What opportunities exist for investors in UAE education

The UAE government has recently allocated a sizable amount of budget towards education, creating possible investment opportunities.

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he UAE’s Vision 2021 aims to establish the UAE as among the best countries in the world with six national priorities representing the key focus areas of government action in the coming years. One of the six axes is a first-rate education system for which the government has set targets on several parameters, including UAE’s rank in the Program for International Student Assessment (PISA) and Trends in International Mathematics and Science Study (TIMSS) — standardized assessments conducted globally.

There have been several developments in the education policy of both Dubai and Abu Dhabi that signal the government’s commitment to investing in human capital. In addition, the education sector in the UAE has witnessed several transactions recently, concentrated in K-12 and higher education.

Opportunities for investors and operators in K-12

1. UAE’s GDP growth is expected to be stable and in the range of 3% to 3.5% over the next five years (to 2024). In Dubai, the expatriate population is expected to grow at a stable rate in line with GDP and likely to continue driving growth in private K-12. In Abu Dhabi, due to the slowdown in the oil and gas sector (resulting in job losses among expatriates in 2017) and the growing preference of Emiratis for private education, the Emirati community will play an increasingly important role in driving private K-12. Operators will need to focus on differentiating themselves based on the specific needs of their target audience.
2. Competitive intensity in the premium segment (greater than USD14,000) is high in both Dubai and Abu Dhabi, and providers and investors will need to differentiate themselves to grow in this market. The high (USD8,000 to USD14,000) and medium (USD5,000 to USD8,000) fee segments in these markets currently present an opportunity for investors given the high utilization of current enrollment capacity in addition to high enrollment growth rates.
3. Given the absence of high-quality schools in medium and below fee segments, and the lack of investor interest due to lower returns, PPP programs along the lines of Abu Dhabi’s Elite Private School (EPS) could be the way forward for bringing in quality at affordable prices. This may open additional opportunities for private investors and operators.
4. Fee growth in Dubai will likely continue to be in the range of 2% to 4% going forward, but operators and investors will need to bear in mind that highly rated premium schools will have limited opportunity to increase fees above inflation based on the Knowledge and Human Development Authority’s (KHDA) new fee framework. In Abu Dhabi, fee growth is expected to continue being in line with inflation (2% to 3%).
5. Even though UK curricula still dominates both the Abu Dhabi and Dubai markets, investors could consider opening US and IB curricula schools in Abu Dhabi and Dubai, respectively.
6. Population in the micro-catchments around new residential developments in Dubai and Abu Dhabi are likely to see growth, potentially presenting an opportunity for operators and investors. In Abu Dhabi, housing projects are coming up on Yas, Reem and Saadiyat Islands and Al Raha Beach. In Dubai, projects are underway in Deira Islands, Al Khawaneej and Bluewaters Island.

Higher education landscape and trends

Broadly, there are three categories of higher education institutions in the UAE: federal, local and international branch campus. They differ in terms of the licensing and program accreditation process they undergo. Except for international branch campuses (IBCs) inside Dubai’s free zones, all institutes in the UAE are mandated to obtain a license and accreditation from the CAA.

The free zones in Dubai cater to specific business categories and offer several exemptions, such as 100% foreign ownership, repatriation of profits and favorable tax treatment, promoting ease of operation. IBCs primarily cater to expatriates, who constitute most of the enrollment.

Growth in expatriate enrollment in Dubai can be attributed to various factors, such as establishment of globally reputed institutes, increased employment prospects, diversity in student nationality, quality of life in Dubai and relaxed visa regulations.

Key trends in the higher education segment are as follows: 

1. Asian IBCs are growing at a faster pace than their western counterparts. Of the approximately 24,000 students enrolled in IBCs in Dubai in AY18, approximately 65% were enrolled in western universities. While western universities currently have a higher enrollment share, Asian IBCs grew faster between AY15 to AY18 (9% vs. 2% CAGR), mainly driven by IBCs whose home campus is in India.
2. Business programs are driving growth in Asian IBCs but have stagnated in western IBCs. Information technology and media and design are fast-growing disciplines within western and Asian IBCs.
3. Undergraduate enrollment is growing faster than postgraduate enrollment at both Asian and western IBCs. In AY18, undergraduate students made up 74% of enrollment in Asian IBCs, while in western IBCs, they made up approximately 61%.
4. Western IBCs generally charge higher fees than Asian IBCs and offer a discount to their home campus, while Asian IBCs are operating at a premium to their home campus fee.

Opportunities for investors and operators in higher education

1. Investors need to decide between opening an IBC in a free zone in Dubai (KHDA-approved) or opening a CAA-accredited university elsewhere depending on the audience they are targeting. Only graduates of CAA-accredited universities are eligible for federal government jobs, making such universities attractive to Emirati students. However, the CAA accreditation has higher investment and more regulatory requirements.
2. Given the sizeable South Asian expatriate population in the UAE and the large inbound South Asian student population, investors can consider partnerships with reputed South Asian universities that would cater to this segment of the population.
3. With the KHDA’s increased focus on quality within IBCs and employability being a key criterion in its new ratings framework, operators must focus on employment-oriented courses, such as media and design, information technology and law.