Al Masah Capital: MENA Education Sector

Al Masah Capital: MENA Education Sector
April 2014
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MENA Education Sector
EXECUTIVE SUMMARY
Knowledge and innovation have become an important part of a country’s long-term
growth strategy. However, in order to achieve these, the education system of a country
should be efficient and capable of delivering results. An educated population has the
ability to successfully face the economic and social challenges facing the world today.
Though a little late in the race, the MENA region has now come to realize this.
The MENA region spends about 3.8% of GDP on education, compared to developed
nations like Japan and Singapore, which spend 3.8% and 3.2% of their GDP, respectively,
on education. The region allocates on an average 17.4% of government expenditure
toward education compared to the world average of 13.9%. Allocation for education is
high, particularly in Morocco, Saudi Arabia, Oman, and Algeria. Unfortunately, the
results so far, have not been very encouraging for most countries, except the UAE and
Qatar, which have exhibited good progress.
Unfortunately, in the MENA region, provision of education is generally perceived as the
government’s responsibility, reducing the role of private sector to a great extent. No
wonder, the share of private schools in the total number of schools in MENA stands
below 15%.
According to our research, MENA is a huge education market, waiting to explode.
The region is home to nearly 220 million people, with a school-age population of 80
million. Based on gross enrolment rates at each level for a country, the school-going
population in MENA stands at 57 million, with 50 million students attending public
schools/institutions and 7 million attending private schools/institutions.
Based on estimates of average tuition fee for each country (at each level), we found
MENA’s overall education market to be worth USD128 billion. Our estimates place the
MENA education market at USD237 billion by 2020.
MENA also has favorable demographics. At 1.9%, the MENA region has one of the
highest population growth rates in the world. In addition to the high birth rate, the influx
of large number of expatriates in the region (particularly GCC) is a cause for the rise in
population. Separately, rising affluence and desire for higher quality schools among
parents is also resulting in higher household spending on education. According to a
survey by Booz and Co, parents in GCC have started placing more emphasis on factors
such as quality of teachers, curriculum, reputation, environment for children and
preservation of culture while choosing schools for their children. The survey found that
there is growing preference for international, English-language curricula, with 53%
preferring ‘Western-style’ curricula (UK, US, or IB). Moreover, though MENA has
achieved high enrollment rates at the primary and secondary levels; enrollment rates at
pre-primary and tertiary levels are still relatively low.
On a separate note, the cost of education in the region is deemed to be quite high.
Tuition fees and education related expenditure burn big holes in the pockets of an
average
MENA
resident.
According
to
a
recent
survey
by
survey
by
WhichSchoolAdvisor.com, most parents in the UAE spent between 11% and 15% of their
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MENA Education Sector
household incomes on children’s education. The survey also reveals that course
curriculum and teaching methods in MENA are not at par with the global standards.
Education has also attracted private equity firms due to factors such as long-term
revenue visibility, demand being greater than supply, and negative working capital (as
school/tuition fee is paid in advance by parents and generally they do not default on
dues).
Over 2004–13, the MENA education sector witnessed 23 private equity buys worth
USD313 million (disclosed value). During the period, Al Masah Capital and NBK Capital
were the most active PE funds/firms in the sector. Al Masah Capital and NBK Capital
reported four deals each. The UAE was the hub of private equity deal activity in the
MENA education sector. Nearly 57% of all deals announced during 2004–13 were with
companies based in the UAE. The K-12 segment (or kindergarten to grade 12) garnered
the maximum number of private equity deals during 2004–2013.
Given the recession-proof nature of the education business coupled with government
support and favorable demographics, we feel the sector would continue to witness
higher private equity interest, going forward.
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MENA Education Sector
GENERAL OVERVIEW OF THE MENA EDUCATION
SECTOR
Education in MENA is largely provided by the government
Student enrolment in
public institutions is
very high in the MENA
region
In the MENA region, provision of quality education is generally perceived as the
government’s responsibility. At 99%, the share of total student enrollments in public
schools and other public educational institutions is the highest in Algeria, followed by
Libya (97%), Tunisia (97%), Egypt (91%), Saudi Arabia (89%) and Morocco (83%).
Excluding Qatar, the UAE, and Lebanon, education in all the other MENA countries is
largely provided by the government.
Exhibit 1: Percentage of students enrolled in public institutions across MENA
Algeria
99%
Libya
97%
Tunisia
97%
Egypt
91%
Saudi Arabia
89%
MENA
88%
Morocco
83%
Oman
79%
Jordan
71%
Kuwait
65%
Bahrain
62%
Qatar
48%
UAE
36%
Lebanon
50%
33%
Percentage of students enrolled in public institutions
Source: UNESCO, the World Bank, IMF, Al Masah Capital Research
Expenditure on education in the region is high by global
standards
The MENA region
spends 3.8% of GDP on
education; comparable
to Japan (3.8%) and
Singapore (3.2%)
The MENA region spends about 3.8% of GDP on education, with high expenditure
recorded in countries like Morocco (5.4%), Saudi Arabia (5.1%), Jordan (5.0%) and Oman
(4.3%). Developed nations like Japan and Singapore spend 3.8% and 3.2% of their GDP,
respectively, on education.
Enrollments at primary, secondary and tertiary levels have
improved; pre-primary enrollments continue to lag
1
The region’s gross enrollment ratio at the primary level stands above 100. At 84 and 31,
enrollment ratios at the secondary and tertiary levels in MENA are reasonable compared
to the world averages of 70 and 30, respectively. However, MENA enrollments of 36 at
the pre-primary level are far behind the world average of 50 and many of the developed
countries.
1
Gross enrollment ratio refers to the number of students enrolled at a certain level of education as
a percentage of the population of the age group that officially corresponds to that level
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MENA Education Sector
Gross enrollments at
pre-primary level are
relatively poor in
MENA
Exhibit 2: Gross enrollment ratio (GER) at the pre-primary level
120
112
100
87
80
73
60
50
36
40
20
-
Germany
Japan
United States
World
MENA
Source: UNESCO, the World Bank, Al Masah Capital Research
Quality of education in the region is low
Most countries in the
region score low on
various parameters
related to the quality
of the educational
system
The World Economic Forum’s Global Competitiveness Report 2013–14 ranked Qatar,
Lebanon and the UAE high in terms of the quality of their educational system. However,
apart from these, most countries in the region scored low on various parameters related
to the quality of the educational system, including primary education, higher education
and training, enrollment rates, level of access to the internet in schools and availability
of specialized research and training services.
Within MENA, the quality of education in countries like Egypt and Libya is relatively
lower than the other MENA countries.
However, quality of
education in countries
like Qatar and the UAE
is considered good
Exhibit 3: Quality of education across MENA
Highest
Qatar
Lebanon
UAE
Jordan
Saudi Arabia
Bahrain
Oman
Tunisia
Morocco
Kuwait
Algeria
Egypt
Libya
6.0
5.8
5.2
5.1
4.6
4.3
4.1
4.0
3.7
3.1
3.1
2.7
2.2
1.9
Quality of educational
system
6.8
5.6
5.7
5.2
4.6
4.2
4.0
4.2
3.9
2.9
3.4
2.5
2.0
2.5
6.3
5.1
4.7
4.9
4.5
4.7
4.5
4.5
4.2
3.5
4.0
3.6
3.1
3.5
Quality of primary
education
Higher education
and training
Source: The Global Competitiveness Report 2013–2014
Note: Score 1 = poor; 7 = excellent
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MENA Education Sector
Addressable market size is huge
MENA has a schoolgoing population of 57
million
The MENA region is home to nearly 220 million people, with a school-age population of
80 million. Based on gross enrolment rates at each level for a country, the school-going
population in MENA stands at 57 million, with 50 million students attending public
schools/institutions and 7 million attending private schools/institutions.
Based on estimates of average tuition fee for each country (at each level), MENA’s
overall education market was found to be worth USD128 billion.
Private schools form 13% of total schools in the region
Our workings indicate that education needs of the students in MENA are currently met
by 138,000 schools (both public and private). Most of these are located in Egypt (34%),
Saudi Arabia (21%), Algeria (17%), Morocco (9%) and Tunisia (6%).
At 13%, the share of private schools in the total number of schools in MENA is quite low,
primarily due to free education by governments and less participation from the private
sector. Student enrollments in private schools stand at just 6.2 million compared to 44.5
million in public/government schools.
MENA has nearly
138,000 schools; 87%
of these being
public/government
owned
Exhibit 4: No. of schools in MENA (Public and Private)
Egypt
Saudi Arabia
Algeria
Morocco
Tunisia
Libya
Jordan
Lebanon
Oman
Kuwait
UAE
Qatar
Public Schools
Bahrain
2,500
5,000
10,000
25,000
Private Schools
50,000
Source: AMCL Research
In GCC, around 9.4 million students attend 34,000 schools. Approximately 20% of these
students, a majority of which are expatriates, are enrolled in ~4,500 private schools.
Private sector participation in the education sector was found to be commendable in
countries like Lebanon, Qatar, the UAE and Bahrain.
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MENA Education Sector
UNDERSTANDING THE EDUCATION SYSTEM OF MAJOR MENA
COUNTRIES
Most countries in the
MENA region offer at
least nine years of
compulsory education
Most countries in the MENA region offer at least nine years of compulsory education to
its citizens. Data from the UNESCO suggests that the duration of compulsory education
across MENA varies from country to country. Algeria, Bahrain, Egypt, Kuwait, Lebanon,
Libya, Morocco, Tunisia and the UAE offer nine years of compulsory education, while it is
12 years in countries like Jordan and Qatar. Citizens of Saudi Arabia, however, are
entitled to just six years of compulsory education.
The formal education system of the MENA countries we studied comprises pre-primary,
primary, secondary and higher education. It typically includes two years of pre-primary
and 12 years of primary and secondary education prior to the attainment of higher or
technical education.
The educational system aims to ensure that students are prepared for life and work in
the modern world while meeting the country’s religious, social and economic needs.
Saudi Arabia
Compulsory education
in Saudi Arabia lasts
six years from ages 6
to 11
The education system in Saudi Arabia can be divided into two broad categories: general
education and higher education. General education comprises schooling at the primary
level (from ages six through 12); intermediate level (until age 15); and secondary level
(which lasts a further three years, up to age 18). Higher education comprises bachelor’s
degree (usually four years), and a master’s degree (two years). Pre-primary education is
not a prerequisite for students entering primary education in Saudi Arabia.
Exhibit 5: KSA’s educational system
PRE-PRIMARY
2 Years
PRIMARY
6 Years
INTERMEDIATE
3 Years
General education
SECONDARY
3 Years
HIGHER
2-6 Years
Higher education
Source: Al Masah Capital Research
Note: Compulsory education lasts six years from ages 6 to 11
The Ministry of Education (MoE), the Ministry of Higher Education (MoHE), and the
General Organization for Technical Education and Vocational Training (GOTE-VOT) are
the three main authorities responsible for the administration and management of KSA’s
education system. In addition, other government ministries have authority over certain
types of educational institutions.
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United Arab Emirates
Compulsory education
in the UAE lasts nine
years from ages 6 to
14
In the UAE, education is a four-tier system consisting of pre-primary (ages 4 to 5 years),
primary (6 to 11 years), and intermediate and secondary (three years each, up to age
18). The curriculum up to primary education emphasizes on basic literacy and numeracy
skills, while that of the intermediate and secondary level focuses on preparing students
for university, technical or vocation training, or joining the workforce.
Exhibit 6: UAE’s educational system
PRE-PRIMARY
2 Years
PRIMARY
6 Years
INTERMEDIATE
SECONDARY
3 Years
3 Years
HIGHER
2-6 Years
Higher education
General education
Source: Al Masah Capital Research
Note: Compulsory education lasts nine years from ages 6 to 14
The Ministry of Education (MoE) regulates and manages the UAE’s education system
across emirates, except Abu Dhabi, where it falls under the aegis of the Abu Dhabi
Educational Council (ADEC).
Qatar
Compulsory education
in Qatar lasts nine
years from ages 6 to
14
Basic education in Qatar consists of six years in the elementary stage, three years in the
preparatory stage and three years in the secondary stage. The curriculum of the
elementary and preparatory stages emphasizes on basic literacy and numeracy skills.
The secondary stage focuses on preparing students for the university, technical or
vocational training, or joining the workforce directly. Beyond primary and secondary
schooling, high quality education and training are provided at the higher level.
Exhibit 7: Qatar’s educational system
PRE-PRIMARY
2 Years
ELEMENTARY
6 Years
PREPARATORY
3 Years
General education
SECONDARY
3 Years
HIGHER
3 Years
Higher education
Source: Al Masah Capital Research
Note: Compulsory education lasts 12 years from ages 6 to 17
The Supreme Education Council (SEC) manages and regulates Qatar’s education system.
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MENA Education Sector
Kuwait
Compulsory education
in Kuwait lasts nine
years from ages 6 to
14
Basic education in Kuwait consists of five years in the elementary stage, four years in the
intermediate stage and three years in the secondary stage.
Exhibit 8: Kuwait’s educational system
PRE-PRIMARY
2 Years
ELEMENTARY
5 Years
INTERMEDIATE
SECONDARY
4 Years
3 Years
HIGHER
2-5 Years
Higher education
General education
Source: Al Masah Capital Research
Note: Compulsory education lasts nine years from ages 6 to 14
The Ministry of Education (MoE), which supervises school education, and the Ministry of
Higher Education (MoHE), which is responsible for higher education beyond secondary
school, jointly administer the country’s education system.
Oman
Oman has not made
education compulsory
The basic education system in Oman consists of four years in the primary stage, six years
in the preparatory stage and two years in the post-basic stage. Academic results of
preparatory exams determine the post-basic education a student will receive. The
curriculum of the primary, preparatory and post-basic stages emphasizes on
communication and learning skills, critical thinking, science and modern technology.
Exhibit 9: Oman’s educational system
PRE-PRIMARY
2 Years
PRIMARY
4 Years
PREPARATORY
6 Years
General education
POST-BASIC
2 Years
HIGHER
3-5 Years
Higher education
Source: Al Masah Capital Research
Note: Oman has not made education compulsory
The Ministry of Education (MoE) regulates and manages Oman’s education system.
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MENA Education Sector
MARKET SIZING FOR THE EDUCATION SECTOR AND GROWTH
FORECAST
The MENA education market is forecasted to be worth USD237 billion by 2020. The
public sector is likely to continue being the dominant force, holding 54% of the market.
The private sector’s education market is forecasted to be worth USD110 billion, with the
K-12 segment at USD87 billion.
The MENA education
market is forecasted to
be worth USD237
billion by 2020
Exhibit 10: MENA education market by 2020
(in USD billion)
2010
68
60
Public
Private
2020
127
0
110
50
100
150
200
250
Source: UNESCO, the World Bank, IMF, Al Masah Capital Research
Within the private K-12 education market, primary level schooling could be worth USD40
billion, while secondary level schooling and pre-primary schooling are likely to be worth
USD33 billion and USD14 billion, respectively.
The private K-12
education market
could be worth USD40
billion
Exhibit 11: MENA K-12 education market by 2020
120
(in USD billion)
100
23
80
33
60
40
87
18
49
21
20
0
110
11
40
60
14
10
2010
2020
Source: UNESCO, the World Bank, IMF, Al Masah Capital Research
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MENA Education Sector
GROWTH DRIVERS FOR THE EDUCATION SECTOR
MENA has favorable demographics
MENA region has one
of the highest
population growth
rates in the world
At 1.9%, the MENA region has one of the highest population growth rates in the world.
In addition to the high birth rate, the influx of large number of expatriates in the region
(particularly GCC) is a cause for the rise in population. In 2010, GCC had 21.6 million
expatriates. By 2020, we expect the expat population in GCC to hit 24.5 million, or about
46% of total population.
Exhibit 12: Expatriate population in GCC (in millions)
Expatriates
21.6
Expatriates
2010
24.5
25.3
2020
Domestic
28.3
Domestic
Source: GCC Economic Review (NCB), the World Bank, Al Masah Capital Research
Approximately 38% of the MENA population is under the age of 19 years, a major
attraction for participants of the education sector.
Total school-age
population in MENA is
expected to hit 61.5
million by 2020
We expect the total school-age population in MENA to grow to 61.5 million in 2020 from
58.3 million in 2010. Qatar is likely to experience highest growth in school-age
population at a CAGR of 4.6% during 2010–20. In absolute terms, Egypt leads with a
projected growth of 1.85 million in the school-age population over the period.
Exhibit 13: Population growth rate 2002–12
3.0%
2.7%
2.5%
Sub-Saharan
Africa
2.0%
Middle East &
North Africa
1.9%
South Asia
1.5%
1.0%
0.5%
1.3%
1.1%
Latin America
& Caribbean
0.7%
East Asia &
Pacific
0.4%
Europe &
Central Asia
0.0%
2002
2004
2006
2008
2010
2012
Source: The World Bank, Al Masah Capital Research
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MENA Education Sector
Using the above data and assuming that there would not be any significant change in the
gross enrollment ratio, we estimate that the MENA region would absorb approximately
310,000 new pupils per annum during 2010–20.
Gross enrollment ratios have increased in the region
The MENA region has evolved since the early 1970s in terms of equitable access to
formal education. Large, continued spending on education by governments has led to
higher enrollments across education levels.
MENA has made
steady progress in
education. Gross
enrollment ratios
across levels
Exhibit 14: Gross enrollment ratios across levels of education in MENA
120
100
80
Primary
Secondary
60
Tertiary
Pre primary
40
20
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: The World Bank, Al Masah Capital Research
Rising affluence and desire for higher quality schools among
parents are leading to higher household spending on education
Rising income level in
MENA is leading to
demand for better
schools with worldclass infrastructure
and international
curriculum
Per capita income in the MENA region rose ~25% to USD10,210 in 2013 from USD8,180
in 2010. Countries like Qatar, Kuwait and the UAE continue to experience extremely
strong per capita incomes of USD100,377, USD62,642 and USD47,507, respectively. A
recent survey by WhichSchoolAdvisor.com indicated that with an increase in the general
income level, parents tend to opt for better schools with world-class infrastructure and
international curriculum for their children.
The survey found that most parents in the UAE spent between 11% and 15% of their
household incomes on children’s education. Parents of children going to Indian
curriculum schools generally spent less than 5% of their household incomes on
education compared to 11% for parents sending their children to an International
Baccalaureate or IB, British (12%) or American (13%) schools. The reason was that Indian
curriculum schools were popular among the middle class who found it expensive to send
their children to an IB or British school.
However, the survey mentioned that the most satisfied parents were those whose
children attended either IB, or mixed IGCSE and IB schools, followed (with some degree
of separation) by pure play UK IGCSE and A Level schools. The unhappiest set of parents
was those sending their children to Indian schools.
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MENA Education Sector
Government initiatives and support programs are aimed at
improving literacy and promoting private participation
MENA allocates on an
average 17.4% of
government
expenditure toward
education
The MENA region allocates on an average 17.4% of government expenditure toward
education compared to the world average of 13.9%. Allocation for education is high,
particularly in Oman (31.1%), Morocco (25.7%), the UAE (23.4%), Algeria (20.3%) and
Saudi Arabia (19.3%). Unfortunately, the results have so far not been very encouraging
for most countries, except the UAE and Qatar, which have exhibited good progress.
A recent article in Arab News indicated that countries are increasingly promoting private
participation in education. According to the Jan 2014 Arab News article, the Shoura
Council has urged the Saudi Arabian General Investment Authority (SAGIA) to seek
foreign investments in sectors like education, health and retail. In fact, the Saudi Arabia
Ministry of Higher Education is already believed to be studying applications from foreign
universities to open branches in the Kingdom.
The Jordan Education Initiative is another such government program that targets to
improve literacy and promote private participation in the education sector. Proposed in
2003, is a global-local, public-private partnership that aims to improve education in
Jordan through effective use of Information and Communication Technologies (ICTs) and
create a model of education reform for other countries. The Jordan Education Initiative
has more than 200 partners from the government, nongovernmental and private
sectors.
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MENA Education Sector
EMERGING TRENDS IN THE EDUCATION SECTOR
Private schools are preferred for quality education
Parents in the MENA
region have started to
prefer ‘Western-style’
curricula (UK, US, or
IB) for their children
According to a survey by Booz and Co, parents in GCC have started placing more
emphasis on factors such as quality of teachers, curriculum, reputation, environment for
children and preservation of culture while choosing schools for their children. The survey
found that there is growing preference for international, English-language curricula, with
53% preferring ‘Western-style’ curricula (UK, US, or IB).
Popularity of international curriculum schools and western
branded higher education institutions is increasing
Schools offering international curriculum in the region are growing significantly as
demand is outstripping supply. Findings by the International School Consultancy Group
suggest that the number of international schools in the UAE rose from 97 (teaching
2
77,000 students) in 2000 to nearly 427 (370,000 students) currently .
According to Tareq Zeyad Al Ameri (who works with the Abu Dhabi Education Council),
the popularity of international curriculum and western brands extends even to higher
education institutions. According to him, western-branded higher education institutions
or international branch campuses in the UAE are growing at ~15% a year.
The UAE hosts as many as 37 international branch campuses of prominent names like
University of Wollongong, Michigan State University, Heriot Watt University, Murdoch
University and Middlesex University. The UAE is followed by Qatar (11), Bahrain (3) and
Saudi Arabia (1).
The UAE hosts as
many as 37
international branch
campuses of
prominent names
Exhibit 15: Some of the international branch campuses in MENA
Source: Al Masah Capital Research
The US, along with the UK and Australia, are among the most prominent international
branch campus providers to the MENA region.
ICT is being increasingly used in education
The usage of Information and Communication Technology (ICT) has had a rub-on effect
on the education sector in a big way. Teachers no longer use just a chalk and blackboard
to teach. Classrooms of today have turned digital with aids that allow teachers to use
interactive multimedia content to supplement the standard textbook-and-blackboard
approach.
2
Schools set to boom with Dubai’s World Expo win, December 10, 2013 (The PIE News)
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MENA Education Sector
ICT is being
increasingly used in
education. Classrooms
are using interactive
multimedia content
Some of the leading private schools in Dubai, for instance, are equipped with an iMac
suites, interactive whiteboards (one in every classroom), laptops, iPads, webconferencing facilities, Lego Mindstorms and Beebot robotics kits, Digi-Blu stop-frame
animation cameras, video and digital cameras, MP3 recorders and a range of other
cutting edge hardware, software and internet-based tools.
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MENA Education Sector
KEY ISSUES AND CHALLENGES FACING THE EDUCATION SECTOR
Cost of education in the region is deemed to be quite high
Tuition fees and
education related
expenditure burn big
holes in the pockets of
an average MENA
resident
Every year, during school admissions, the rising cost of education becomes the focal
point of discussion in most newspapers and at social gatherings. The reason is that the
tuition fees and education related expenditure burn big holes in the pockets of average
residents in the MENA region, especially in cases where children are studying in private
schools.
According to our research, the average tuition fee paid by a parent for a child per year is
as follows: USD5,780 for the pre-primary level, USD7,800 for primary, USD10,000 for
secondary and USD12,500 for tertiary.
The average tuition
fee paid by a parent
for a child per year
stands at USD7,800 for
the primary level
Exhibit 16: Average fees classified by segment in MENA
50,000
(in USD per academic year)
40,000
30,000
20,000
10,000
Pre-Primary
Primary
Minimum
Secondary
Average
Tertiary
Maximum
Source: Al Masah Capital Research
Most school administrations in MENA attribute the high fees to high operational costs,
with teacher salaries comprising the largest share.
The World Bank data suggests that more students (per teacher) are taught in the MENA
region compared to developed countries; this should ideally enable cost savings. The
teacher-student ratio (at primary level) in MENA stands at a comfortable 20.6 compared
to that in the developed countries of the UK (17.3), the US (14.3), and Germany (11.8).
Course curriculum and teaching methods are not at par with the
global standards
Schools in MENA offer
poor course content
and use outdated
teaching methods
A recent survey by WhichSchoolAdvisor.com suggests that 44% of the parents in the UAE
believe the quality of education in their country is not up to international standards.
Apart from poor course content and outdated teaching methods, parents often
complain about the fact that schools do nothing to develop personality or critical
thinking.
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MENA Education Sector
Dr. Clifton Chadwick, an education lecturer at the British University of Dubai, says that
teachers in the UAE do not teach thinking, they teach content.
A Booz & Company survey of ~1,300 students in the region found that students want
more challenging and relevant coursework, improved teaching methods that are more
engaging, access to more extracurricular activities, and better career counseling.
Regulatory environment is less transparent
The regulatory
environment related
to education is
fragmented across
MENA
The regulatory environment related to education is fragmented across MENA. While
GCC somewhat boasts of a more mature regulatory environment compared to other
MENA members, it would still qualify to be termed less transparent when compared to
developed nations. Amendments to rules and regulations without sufficient prior notice
are routine affairs in this part of the world.
Similar is the case experienced by children of expatriates in Saudi Arabia who were sent
abroad by their parents for higher education. As per a recent Zawya news release, these
children have been asked to get their degrees endorsed by a local Saudi Embassy before
seeking a job, and the quagmire is that the endorsement would come through only after
they get a job contract in the Kingdom.
There is a disconnect between education offered and workplace
requirements
Several MENA countries are facing the enormous challenge of increasing numbers of
graduates ill-equipped to enter the workforce. Nationalization policies like Emiratization,
Saudization, and Omanization that are aimed at reducing unemployment among the
nationals are short-term measures that ignore the root cause of “youth readiness for the
job market”.
Employers in MENA
say that there is a
disconnect between
education offered and
workplace
requirements
Exhibit 17: Employer survey: What skills do recently passed graduates in GCC lack?
Problem solving skills
65%
Practical skills
57%
People management skills
48%
Written communication skills
47%
Teamwork
45%
0%
10%
20%
30%
40%
50%
60%
70%
Source: GCC Education Leaders Conference 2007
In our report “MENA: The Great Job Rush”, we mentioned that employers often
complain that the youth from MENA lack the basic skills required for a job. The problem
was due to disconnect between the education offered and the workplace requirements.
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MENA Education Sector
PRIVATE EQUITY DEALS IN THE MENA EDUCATION SECTOR
Deal activity in the education sector peaked during 2007/08
The MENA education
sector witnessed 23
private equity buys in
the last ten years
Over 2004–13, the MENA education sector witnessed 23 private equity buys worth
USD313 million (disclosed value). The amount seems small as the value of ~60% of the
total buy deals went undisclosed.
Private equity deal activity in the sector peaked during 2007/08.
In 2007, Abraaj Capital invested USD124.3 million to acquire a 25% stake in
UAE-based Global Educational Management Systems (GEMS Education).
During the same year, GulfCapital invested USD93 million for a 50% stake in
Saudi Arabia-based Maarif Education and Training Holding Company.
In 2008, First Education Holding bought large stakes in the UAE-based Al
Zuhour Private School and Egypt-based The Baby Academy for an undisclosed
amount. Amwal AlKhaleej’s also bought a 52.5% stake in Al Rowad Private
Education Group for USD34 million.
Exhibit 18: PE deal activity in the MENA education sector (2004-13)
Disclosed value* (USD mn)
NA
3
36
217
39
7
NA
NA
10
2
2
2011
2012
NA
Deal count (No. of deals)
6
3
2
2
1
2004
3
2
2005
2006
2007
2008
2009
2010
2013
Source: Zawya, Thomson Banker, Al Masah Capital Research
Al Masah Capital and NBK Capital were the most active PE
funds/firms in the sector
Al Masah Capital and
NBK Capital were the
most active private
equity firms in the
education sector
Al Masah Capital Limited (four deals) and NBK Capital (four) were the most active private
equity firms in terms of the number of buy deals announced during 2004–13.
Al Masah Capital Limited bought stakes in Horizon English School (UAE),
Cooper Nursery (UAE), Little Scholars Academy (UAE) and Star International
School (UAE). The private equity firm acted through Al Najah Education, its
education arm.
NBK Capital bought stakes in Sama Educational Co (Kuwait), Al Maaref Private
School (UAE), Newton International School (Kuwait) and Eikon International
18
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MENA Education Sector
Holding (UAE). It acted through NBK Capital Mezzanine Fund I, NBK Capital
Equity Partners Fund I and Kuwait Investment Opportunities Fund.
Other private equity firms displaying high levels of activity in the MENA education sector
include First Education Holding (three deals), Global Investment House (two) and RHT
Partners (two).
First Education
Holding, Global
Investment House and
RHT Partners were the
other active firms
Exhibit 19: Most active PE funds/firms in the MENA education sector (2004–2013)
Source: Zawya, Thomson Banker, Company, Al Masah Capital Research
The UAE was the most active country for investments
The UAE was the hub of private equity deal activity in the MENA education sector.
Nearly 57% of all deals announced during 2004–13 were with companies based in the
UAE. In fact, all private equity buy deals announced in the education sector during the
last three years (2011–13) were with UAE-based companies.
Kuwait and Saudi Arabia ranked second and third in terms of private equity interest
based on the number of deals announced during 2004–13.
The UAE reported the
highest number of
deals in the education
sector
Exhibit 20: UAE was the largest recipient of PE deals in the MENA education sector (2004–2013)
Number of Deals
UAE
13
Kuwait
4
Saudi Arabia
3
Egypt
Jordan
2
1
Value*
141
41
127
NA
3
Source: Zawya, Thomson Banker, Al Masah Capital Research
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MENA Education Sector
The K-12 segment alongwith Pre-primary received maximum
attention from PE investors
The K-12 segment (or kindergarten to grade 12) garnered the maximum number of
private equity deals during 2004–2013. The K-12 segment generally runs from ages 6 to
18.
Private equity firms have also been active in Pre-primary (five deals), buying into
educational companies such as Little Scholars Academy Cooper Nursery, Kids First
Group, and The Baby Academy.
The K-12 segment is
the most saught after
segment by private
equity firms
Exhibit 21: K-12 segment garnered the maximum number of deals (2004–2013)
Number of Deals
K-12
12
Pre-primary
5
Tertiary
Secondary
Others
3
1
Value*
207
NA
13
NA
2
93
Source: Zawya, Thomson Banker, Al Masah Capital Research
Private equity exits have been slow to come; but delivered
handsome gains
There have been just a
few private equity
exits in the MENA
education sector
There were about seven private equity exits in the MENA education sector during the
last 10 years. However, due to poor disclosures on their exit values, just a few deals have
been discussed below.
In 2012, Amwal AlKhaleej sold its entire 52.5% stake in Saudi Arabia-based Al
Rowad Private Education Group through a trade sale. Amwal AlKhaleej had
acquired a major stake in Al Rowad as part of its Amwal II partnership in March
2008 for USD34 million. The exit deal produced a money multiple of 1.8x for
Amwal II partners.
In 2012, Global Investment House sold its 58.9% stake in Al Rayan Holding
Company to United Education Company for an undisclosed sum. In 2006, GIH
had paid USD36.4 million via two funds – the Private Equity Fund and Global
Opportunistic Fund I – to acquire the stake.
In 2013, Abraaj Capital exited its six-year old investment in Global Educational
Management Systems (GEMS Education). In 2007, Abraaj's Infrastructure and
Growth Capital Fund (IGCF) had paid USD124.3 million for a 25% stake in GEMS
Education.
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MENA Education Sector
In 2013, NBK Capital sold its entire stake in Sama Educational Company to Al
Razzi Holding Company for an undisclosed sum. In 2008, NBK’s Kuwait
Investment Opportunities Fund paid USD5 million to buy a 33% stake in Sama.
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MENA Education Sector
COMPANIES IN THE EDUCATION BUSINESS
Few companies in the MENA education sector are publicly listed
Just a handful of
educational companies
are listed on the
various bourses across
the MENA region
There are just a handful of educational companies listed on the various bourses across
the MENA region. With a market capitalization of USD500 million, Saudi Arabia-based Al
Khaleej Training and Education Co (Al Khaleej) happens to be the most valuable publicly
listed company in the education sector.
Al Khaleej, which was established nearly two decade ago, provides training courses in
Information Technology, English Language, Administrative Training and others. The
company has 81 branches and 11 franchise product rights in Saudi Arabia. Al Khaleej
went public in 2007. In 2013, Al Khaleej reported a net profit of USD21 million on
revenues of USD177.2 million. In terms of valuation, Al Khaleej is available at a price-to-
Jordan the highest
number of educational
companies listed on
the bourse
earnings multiple of 23.8 and a price-to-book multiple of 4.4.
Our data points that the Amman Stock Exchange (Jordan) has the highest number of
educational companies listed on the bourse. The six educational companies have a
combined market capitalization of ~USD620 million. Kuwait, follows next, with as many
as four companies worth ~USD470 million.
Exhibit 22: Education companies listed on the various stock exchanges in MENA
Company
Al Khaleej Training and Education Co
Arab International Co for Edu and Inv.
Educational Holding Group
HumanSoft Holding Co
Nafais Holding Co
Petra Education Co
Al-Isra for Education and Inv.
EYAS for Higher and Tech. Education Co
Philadelphia Int. Educational Inv. Co
Zarka Education and Inv. Co
Dhofar University
Majan College (University College)
Cairo for Investment & Real Estate Dev.
Oman Education & Training Inv. Co
Al Ittihad Schools Co
Average
Country
Saudi Arabia
Jordan
Kuwait
Kuwait
Kuwait
Jordan
Jordan
Kuwait
Jordan
Jordan
Oman
Oman
Egypt
Oman
Jordan
Market Cap
USD million
500.0
230.8
139.2
121.6
119.6
118.5
96.5
88.5
79.1
65.6
49.1
36.6
34.0
31.3
28.8
Price-to-Earnings Price-to-Book
TTM
TTM
23.8
4.4
12.1
2.3
9.6
1.2
8.0
1.3
9.6
0.6
17.1
3.3
9.6
2.1
5.4
1.0
15.9
2.6
11.6
2.0
9.5
1.3
9.9
2.4
9.9
1.4
11.9
0.8
56.4
1.2
14.7
1.8
EV-to-EBITDA
TTM
19.4
9.6
11.2
6.0
17.1
11.4
7.8
4.2
11.2
7.3
4.8
4.9
5.4
7.4
6.9
9.0
Source: Thomson Reuters, Data as of Feb 27, 2014
Performance during the financial crisis
Companies in the
education sector were
not affacetde by the
global financial crisis
of 2007-08
Most companies in the education sector were left unscathed by the global financial crisis
of 2007-08.
In CY2008, shares of a Muscat-based company, Oman Education & Training Investment
Co, witnessed a 36% jump in stock price vis–à–vis the index decline of 41%. During the
same year, shares of several Jordan-based companies like Zarka Education and
Investment Co, Philadelphia International Educational Investment Co, Petra Education
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MENA Education Sector
Co, and Arab International Co for Education and Investment, rose 27.5%, 22.8%, 8.4%,
and 2.3%, respectively compared to the 25% decline in the benchmark index. In Kuwait,
shares of EYAS for Higher and Technical Education Co gained 7.7% versus a 38% fall in
the benchmark index.
Not only did these six companies do well on their respective bourses’, but they also
pulled-off a strong performance on the operational front.
Exhibit 23: Revenue and Operating profit of educational companies in MENA
Company
Zarka Education and Inv. Co
Oman Education & Training Inv. Co
Petra Education Co
EYAS for Higher and Tech. Education Co
Arab International Co for Edu and Inv.
Philadelphia Int. Educational Inv. Co
Revenue (USD million)
FY 2007
FY 2008
% change
4.4
5.9
34.4%
7.1
8.9
26.2%
6.3
7.3
16.7%
8.1
8.1
0.4%
16.3
16.3
0.2%
7.7
7.6
-0.7%
Operating Profit (USD million)
FY 2007
FY 2008
% change
3.9
4.7
21.6%
7.7
5.0
-34.7%
5.5
7.0
26.4%
5.1
8.2
59.9%
12.7
13.9
8.9%
6.4
6.4
1.4%
Source: Thomson Reuters
Revenues for Zarka Education and Investment Co jumped 34.4% to USD5.9 million in
FY2008 from USD4.4 million in FY 2007. Oman Education & Training Investment and
Petra Education Co also witnessed double digit growth in their revenues over the same
period.
Most of these companies including Petra Education Co and Zarka Education and
Investment Co reported a steep growth in operating profits as well.
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MENA Education Sector
OUTLOOK FOR THE SECTOR
MENA has realized the
need to create a
strong knowledge
base
The natural resource wealth of oil and other products in high demand is not going to last
forever. The future belongs to countries with strong knowledge base, capable of
undertaking research and innovations, and generating new marketable ideas.
Most will agree with the above statements and the fact that quality education is an
essential
driver
for
the
economic
development
of
a
country.
Developed
countries/regions like the European Union, USA and Singapore are a testament to this.
Although governments in the MENA region are well aware of this, just a handful of them
have taken aggressive steps to correct to improve the quality (and quantity) of the
education system in their countries.
Much is required to
boost pre-primary and
tertiary level
enrollments
The high enrollment rates at the primary and secondary levels in MENA are
commendable. However, enrollment rates at pre-primary and tertiary levels are still
relatively low. Separately, private sector involvement in education needs to increase to
achieve long-term sustainable growth without burdening government coffers.
Given the size of the school-age population, shortage of schools/educational institutes,
and teachers, there is a huge untapped potential in the MENA education sector.
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MENA Education Sector
Al Masah Capital Management Limited
Level 9, Suite 906 & 907
ETA Star - Liberty House
Dubai International Financial Centre
Dubai-UAE
P.O. Box 506838
Tel:
+971 4 4531500
Fax:
+971 4 4534145
Email: [email protected]
Website: www.almasahcapital.com
Disclaimer:
This report is prepared by Al Masah Capital Management Limited (“AMCML”). AMCML is a company incorporated
under the DIFC Companies Law and is regulated by the Dubai Financial Services Authority (“DFSA”). The
information contained in this report does not constitute an offer to sell securities or the solicitation of an offer to
buy, or recommendation for investment in, any securities in any jurisdiction. The information in this report is not
intended as financial advice and is only intended for professionals with appropriate investment knowledge and
ones that AMCML is satisfied meet the regulatory criteria to be classified as a ‘Professional Client’ as defined under
the Rules & Regulations of the appropriate financial authority. Moreover, none of the report is intended as a
prospectus within the meaning of the applicable laws of any jurisdiction and none of the report is directed to any
person in any country in which the distribution of such report is unlawful. This report provides general information
only. The information and opinions in the report constitute a judgment as at the date indicated and are subject to
change without notice. The information may therefore not be accurate or current. The information and opinions
contained in this report have been compiled or arrived at from sources believed to be reliable in good faith, but no
representation or warranty, express, or implied, is made by AMCML, as to their accuracy, completeness or
correctness and AMCML does also not warrant that the information is up to date. Moreover, you should be aware
of the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do
not guarantee future performance. We accept no liability for any loss arising from the use of material presented in
this report. This document has not been reviewed by, approved by or filed with the DFSA. This report or any portion
hereof may not be reprinted, sold or redistributed without our prior written consent.
Copyright © 2014 Al Masah Capital Management Limited
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