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Monday, 7 February 2022

What’s driving the growth of education management companies in Egypt?

What’s driving the growth of education management companies in Egypt? Within Egypt’s private education sector, we’re seeing a notable increase in companies dedicated to managing schools, as we reported last week. In this second part of our two-part series, we look at the factors driving this growth.

Egypt is fertile ground for education management companies to grow, a source from a major international school tells Enterprise. This is firstly because the model of running schools as forprofit businesses has been widely accepted within MENA for 30 years, which is not the case in the US, for example. Secondly, we’ve recently seen substantial and growing interest — particularly from UK schools — in launching education franchises in Egypt, which are best served with support from a local player that understands the local context and curricula, the source adds. “Combine those two things, and Egypt becomes a huge market for educational management, which you wouldn’t find in many other places.”

Driving this growth is the strong demand for private and international education, Advisor to the Chairman of Esol Education Tammam Abu Shakra, tells Enterprise. Esol establishes and manages schools in the Middle East, with brands including the American International School and Cairo English School, among others.

Know-how and access to capital give education management companies the edge: Experienced education management companies can better meet increasing demand for high-quality education than standalone schools or new entrants to the sector because their know-how, track record and reputation make them more capable of executing new projects, says Abushakra. “For the same reasons, they have greater access to capital and [growth prospects]. So, for example, they are more sought after by investors and real estate developers.”

Investors entering from other sectors are often ready to pay for expertise: Increasingly, investors from very different sectors — like agriculture or construction — want to get into education, but the industry requires specialized know-how that they often lack, says Eduhive CEO Karim Mostafa. An education operator working in Egypt needs to understand the regulation and jurisdiction bodies they’re governed by, along with the target markets and how to fully utilize resources, he says. “Having a service provider that can manage schools for them is rare” — and they’re willing to pay for one.

Another selling point is performance and efficiency: Management companies standardize certain school processes and operations, leading to greater efficiency and resource management, thereby reducing school costs, says Mostafa. Being run by a reputable education management company can also add a lot of sustainability to schools, says Egypt Education Platform (EEP) CEO Ahmed Wahby.

As well as providing their portfolio schools with access to high-caliber employees: “Particularly in the Egyptian market, many schools are owned by people who aren’t educators, so they don’t always know if they’re hiring the right caliber of people to run the place for them,” says Wahby. “Finding someone with the right know-how [to judge this] adds a lot of value to schools,” he adds. Mostafa agrees that the expertise and extensive networks of quality management companies helps schools reach high-caliber employees.

They can also be a vehicle for reaching more students and geographies: EEP was founded as a means of providing more variety in terms of the curricula offered and the income segments targeted, says Wahby. By having multiple streams — each with its own name and identity — the company can grow in multiple directions, rather than just one. “There’s no one-size-fits-all approach, and this way each stream has its own direction of growth,” Wahby says, adding that diversification “will enable us to grow even further, beyond Cairo” to cater to different geographies and demand pockets.

For operators, expansion through education management companies can be more cost-effective than simply owning multiple schools. After years of managing school franchises he owned, Mostafa founded Eduhive as a way to grow and attract more clients, he tells Enterprise. “If you look at ownership today, you’ll see land prices have become very expensive. For a family to own and manage 2-3 schools would require EGP 1-1.5 bn,” he notes. “So how do you grow in your sector? You partner to manage other ventures, where you’re not the sole owner — or you don’t even have to be an owner.”

School ownership involves sizable investments in land and CAPEX, agrees BalancED Education Managing Director Salma El Bakry. That’s why having a mixed portfolio of ownership and management can be an ideal balance, she adds.

But management companies themselves are asset-light and don’t require huge investment, notes Mostafa.

What’s more defensive than defensive? Education in general is a pretty defensive industry, and accordingly so is education management, notes Wahby. One popular education management model — out of several — is for an education management company to take a fixed-rate percentage of a school’s revenue, creating high earning potential, he says.

But not everyone’s fully on board with a rapid-growth approach, the off-the-record source notes. “I think the critique of some education management companies is that they buy schools, consolidate them, and then — like venture capital — just move onto the next project,” the source adds.

Though players are also quick to point out that each approach carries benefits and risks: Companies that grow organically might be more at risk from the macro climate than companies that begin life as investment vehicles, operate more schools and have more financing — but the slower-growing companies also tend to have longer relationships with the schools they manage, the source notes. Neither model is necessarily better or worse than the other, with each carrying their own set of pros and cons, the source adds.

The bottom line remains that management companies will only succeed if they’re providing quality. “You have to be confident you can offer quality to invest in this sector. Because if you can’t offer quality, you won’t last long,” says Wahby. The market need for an education vehicle not based on an owner’s name, that’s long-lasting, institutionalized and delivers a quality service is massive, he adds.

Your top education stories for the week:

  • Gov’t eyes establishing 340 tech schools: The Education Ministry is looking to found 340 applied technical and dual education schools in partnership with the private sector as part of its 2030 strategy, Al Borsa reported Deputy Minister for Technical Education Mohamed Megahed as saying.
  • EFG’ Hermes fintech platform valU has partnered (pdf) with AUC to offer financing plans for undergraduate and graduate degree programs, with installments to be paid through payment gateway Paymob.
  • Nawah lands second investment from Cairo Angels: Cairo Angels Syndicate Fund made a second undisclosed investment in scientific research startup Nawah Scientific.
  • Lighthouse to buy two schools this year: State-backed education investment platform Lighthouse Education is looking to put its first close of EGP 560 mn towards acquiring two schools in Cairo this year.

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