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Monday, 30 November 2020

What is it going to take to spur education franchising in Egypt?

What is it going to take to spur education franchising in Egypt? Last week, we looked at how education franchising could be an effective way to import knowledge and expertise that would lend itself well to Egypt’s drive to internationalize its education. Franchising isn’t just a cost-effective way for international schools to enter new markets — in 2014 it was named the fastest growing method of transnational education used by global players. But education franchising in Egypt is growing relatively slowly. Though our first international school franchise was established in 2004, only a handful of K-12 schools and one university have followed its lead, multiple sources confirm. Today, we look at which regulatory hurdles have impeded it and what policies would help push this model of education along.

As things stand today, there is no regulatory framework governing franchises in Egypt. Currently, establishing a franchise in Egypt is relatively straightforward, essentially just drawing up a contract, says Mahmoud Bassiouny, Managing Partner at Matouk Bassiouny. But it’s sector-driven. Franchising a fast-food chain is much more straightforward than a franchise model involving something more complex, like the transfer of technology and intellectual property. So franchisors, especially those with sophisticated models involving technology transfer or a powerful brand, need to see greater regulatory clarity to feel protected, he adds.

This is particularly important to education franchisors coming to Egypt, who must ensure that their brand reputation will be protected, says Islam Saeed, Partner at Matouk Bassiouny. Education franchisors are generally urged to value brand reputation above every other consideration, and guard against local providers who use a school’s name to do business but compromise quality and reputation, this ISC Research report (pdf) shows.

Enter the Franchise Act: The government and stakeholders have been working on drafting a Franchise Act, now under final review by the legislative department of the Trade and Industry Ministry, says Hatem Zaki, Executive Board Member of the Egyptian Franchise Development Association (EFDA). The act should cover how and where to register franchises, how to disclose information, what the commitments of franchisor and franchisee are, and what a court would consider binding and non-binding in a franchise agreement, says Zaki. It will hopefully reassure franchisors that their contractual arrangements will be upheld in Egyptian courts, says Bassiouny.

But would such an act be enough to spur education franchising? On its own, probably not. For one thing, the Franchise Act doesn’t appear to address education directly, sources close to the matter tell us.

And neither does the Education Ministry’s regulations: The establishment of any international school needs approval from the Education Ministry under the Education Act of 1981 (pdf), Deputy Education Minister Mohammad Megahed tells Enterprise. However, the Education Act doesn’t include specific provisions on franchising schools, both Megahed and Saeed tell us. Franchisors might see theoretical protection of their names and trademarks (including logos) in local Egyptian law and international agreements that Egypt’s party to, but there’s no practical protection in terms of case law, verdicts issued by Egyptian courts or arbitral precedents. “We haven’t seen precedents where the Education Ministry intervened in disputes or authorized the franchisee and franchisor structure,” Saeed adds.

Amending regulatory conditions related to licensing and trademarks could help: Currently the Education Ministry doesn’t require local operators to prove they have the rights to use an international school’s name and trademarks when applying for the license to use them, says Saeed. As long as the name isn’t being used by another local school, the license could be granted. This needs to be changed so that local operators have to provide proof by international schools that they’re authorized to use their names, trademarks and intellectual property, Saeed believes.

As the regulatory body, the Education Ministry should take the lead in registering and monitoring franchises: It should register education brands, and have a record of both franchisees and franchisors so that in the event of any dispute, franchisors can apply to the ministry to get their licenses revoked, rather than going to the police or Egyptian courts, argues Saeed.

In many ways, conditions are ripe for education franchising to grow in Egypt: Generally, franchising has the potential to grow significantly in Egypt, and a good franchise law could encourage more franchisors to set up here, says Bassiouny. Egypt remains an attractive destination for private schools seeking overseas expansion through franchising, as evidenced by Malvern College operating and Haileybury planning to open, says Nalini Cook, ISC’s Head of EMEA Research.

But for it to flourish, a clearer regulatory framework tailored to education is still needed: Education franchising should be encouraged, but with clear conditions, says Saeed, and international schools must remember that the sector is still under development in Egypt. “If I were an international school, I wouldn’t adopt a typical franchise agreement in Egypt, the kind that issues a license and educational material in exchange for periodic supervision. I would want more control — not management control, but control when it comes to monitoring service quality — without taking on the liability of the operation,” he adds.

Your top education stories for the week:

  • The Madbouly Cabinet approved a decision to lower tuition fees for international students by up to 35% at several public universities outside Cairo and Alexandria.
  • CI Capital is planning to list 40% of its education arm Taaleem Consulting and Educational Services in an IPO in 1Q2021.
  • Leading private education outfit CIRA is considering a EGP 600 mn sukuk issuance.
  • The Communications Ministry has signed a MoU with the University of Ottawa to offer a masters degree in Computer Science with a specialization in AI, data science, the Internet of Things and robotics.

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