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Saudi Arabia’s K-12 market comes of age

Despite having more students than all other GCC countries combined, Saudi Arabia has historically had a relatively smaller private education market. However, the Kingdom is now emerging as the region’s most promising private K-12 market. What do investors need to know about the next big education opportunity? L.E.K. Consulting’s global education practice partners, Ashwin Assomull and Danish Faruqui, and senior manager Chinmay Jhaveri, investigate



For the past two decades, the Middle East has been one of the most attractive global growth markets for K-12 investors and operators. The UAE has historically led this wave of growth; the international K-12 education market in Abu Dhabi and Dubai alone is valued at around $3billion. Over the last four years, Dubai has added 40 private schools and some 40,000 enrolments, growing the market by 60%, or about $800M in value terms.

While the UAE has dominated interest to date, 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.

An unrivalled opportunity
A high-income country recovering from the 2014 slump in oil prices, Saudi Arabia is undergoing a number of reforms under its “Vision 2030” programme, 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. 

Moreover, with 6.7M students, the country has by far the largest school age population in the region, and it is expected to grow to 7.6M by 2030. However, despite the strong underlying demographics, Saudi Arabia’s private education market has historically been smaller than that of its neighbours.

The proportion of private K-12 enrolments in Saudi Arabia is still only 16%, compared to regional private K-12 powerhouses like the UAE (75%), Qatar (65%), and Kuwait (40%). However, it is a $3billion market and the tailwinds are strong: Vision 2030 articulates an aspiration to increase the private sector’s share of the education market to 25%. By doing so, the government will reduce the cost of education to the public purse, while also leveraging private provision to deliver quality. 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.



Sustainable, local demand
In contrast to what one finds in neighbouring GCC markets, the driving force behind Saudi Arabia’s growing appetite for private K-12 education is its local population, not expat families. 

While the Saudi Nationalization Scheme has led to a decline in expat numbers over recent years, the introduction of green cards for highly-skilled foreigners by the Ministry of Commerce and Investment is expected to bring about some recovery in the expat population.  However, relying on an expat consumer base is challenging in the face of a national policy environment that is still evolving.

Fortunately, the private K-12 sector has been driven by Saudi locals. Between 2015 and 2018, the share of local participation in private international K-12 education grew from 33% to 39%. Total K-12 enrolment of locals grew by 10% per annum, while that of expats grew by just 1%.

Local interest in private provision is the result of the perceived poor quality of public education and expected gains from higher education degrees abroad. The resilience of this demand was demonstrated when, during 2016-17’s economic slump, the private international K-12 segment continued to grow at a rate of 3%.

Public sector support
By 2019, Saudi Arabia’s government plans to allow 100% foreign business ownership. This will attract global private K-12 providers, while local initiatives will cement the role of private provision in Saudi’s education sector. 

This year, the private sector was engaged by the Ministry of Education (MoE) to finance the construction and operation of 1,600 K-12 schools. Such public-private partnerships are a testament to the government’s intention to involve the private sector in its educational development plans. This year has also seen the launch of the Tadarruj project, which supports the transformation of existing school buildings in order to meet the MoE’s infrastructure requirements. The program has attracted around1,300 investors that support schools serving 730,000 students. 

The winning formula 
International schools have emerged as the locally preferred frontrunner in Saudi Arabia. Although the country has an even split of private international and national curriculum schools, tuition revenue of international curriculum schools  in three key regions comprising two-thirds of the market grew by 8% year on year between 2015 and 2018, reaching $1.0 billion, while national curriculum schools grew by 3%, reaching $0.8 million in size.

While neighbouring countries like the UAE have attracted a multitude of global K-12 brands, Saudi Arabia remains untapped by large international K-12 operators. However, big players such as GEMS Education and Bloom Education have announced plans to enter the market. Large opportunities for investment lie in both green-field expansion and partnerships with existing local schools. Between now and 2025, 155,000 students will need to be served through 170 premium international curriculum schools.

In the absence of global providers, a number of national curriculum schools in Saudi Arabia have seized the opportunity to meet the marked increase in demand by branching out to also provide international education in newly established campuses or in their existing schools. They include Arrowad International Schools, Ma’arif Schools, Tadrees group, Najd National Schools, and Al Tarbiyah al Namouthajiyah Schools.



Challenges ahead
Realizing the full potential of Saudi Arabia’s K-12 opportunity hinges on overcoming several challenges. These include:
  • Complex regulatory landscape: 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 licencing and operations. Saudi regulators may benefit from adopting best practices towards K-12 investors that are present in the region, most notably in Dubai.
  • Human capital: a careful balance must be struck between the hiring requirements outlined in the country’s Saudization policy and the need for high quality international teachers. It will be critical to create an environment that makes the country an attractive work destination for international teachers.
  • Knowledge gaps: global investors considering the Saudi market lack access to accurate and reliable market data. The K-12 market is both fragmented and short on meaningful information from secondary sources to augment investment decisions. 
Saudi Arabia’s K-12 market is nascent, and the presence of international education participants has been limited thus far. However, the market is primed to capitalize on a surging youth population and wider economic recovery. K-12 education investors and operators, particularly those willing to enter the market ahead of the curve, will reap the benefits.


 

This article is adapted from an upcoming report, ‘Coming of Age: Saudi Arabia’s Private K-12 Market’, which will be available at lek.com. Report authors include Ashwin Assomull, Danish Faruqui, Chinmay Jhaveri, Vikas Panjwani, Priyanka Thapar, and Sankalp Gourisaria.

L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. The L.E.K. global education practice is a specialist international team whose members have experience in more than 600 education sector engagements across more than 90 countries. This dedicated group of 40 consultants and four partners and principals is based in Singapore and serves a global client base from China to Chile. Our experts bring insights on education businesses, investment opportunities, market dynamics, and impact across segments from K12 to ed tech. The global education practice leaders bring experience serving CXOs and boards of some of the world’s largest education businesses and advising on most major deals over $200 million since 2010. For feedback or comment on ‘Coming of Age: Saudi Arabia’s Private K-12 Market’, contact A.Assomull@lek.com


Posted on: 30/07/2018




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