The State of Education in Dubai

My Interview on DubaiEye103.8 about the business of education in Dubai with James Mullan from WhichSchoolAdvisor.
 

The Future of Schooling - Lessons from Dubai

This presentation was given at the 36th Annual COBIS Conference in Greenwich, London, on Sunday 7th May, 2017.

 

Caveat Emptor - the perils ahead for those investing in Dubai's for-profit private schools

The National 23/04/2017

It has been a tough few days for the UAE schools' market. Last week GEMS announced that their flagship ultra-premium school, GEMS Nations Academy will be 'merging' with GEMS Dubai American Academy (Education Journal Middle East 13/04/2017) and today The National has run two stories indicating that parents are shopping around because the 'High Cost of Education is the biggest challenge faced by parents.'

These stories indicate that the oversupply of schools is having an impact at every level of the UAE private schools market.

The failure of GEMS Nations is indicative that there is not a market for an ultra-Premium school in Dubai.

The effective closure of GEMS Nations Academy after only one year indicates that there is not a market for an ultra-Premium school in what is an already competitive Premium marketplace. This flagship school boasted the best teaching, small class sizes and Rolls Royce school facilities - all at an eye-watering price point that was 30% higher than most of its competitors. GEMS is a big enough organisation to absorb this loss and its merger with DAA is a useful Plan B. Its failure must serve as a warning sign not only to North London Collegiate School, Dubai who are also pitching into the market in September 2017 with ultra-premium priced product, but also to Brighton and Dwight who are coming to Dubai in 2018, and to other UK schools thinking of establishing franchise schools in the UAE.

Market forces are driving a readjustment in Dubai's private schools' market.

The National story on parents shopping around and moving children between schools represents a readjustment in the wider private schools market. It was only in the academic year 2014-15 that the number of places exceeded the number of pupils. Any under-supplied market has the potential for rich pickings for investors, this is all the more so when it is an 'essential' product that is being sold - ex-pat parents are required by law to put their child into a private school. The consequence was that schools were able to open and thrive that do not represent good value to parents. 

A market-driven schools sector is generally a good thing. Now that there is over-supply we are seeing market forces at work: parents moving children between schools, greater competition is driving up school quality, and prices are falling. However, we can also expect more school closures as 'the dark hand of the market' culls those who don't make the mark.

The challenge for school owners, governors and school leaders is to raise standards without raising prices.

The challenge for school owners, governors and school leaders is to raise standards without raising prices. This will be particularly difficult in a context of a global shortage of teachers and of rising costs due to the introduction of VAT in January 2018, and the inevitable subsequent wage-price inflation that will follow. It is likely that schools will be forced to absorb costs in order to retain market share, with the obvious consequence that returns for shareholders will fall.

These are exciting but difficult times for the private school sector. The streets of Dubai are not paved with gold - let anyone thinking of investing in the private schools sector beware - Caveat Emptor. 

Private School Fee Increases and the KHDA's Education Cost Index

This week the KHDA published its annual Education Cost Index (ECI) which determines the maximum amount by which private schools in Dubai can increase their fees. The ECI is set at 2.4% which means that 

• 'Outstanding' Schools can increase their fees by 4.8%  (2.0 x the ECI)
• 'Very Good' Schools can increase their fees by 4.2% (1.75 x the ECI)
• 'Good' Schools can increase their fees by 3.6% (1.5 x the ECI)
• All other schools can increase their fees by 2.4% (the ECI).

The issue of increasing school fees and making money out of educating children is an emotive one. The ECI is an important mechanism to protect parents from organisations profiteering from education. Ultimately, parents are reticent about moving children from the schools in which they are settled because of fee increases. 

ECI Theory and Practice

In theory, the ECI incentivises for-profit organisations by allowing those schools who have invested in achieving high standards to increase fees by a higher rate. However, it may argued the unintended consequence of this is that good schools have the income to get even better, whereas weaker schools are caught in a poverty trap by not having the capital to make necessary improvements. 

Where does the money go?

Much depends on where the additional income from the fee increase goes: whether it is reinvested in the school (as it is in full in the not-for-profit schools) or whether it goes to line investors' pockets. All schools should be transparent about the percentage of school fees that goes on profit to the investors so that prospective parents can make informed choice of school. 

At JESS, Dubai, we publish these data on our website and 100% of any annual surplus is reinvested in the school.

Are Private Schools in Dubai still a sound investment?

The announcement by KHDA that there will be 27 more private schools opening in Dubai by September 2016 ('More than 63,000 seats for students in Dubai by September 2016'  The National 23/08/2015) will undoubtedly bring more competition to the Private Schools' sector, but will it bring profits for investors?

The economic overview of the Dubai Private School sector is a relatively simple one: demand for places has outstripped supply for a number of years. This meant that new players were able to enter the Dubai market place with the relative security that schools will be full and that profits would follow.

However, 2014-15 saw a shift and supply outstripped demand.  The cover of the KHDA's Private School Infographic 2015 highlighted the new era:  "More seats for students - More choice for parents."  According to KHDA's figures, 13% of Private School places were left unfilled last year.  

Furtherore, with some seven new schools opening in Dubai in September 2015 and a promised further 27 opening by September 2016, the Dubai Private School market place is going to awash with places. 

There are four main consequences of this shift the supply curve:

1. Parents will have more choice: New parents are likely to be much more discerning in their choice of school. It is almost certain that we are going to see a significant number parents looking to move schools. The main drivers will be geographical location ('convenience' - moving to schools that are nearer to home - reducing their daily commute) and academic standing of the school ('trading-up' - moving out of under-performing schools to one's with a stronger academic record). 
2. There will be increased competition between schools. This competition will take three forms: quality (academic standards, wider educational/extra-curricular opportunities, pastoral care), value for money (including class sizes) and price. 
   It is likely that we are going to see Academic League Tables appearing within the next couple of years. There is no doubt that there are going to be opportunities for school marketeers (as schools inevitably put a greater emphasis and resourcing into their marketing strategies).
   Some schools will develop specialism that enable them to fulfil a particular market niche.
3. Standards will rise.  Competition between schools will inevitably mean that schools will have to up their game. Until recently, standards have risen because of the drive of KHDA; going forward competition between schools both for the best students and to stay full will drive standards up still further.
4. Schools will fail. In any free market there are winners and losers. Some schools will thrive, but those schools that do not provide value for customers (parents) will struggle.

The consequences for Investors

These likely trends will be of interest to potential investors.  There are two types of Dubai private school that are likely to succeed. First, are those schools that can ensure high academic standards. Some of these will be the established academic schools (Dubai College, JESS, etc), but others, no doubt, will be new entrants who bring established traditions of excellence to Dubai, whether that be from strong chains (such as Nord Anglia) or UK independent school franchises (such as North London Collegiate School - Sept 2017). Secondly, are those schools which are embedded in a strong residential community. These are particularly important at the Primary level, where parents of young children do not want to be travelling great distances to school, particularly where are a different times for the end of the school day. Thus, schools that have been established in partnership with housing developments, such as Ranches Primary School (declared interest: my wife is the Principal) on Arabian Ranches 2 is well placed to be successful as they have a built in residential community on the doorstep.

Overall, the Private School sector in Dubai is likely to continue to be a fertile sector for investors; however, the era of easy pickings for new comers is over, and some schools will need to review their business models to ensure ongoing survival. 

Diary of an Economic Migrant: A Middle Eastern Perspective on Immigration

In a summer when debates about immigration have never been far from the headlines, it is at least topical that it is this year that we should choose to leave Britain to head out to work in the Middle East. The lure of excellent jobs and new challenges, combined with the promise of a better standard of living in tax-free sunshine eventually became irresistible. After interviews in London and Dubai, I accepted the post of Director of Jumeirah English Speaking School (JESS) and my wife, Samantha, was appointed Principal of Ranches Primary School (only a mile from JESS!) in May.
There is no getting around it, we are economic migrants - we are moving abroad in hope of a better life and we are willing to work hard to achieve it. However, the stand out thing for me in this whole process is the difference between the way in which the UK and the UAE approach the thorny issue of immigration and economic migration. 

The UAE welcomes migrants - indeed 93% of Dubai's population are from overseas. It has had a lot of practice at immigration and it has got the whole process taped. The UAE's approach is based on a simple principle that so long as you are economically viable you are most welcome. We (or rather our employers) are responsible for providing Health Insurance, and all schools here are fee-paying.
UAE do not offer Citizenship, but they they do allow foreign nationals to apply for Residency. This blogpost outlines the UAE immigration process and you can form your own opinion on whether or not there are lessons here from which the UK can learn.

Friday 14th. August Arrived Dubai International Airport (DXB) and, before passing through immigration, collected my work visa, which has been sponsored by my employer. My passport and work visa are stamped on entry. I'm now in a limbo: I'm neither a tourist nor a UAE resident. UAE law only allows those who have Residency to take out a rental lease on a property or a car; indeed, without Residency, you can't get a driving licence or open a bank account. My transitional status means that my employer has rented an apartment and a hire car for 30 days on my behalf - it has made life possible.

Sunday 16th August
I begin the process of applying for Residency by presenting myself at Al Safa Community Health Centre for two medical checks:

1. A blood test to ensure that I don't have AIDS
2. A chest X-ray to ensure that I don't have TB.

Assuming all is in order, I will be granted Residency for two years in the first instance, after which I will need to reapply (which I understand is a formality and doesn't entail the medical checks).

I then applied for my UAE ID Card, which I shall be required to carry at all times.  This entailed paying a fee (270 AED = £46) and reporting to the Emirates Identity Authority to have my biometric data collected:

• Finger prints
• Headshot photograph
• Signature

Monday 17th August 
I am now officially a UAE Resident with a Residency Visa in my passport. I am now able to apply for a driving licence, to open a bank account and to rent a property.

Thursday 20th August
Reported to the Optician's to have formal eye test so that I can apply for my driving licence.

Thursday 3rd September
My Emirates ID has arrived. I now am able to apply for a Driving Licence, register to be able to have an account for Water and Electricity, and to arrange for a TV/Telephone for my house.

There is a lot of paperwork to be done on arrival in the UAE, but one of the great things about Dubai is that the Dubai Municipality building has customer service centres for a whole range of organisations: the RTA (Transport), Ejari, (Property Registration), DEWA (Water and Electricity), Immigration and so on. The end result is that you can go to one building and deal with a whole range of issues at one hit. Inside there people providing typing and photocopying services, so, if you happen to forget to photocopy a key document, it can be done in a minute.

I applied for my Driving Licence - the Municipality were unbelievably efficient and I receive my new driving licence over the counter 10 minutes after walking into the building - the DVLA has much to learn.

Monday 7th September
I am now registered with DEWA (Dubai Electricity and Water Authority) - the bills are now on my tab, but I now can register the Tenancy for the villa in my name.


All of this would not have been possible to achieve so smoothly without the expertise of Azeez, the JESS Administration Assistant and School Driver.