The Saudi educational sector: Where are the opportunities?
Education forms a central part in Vision 2030, as I highlighted in my previous article. In the government’s long-term development plan this sector is the second highest item on the national budget amounting to SR192 billion ($51 billion). The government has prioritized expenditure on domestic education for several years now, enabling it to dramatically increase by 82 percent over the past decade.
Recently, private schools have experienced a 4 percent compound annual growth rate (CAGR) while the figure for higher education institutes have been 15 percent. Several trends are driving this shift toward private education, including government incentives to encourage the private sector to play a key role in education reforms and the increasing interest among Saudis seeking better outcomes by enrolling their children in international private schools.
At the current growth rate, it is expected that by 2020 70,000 additional private school places will be needed at primary level (Grades 1-6), 20,000 will be needed at intermediate level (Grades 7-9) and 60,000 will be needed at secondary level (Grades 10-12).
The Saudi government has set ambitious targets through Vision 2030 to increase the share of private school students from 12 percent today to 25 percent in 2020. Several initiatives to unlock the sector for private investment are under way, with some already implemented. These include the acceptance of 100 percent foreign-owned educational institutions and the use of public education buildings for private schools, thus removing the challenge of obtaining capital, land and permits to establish infrastructure. Market experts expect the Saudi private education sector to reach SR45 billion by 2020.
To meet this increase, the Saudi government has turned to the private sector, represented mainly by the construction sector, to finance the construction and operation of the first batch of 1,600 schools. Earlier this year, the Ministry of Education, through its private investment arm Tatweer, invited bidders for long-term concessions to design, build and maintain the facilities under the strategy involving public-private partnerships (PPP). The schools will range from kindergartens to primary, intermediate and secondary level institutions for boys and girls. This plan will allow the ministry to dispose of more than 5,000 rented buildings that house schools at present.
As indicated in part one of this series on education, the construction sector should take advantage of the education sector’s building potential. Currently, there are only a few specialized players in the market, but the future demands for these educational buildings should secure a healthy pipeline for specialized construction companies or even encourage young entrepreneurs to set up new ones.
• Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.
