Saudi private school market shows untapped potential for investors

RIYADH: Higher wages, shifting demographics, and regulatory reforms are creating perfect conditions for investors into Saudi Arabia’s private school market, according to a Colliers report.

With the largest student population in the Gulf Cooperation Council region – standing at almost 7.5 million school-age children and almost 6 million enrolled students – the market demonstrates “enormous room” for commercial enterprise growth and investment.

Yet of this figure, only 15 percent are enrolled in fee-paying educational establishments, as indicated by Colliers, a real estate and investment firm.

Similarly, of the total 35,400 schools, 79 percent are run by the state, showing “ample growth opportunities in the private sector,” according to its report.

As demonstrated by a population growth rate of 2.5 percent per annum, the total demand for primary and secondary education, known as K-12, in Saudi Arabia will reach 7.2 million in 2030, compared to approximately 6 million in 2022. 

This will facilitate an additional demand for 1.2 million new places in schools in the Kingdom by 2030. Colliers noted that this will translate to 400,000 for the private sector, the equivalent of 200 new schools with 2,000 students. 

Mansoor Ahmed, executive director for healthcare and education at Colliers Middle East and Africa, told Arab News that this “supply/demand gap” in Saudi Arabia is expected to see an increase in investments to accommodate new students and enhance the quality of education for existing facilities.

He said: “Under Vision 2030, education is a cornerstone for the Kingdom’s economic and social growth … One of the most compelling drivers for the burgeoning private K-12 education sector in KSA is the combination of increasing incomes, evolving demographic profiles and steady population growth. 

“The regulatory environment is also becoming increasingly favorable, with the government’s emphasis on strengthening educational foundations for both citizens and expatriates.”

Under the Kingdom’s Vision 2030 plan, education is one of the main pillars to propel economic and social growth, with the Human Capital Development Program aiming to align Saudi students with international standards. 

One of the most compelling drivers for the burgeoning private K-12 education sector in KSA is the combination of increasing incomes, evolving demographic profiles and steady population growth.

Mansoor Ahmed, executive director for healthcare and education at Colliers Middle East and Africa

In 2022, the government spent $53.7 billion on the sector, the highest allocation witnessed by any nation in the region, as part of its commitment to developing an educational infrastructure characterized by rigorous standards in literacy, numeracy skills and character development.

Additionally, with the recent lifting of foreign ownership restrictions in 2017, the education sector has become one of Saudi Arabia’s leading investment targets, with many regional and international speculators and operators actively planning on entering the K-12 market, Colliers indicated.  

With a per capita income of over $25,000 per annum, affordability is expected to play a major role in the growth of the K-12 private education sector in the Kingdom. 

Based on household income affordability analysis, the average tuition fees for private schools across the Kingdom, especially in the second tier cities, remains less than $10,000. 

However, in the main cities such as Riyadh, high quality local and international school’s tuition fees range between $10,000 to $30,000 per annum, thus indicating that there is a “sizable population who can afford $15,0000-$20,000 tuition fee,” according to Colliers.

With an increase in the white collar expatriate population and the opening of international branded schools, the body expects that there will be higher demand for premium schools.

In a sign of the joined-up thinking approach to economic diversification espoused by Vision 2030, it is a successful policy from a non-education focused department that will help fuel demand in the school sector.

As part of the initiative to brand the Kingdom as a global business hub, Riyadh has been working hard to push its Regional Headquarters Program, a joint initiative by the Royal Commission for Riyadh City and the Ministry of Investment, to position Saudi Arabia as the center of gravity in the Middle East for multinational companies.

According to Colliers’ research, promoting Saudi Arabia, and especially Riyadh, as a permanent home for expatriates by attracting “families not individuals”, the Kingdom is offering “social infrastructure” rather than mere job opportunities, with a focus on education as one of the most important pillars.

Based on the Saudi Census 2022 organized by the Kingdom’s General Authority for Statistics, which was issued in May 2023, more than 40 percent of Saudi Arabia’s population is made up of foreign nationals.

The report predicts a gradual shift not only from public to private schools, but also from local commercial education providers to those with international recognition.

Historically, the US curriculum has proved the most popular in the Kingdom, however, with more and more white-collar expatriates moving to Saudi Arabia, Colliers expect the demand for the British educational program to increase.

This has been borne out by the four internationally branded schools which have moved to Riyadh – King’s College Riyadh, Downe House Riyadh, Aldenham Riyadh and Reigate Grammar School – all offering the traditional British curriculum, while the One World International School offers both the  International Baccalaureate and US model.

There are challenges for those international operators contemplating entry into Saudi Arabia, mainly the struggle to secure project finance.

Despite the fact that banks and other financial institutions actively seek investments within the Kingdom’s education sector, they are looking to limit their exposure by lending only to players with proven track records.

Further difficulties arise with the terms offered. Education investments are typically long term outlays which contradict banks’ risk appetite that typically extends to a tenure that lasts between 5 to 7 years.

Reflecting on this, Ahmed said: “While the sector offers lucrative opportunities, especially in the private education sphere in Riyadh, it is not without its challenges. 

“These include the high capital expenditure requirements and the necessity of attracting and retaining qualified staff.”