Saudi Arabia's growing population and changing mindsets to boost the private education segment

Saudi Arabia’s private education sector is expected to post significant gains in the short to medium term, matching trends being witnessed across the region. Indeed, a number of recent developments indicate that private sector players in education are turning their attention to Saudi Arabia. In October 2018 UAEbased GEMS Education signed a $800m agreement with Hassana, the investment arm of the state-owned General Organisation for Social Insurance in Saudi Arabia. Under the terms of the deal, GEMS is to develop schools for 130,000 students over the next 10 years, a project which is expected to generate over 16,000 jobs. Hassana also signed a $1.6bn agreement with UAE-based NMC Health to build a network of medical facilities, including for training, across the Kingdom. Bloom, an Abu Dhabi-based property developer that builds and runs schools, also said in October 2018 that it was in advanced discussions with partners to build and operate schools and nurseries in Saudi Arabia. The Saudi-based National Company for Learning and Education even conducted an initial public offering (IPO) for 30% of its shares, which raised $66m.

High Demand

One factor helping open the door wider for private education is a shift in parental attitudes across the Gulf countries, with a greater desire to give their children better career preparation and choices. A study of private school fees conducted by Edarabia, an education guide, showed that there are significant variations across the Middle East, with the average cost of education for a child ranging from $168,000 in Egypt to $400,000 in Dubai. Despite these figures, a report from Alpen Capital concluded that high fees have not been discouraging families from choosing private schooling. Sameena Ahmad, managing director of Alpen Capital, says education providers are taking advantage of a booming market in the Gulf as governments seek to reduce their direct expenditure on education through privatisation. The value of the private education market in the country is expected to more than double over the next few years, according to Strategic Gears, a Riyadh-based consultancy firm. This growth is perceived to be due to three main factors: an increasing population, the government’s Vision 2030 strategy and changing mindsets among parents. According to their report, between 2018 and 2025 Saudi Arabia will need to cater to 2.1m new school students, and 534,000 of those will find places in private schools. It also estimates that private education’s share of the total number of students will rise from 13% in 2018 to 15% in 2025, which will also require the construction of over 980 new private schools.

Enhanced Optimism

These optimistic growth forecasts are echoed by Basil Al Ghalayini, CEO of BMG Financial Group, who expects increased activity for the sector in the form of mergers, acquisitions, joint ventures and partnerships. Private funds could be channelled through at least three routes: international schools; locally based Ahlia schools, which are privately owned institutions that follow the national curriculum; and schools that the government currently runs but intends to privatise in the near future. He expects the privatisation of some government-run schools to be carried out in a range of different ways, including direct transfers and IPOs.

The Ahlia schools may be particularly attractive as a business proposition. According to a report by the Boston Consulting Group, such institutions “open up a very attractive compromise for Saudi students who still want the national curriculum in addition to the enriched offerings of private schools – all in a very Saudi-centred cultural environment”.

Another area that has the potential to see growth is the international schools segment. Saudi nationals are now allowed to enrol in international schools, which were previously reserved for expatriate residents’ children. Local enrolment in private international schools grew from 33% to 39% between 2015 and 2018.