Time: December 02, 2018
The demand for premium international K-12 schools in the Kingdom of Saudi Arabia – those with SR15,000 annual tuition fee – has remained steady even during this period of macro-economic changes, said Ashwin Assomull, Partner, L.E.K. Consulting management consulting company.
Commenting on the surge in the number of expats’ dependents leaving the Kingdom amid rising levies on them, Assomull said the government move “has mostly impacted budget schools,” those with SR10,000 annual tuition fee, and community schools.
In an interview, he noted that “the sector seems to have already witnessed majority of the impact in 2017 and 2018 and impact is expected to be minimal from 2019 onwards.”
From the investors’ aspect, Assomull explained that the introduction of the said levies have minimal impact on K-12 investors and operators as they “are considering opportunities in the mid-priced and premium school segments (from SR15,000 annual tuition fee)”.
“However,” he said, “the dependent levy might result in a slight increase in the cost of hiring expat teachers for K-12 operators, as they might be expected to cover (in full or in part) the additional outlay.”
Emerging trends in Saudi Arabia suggest that K-12 investors and operators should broaden their focus. Private sector education growth is typically driven by a combination of the right economic, demographic, and regulatory conditions. With this in mind, circumstances in Saudi Arabia are highly advantageous for operators and investors in K-12 education. A high-income country recovering from the 2014 slump in oil prices, Saudi Arabia is undergoing a number of reforms under its “Vision 2030” program which aims to diversify the economy and make it less resource-dependent. The education sector, historically dominated by public provision, is primed to reap the benefits of a more attractive investment environment.
The government has already announced a number of measures and is actively working toward creating a friendly environment for private investors in education. He suggested few areas which the government could focus on:
• Announcement of guidelines on foreign ownership in the education sector
• Proactively attracting international K-12 brands through a go-to-market strategy, offering concessions, incentives, when appropriate
• Access to knowledge: Create and publish K-12 market data and statistics which could be used by investors.
On operations of schools, Assomull put forward the following:
• Set up a transparent fee increase mechanism where pricing increase is linked to school quality/market dynamics. “Currently every school’s fee increase request is approved by the Ministry on a case to case basis,”
• Set up a robust quality control and school inspection mechanism, and publish school inspection reports for the use of parents and other stakeholders
• A careful balance must be struck between the hiring requirements outlined in the Saudization policy and the need for high-quality international teachers. It is critical to make Saudi Arabia an attractive work destination
“There are many successful regulatory regimes in the region such as Dubai that KSA could study to help with the creation of a best in class set of regulations for the private school sector,” he pointed out.
K-12 market opportunity in Saudi Arabia is tremendous as it is comparatively nascent, yet investors have to be wary about the challenges due to complex regulatory landscape, he noted. “Regulatory changes have already been set into motion, but more could be done to create a truly investor-friendly environment, particularly in the approach to licensing and operations,” Assomull further said.
In terms of human capital, he observed that K-12 operators compete for talent on a global scale and international teachers have a choice between a number of attractive cities. In this regard, “Saudi Arabia will need to focus on marketing the opportunities, quality of life and benefits of living and working in the Kingdom,” he added. Moreover, he expressed the lack access to accurate and reliable Saudi market data that global investors face, saying that “the K-12 market is both fragmented and short on meaningful information from secondary sources to augment investment decisions.”
With 6.7 million students, the Kingdom has by far the largest school age population in the region, and it is expected to grow to 7.6 million by 2030. However, despite the strong underlying demographics, Saudi Arabia’s private education market has historically been smaller than that of its neighbors. The optimistic outlook could spur more competition among investors.
Asked about the proactive measures to expect from the government in order to sustain the upward trajectory of K-12 which is estimated to reach $14 billion by around 2020, Assomull said the Saudi government has already announced a number of measures and is actively working toward creating a friendly environment for private investors in education.
On the predilection for American curriculum in Saudi Arabia, he said preference for American curriculum goes back to 2005, when King Abdullah Scholarship Program (KASP) was introduced by then Crown Prince Abdullah along with US President George W. Bush. The program offered full scholarships to students for higher education in the United States. As a result, number of Saudi students in the US increased from less than 5,000 in 2005 to over 100,000 in 2015. Although the program was later expanded to include other countries such as UK, majority of students continued to go to the United States.
Since Saudi students were allowed to enroll in international schools only from 2011, American curriculum became a natural choice for schools and parents, he further said.
Despite a very attractive Saudi market driven by demand from local students, Assomull noted though that delayed economic recovery and uncertain/ unfavorable regulatory environment could be the two biggest impediments for the sector to realize its potential.
In a report entitled “The Private K-12 Opportunity in the Middle East”, L.E.K noted noted that there are “optimal conditions” for the growth of the kingdom’s education sector, given that K-12 enrolments is only 16 percent, compared to 40 percent in Kuwait and 75 percent in the UAE.
“Saudi Arabia’s private K-12 segment is a circa $3 billion market and tailwinds are strong,” the report notes. “Vision 2030 articulates an aspiration to increase share of private education to 25 percent.”
By doing so, the government will reduce the cost of education to the public purse, while also leveraging private provision to deliver quality. If Saudi Arabia were to reach the level of private provision accessed in Kuwait, the report noted, the market could be worth $14 billion.
To deliver this target, Saudi Arabia’s private K-12 sector will need around 300 schools that will serve about 380,000 students between now and 2025. — SG
Regulatory changes have already been set into motion, but more could be done to create a truly investor-friendly environment, particularly in the approach to licensing and operations.
Partner, L.E.K. Consulting management consulting company