Ross Barfoot leads our specialist education team in the MENA region. He has over 10 years experience advising clients on corporate and commercial matters.
Clyde & Co’s specialist education team is based across the MENA region and comprises specialist lawyers from a range of legal disciplines across the firm including corporate, commercial, regulatory, dispute resolution, employment, intellectual property, construction and real estate. Clyde & Co provides joined-up commercial, pragmatic and innovative advice to education sector clients on all aspects of their business. Our depth of understanding of the education sector means that we understand our clients’ operating environment and commercial needs.
What trends are you seeing in the education sector in the MENA region?
Both Qatar and the UAE are currently seeing a massive shortage of K12 places in private schools. Recently, a UAE newspaper ran an article on the shortage of school places in the UAE, pointing out that one private school in Abu Dhabi received around 700 applicants for the 88 places in its kindergarten this year. In Qatar, we are hearing about expatriates who are not able to bring their families with them because there are no school places available. The demand for more private schools in the region is certainly there, and with the Abu Dhabi housing decree last year, and the Qatar FIFA World Cup 2022, and the planned expansion of Dubai ahead of Expo 2020, it is only going to increase.
This shortage has meant that we are seeing plenty of opportunities for school operators and investors as well as private equity funds increasingly targeting the education sector, especially K12.
We are also seeing an increased focus on vocational education, particularly in Saudi Arabia, largely in response to increasing youth unemployment. The recent increased focus on vocational training has led to high levels of government funding in the vocational sector, with a number of mandates for the creation of technical colleges. This is good news for foreign vocational training providers. For example, in April, UK education providers were granted 4 new contracts worth £850 million to establish 12 technical and vocational training colleges in Saudi Arabia.
What is making the region so attractive to investors?
Around 35% of the region’s population are under the age of 25 and UNESCO has estimated that there will be an additional 9.5 million students from 2011 to 2030 across the GCC. There are simply not enough schools, colleges and universities, either private or public, for that number of students.
Governments in the region, particularly in the GGC, have the money to invest in the sector and are increasingly doing so. Government expenditure on education in the GCC now accounts for around a quarter of all total public expenditure.
A shortage in the K12 private education sector also makes the region attractive to investors. It is clear that parents in the region are not afraid to invest in their children’s education and it is mostly the quality of teaching and the reputation of the institutions that play a part in parent’s decision-making, rather than the fees. They just need the school places to be able to do so. We are seeing a greater number of “premium quality” schools opening in the UAE because parents will pay the high fees if they feel their children are receiving a premium quality education. However there are also great opportunities for Indian curriculum schools at the mid-level fee range.
Do you think enough is being done to attract investors?
There is a clear focus on attracting investment into the region’s education sector. We regularly advise international schools and investors on the education sectors in Qatar,
UAE, Saudi Arabia and the wider MENA region. Clyde & Co are proud sponsors of the Education Investment MENA Conference in Dubai this November, focusing on the business of education in MENA. This forum provides the annual meeting point of the private education community.
What challenges are key players facing?
The cap on school fees enforced by the Dubai Knowledge & Human Development Authority (KHDA) and the Abu Dhabi Education Council (ADEC) is obviously a challenge, especially for schools who have been here for a number of years. Increases in fees are linked to performance in inspections but the increases do not appear to be in line with the increases in the costs of providing education.
A regulated fees environment also poses difficulties in satisfying the competitive remuneration levels expected by quality teachers. Currently there is a shortage of skilled staff, primarily teachers, affecting the quality of education at both private and public institutions in the region.
Whilst undoubtedly good news for parents, a cap on the fee structure makes it challenging for investors to evaluate the investment opportunity and further restrictions may in fact deter investors.
Start-up costs also present a challenge to investors and school operators looking to expand into the region. A recent study calculated a USD 14-28 million cost for establishing a new school in the region.
What changes could you see being made to help combat these challenges?
Regulators across the region need to review their processes and requirements to ensure they are making it as attractive and as easy as possible for new schools to be established, while at the same time ensuring high educational standards and access to education for all children. An unenviable task!
How do the needs vary between the operator and investor?
Any school wishing to expand into MENA needs to strike a balance between maintaining its brand and standards (which would have been built up over decades) and sharing control over the overseas campus with a local partner or investor. The actions and performance of the regional campus may directly impact the reputation of the original school, hence why IP/Brand protection is key, as is having stringent educational and quality guidelines in place.
An investor will have different priorities, not least the maximising of profit and return on investment. They will normally seek to control the start-up costs of the school as well as its operation.
Sometimes there can be a mismatch between the expectations of the school operator and the investor. We have advised both investors and international school operators on the negotiation and agreement of appropriate legal and commercial terms to ensure both parties achieve an acceptable compromise.