Private sector investments in education in Egypt are of paramount importance. Over the past decade, the country witnessed a steady increase in the appetite of private equity funds and investors to capitalize on the industry. This appeal is due to ever-increasing enrollment. In the 2016/17 school year, the Central Agency for Public Mobilization and Statistics reported total K-12 enrollment at 20.6 million. According to PricewaterhouseCoopers’ Middle East Report, at the current growth rate 2.4 million additional seats in grades 1-12 will be needed by 2022/23.
To stimulate the economy and address chronic congestion in Cairo, the government announced the establishment of the New Administrative Capital (NAC) in East Cairo. Included in the plan is construction of various educational institutions. So far, the new capital includes 50 international and language schools, including four Japanese schools.
Mohamed El Kalla, CEO of Cairo for Investment and Real Estate Development (CIRA), a leading education investment firm, discusses CIRA’s plans for investing in the new capital, the private sector’s role in education development and limitations in the sector.
Why is investing in education important for Egypt?
It’s important more than ever. Egypt needs a total reform of the sector in terms of educational content and structure. Today, Egypt serves 900,000 students in Thanaweya Amma. Kindergarten 1 students are at 2.1 million. The country’s total K-12 Egyptian student’s number 22 million, which is more than the K-12 sector in most Arab countries combined. The growth in demand coupled with the challenge of a change in the economic environment poses a massive threat that will entail education reform to absorb growing numbers and provide quality education.
How can the economy benefit from education investment?
One thing people miss is that the highest foreign revenue in Egypt is remittances from Egyptians abroad. This is more than $20 billion entering Egypt every year to keep our economy stable. The outcome of the education system is the highest earner for Egypt. In terms of investment, the return is also the highest. The demand abroad is not just focused on blue collar jobs, they are looking for qualified white collar jobs like doctors and engineers. If you don’t have a proper education system, you will fall in the cracks.
What is your evaluation of the steps taken in education in Egypt over the past five years?
It has been instrumental that change is needed. Plans and engagement from the private sector have been rising. The government has also been reforming education in the way students are tested and the way technology is being integrated in curriculum. Even if some of the reforms implemented achieved questionable results, we are headed in the right direction to shake up a system that has not been working for anyone. Currently, we are in the trial and error stage and some decisions may fall in the cracks. We still need five to six more years of reform to achieve a stable education system.
What are your views on the current investment climate?
Ever since the listing of CIRA on the EGX, there has been a boom in interest. With the launch of CIRA, people realized there is an EGX company worth EGP 8 billion that works in the field of education. They saw that as a signal that this sector can produce large enterprises. Since then, several IPOs have happened, several platforms formed. Large consortiums are still forming significant projects in education, staying away from small models. K-12 in Egypt is 10% private sector and about 5% in higher education. With the numbers still growing, small enterprises cannot sustain demand and scale up. The government is in need of scale players to deliver thousands of education opportunities and improve quality. This is happening now.
How can Egypt encourage foreign investments in education?
The biggest step would be reform of the law. We have seen reforms in terms of practices and projects launched by the ministry, be it in higher education, K-12 or the model of the New Administrative Capital. Yet, everybody is marked by a law that is extremely outdated. In order to start working at a new school or university, there is a huge level of bureaucracy stipulated by the law. There has been a lot of talk of reforming private education law and the private sector needs to be highly engaged in this process.
Which parts of the private education law need reform?
Every single element of it. The law ensures there is government intervention every step of the way to launch a private school. From the initial concept, land approval, building, approval of tuition and fees, approval of content on an annual basis. You need five or six approvals to establish one school, then three or four approvals to open a school. This can take two-three years. After opening, you need to communicate with the government at least two to three times a month to ensure smooth operations regulation wise. This environment is not conducive for foreign investors that do not appreciate highly regulated businesses. They want a certain degree of freedom, like what is happening in NAC.
Do you have any active investments in the New Administrative Capital?
Not yet. But we are in discussions about launching a Swiss boarding school offering K-12 education. Swiss boarding schools are number one in demand in the GCC region and the world. We’re also in discussion for a university. We love the ease of doing business in NAC.
What’s attracting foreign investors to invest in Egypt’s education?
Investors are attracted to the higher education sector. One of the biggest factors luring investors today is the new administrative law. NAC created its own law for international universities, which made it a lot easier to establish universities and be granted land. A lot of interest went there. NAC is a good model to foreign investors because it provides quality education and an easier regulatory environment. This is where most of the foreign funding comes. Other investors choose to invest in platforms like CIRA and Taleem, because while they understand how to navigate the sector, they can’t jump on their own.
How can education be a tool to facilitate migration to NAC?
We have been investing in new cities for 15 years and there is one lesson we have learned: People do not move into any new urban area until there is a school and a clinic. The rollout of education services in NAC will be one of the biggest pulls for people. Schools and universities fast-track urbanization of the surrounding areas. Housing services come next and in no time people can find all they need to move. Many new cities in Egypt failed because they did not realize this. Al Rehab City, for example, is one of the most successful new communities. In the 1990s, we invested in four out of the five schools there. At the time, people were questioning who were the crazy people establishing schools outside Nasr City? Egyptians only started moving to Al Rehab City when they found schools there.
Are schools in NAC being developed in residential districts?
They are mostly built in educational zones in very close proximity to residential zones. It’s a Dubai-like model, which makes it very appealing to investors.
What could spur investments in NAC even more?
A clear timeline of infrastructure launch. A lot of people who invested need a clear date for the coming three to four years regarding what will be happening when. Nobody is communicating with investors about dates. And those dates need to be set in stone so investors can create financial models that are bankable.
What is the availability of schools in NAC targeting all income groups?
There is limited availability. I don’t see NAC serving lower income levels. The price of education there will mostly be catering to upper-middle and higher income brackets. Low income groups will be moving to cities around the new capital, like Badr University and the 10th of Ramadan. There will still be public education available, but the traction I see in private investment is not directed toward that.
What are your expectations for land prices?
If we pay a lot to build a new school or university, we probably will end up providing very expensive services. This is a problem because demand in Egypt does not lie in the top segment of the population. Demand is from the middle class, so unless we are able to provide good value (affordable fees and quality education), we miss the largest portion of society that is demanding the service. Increasing land prices would be detrimental. In CIRA, we already are engaged in four plots of land for universities that are still slated to operate in 2023 and 2024. The government needs to find a way in which pricing of land can be linked to affordability of services. If people are willing to invest in affordable education, the government needs to incentivize them with affordable pieces of land.
How big is the difference in prices between old and new cities?
If an investor wants to go to Upper Egypt, in Assiut, they have to pay EGP 40,000 per square meter. In New Assiut, the price is EGP 3, 000 per square meter. The contrast is insane to consider when land is abundant. The same goes for other governorates, unless the law allows governors to offer land at affordable prices in exchange of affordable education.
Does the model of “affordable land, affordable education” exist in Egypt?
The best example of that is the New Urban Communities Authority (NUCA) with the model of NAC. They provided similar formulas in other new cities. In CIRA expansion throughout the past three years, we are in every new city, such as New Alamein, New Mansoura, New Rasheed, New Qena, New Assiut, and New Sohag, because we were able to talk to an entity (NUCA) that is aware of what we need. The logic resides well in NUCA and NAC, but governorates in old cities need to realize this, too, because at the end of the day they have the biggest demand.
What changes do you hope to see across Egypt’s education systems?
A key change would be to agree on a form of hybrid education. We have had our trials of online education during the pandemic, but we still did not see a final model of hybrid education going forward. I want to see Egypt launch a clear path on how it intends to move in this regard. It’s essential and it would help with the issue of the overcrowded classrooms.
What is your investment vision?
Our biggest motto is 100/100 by 2030. That is 100,000 seats for K-12 and another 100,000 for higher education. We are at 45,000 students and 60,000 seats at universities. CIRA has been focusing on investing in more affordable private universities in under-served Egyptian provinces. In 2014, CIRA launched Badr University in a middle-class neighborhood outside Cairo. The university has 16 schools, including medicine, engineering, social sciences and humanities. We also are building a university in the Upper Egyptian province of Assiut that is expected to begin admitting students no later than spring 2023. The project is financed by the European Bank for Reconstruction and Development and is expected to host the largest multidisciplinary campus in Upper Egypt. In addition, Cairo Egypt for Education, a consortium formed by CIRA and Elsewedy Capital Holding, will launch a private university in the delta city of New Damietta with a total investment of EGP 2.5 billion. We also acquired a 51 percent stake in early education startup Innovvette for Education, with plans to invest EGP 50 million in launching 25 nurseries over the next four years.
Is there anything else you’d like to add?
Land prices are increasing tremendously. I always want to raise the alarm of trying to make sure it does not hit the educational sector. We need to learn from our mistakes. NAC authority needs to make sure the prices of educational enterprises remain stable to be able to provide affordable services. If we let it run at the same pace the residential markets are running now, we will end up with the same problem that happened in old cities.