The Effect of Oversupply of Schools on UAE's Educational Sector

Published March 21st, 2019 - 11:52 GMT
The UAE allocated Dh10.3 billion for education in 2019 budget. (Shutterstock)
The UAE allocated Dh10.3 billion for education in 2019 budget. (Shutterstock)

The UAE education is experiencing oversupply of schools which will force the low-performing institutions out of the market while the medium and high-end schools will see consolidation, industry executives and experts said during a panel discussion on Wednesday.

Despite the oversupply in the market, they believe opportunities still existing for new players who can offer quality education at competitive prices.

"There is certainly oversupply in the market. Hence, there will be competition among new entrants," said Dino Varkey, CEO, Gems Education.

He noted that the local market is more mature and growing at normal rate despite some global softening and macro headwinds on the local market. "We had seen up to 11 per cent growth in previous years, but now we are growing at 3.5 per cent, which is more mature rate and it is faster than the growth in population here," said Varkey during a panel discussion hosted by HSBC Bank Middle East in Dubai.

Raza Khan, CEO, Al Najah Education; George Ghantous, COO, Nord Anglia Education and Ross Barfoot, partner, Clyde & Co.; participated in the panel discussion which was moderated by Daniel Howlett, ?regional head of commercial banking at HSBC MENAT.

The UAE and other Gulf countries have heavily focused on improving the quality of education with Dubai setting examples for other countries to follow. The UAE allocated Dh10.3 billion for education in 2019 budget. Boston Consulting Group estimated that the UAE's private K-12 education will increase from $4.4 billion (Dh16.15 billion) in 2017 to $7.1 billion (Dh26 billion) by 2023 with $11,000 (Dh40,370 ) per student per annum, private school spending which is higher than OECD countries.

The Gulf market is expected to double from $13 billion (Dh47.7 billion) to $26 billion (Dh95.4 billion) by 2023. In Saudi Arabia alone, the K-12 private education market is poised to catapult from $5 billion to $12 billion.

The BCG report released last year revealed that the private K-12 education market is most mature in the UAE, and the Dubai market is the most consolidated across the GCC, with 25 per cent of private K-12 schools owned by Gems Education. Although there is high market saturation across the Emirates with 90 per cent of Dubai and Sharjah students and 65 per cent of Abu Dhabi students enrolled in private education, the country's private school market is still expected to grow.

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The UAE players see Saudi Arabia as the one of the fastest growth market for them as the kingdom opens up its education sector as well along with other industries for foreign investors. Two leading UAE players Gems Education and Al Najah Education have been granted licence to operate in the kingdom.

Dino Varkey attributes growth to growing young population and the shift from public to private entities.

"There will be increased competition as new entrants will enter the market," he said, adding that many had overestimated the opportunities as they were new investors.

Industry executives believe that the tuitions fees in the country is competitive. Varkey said that 51 per cent students in Dubai pay less than Dh23,000 fees annually while 65 per cent of students at Gems pay less than Dh14,400 per annum.

According to Oxford Business Group's Dubai Report, the average fee was Dh26,865 per year with 53 per cent of students paying less than Dh20,000, indicating the exponential nature of the fee curve with several schools charging more than Dh100,000.

Ross Barfoot, partner, Clyde & Co., also believes that the UAE is experiencing normalisation of the education market and it will see a lot of mergers and acquisitions.

"We see foreign firms coming to the UAE so we will get to see a lot of M&As as well as green field projects. Dubai is a mature market now but opportunities exist for local community schools and those institutions that offer tailored products," said Barfoot.

With a lot of socio-economic changes taking place in Saudi Arabia, Barfoot said all the clients have Saudi Arabia on the top of their radar.

Raza Khan, CEO, Al Najah Education, expects that schools which are not performing well be forced out of the sectors while mid and high-end segment will grow as well as see consolidation.

"There is a lot of growth in our schools. We will be expanding schools in Dubai. Our existing schools will continue to grow at double-digit even without acquisitions. We have great level of confidence about the markets in GCC in general and Dubai in particular," he added.

"We see annual demand faster than supply. For us, Oman is the most exciting market. In Asia, we are looking in Malaysia and Vietnam. Of course, here also, we will continue to grow in the UAE," he said.

Al Najah currently operates around 42 institutions in its portfolio of different curriculums.

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