The roundtable, led by Daniel Howlett, Regional Head of Commercial Banking at HSBC, saw the heads of Nord Anglia Education, GEMS Education, Al Najah Education and the education practice of Clyde and Co, set out their understanding of the current state of the UAE education sector, and where it is headed. Two words dominated the initial conversation – maturity, and normalcy.
According to Raza Khan, CEO, Al Najah Education UAE “schools will close”. Markets, he says “correct by a Darwinian mechanism” of survival of the fittest, and the education sector is “not immune to that process. It is just part of the normalisation of the market, and there is nothing to fear from it…
That may not be immediately comforting if you are in a school that does succumb to market pressures, but Mr Khan’s point is that overall quality rises, as weaker schools will fall.
“People now talk about Dubai in the same breath as they do London or Switzerland – we are a benchmark education market. That means, to some degree, we are also now a mature one.”
Dino Varkey, CEO of GEMS Education, the UAE’s largest education provider by some margin, agreed. “Is there scope for consolidation? Clearly there are still a lot of single site, ‘mom and pop schools’ that in times of stress would either close or be bought.” Mr Varkey was keen to point out issues affecting the emirate’s education sector were not specific to the UAE. “There has been a lot of talk that UAE economy, but actually the issues are global. As a small and open economy, the UAE cannot simply defy gravity.”
One thing the entire panel agreed on was that the idea that the Dubai market is “saturated”, with no potential growth, is inaccurate.
“It is wrong to say the Dubai market is contracting or shrinking in any way. It is not,” Mr Varkey said. “But you cannot expect enrolments to continue indefinitely at 8-11%. GEMS schools are now growing enrolments at 3% plus, still ahead of the 2 to 2.5 growth rate you can expect internationally. We are now simply growing normally, and if you have a high-quality proposition, there is still demand and there is still growth.”
He continued: “When people talk about competition with Dubai schools, they are actually talking about a specific segment. The fiercest competition is contained within the premium, new school segment. There has a been some 3 billion USD of inward investment, and the majority of that is in schools with fees of 15,000 USD and above. That is not a bad thing for parents. It is forcing providers to differentiate and to show value.
“It is just lazy commentary to say the Dubai market is full or at capacity” agreed Ross Barfoot, Partner at Clyde and Co., and head of its global education practice.
Proof, if needed, was provided by the Al Najah CEO: “We’re still seeing double digit growth in enrolments, revenue and profits in the mid-market.”
Al Najah Education currently operates three schools in the UAE, one in Oman and a number of nurseries in Singapore.
“Even within the premium sector we continue to see interest from external education providers,” added Mr Barfoot. “Many providers are used to entering a competitive market. Brands that are confident are not frightened of competition – they have it elsewhere… The idea that there is ‘over supply’ is being driven by sentiment – not actual data.”
Short-term however, GEMS Education does not look like one of the groups that will continue to open new schools in the emirates. “From the GEMS Education perspective, we have already built the capacity. Now we’re focused on filling the schools we have built, and diversification outside the UAE,” said Mr Varkey.
Last year GEMS postponed the building of a number of new schools, including the School of Digital Futures, and GEMS Vertus. While these were officially put on hold for one year, Mr Varkey’s comments suggests new entries to the market may be subject to further delays.
The long-term outlook for the UAE, based on fundamentals, remains strong however, says the GEMS CEO. “You have two, or three big drivers. Firstly, this is a country with a young population. It is also a safe country, in a stabilising region. And the most recent change that will have a really positive impact it is the public school to private school shift.”
“Dubai and GCC still one of the most attractive markets in the world, with a mix of stability and opportunity, “ added Mr Khan.
Parents in the UAE can expect to see a number of changes however as the UAE becomes a more ‘normal’ market.
We will see more education groups – local and international – getting involved in UAE education. “Our practice has changed,” Mr Barfoot said. “We started off helping single institutions to set up, now we are seeing the rise of school groups, with very different strategies. We are being asked to help with more mergers and acquisitions, and we’re seeing more involvement from global players. Some of these groups will come in for new builds, others to buy.”
UAE residents can also expect the attention from investors and school group to shift from premium schools to the mid-market. “The trend is to affordable, but still high-quality schools,” said Mr Khan.
For parents sending their children to the emirate’s most expensive schools, you may see a change in ownership, and you will certainly see continued efforts to improve what is offered. There will be “a drive to quality, and a consolidation in ownership, particularly at the premium end of the sector,” said the Al Najah CEO. “Premium sector schools will either need to find their niche, deliver at the highest quality, or close,” he said.
In the under served mid-tier segment schools are still relatively protected, but as it becomes the object of attention of the larger school groups, schools here too will need to up their game. “How do you drive quality in the mid-market? People still don’t know how to do this yet,” said Mr Khan. “There are still a vast number of poorly performing schools in the system. If these schools are not willing to invest, [as competition comes], they too will eventually close.”
The increasing focus on the mid-market means a much larger segment of the UAE population is likely to be the beneficiary of investment in new schools.
Even where a parent remains within an ‘older’ school, all institutions will need to up their game in order to survive the ‘Darwinian mechanism’ as Mr Khan described it. That means delivering a better experience for you.
Competition also means parents should see further segmentation in terms of how schools promote themselves and where they invest. While the strong regulatory environment in the UAE means that schools need to cover all the bases, the need to have an offering that stands out enough to convert parents means schools are increasingly looking at specialisation. This can take a technology focus, a sports focus or, something quite new for the UAE, a focus on the arts.
According to Mr Barfoot, market maturity could mean “a lighter touch regulatory environment”, which would facilitate great specialisation - if schools did not have to be all things to all people.
UAE parents should also benefit from schools moving into and being at the heart of their community. “Previously owners could build anywhere,” commented Mr Barfoot. “This is no longer the case. Parents will now drive past five high quality schools on a 20 minute drive. So a tailored product for specific communities is going to become a reality.”
The emerging power of school groups will also bring in something new for UAE parents. Nord Anglia Education (NAE) schools within the UAE provide a particularly striking example, giving access to an international school market to players that can add huge value to a student’s experience, but otherwise would have difficulty making inroads into the complex and disparate international global marketplace. In Nord Anglia’s case think MIT for technology or Juilliard for music.
GEMS Education has given universities access its 300,000 strong community of parents, teachers and students only on the basis they offer its students GEMS-only scholarship programs. According to Mr Varkey, parents within GEMS Education schools have so far benefitted to the tune of 1bn AED in university programs. The school group has also used its purchasing power to negotiate internship programs from the likes of Google and Microsoft. “There are things a group can be as a network that single site schools cannot,” said Mr Varkey.
School groups also benefit from the sharing of best practice. According to George Ghantous, Nord Anglia Education’s Regional MD for Europe, the group is “getting much better at SEN integration by sharing best practice where we get pockets of excellence… That is the USP of being a network…”
Finally groups like Nord Anglia, that are truly international, allow the increasingly global work force the opportunity of a more seamless move between countries. For the UAE, a country full of expatriates likely to be moved on to another country, this will be of increasing value.
Nord Anglia owns and manages 61 international private schools, across 28 countries.
According to GEMS Education, the biggest obstacle to growth anywhere, including the UAE, is simply money. “Access to long-term capital is my biggest frustration,” Mr Varkey said.
The world he says needs 100s of thousands of new schools. “There is demand. There is just not the financial resources available to school groups or investors to build them.”
To help in this, “...we need greater predictability and consistency from regulators, GEMS Education’s CEO said.
Last year the school group was hit by the decision not to allow any increase in fees, a decision that was announced after the school group had informed parents fees in some of its schools would be increased, and after it had promised its staff pay rises. Both statements of intent were retracted.
“We are happy with the regulator operating price controls, but only if they are set predictably,” the GEMS boss said. “Regulators need to be conscious of input cost escalations of schools…”
A school usually requires eight years before it can make a return. This does not fit the model of Private Equity which looks to shorter fund cycles. Banks too are unused to providing debt to schools, businesses often without obvious, liquid collateral.
According to sources close to the matter, GEMS Education had appointed bankers for an IPO, set for 2018. Access to the markets would have released funds for the group, as well as its shareholders. However, for reasons not disclosed, it did not move ahead. Note: GEMS Education itself has not commented officially on the IPO, saying any talk of a listing was and is just “speculation”.
All of the panel were keen to get the message across to both parents, and presumably the regulators, that schools and school groups are already delivering great things in the UAE – something that perhaps is not always recognised…
According to Nord Anglia’s Mr Ghantous: “We continue to focus on what we do best. If you do that, focus on your core proposition, do it well, and offer high quality, it does not matter what happens in the rest of market. Parents will continue to value what you do, and you will continue to grow…”
The GEMS Education CEO was keen to get across the bigger picture that the current state of the UAE education market has become something pretty unique. “I would like people in the UAE to appreciate the cost and quality of education being offered, right now, in the emirates. More than 51% of parents in the country pay less than 23,000 AED per year, and that is according to independent research. Within the GEMS Education universe, 65% of our parents are paying 14,400 AED or less. That is very affordable, and importantly, we do that with consistent quality, no matter the GEMS school a child goes to.
"The UAE has become one of the highest quality, and - at the same time - most affordable education markets in the world.”