It’s official — gov’t sets up committee to study K-12 school applications for exceptions to 20% foreign ownership limit: The Education Ministry quietly issued a formal directive on 1 January that outlines a mechanism providing private-sector K-12 schools with an avenue for exemption from the 20% cap on foreign ownership it imposed last October. The mechanism, published in the Official Gazette, will see the ministry set up a committee that will consider investor requests for exemptions from the imposed cap. While Minister Tarek Shawki had announced the formation of the committee back in November, this most recent directive makes it official and represents the first official regulatory amendment designed to mitigate the impact of the 20% foreign ownership limits (FOL). It is also the first decision to come out in the Official Gazette that imposes the FOLs on schools. The directive has been in effect since 2 January of this year.
The letter of the law — committee to take over full ownership and M&A oversight: In addition to imposing 20% FOLs on both private (pdf) and international schools (pdf), the directive makes it mandatory for all schools that have foreign shareholders (whether individuals or corporate entities) to provide the Education Ministry with their detailed shareholder structure. The directive also appears to have transferred the ministry’s jurisdiction to regulate M&A in K-12 education to the committee by mandating that any sale of an ownership stake receive the committee’s prior approval. The ministry previously had a body that reviewed and approved all M&A in the sector, industry sources tell Enterprise.
What about applying the FOLs retroactively? The directive states that the terms it sets are applicable once it is published in the Official Gazette, without stating terms for compliance for schools that have not met the FOLs. This implies that the decision will not be applied retroactively, confirming what Minister Tarek Shawki had told Al Mal back in November: that the cap will not be applied retroactively, being limited only to stakes purchased after the cap was introduced.
Private education providers are applauding the decision: School operators with whom we’ve spoke welcomed the directive, saying it is an outcome that government and the private sector can both live with. GEMS Egypt CEO Ahmed Wahby said the outcome works for his company, balancing the needs of a sector that is vital to national interests, he said, while also ensuring much-needed foreign investment continues to flow, he tells Enterprise. UAE-based GEMS had entered into a JV with EFG Hermes to launch an education platform in Egypt that is planning to invest USD 300 mn over a five-year period. The company had always maintained a positive outlook on the decision, provided there is dialogue between the government and the private sector.
CIRA CEO Mohamed El Kalla told us that he is happy that the ministry has decided to provide an avenue for serious investors to engage with the Egyptian education sector. Nonetheless, El Kalla is cautiously optimistic, telling Enterprise that the company is waiting to see how the ministry implements the decision. In particular, he’ll be paying close attention to the pace at which the committee grants exceptions.
It will take more than that to get private equity on board: Some of the private equity players are of the same mind and are waiting to see how the decision is implemented before committing to new investment in the sector. One regional private equity investor, who spoke with us on condition of anonymity, said the exemption mechanism isn’t sufficient to see their firm begin investing in Egypt’s K-12 sector. They’re waiting to see how the committee implements exemptions to FOLs before they commit any further capital, the investor noted.
This “wait and see” attitude is also being taken up by other school operators we spoke with this week. The overall cautionary tale they tell is that if the ministry is willing to impose FOLs without consulting with the private sector, it will have to prove that it is serious in implementing the directive.
Background: The Education Ministry’s decision to impose a 20% FOL on Egyptian private and international schools prompted backlash from domestic, regional, and international investors who had previously been bullish on the classical “defensive” sector. The decision, which broke through leaks to the domestic press, was followed by little commentary from the government and applies to all foreigners, including dual-passport holders, funds, entities, and authorities. This prompted Minister Tarek Shawki to explain in November that the main reason behind the decision was that a stake exceeding 20% gives the owner management rights under the Companies Act. Any potential school manager should therefore be screened to ensure it will protect children from “negative consequences.” This had prompted extensive lobbying by private sector operators for an avenue for exemption while nevertheless respecting the right of the state to set education policy.
We’re not the only country grappling with grappling with foreign influence in schools. At least three education systems in Canada (in Toronto, Manitoba and New Brunswick) are scrapping agreements that deliver (or would have delivered) a Chinese culture and language program in schools. The impetus: Complaints the program, funded by the Chinese government, was delivering pro-Beijing propaganda or stifling discussion of “off-limits” topics.
Your top education news stories in Egypt this week:
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