Blackboard sits down with Ahmed Wahby, CEO of GEMS Egypt: It’s an interesting time to be in the education business in Egypt, with the arrival of a new public education system, the launch of public-private partnership programs, a new regulatory environment, and rising interest from foreign education providers and private equity — not to mention a changing macro climate and regulatory change. Into this changing landscape steps GEMS Education — a leading Dubai-based education services provider with 54 K-12 schools operating in the UAE, Qatar, and Egypt. The company made headlines here in Egypt back in 2018, when it partnered with EFG Hermes to form the Egypt Education Fund, a platform to invest in K-12 education here in Egypt. The platform, which will invest USD 300 mn over a five-year period, announced its first major investment last year, a EGP 1 bn transaction that saw it acquire four schools, with reports of a possible acquisition coming later in the year.

Who is Ahmed Wahby? Prior to coming joining GEMs in Egypt three months ago, Ahmed Wahby spent 14 years working for Procter and Gamble North Africa. He was P&G North Africa and the Levant’s CFO from 2014 until June of this year.

The investment case for Egypt remains strong, despite the Education Ministry’s decision to cap foreign investment in the sector, Wahby tells us. He recenty spoke with us about what GEMS hopes to achieve in Egypt, including the launch of its flagship school, why the company invested in the country, as well as the fund’s vision for the future. Edited excerpts from our discussion:

A full-fledged platform in Egypt: What the Egyptian Education Fund plans to achieve in Egypt is building a full-fledged education platform that not only offers a variety of curriculums for our K-12 schools, but would also provide all the complementary services that come with the school, including catering, providing uniforms, and transportation.

With that in mind, our activities will serve the purpose of providing quality education across all income segments that we’re not currently serving as much, and tapping into opportunities outside of Cairo. All the fund’s investments will land on assets and products that will serve this strategy. We’re not reinventing the wheel here. We’re simply taking a tried and true model of GEMS in other markets and adapting it to the needs of the Egyptian market.

We’ve so far deployed over USD 70 mn and looking at a very active pipeline. Our current assets include the four schools we acquired in Madinaty and Rehab — two providing the British curriculum, and two providing the national curriculum. We are planning to close three new investments before the end of the current academic year, one of which will significantly complement our service offering range and will be announced soon.

We’re also building our greenfield school in Rehab, which will be our flagship school here in Egypt and will bring our total capacity to almost 10k students. We’ve acquired the land for the school, and the development is in the post-design phase. The school will be operated along the Dubai model of GEMS schools. We have not yet finalized the curriculum design, but it will be an international school catering to the demands of the demographics in that area. So we’re considering everything from the British curriculum, to an American high school curriculum and the International Baccalaureate.

Egypt is an important market for GEMS’ global strategy and at the moment is a very important player within the GEMS portfolio. We see it as an engine for growth and an important value generator for the entire group. That’s why GEMS is backing both our current assets and greenfield investments, whether that support is funding or with the design of the program. Our plan is to have GEMS Egypt be one of the biggest contributors to business growth in the near future.

Diversification across income segments: Our growth strategy in Egypt is to diversify in terms of our service offerings, our target segments, and geographic presence, with the target of serving more than 25k students within the next three years. On the segments, we’re definitely looking at building a portfolio of assets that target the low-, middle-, and high-income brackets. We are now focused on expanding assets that target the middle- and higher middle-income segments where we believe there is a significant market gap.

As for expanding outside of Cairo, we see a lot of activity happening in the Delta region, Alexandria, Mansoura, and Upper Egypt. This trend has definitely been supported by the government’s urbanization efforts in those regions and its plans to build new urban centers. That hasn’t only helped concentrate and develop the market of students in those areas, but has also provided infrastructure needed for the development of schools.

The other important element of our strategy here in Egypt is adapting the GEMS model to the needs of the Egyptian market, primarily by ensuring that learning is personalized and catered to the needs and ambitions of the individual students. While curriculum and teacher quality is the core of our service offerings and keeping in line with international standards, GEMS has also developed a series of enrichment programs that aims to develop key skills that will serve them in later life. For instance, we will be offering our secondary students opportunities to get internships in top companies in Egypt. Our Egypt schools will tap into a network of around 300 schools globally offering a variety of programs, including study abroad programs, sports and other activities. Our enrichment programs will also see us bring some of our 60 afterschool activities.

On the academic front, we are piloting our STEM (science, technology, engineering and math) education programs, which will see our students working on projects such as robotics, digital media, and video game programming. We also want to bring in new technologies to our classrooms here, including virtual reality and augmented reality.

In effect, we are trying to leverage the growth potential in the Egyptian education market. First and foremost, it is a defensive sector, where the Egyptian consumer cares heavily for the quality of their children’s education and priorities spending on education, regardless of the economic conditions. The key here is to provide the right quality education at the right perceived value. Where we don’t see that happening very often in Egypt is in places outside of Cairo, so we see a lot of opportunities there, especially in light of the urbanization program.

It’s these opportunities that gives Egypt’s education sector a great investment case, even when compared to other markets in the region, including the GCC. Egypt has the demographics and population factor playing in its favor, with room for growth on the demand side as long as you can offer needed quality. I strongly believe that the recovery of the Egyptian economy will afford households greater expenditure on education over the coming few years.

That’s why I believe the IPO outlook for the sector is very positive and we should see more listings going forward. This was evident in the recent listing of CIRA, which clearly indicated the significant demand that exists for education focused companies in Egypt or across the region. We are seeing a lot of activity on the M&A front with new financial and strategic players entering the sector. The market is huge and will definitely benefit from increasing competition between different service providers.

The elephant in the room: Our optimism is not dulled by the Education Ministry’s decision to cap foreign investment in the sector at 20%. We appreciate the ministry’s decision to open room for discussions with investors about the decree, which indicates that the ministry views foreign direct investments (FDI) as an important factor in advancing education in Egypt. In principle, we understand the spirit of the law and its objectives to ensure the quality of investors operating in such a sensitive sector. We (as a sector) have been holding talks with the ministry on how we can bring some amendments to the existing legislation to strike a balance between controlling the quality of investors entering the sector, while giving the private sector and foreign investors room to grow.

I want to also stress that the decision did not impact our strategy nor our business plans, because at the end of the day, the ministry is supportive of what we're here to do, which is to grow and improve the quality of education services being provided.

What is the biggest issue facing the education industry here? The most important aspect in the education industry in general is being able to match the quality of the teacher (your key asset) with the curriculum and the right cost model. I wouldn’t describe it as an issue, so much as an opportunity, because when done right, you would have cracked the quality problem. If you get to the right cost model, this will allow you to offer that service within a decent price point and then reinvest that into teacher development, more enrichment programs and building up tech capacity to support the education experience.

As for us, there is no compromise on the quality of our teaching staff. We introduced our quality monitoring program for our teachers along with structured professional development plan led by our well experienced educational senior leadership team. We will keep improving and focusing on that area. Foreign teachers are the majority of our staff at the international schools, because when it comes to certain subjects and diplomas, foreign teachers help to ensure that the student has the right language base and foundation. Having said that, highly qualified Egyptian teachers are important assets for us and add a lot of value to our teaching staff.

So far, our biggest challenge in 2019 has post-acquisition integration, which is normally challenging because you need to transition the mindset of the entire set of stakeholders into what we're embarking on. That means changing the mindset of parents and teachers. But again, I think once people realize what we're doing and the end point we're trying to achieve, it will turn into an opportunity rather than a challenge.

Our challenge for 2020 is to achieve our growth targets and to get our assets to where they need to be as per the growth plan, whether that involves expanding the portfolio, getting our flagship school up and running or improving our services.

Your top education news stories in Egypt this week:

• The Financial Regulatory Authority (FRA) is requesting clarification from the Education Ministry on its decision to place a 20% cap on foreign ownership in private and international schools, FRA Deputy Chairman Khaled El Nashar said, according to Al Mal.
• The Education Ministry is looking to incorporate early childhood skill development into its reform program, ministry official Reda Hegazy told Lobna Assal on Al Hayah Al Youm.
• The US Agency for International Development (USAID) has inaugurated an energy research center at Ain Shams University last week.
• Egypt’s vocational education gets a boost: Three newly-opened technology universities in New Cairo, Quesna, and Beni Suef form part of government efforts to develop the country’s vocational education system, offering higher academic qualifications, better training, and a closer match with the needs of the labor market, reports Al Fanar.
• Education Minister Tarek Shawky discussed possibly teaching a Chinese language in Egypt’s primary schools with Beijing’s ambassador to Cairo, El Watan reports. It is unclear if this would be Mandarin or Cantonese.