How is private sector education positioned to grow in Egypt, and what could spur it? Part 1. Egypt’s private sector education represents a major window for investment, with target demographics underserved and demand rapidly growing, recent reports indicate. Two reports in particular capture a snapshot of the market: The Colliers International Egypt K-12 Education Sector Market Overview 2020 (pdf) and the World Bank’s Country Private Sector Diagnostic 2020 report (pdf). Today, we’re looking at the Colliers report, which outlines how soaring demand for private K-12 education is opening up new potential investments. Private-sector friendly moves that reduce bureaucracy will keep spurring investment in this key area, it says. This big-picture analysis ties in with trends and developments we’ve seen first-hand in recent years.
The private sector K-12 market share is still small: Private school students currently account for 10.6% of Egypt’s total student population — which stood at an estimated 23.3 mn in 2019-20, up from 19.3 mn in 2014-15. Almost 50% of Egypt’s total number of private schools are international, according to the Colliers report.
But demand is growing: Egypt’s private sector K-12 student growth has almost doubled in the last five years, at a CAGR rate of 6.3%, compared to 3.6% in the public sector. Some 2.1 mn new seats will be needed in private sector schools in Egypt by 2030, with almost 1 mn of these in Cairo, Colliers estimates. This makes sense when you consider that students in overcrowded public schools currently often have to make use of private tutoring services to supplement their learning. While the size of the private tutoring industry is difficult to quantify, sources including private sector education outfit CIRA estimate that annual payments for primary and secondary students reached some USD 2.2 bn in 2016-17.
So is investor interest: Private school growth clocked in a CAGR of 4.4% between 2014-15 and 2018-19 — over double the public school growth rate. This shows significant investor interest in the sector, the Colliers report shows.
And Greater Cairo looks set to remain a hotspot: 54% of Egypt’s total private student population is enrolled in Greater Cairo. Enrollment is taking place in private schools at a CAGR of 5.6%, compared to 3.5% for public schools. But within Greater Cairo itself, the private sector only makes up 29% of enrollment — meaning there’s huge potential for private sector education growth in rapidly-developing areas like the New Capital. Most private schools in the east (New Cairo and the New Capital) are currently operating at full capacity, indicating market openings.
A key reason for this is higher income levels in Cairo — which are projected to grow: Income levels tend to be higher in Greater Cairo, meaning families can afford to pay annual tuition fees ranging from USD 2.5k-30k, with USD 8k-12k being the “sweet spot”. The number of households within these higher income brackets are projected to grow significantly by 2030: families that can afford to pay fees of USD 2.5k will grow to 110k from 80k; those that can pay USD 6.5k will grow to 40k from 30k; those that can pay USD 15k will grow to 21k from 16k; and those that can pay USD 30k will grow to 16k from 10k.
This is creating additional demand for international schools in particular: Income growth and the desire for prestigious, high quality education mean there’s a significant demand for regional and international branded schools, the report tells us. Currently, almost 35% of the top private schools offer more than one curriculum, with the most popular being the British, followed by the American Diploma, International Baccalaureate, and Canadian.
And we’re already seeing evidence of this: International K-12 education franchising is poised to grow, we reported recently. Malvern College Egypt was set up in 2016 as a franchise of Malvern International. Regent British School in New Mansoura opened its doors in October 2020. Kent College West Cairo is due to open in 3Q2022. Saxony International School Egypt is set to open in 2021-2022 as a franchise of German holding company Saxony International School, in partnership with CIRA and education management company Eduhive. And a flurry of school construction in new development hubs like Ain Sokhna and El Alamein is expected over the next few years.
Egypt’s appeal for international investors spans demographics, economics and culture: Egypt appealed to Malvern because it’s relatively economically advanced within MENA, its demographics are favorable to the education business, and education is culturally very important to Egyptians, Director of International Schools Allan Walker told Enterprise.
The sector offers lucrative ventures for investors — but challenges remain, including red tape and attracting and retaining qualified staff, the report says.
Still, at least one of these challenges has since been overcome: The decision to remove the 20% cap on foreign ownership — which was issued after the report was published — is cited in the report as a deterrent to investment, which notes that the government had outlined a mechanism providing private sector K-12 schools with an avenue for exemption. The 20% foreign ownership limits had raised serious concerns that investors would be deterred and education expansion plans slowed. The new decision allows schools to be fully owned by individuals, funds, or companies with foreign or dual nationalities, provided they’re registered and based in Egypt. The reversal of the cap suggests that at least one major challenge has now been overcome.
And it was welcomed by operators: Reversing the foreign ownership cap is a sign that the government is serious about attracting qualified investors to the industry — and that merit will take precedence over nationality when it comes to operating a school here, CIRA CEO Mohamed El Kalla told Enterprise. GEMS Egypt CEO Ahmed Wahby said the move would drive investment into the sector while also helping current operators improve their services and meet demand.
Next week: The World Bank’s Country Private Sector Diagnostic 2020 report gives an overview of how a productive private sector could spur economic growth in Egypt. The private higher education sector is a vital part of this, but regulatory amendments are needed to accelerate the process, the report says. We look at this in detail next week.
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