attend private schools, but and regulatory issues, are reshaping the these restrictions have been relaxed. complex private education market within Though public school spending in the each country; therefore, investors are wise region is high ($11,000 per student in to evaluate each market in turn. BCG con- GCC versus the OECD average of ducted an in-depth analysis of the private $9,0001), the quality of education is education market in the United Arab Emir- mixed. GCC parents are becoming ates (UAE), Saudi Arabia, Qatar, Kuwait, increasingly willing to pay for private Oman, and Bahrain. While all of these mar- schools that provide differentiated kets are growing, investors must fine-tune offerings and better outcomes—and their strategies to account for the shifting this trend will likely grow now that circumstances within each country. governments are beginning to publish Exhibit 1 | Primary Growth Drivers in GCC’s K-12 Private Education Market

. billion . billion

. billion

. billion . billion . billion

Cu rrent Market Student-aged rowth in rowth in share o uitionee Market population growth enrollment rate private school students increases

Source: Kuwait Statistics Authority; World Bank; Saudi Arabia Ministry of Education (MoE) data; Qatar MoE data; Dubai Statistics Center; Vision2021.ae; Knowledge and Human Development Authority (KHDA); UAE MoE data; FXExchangeRate.com; ADEK Annual 2016-2017 Report; Edarabia; Ministry of Information Affairs Bahrain; Bahrain in Figures 2016; BCG analysis.

1Bahrain and Kuwait data for 2015; UAE data for 2017; all others for 2016.

performance ratings for all schools. build and maintain high-quality New government initiatives designed educational facilities. to increase private sector involvement are also driving the shift toward •• Tuition fees: Tuition fees for private private schools; for example, Saudi education will continue to rise 2% to Arabia has begun to encourage private 4.5% per year. (See Exhibit 2 for a management of some of its public comparison of tuition fees in GCC schools, and Kuwait has established countries.) Tuition is rising at a slower public-private partnerships to help rate than in recent years, owing to

Exhibit 2 | Average Tuition Fees by Market

Market Fees

E Dubai ,

atar ,

E bu Dhabi ,

man ,

uwait ,

Bahrain ,

E overall ,

Saudi rabia ,

1Kuwait private education includes private Arabic and private foreign school students 2Private education in Saudi Arabia includes both Ahlia and international students.

The Boston Consulting Group | Where to Invest Now in GCC Private Education 2 tighter regulations and an economic land is typically assigned and controlled by environment that limits consumer governments. The number of qualified spending. Expats are also facing in- teachers is limited, teacher turnover is creased financial pressure as employers high, and competition for expatriate teach- have begun to scale back their tui- ers is fierce. Because the UAE offers the tion-reimbursement packages. Some most competitive salaries and an attractive governments have placed caps on quality of life, it is often viewed as the tuition hikes: in recent years, Kuwait has most attractive market for teachers in the limited tuition hikes by 0% to 3%, and GCC, which makes it more difficult for oth- the UAE and Bahrain recently set a limit er markets to attract teachers. In addition, of 5%, linked to the education inflation the regulatory environment in the region index and schools’ performance. can be restrictive and unpredictable, particularly when it comes to tuition fee increas- •• Population growth: The percentage of es. Finally, until recently, only limited data young people in the region is already was made available to the public on school high and still growing (60% are under quality, which made it hard to instill com- age 25). The student-aged population petition in the market. The recent push in (age 3 to 17) is expected to grow in line many GCC countries to publish compara- with the historical compound annual tive school performance data is raising growth rate (CAGR) of 1% to 3%. The awareness of each school’s academic per- expatriate population is expected to formance, as well as its unique offerings, grow even faster than national popula- which is increasing parents’ willingness to tions, and expatriates tend to attend pay for private education. private schools. In addition, the private education market •• Enrollment growth: Private school has become increasingly complex and com- enrollment at the primary level and petitive in recent years, particularly in ma- above is already high throughout the ture markets (such as the UAE)—and these GCC and expected to remain steady. shifts have implications for investors. For Enrollment rates at the preschool level decades, the private education market was (ages 3 to 6) are growing, most notably dominated by family-owned schools. In re- in Saudi Arabia, which has the largest cent years, however, financial investors and overall population in the GCC region large-scale operators have become much and the lowest kindergarten enrollment more active in the sector. While fami- rate (less than 20% kindergarten ly-owned businesses valued reputation and enrollment in Saudi Arabia versus 60% long-term sustainability, financial investors to 90% in the rest of the GCC). are seeking to maximize short-term returns on their assets. Also, large private-school operators, like GEMS Education, the Changing Dynamics for Inves- world’s largest private provider of K-12 ed- tors in the Region ucation, are building a diverse portfolio to While GCC markets offer excellent invest- reach a wide variety of students. Large op- ment opportunities, the sector is not with- erators provide families with unique offer- out its challenges. The educational land- ings in terms of pricing (low-fee and high- scape is still quite fragmented in the GCC fee schools), curricula (international, region (with the exception of parts of the English-language curriculum and national UAE), with no dominant players, which curriculum schools), and cultural environ- makes it attractive for large-scale opera- ment (co-ed and gender-segregated tors—but it can be difficult for new en- schools). Thanks to their size and econo- trants to break in. GCC banking practices mies of scale they can invest in curriculum can make it challenging for private-school enhancement; teacher pooling; centralized investors to access capital for financing. It training; extracurricular activities; and an- can also be difficult to secure suitable land cillary services, such as transportation and and obtain permits for construction since meals.

The Boston Consulting Group | Where to Invest Now in GCC Private Education 3 Because large operators can be more resil- out the region, and it’s important to under- ient than standalone schools, investors stand the size of each market and its have taken notice. In 2014, Blackstone potential for growth in the coming years. Group and Fajr Capital invested $350 mil- Here is a breakdown of investment oppor- lion to gain a minority stake in GEMS Edu- tunities on a country-by-country basis. cation. In 2017, Amanat Holdings increased its stake in Taaleem from 16% to 22%. In 2018, Khazanah, Malaysia’s sovereign United Arab Emirates (UAE): wealth fund, acquired a 3% stake in GEMS Mature, Consolidated Market— Education. In addition, multiple funds have and Still Growing been raised with a focus on education in The private K-12 education market in the the GCC, including a $750 million fund UAE is the most mature of all the GCC managed by Gulf Capital and a $270 mil- countries. (See Exhibit 3.) Approximately lion fund managed by Malaz Capital. 90% of Dubai and Sharjah students, and 65% of Abu Dhabi students, are currently International operators have also expand- enrolled in private schools. The UAE’s $4.4 ed into the GCC region. In the UAE, many billion market in 2017 is forecast to grow to are already present, such as Brighton Col- $7.1 billion by 2023. lege (based in the UK), which already has two schools in the UAE, and plans to ex- Dubai. The Dubai market is the most con- pand into Dubai. New entrants, such as the solidated across the GCC, with 25% owned US-based Dwight School, are also expand- by GEMS Education. Dubai’s private ing their presence in the region. In Saudi schools have higher-than-average educa- Arabia, international operators still have a tional outcomes—and high costs.2 On the minimal presence, but they are expected to 2015 standardized math test (TIMSS), be in high demand in the coming years. Dubai’s fourth and eighth graders scored 511 and 512 respectively, above the international average of 500 points. Although Where to Invest—and Why 90% of students in Dubai are already en- The potential for growth in the private ed- rolled in private schools, the city’s private ucation market varies significantly through- school market is still expected to grow

Exhibit 3 | Share of Private School Students Differs Widely Across GCC Markets Total number of students per country (in thousands)

,. ,. ,.

. . . . CC S E man uwait atar Bahrain

Private Public

1Saudi Arabia’s private school numbers include both Ahlia and international schools. 2. Kuwait’s private education market includes both private Arabic and foreign schools.

The Boston Consulting Group | Where to Invest Now in GCC Private Education 4 from $1.9 billion in 2017 to $3 billion in vertise, implement loyalty programs, and 2023, owing to population growth, enroll- slash their fees by as much as 33% to at- ment growth, and tuition fee increases. tract and retain students.

•• Population growth: Dubai’s popula- Abu Dhabi. The Abu Dhabi private school tion is predominantly expatriates and market is expected to grow approximately the number of expatriates is expected 60%, from $1.3 billion in 2017 to $2.2 bil- to grow even more with the launch of lion in 2023. Of the 373,000 students in Expo 2020 and other mega-projects. Abu Dhabi, 65% are enrolled in private However, some expats have begun to schools. 86% of expatriates are enrolled in leave the UAE owing to tightening private schools, while 37% of Emirati stu- economic conditions and increasing dents are in private schools. The private costs of education. education market will continue to grow, driven primarily by enrollment growth and •• Shift toward private schools:The increases in tuition fees. number of Emirati students (that is, citizens of the UAE) enrolled in private •• Enrollment growth: Between 2017 and schools is expected to rise from approxi- 2023, enrollment in private schools is mately 56% to 66% by 2023, driven by expected to grow at a 4% CAGR, parents’ increased interest in private according to Abu Dhabi’s Department schools and the government’s ambition of Education and Knowledge. to double the number of Emiratis enrolled in private schools rated “good” •• Tuition increases: Tuition fees are or better.3 expected to rise approximately 4% per year. Expatriate enrollment in schools •• Tuition increases: The average tuition with mid-range tuition fees will in- fee per student is expected to increase crease, while enrollment in high- or at a 4% CAGR between 2017 and 2023, premium-fee schools will level off. This which is a slower rate than in the past is owing, in part, to the fact that (tuition grew at a 9% CAGR between employers are less willing to provide 2012 and 2017). Although regulations education allowances to subsidize will cap tuition fee increases and tie tuition fees for the children of expatri- them to the education inflation index ates. and school performance, enrollment growth will counterbalance those restric- Challenges in UAE. With such a predomi- tions. Revenue per student for expatri- nant expatriate population, UAE schools ates is expected to grow since the experience high churn rates. In addition, average length of stay in Dubai contin- school services, such as extracurricular ac- ues to increase, but expatriates may opt tivities and career counseling, are driving for lower-fee schools in light of tighten- up costs and making it difficult to invest in ing economic conditions and reduced low-tuition schools. Finally, Emirati fami- employer support for education costs. In lies have strong views on the cultural envi- a survey conducted by HSBC, Europe’s ronment when selecting a school for their largest bank, 75% of expatriate parents children, and international private schools said the cost of their children’s educa- are less likely to cater to local preferences. tion made it difficult to keep up with other financial commitments. Opportunities in UAE. To meet the needs of Emirati students, there is a need in the In Dubai, there is currently an oversupply UAE for high-quality schools, with a rating of international private schools with high- of “good” or better, that cater specifically and premium-range fees, and not enough to local preferences (by offering gender international private schools with low- and segregation and adequate provision of Ara- medium-range fees. In 2017, schools with bic and religious studies, for example). For high- and premium-range fees began to ad- expatriate families, there is a need for

The Boston Consulting Group | Where to Invest Now in GCC Private Education 5 high-quality schools, with fees in the low- support this increased enrollment in to mid-tuition range, structured around the private schools. Ahlia schools (private Indian, standard UK, International Bacca- schools delivering the national curricu- laureate (IB), and US curriculum. There is lum) will start to differentiate and also an opportunity to leverage Dubai’s complement their offerings with drive to become a test-bed for innovation international curricula, new learning by introducing schools with modern, digital resources, and extra-curricular activi- approaches to education. ties. This opens up a very attractive compromise for Saudi students who still want the national curriculum in Saudi Arabia: A $12 Billion addition to the enriched offerings of Opportunity private schools—all in a very Saudi-cen- Saudi Arabia’s private schools will account tered cultural environment. Also, Saudi for the lion’s share of growth in the GCC nationals are now allowed to enroll in region. The private education market is private international schools and the poised to more than double, from $5 bil- country is allowing 100% foreign lion in 2016 to $12 billion in 2023. (See Ex- ownership of companies in the educa- hibit 4.) tion sector. The Education Evaluation Commission (EEC), Saudi Arabia’s This growth will be fueled by several fac- quality assurance agency, has already tors: begun inspections of schools, and we expect that the commission will eventu- •• Shift toward private schools:In line ally make their outcomes available to with Vision 2030, Saudi Arabia’s the public. This information will likely Ministry of Education launched an motivate more families to enroll their ambitious strategy to raise the quality children in private schools. of education, transform youth mindsets, and strengthen the economy. We •• Expatriate population growth: The estimate that the share of students in expatriate population continues to private schools is set to increase from grow, and these families are more likely 18% in 2017 to 30% by 2023, and the to enroll their children in quality government has offered incentives to private schools.

Exhibit 4 | In the GCC Region, 57% of Growth Will Be Driven by the Saudi Arabia Market Size of GCC k-12 private school market: current and future . . . . . . . . . . . .

. . o o Current private Private education education market market in CC in CC in orecast

Current S E atar man uwait Bahrain market growth growth growth growth growth growth market

1Bahrain and Kuwait data for 2015; UAE, Dubai and Abu Dhabi data for 2017; all others for 2016. CAGR taken as 2016-2023.

The Boston Consulting Group | Where to Invest Now in GCC Private Education 6 •• Enrollment growth: Saudi Arabia has a mega-city that will be four times the size of relatively low enrollment rate at the Dubai and will attract Saudis and foreign- kindergarten level (less than 20% versus ers alike (current projections do not in- 60% to 90% in the rest of the GCC). clude these mega-projects). Vision 2030 and the Ministry of Educa- tion has set ambitious targets for kindergarten enrollment by 2020. Qatar: High Demand in an Uncertain Political Climate •• Tuition increases: Private school fees Qatar’s private school market has the po- are likely to rise faster than inflation as tential to grow from $1.4 billion in 2016 to school offerings become more sophisti- $2.4 billion by 2023. This growth is owing cated in terms of curriculum, learning to four factors: resources, teacher qualifications, and extra-curricular and ancillary services. •• School-aged population growth: There will be an increase in the number Challenges in Saudi Arabia. Red tape and of families with children age 3 to 17, but bureaucracy are not uncommon across this growth will be somewhat slower GCC markets, and processes to obtain per- than in the past given the current mits and licenses in Saudi Arabia can be diplomatic crisis and its effect on the inefficient and time-consuming. There is expatriate population. also a shortage of qualified teachers (strict Saudization ratios restrict the number of •• Enrollment growth: The private school expatriate teachers and it is difficult to at- enrollment rate for kindergarten is tract qualified expatriate teachers given expected to increase from 55% to 80%, the competition with the rest of the GCC), and enrollment in other grade levels, and public schools offer favorable salaries, which is already high, will continue to benefits, and hours compared to private hold steady. schools. The government is making an ef- fort to address these challenges, but change •• Shift toward private schools: The takes time. number of students enrolled in private schools is expected to grow, from 62% to Opportunities in Saudi Arabia. Saudi 70%, as demand for private schools still Arabia is still a relatively immature mar- exceeds the supply. ket, with few international schools, limited exposure to international curricula, and •• Tuition increases: Tuition fees are limited experience with international in- expected to increase in line with vestors. There is a strong need for inflation. high-quality private schools that offer a variety of curricula and fee ranges. We are al- Challenges in Qatar. Qatar is embroiled in ready seeing more international partner- a diplomatic crisis with its neighbors, ships (for example, a memorandum of which has led to an uncertain political and understanding was signed with the UK in economic climate. This situation could al- March 2018 to develop teaching methodol- ter expatriate demographics and negatively ogies and capacity building in Saudi Ara- affect the overall economy. bia, particularly in early education). We also expect to see greater consolidation in Opportunities in Qatar. There is strong the private education market, increasingly demand for private schools in Qatar, across sophisticated educational offerings, and ad- all types of curricula and fee ranges. It ditional emphasis on educational support, used to be that expatriates were not al- such as teacher training and extra-curricu- lowed to attend public schools, but the gov- lar offerings. There are also significant op- ernment has had to relax that policy be- portunities for growth in Saudi Arabia giv- cause of the shortage in private schools. en the announcement of recent There are also opportunities for public-pri- mega-projects, such as NEOM, a high-tech vate partnerships given Qatar’s transforma-

The Boston Consulting Group | Where to Invest Now in GCC Private Education 7 tion of its public schools into independent $1.8 billion in 2023. Growth in the private schools. education market will be driven primarily by one factor:

Kuwait: Opportunity for Large- •• Enrollment growth: Only 23% of Scale Operators Oman’s 730,000 students are enrolled Kuwait’s private school market is expected in private schools, lower than the 30% to grow from $1.3 billion in 2015 to $2 bil- GCC average, indicating plenty of room lion in 2023. This is primarily owing to two for growth. Enrollment in private factors: schools in Oman has grown at a 7% CAGR, whereas enrollment in public •• Population growth: The overall schools has only grown at a 2% CAGR. population in Kuwait continues to grow This trend is expected to continue, steadily, both for Kuwaitis and expatri- albeit at a slightly slower rate (approxi- ates. mately 5%).

•• Shift toward private schools:Kuwaitis Challenges in Oman. The private educa- are increasingly shifting to private tion sector in Oman is relatively immature, schools, as families are more willing to with a restrictive regulatory environment spend on education and better quality. (under current law, companies must be 35% locally owned, for example). Oman Challenges in Kuwait. The government of also has the lowest GDP per capita, as com- Kuwait can sometimes allocate land in in- pared to other GCC countries, and there- convenient locations (away from residen- fore its citizens have less purchasing power. tial areas, for example), offer little support In addition, government scholarships favor or subsidies for private international public school students, placing private schools, and place strict caps on fee in- school students at a slight disadvantage if creases. In 2016, for example, the Educa- they hope to be selected for scholarships to tion Minister issued a decree to halt private study abroad. school fee hikes. Because of competition with the UAE, Bahrain, and Qatar, it can be Opportunities in Oman. Omanis place difficult to attract and retain teachers. Ku- more value on the quality of education waitization ratios restrict the number of ex- than ever before, and the government is patriate teachers, and a new decree prohib- engaging with the private sector to increase its visas for expatriates under the age of 30 enrollment in preschools. The private (although this has been placed on hold for school market is highly fragmented, com- now), which further limits the pipeline of posed mostly of standalone private schools, talent. Finally, without comparative data and there is a need for high-quality private on school ratings, it’s difficult for parents international schools with low- to mid- to compare school quality. range fees.

Opportunity in Kuwait. There is demand for high-quality private schools, across all Bahrain: Investor-Friendly Mar- types of curricula and fee ranges. With its ket highly fragmented market, primarily com- Bahrain’s private school market is smaller posed of standalone private schools, there than other GCC markets, given its smaller is an opportunity for large-scale operators population, but it has the potential to grow to enter. from $0.4 billion in 2015 to $0.7 billion in 2023. This growth is owing to three key factors: Oman: Significant Room for Growth •• Shift toward private schools:The Oman’s private school market has the po- expatriate population is growing, tential to grow from $1 billion in 2016 to Bahrainis are increasingly interested in

The Boston Consulting Group | Where to Invest Now in GCC Private Education 8 private schools, and the government is The private education market in the GCC is offering incentives to attract private and continuing to grow quickly. With strong foreign investment. population growth and greater transparen- cy into school quality, the opportunities for •• Tuition increases: Tuition fees will investment are excellent. But private continue to grow at approximately 3% school operators and investors must under- per year. stand the unique requirements within each GCC market and focus their efforts on un- •• New enrollment opportunities: derserved segments. With so much frag- Bahraini schools have better outcomes mentation across the GCC region, there is than many other GCC countries, which an opportunity to consolidate schools into has created an opportunity to attract networks and scale up over time. By find- students from Saudi Arabia’s Eastern ing the pockets of opportunity and filling Province. the gaps, new entrants and existing operators can make a meaningful difference in Challenges in Bahrain. It can be challeng- the education landscape. ing for private schools to navigate the regulatory environment and compete against public schools. The Bahrain Quality Au- thority classifies 30% of public schools as Notes “outstanding,” whereas only 18% of private 1. See “Education Gaining Prominence Across GCC,” Kuwait Times, February 20, 2017: https://www. schools have achieved this classification. pressreader.com/kuwait/kuwait-tim With public schools continuing to improve, es/20170220/281552290622326. and a sluggish economy that has reduced 2. Parents in the UAE spend approximately $100,000 consumer spending, Bahraini nationals on a child’s education, from primary school to undergraduate level, which is second only to Hong may be less willing to pay for private Kong (at $130,000). See “Parents in these Places schools. Spend the Most on their Children’s Education,” World Economic Forum article, August 2, 2017: https://www.weforum.org/agenda/2017/08/ Opportunity in Bahrain. Bahrain is a parents-in-these-countries-spend-the-most-on-their- highly fragmented market, with no large- childrens-education/. scale operators. The country offers an in- 3. See “Dubai’s Crown Prince Wants to See More vestor-friendly environment with fewer Emirati Pupils in Private Schools,” Arabian Business, November 2, 2017: http://www.arabianbusiness.com/ barriers to entry than the rest of the GCC industries/education/382627-dubais-crown-prince- region. There is a need for high-quality pri- wants-to-see-more-emirati-pupils-in-private-schools. vate international schools with low- to mid- range fees.

The Boston Consulting Group | Where to Invest Now in GCC Private Education 9 About the Authors Dr. Leila Hoteit is a partner and managing director in the Dubai office of The Boston Consulting Group. She is a core member of the firm’s Public Sector and People & Organization practices and leads BCG’s education and human-capital-development work in the Middle East. You may contact her by email at ho- [email protected].

Maya El Hachem is a principal in the firm’s Dubai office. You may contact her by email at elhachem. [email protected].

C. Patrick Erker is a project leader in BCG’s San Francisco office and part of the US Education Leader- ship Team. You may contact him by email at [email protected].

Serene Farah is a consultant in the firm’s Dubai office. You may contact her by email at farah.serene@ bcg.com.

Acknowledgments The authors would like to thank their BCG colleagues Zeynep Yildirim and Tracy Zeinoun for their valuable contributions to this report.

The Boston Consulting Group | Where to Invest Now in GCC Private Education 10