Prospects exist for investment in education sector

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Prospects exist for investment in education sector
12:50 AM
4
July
2014

According to Alpen Capital, Qatar retained its fourth position in 2014, among 148 countries around the world, in terms of the quality of its education system.

By Pratap John/Chief Business Reporter

 

 

Investment opportunities exist in Qatar’s education sector, which has seen “transforming strategic reforms” since 1990, a new report has shown.

According to Alpen Capital, Qatar retained its fourth position in 2014, among 148 countries around the world, in terms of the quality of its education system.

Qatar has acknowledged the role of private operators in further developing the sector through different teaching methods and programmes. The private school market in the country stood at QR1.6bn ($433mn) in 2010, in terms of annual tuition fees.

Its fragmented nature is attributed to the presence of several independent institutions and few institutional players, Alpen Capital said in its latest “GCC education industry”.  The government is encouraging several private as well as foreign players into the sector. Accordingly, the Qatar Development Bank (QDB) and the Supreme Education Council (SEC) are planning to offer a 15-year education loan to private investors for setting up educational institutes in the pre-primary, primary and secondary segments.

At a subsidised rate of 3 to 4% a year, this loan will allow investors to finance up to 70% of their overall project cost. The SEC will conduct the feasibility study for the education projects.

Further, in order to attract foreign direct investment (FDI) into the educational sector, the government has formulated favourable FDI policies that result in tax benefits as well as the protection of foreign capital investment. With these benefits, number of students enrolment in foreign schools in Qatar is on a rise as can be seen by the increase in enrolment in these schools.

Along with the formal K-12 education, demand for English language courses in Qatar is increasing, presenting opportunities in this niche segment of the country’s education sector. UK-based English language courses are more in demand.

Additionally, there is demand for entities offering specific training programmes for corporates, including tertiary education institutes.

There are also opportunities for the growth of several ancillary industries. In addition to the establishment of private and international schools, the areas of teachers’ training programmes; curriculum design and standards; innovative teaching/learning methodologies; pedagogy and equipment; and school furniture are also attracting investor attention.

Concerned bodies such as the SEC, the Higher Education Institute, the Evaluation Institute, and the Outstanding Schools Oversight Committee dispense the required approvals and licences for setting up establishments to capitalise on these emerging opportunities.  Although Qatar presents opportunities, the inflow of private investments in the country is yet to gather pace, the report said.

“Investors are adopting a risk-averse approach towards the education sector in Qatar,” Alpen Capital said.  

The year 2012 recorded no venture capital investments in the sector. This is partly because of the high cost of setting up a business in the country. A survey in 2013 conducted by Ooredoo showed that the youth in Qatar ranked high in terms of entrepreneurial ambitions among their GCC peers.

A tough regulatory environment is however posing challenges in the industry.

Regulations demand a minimum bank balance of QR200,000 ($54,921) to register a company in Qatar, in addition to possessing a lease for Civil Defence-approved office space for at least a year that can cost over QR100,000 ($27,460).

Expatriates also need to enter into a partnership with locals, who hold the majority of the shares in the joint venture. In addition, investors face challenges such as an elaborate process of securing a residence permit. A recent panel discussion on government and entrepreneurship in Qatar recognised the need for promoting programmes that help entrepreneurs navigate the system and obtain the necessary licences to start a business.

According to GrowthGate Private Equity player, investors face several inherent and regulatory challenges in terms of leverage. Buyers need to pledge physical collateral and personal guarantees to qualify for commercial loans from Qatari banks, which do not extend leverage at multiples of EBITDA (earnings before interest, tax, depreciation and amortisation).

The market for “mezzanine financing” is in a nascent stage with limited regional mergers and acquisitions activity, Alpen Capital said. The issuance of bonds to raise funds for acquisitions is yet to become popular in the financial markets of Mena.

The relatively low taxation, especially in the GCC region is offset by the highly leveraged financial structures, the report said.

 

 

 

 



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