Gulf education sector poised for robust growth

Alpen Capital today announced the publication of its GCC Education Industry report. By focusing on the growth potential of the respective GCC member nations, the report presents an outlook for the pre-primary, schooling (primary and secondary), and tertiary segments of the education sector. "All segments of the GCC education sector is poised for consistent growth in the future driven by growing focus on quality education, increasing population, increased private sector participation and strategic plans of various governments in the region to improve the education system through reform programs", says Sameena Ahmad, Managing Director at Alpen Capital. "Despite the challenges that private providers face in terms of high initial investment and running costs, the education sector remains an attractive investment opportunity across the region", she added. "The GCC governments realize that education is a pivotal pillar in the development of any nation and have undertaken several initiatives to enhance the quality and reach of education. It is therefore no surprise that the sector has attracted a number of private investors in the last decade. Although the private school market across the GCC is highly fragmented, it still offers significant opportunities for new investments and ample room for consolidation for existing players", says Sanjay Vig, Managing Director at Alpen Capital. Industry outlook Alpen Capital in its GCC Education industry report expects the total number of students in the GCC region to grow from an estimated 10.2 million in 2011 to 11.6 million in 2016, registering a CAGR of 2.7%. Growth in the total number of students in the pre-primary and tertiary segments is expected to outpace the growth rate of primary and secondary segment. The pre-primary segment will see a growth rate of 11.2%, followed by tertiary segment at 4.8%, primary segment at 1.7% and secondary segment at 1.6%. Total enrolment in pre-primary, primary and secondary education segments in private schools will grow at a CAGR of 10.2%. Growth in the total students in the region is primarily attributed to the increasing population in the region. The share of students in the pre-primary segment is expected to increase from 5.3% in 2011 to 7.9% in 2016, while the share of tertiary students is expected to rise from 12.0% to 13.4% during the same period. This is due to the fact that these segments are currently under-penetrated and expected to grow at a relatively faster pace. The share of students in private schools is expected to grow from 21.1% in 2011 to 30.4% in 2016. Private school enrolment in Saudi Arabia is expected to grow the most in the region, at a CAGR of 16.6% between 2011 and 2016, followed by Qatar at 6.0% and Bahrain at 5.9%. We expect the recent regulatory changes, which allow Saudi nationals to enroll in international schools will boost overall enrolments in private schools in the Kingdom. Higher demand for education will also propel growth in the number of schools in the region. By 2016, the region is likely to have a total of 51,450 schools; out of which 20.6% will be private schools. Alpen Capital also foresees that the number of higher educational institutes across the GCC region will rise mainly on the back of rising enrolment rates in the GCC member countries. Growth Drivers An increasing population base coupled with an expanding expatriate population is expected to drive demand for education across the region. Increasing income levels and growing awareness about education are also expected to drive demand for private education despite it involving higher costs. This trend is also expected to translate into more private sector investment in the region and is likely to further improve the quality of education in the GCC member countries. Favorable government policies in the GCC encouraging private sector participation also help to accelerate the reach of good-quality education to the general masses and this is also likely to drive the growth of the education sector. Trends Private schools earlier catered primarily to expatriates but there is a growing interest in private education amongst GCC nationals, as a result of which, an increasing number of them are shifting to private education for their children. Governments of GCC member nations have encouraged the entry of foreign universities in the region to improve the quality of higher education in the region. As a result there are several higher education options available in the region which is not only encouraging expatriate children to consider higher education in the GCC but also attracting students from the greater MENA region. Alpen Capital also expects technology to play a key role in improving the quality and teaching methods of the education in the future. The region is witnessing increasing use of technology in the education sector The private education sector across the GCC has witnessed consolidation in the past 10 years or so with the UAE and Saudi Arabia being the favorite among the Private Equity investors due to their immense growth potential. Challenges Shortage of skilled teachers continues to be major challenge for the GCC education sector. Apart from a shortage of skilled teachers, the region is also facing the problem of high attrition rate among teachers as the experienced ones easily get a chance to switch schools due to a demand-supply gap that is prevalent in the market. Another issue that faces the sector is that the enrolment in tertiary education still lags behind the global average, primarily reflecting the preference of students to pursue higher education abroad. It is also a reflection of a mismatch between skills taught to the graduates and requirements of the local labor market. The GCC region has witnessed a lack of opportunity for fresh graduates mainly due to lack of tie-ups between the education sector and the private companies in the region. Setting up a school involves not only a high capital requirement, but also high running costs. The tuition fee increases however are regulated by the government and private schools do not have the flexibility of changing the fees structure in line with their higher costs. This proves to be a challenge for investors. Despite these challenges, the GCC Education sector is poised for robust growth in the future on the back of increasing population, rising private sector participation, and increased willingness of parents to ensure high-quality education of their children. Earnest intention of the governments to improve the coverage and quality of education in their respective countries through various reform measures also bodes well for the sector.