blackboard
Monday, 27 September 2021

Nurseries are struggling like never before as covid hits profits and forces operational changes

Nurseries are struggling like never before as covid-19 hits profits and forces operational changes: Emergency covid measures have taken their toll on Egypt’s nurseries, which have been mired in uncertainty since the onset of the pandemic 18 months ago. Many have been forced to permanently close their doors, while others are fighting to stay afloat amid rising costs, industry figures say. So far, around half of Egypt’s nurseries have remained closed since going into lockdown.

Education’s most vulnerable sector? Nurseries are in a particularly precarious financial position because payments are often monthly, not annual like school payments, says Safia Trabelsi, owner of Nile River Montessori. High employee-to-child ratios keep operational expenses relatively high. And online tuition isn’t really an option for very young children, multiple sources have reiterated.

Small Talk saw its annual operational expenses rise 30-40% over last year, estimates partner Rana Nessim. Other nurseries report comparable increases. Small Talk’s extra costs largely come from bringing in extra staff members to cover absences while continuing to pay full-time employee salaries, says Nessim. Regular employee PCR tests and rigorous sanitization measures also upped costs.

Covid capacity mandates forced some to cut admissions: After closing nurseries in March 2020, the government allowed them to reopen in July — but at 50% capacity. “Our income was slashed in half, because we had to cut admissions in half,” says Nessim. Nurseries remain cautious about operating at full capacity, despite being permitted to since November. Small Talk is currently operating at around 50% capacity, Kinderparadies at around 60%, and Fun Yard and Kompass Kindergarten at around 75%, say sources. “This definitely hit our profits as a business,” says Fun Yard owner Laila Anwar.

But refunds and staff raises still had to be paid: Because of the financial hit from increased costs and lower revenue — including requests for refunds during 2020 nursery closures — Anwar initially decided she couldn’t pay annual staff raises this year. “But I felt this wasn’t fair. So I gave raises because I don’t have to make a profit every year. And it boosted morale a bit.”

Others had to stop operations entirely: Kinderparadies stopped operating altogether from April-September, says founder Mona Yacoub. “I had to tell my staff to accept other employment offers if they had them.”

Even high-end nurseries had to consider whether reopening was worth the risk. “We considered not reopening last September, because we were worried about putting our staff at risk,” says Nessim. “But we reopened because for our staff, this is their livelihood. And we know how important it is for children to get out, play and socialize.”

For those that did reopen, staffing issues have been a major challenge: “We wanted to maintain our high staff:children ratio, but we also needed to prevent outbreaks, so we asked staff to stay home if they felt even slightly unwell. It was a lot to balance. The costs of staffing have been incredible,” says Nessim.

Half of Egypt’s nurseries have remained closed: Pre-covid, Egypt had some 15k licensed nurseries, with an estimated 10k still procuring licenses, sources at the Social Solidarity Ministry tell Enterprise. But only around half of these estimated 25k nurseries are believed to have reopened since September — mainly because demand was insufficient to make reopening financially viable, the sources add.

So have nurseries upped their fees to compensate? Not during the thick of it: Many families were economically impacted by covid, so Kompass added just a little more to its annual 10% increase in 2020, to offset extra costs, says co-founder Carmen Ragab. This was after shareholders provided extra funding — which couldn’t be repeated indefinitely, she says. Small Talk only applied increased rates to new families in 2020, says Nessim. “Children that started in 2019, whose families had paid for term three though we weren’t open, paid the same rates in 2020.” This year, the 10% increase is being applied across the board, she adds. Fun Yard applied its usual annual percentage increase to this year’s rates, says Anwar.

Few players are making use of the central bank’s new lending program: The government announced in April 2021 that nurseries would be eligible for all the benefits of the MSMEs Act, including some tax breaks and the chance to apply for a Central Bank financing initiative. Some 15-20 nurseries have received a total of EGP 10 mn in funding since then, Ahmed al Romeish, head of the Central Credit Administration at Nasser Bank, tells Enterprise. Loans range from EGP 20k – EGP 1 mn, with an interest rate of 5%, he says.

None of the nurseries we spoke to had applied for the CBE loans, with most saying they prefer to avoid incurring debt. “A group of us sent a letter asking for tax breaks this year,” says Anwar. “But I wouldn’t apply for financial aid.”

What else has made covid-19 so difficult for nurseries? When they had to close up shop, they couldn’t shift online. Mandatory closures were very tough, says Nessim. “We’d never had to operate online before. With small children, it’s really hard to do any kind of distance learning. They need in-person stimulation.”

Some provided online support where possible: Small Talk and Fun Yard started YouTube channels to share online content, but live Zoom attempts were hit or miss. “The children and teachers missed each other, so we started doing little, fun Zoom sessions, not aimed at teaching. But attendance decreased as people got overwhelmed with homeschooling and working from home,” says Anwar.

It’s dire straits until something gives: Sources say they plan to keep operating at reduced capacity, with extra safety measures, until December 2021 at least. They’re monitoring covid cases, hoping to return to full capacity as soon as possible. Until then, they’re bearing the extra costs and relying on parental support. “I think parents would fight for us not to close,” says Ragab. “Still, we’ve never been under pressure like this before — not even in 2011.”


Your top education stories for the week:

  • Egypt is facing a serious shortage of teachers: As the new school year approaches, public schools are short 250k teachers, leading the Education Ministry to ask members of the public to volunteer as teaching assistants for just EGP 20 a class.
  • CIRA to borrow ¼ bn EGP to fund capex: CIRA will borrow EGP 260 mn from an undisclosed Egyptian bank to fund upcoming projects the company announced after the board greenlit the decision.
  • EEP makes new acquisition: The Egypt Education Platform (EEP) signed an agreement to add Alexandria’s AIA International School to its portfolio.
  • Bloomfields educational zone to be offered to investors in coming days: Colliers International and CIB will offer the first phase of the educational zone within Tatweer Misr’s Bloomfields development in Mostakbal City to investors at the end of September or start of October, Hapi Journal reported, citing Colliers Egypt director Karim Helal.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of Commercial International Bank (tax ID: 204-891-949), the largest private-sector bank in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; and Act Financial (tax ID: 493-924-612), the leading activist investor in Egypt.