Investing in education: for-profit schools in the UAE

“We don’t need no education,” sang Pink Floyd in 1979, a sentiment that present day UAE investors are unlikely to share. In a country where 85% of the population are foreign residents, where only Emirati nationals can attend State-funded schools, and where all but four private schools are operated for profit, it is difficult to imagine a riper jurisdiction for investment in the education sector.

The Covid years brought mixed fortunes to the UAE’s approx. 500 for-profit schools. Amid an aggregate loss for the industry caused by an exodus of the country’s expatriate families who lost their jobs due to the pandemic, performance across the sector was variable. Those schools with capable, motivated leadership teams which implemented distance learning promptly and communicated openly managed to maintain or even increase their student numbers; those which dithered and left stakeholders in the dark saw a dramatic fall in student numbers, as panicked parents shopped around and voted with their feet. Cruelly, schools that were highly exposed to the worst-hit industries fared worst, with Kent College, which depended on the UAE’s largest airline, Emirates, for 80% of its fees, lost the majority of its students.

More recently, demand for private education has spiked following the planned temporary closures in July 2021 of Rashid School for Boys and Latifa School for Girls, the two preeminent State-funded schools. The move, pitched as the alignment of two charmingly dilapidated institutions with the emirate’s tireless pursuit of glossy excellence, may see the reconstituted schools compete with the best funded local private schools groups. And in the context of recent unconfirmed coverage about a potential sale of GEMS, the world’s largest provider of private primary and secondary schools, what does the current landscape of for-profit UAE education look like for the investors of tomorrow?

Education, Education, Education
At the end of September, in long awaited news, the National Emergency Crisis and Disaster Management Authority declared that wearing masks indoors – both in schools and elsewhere in society – would become optional. This final jigsaw piece of a return to pre-pandemic educational normality comes at a time of an exceptionally rosy outlook for local private education and the UAE economy more generally.

The UAE is reaping the rewards of addressing the health and economic effects of Covid-19 through the early adoption of the Chinese-manufactured Sinopharm vaccine (the UAE and Israel led the global pack for vaccination rates in 2021), and the painful medicine of a prompt and strict lockdown followed by an orderly and gradual reopening of the business sector. Driven by waves of activity relating to the delayed Expo 2020 and providing something of a safe haven from foreign markets startled by global geopolitical turmoil, the UAE’s economy has now recovered and is growing again: 8.2% year-on-year in the first quarter of 2022.¹

The real estate, travel and tourism, logistics, retail, and construction industries are all heating up, which feeds into a demand for the private education sector: imported contractors, consultants, experts and hoteliers all need school places for their children. The UAE remains one of the top three countries in the world for private investment in schools, and fees – which are controlled by the Knowledge and Human Development Authority, the UAE federal body responsible for educational institutions – are rising. In short, the private education sector, with its regular returns underpinned by fees due three times per year, continues to be attractive and highly competitive.

Never knowingly late to an investment party, the UAE government’s Knowledge Fund has acquired a controlling stake in local private school provider Taaleem, which itself purchased the financially stricken Jebel Ali School earlier this year. The deal – largely based on the value of the school’s buildings, which were owned by Emirates REIT, a State-owned real estate management company – has been viewed by some commentators as both a nationalisation of the school and the acquisition of real estate. Other public-private partnerships may in future provide further opportunities for growth in UAE private school investment.

Meanwhile, prestigious British schools continue to sell their branding (and not much else) to local providers of private education who set up high-end sister schools in the UAE; Repton, Guildford Grammar and Brighton College are notable examples. The Dubai incarnation of the well-known North London Collegiate School is now the most expensive day school in the Middle East, with annual fees of up to AED 106,000 (GBP 26,000).

The key players

GEMS - the world's largest operator of private primary and secondary schools

Taaleem - the second largest educational establishment in the UAE

Nord Anglia - a global provider of international schools in China, SE Asia, India and the Americas

Innoventures - a UAE-based provider of IB and English curriculum schools

Fortes Education Group - a UAE-based provider of American, English and IB curriculum schools and nurseries

Back to school
Amid a UAE economy which has sprung out of the post-pandemic gates, the market for private, for-profit education is buoyant and becoming more sophisticated: conglomerates are growing and exerting pressure on lone players; established overseas schools continue to invest at arm’s length; and a new wave of public private partnerships is emerging.

The UAE private education sector, with its attractive and regular returns over the medium-term investment cycle, is seen by investors as an enticing prospect. But the market is becoming saturated, with new entrants looking increasingly unlikely to break through to become established industry players. Meanwhile, competition for places at the small number of schools in the not-for-profit sector – DESSC, Dubai College, JESS and BSAK – which are able to invest surpluses back into the business, is fierce. Fledgling for-profit schools offering glossy hardware and little of substance to the long-term value of the educational market should take note. Otherwise, they may end up – to borrow another of Pink Floyd’s lines – as just another brick in the wall.