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Monday, 22 February 2021

How is private sector education positioned to grow in Egypt, and what could spur it? Part 2

How is private sector education positioned to grow in Egypt, and what could spur it? Part 2. Investor interest in Egypt’s private sector education is high, and earlier this month we looked at a Colliers International report (pdf) that sees substantial room for growth at the K-12 level. But how are things looking for higher education? The World Bank’s Country Private Sector Diagnostic 2020 report (pdf), gives a big-picture overview of the conditions that would help Egypt’s private sector thrive, spurring economic growth, with high quality private education playing a crucial role in building graduate employment skills and attracting FDI. But regulatory amendments are essential to encourage more private sector players to dip their toes in the education sector, the report warns.

The value of private sector higher education is clear: The employment rate of private sector university graduates averages 95%, the World Bank report tells us. This is partly because private university students often study disciplines with direct market relevance, and are trained in skills that make them more employable, like communication, language and computer skills. Private sector agility also makes these universities better positioned to respond to sector disruptions, the report says.

But market share remains low: Current enrollment in private post-secondary education institutions (including universities) in Egypt stands at only 16.5%, compared with an average of 21% in the MENA region, 52% in Asia and 50% in Latin America. And private universities (excluding other institutes) comprise only 4% of higher education in Egypt, the World Bank report tells us. They numbered 25 as of late 2020, according to Al Fanar, coexisting with some 29 public universities, and hundreds of public and private technical colleges, and vocational institutes, according to a World Education Services (WES) report. While public universities tend to be large multi-faculty research institutions with branch campuses across the country, most private universities enrol fewer than 10k students, are often located in Cairo and primarily offer undergraduate programs, the WES report says.

The demand is there. Just look at families willing to pay high tuition fees. Annual tuition fees in 2020 at Badr University’s Faculty of Dentistry stood at about USD 8.3k, while BUE’s College of Engineering stood at some USD 7.9k per year, Al Fanar reports. Meanwhile, average fees to attend Cairo University stand at just USD 64 per year for Egyptian citizens, and USD 1k for non-Egyptians. It’s clear that Egyptian families are willing to pay for private education, European research firm the Brussels Research Group argues. This can be inferred from the rapid increase in private university enrollment — estimated by CAPMAS as 14.2% in the academic year 2018-19 alone — despite the increase in cost.

But from an investment perspective, regulation can make setting up private higher education institutions a challenge: Cumbersome laws and regulations make it difficult to establish and register private universities, community colleges, and technical and vocational training centers, the World Bank report states. Regulatory decisions can be implemented unevenly, heightening uncertainty for investors and increasing costs. There are often no clear timelines or rules for final approvals in setting up private and non-profit universities, for example. There are few financial incentives for investment such as tax breaks, tuition subsidies or discounted land provision.

Sector expansion is also constrained by private university admissions limits and curriculum oversight: The number of students each university can admit is regulated by the Supreme Council of Private Universities, based on criteria that is not publicly available, the report tells us. Additional limitations on the number of students enrolled are set by syndicates. Meanwhile, some private universities have reported limited flexibility in being able to define their curricula, and have had to mirror public institutions for their approvals to be granted, according to the report. The Supreme Council of Private Universities says this is a choice made by private universities to receive faster approvals, the World Bank report says.

While decentralization is a further barrier to entry: Different ministries oversee different aspects of education, which can lead to confusion and inefficiency, the report states. And a general lack of information disclosure requirements can deter private investors — particularly those that want to experiment with new business models and fill current gaps.

Regulatory amendments could be a major spur to investment and should be a priority, the report argues, recommending three key issues be amended: 1) The inability to transfer ownership — because presidential decrees to establish a university are issued to individuals, and ownership can only be inherited; 2) Vagueness around titles to assets like campuses and land — meaning campuses can’t be mortgaged or access finance from commercial banks; 3) Imprecise laws about dividends policy — meaning university owners can avoid formal dividend declarations even though private universities are set up as for-profit entities.

We’ve already seen how well light-touch regulation can work with the International Branch Campuses Act: Under the International Branch Campuses Act (pdf), ratified in July 2018, established international universities can set up branches in Egypt, by building their own campuses, or partnering with an Egyptian educational hub. Branch campuses have flourished, with four universities establishing branches in the New Administrative Capital since the Act was ratified: Coventry University, the University of Prince Edward Island, the University of Hertfordshire, and an alliance of 10 German universities, which collectively opened the German International University of Applied Sciences. Under the legislation, there are no restrictions on tuition hikes and the university branches can set their own curricula. The campuses pay only 2% of their annual tuition income to the government.

Securing new investments worth EGP bns: Coventry, Prince Edward Island, and Hertfordshire’s branch campuses brought in over EGP 2 bn in new greenfield investments, and four new Canadian universities that had requested to open branches in Egypt as of July 2020 are set to bring in investments reaching EGP 3 bn. By way of comparison, between 2014 and 2017, EGP 6.4 bn was invested in establishing eight new private universities and EGP 3 bn invested in building 30 new colleges within private universities that aren’t part of the international branch campus program, according to the Higher Education Ministry.

Ultimately, opening more avenues for education investment is a no-brainer: Egypt’s growing population, low private sector participation in the education sector coupled with increasing demand for private education and rising income levels all represent investment opportunities, the World Bank report concludes. This chimes with the findings we looked at last week, where the Colliers International Egypt K-12 Education Sector Market Overview 2020 (pdf) recommended the reduction of red tape to open up the education market to more private sector investment.

Your top education stories for the week:

  • The Ghabbour Development Foundation is setting up two applied tech institutes in 15 May and 6th of October cities under an MoU signed with the Education Ministry.
  • SAT scores taken after 15 August will not be accepted, and only the Egyptian Scholastic Test (EST) will be accepted as a valid standard test for university admission thereafter.
  • Public university students will start their summer holidays three weeks later than originally planned after the Supreme Council of Universities decided to extend the academic year to compensate for lost time because of covid-19 closures.
  • Universities will impose stricter measures to contain the spread of covid this semester compared to previous one, and will closely monitor the situation, particularly during exams, to avoid an outbreak of the disease.

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