Kuwait: Partnering in education

News that the government is seeking a transaction advisor for a new public-private partnership (PPP) schools project signals further opportunities for investors in Kuwait’s education sector.

Overseas investors and school operators already play an important role in the country’s education sector, one that, if the authorities’ plans come to fruition, is set to increase.

In late July the Partnerships Technical Bureau (PTB) released a request for proposal (RFP) for advisory services in connection with a plan to build seven new public schools, and three residential buildings for teaching staff, in different areas of Kuwait. Once selected, the transaction advisor will assist the state in determining project feasibility, procurement and negotiating the transaction.

The PTB, established in 2008, is the government organisation responsible for issuing and overseeing all of Kuwait’s PPP projects. According to a statement on the PTB’s website, the Ministry of Education (MOE) and the bureau “have embarked on a path to involve the private sector in helping the state of Kuwait meet its increasing demand for educational facilities”.

The recently announced schools project will be developed using a design, finance, build, operate and transfer model. The private sector partner will be responsible for building, financing and maintaining the facilities, as well as for providing management services over a pre-agreed period of time. The MOE will handle educational curricula and appoint all administrative and teaching staff.

But the PPP model is not the only option for investors looking for opportunities in Kuwait’s education sector – opening a private school is feasible in a market that has seen many successful entries in recent years. Indeed, according to a 2011 report by global consultancy Booz & Co, of the country’s 1268 schools, about 500 are private, of which around 340 are foreign.

The private sector accounts for a similar portion of students, with about 36% of the country’s 545,000 primary- and secondary-level enrolees attending private institutions, according to the firm. Nearly 75% of these private school students are expatriates, a pattern that is similar across the GCC countries, with the exception of Saudi Arabia.

In July Global Capital Management, the private equity asset management group at Global Investment House, a Kuwaiti investment company, announced that it was exiting its investment in Al Rayan Holding Company, one of the larger players in the private school market. The firm said it was selling an 82% stake in Al Rayan to United Education Company (UEC), a Kuwait-based firm.

According to a public statement by Nasser Al Khaled, the chairman of Al Rayan Holding Company, selling directly to a buyer rather than conducting an initial public offering made more sense in light of the current economic climate. “Given the challenging capital market conditions, especially at the Kuwait Stock Exchange, a public listing would not have yielded an attractive exit as a trade sale to a respected and education-focused strategic buyer,” he said.

Established in 2003, UEC is already active in the local higher education sector – it operates the American University of Kuwait, for example – but this recent acquisition marks its first foray into primary and secondary schools. According to Meshal Ali, the vice-chairman and managing director at UEC, the company expects “significant growth” in the K-12 segment going forward.

Indeed, in 2011 Al Khaled told OBG that he expects the private sector’s share of the market at the primary and secondary level to increase to about 43% by 2016. “The number of expatriate families sending their kids to school here is increasing, as is the number of Kuwaiti families wanting to move from the public to private sector. We have targeted the mid-market, where most Pakistani and Indian expat families send their kids to school,” he said.

In the mid-market, costs per student per year range from KD300 ($1060) to KD2000 ($7070), whereas high-end prices range from KD3000 ($10,600) to KD4000 ($14,100). Other private sector players in Kuwait include Sama Educational Company, the Institute for Private Education and AREF Investment Group.

UEC’s decision to enter this market is perhaps not surprising given that the number of students attending private schools is expected to rise over the next few years. Indeed, there is almost certainly room for expansion in Kuwait’s private schools market. This will likely be supplemented by opportunities in the public school system, as the government increasingly turns to the PPP model to ensure that it has the institutions to meet the educational needs of its populace.