Efficient use of budget needed to enhance quality of education
Education expenditure per student above average; quality remains low
SPECIAL REPORT
KUWAIT: Global Investment House (Global), a regional Asset Management and Investment Banking firm headquartered in Kuwait with offices in major capital markets in the MENA region, issued yesterday its report on the education sector in Kuwait.
Kuwait’s education sector is undergoing reforms commenced by its Integrated Education Reform Program (2011-19), which is focused on establishing the curricula, improving learning outcomes, bringing about competent teaching and school leadership, and refining the accountability and efficiency of the education system. The Kuwaiti government regularly seeks advice of the World Bank with the aim to reform its education system. Currently, it is concentrated on coordinating its courses with the requisites of the employment market. Schooling is mandatory for all children aged 6-14. Free primary, secondary, and tertiary education is available for Kuwaiti nationals at the public schools. The country raised its education sector’s contribution at a CAGR of 14.8 percent from 2010 to 2014. Kuwait apportioned about 15 percent of its total budget on education in 2015.
Basic education in Kuwait comprises the elementary stage (five years), the intermediate stage (four years), and secondary stage (three years). The Ministry of Education (MoE) supervises the education system and the Ministry of Higher Education (MoHE) oversees higher education beyond secondary school. General education in Kuwait comprises pre-primary, primary and secondary school education. In 2014-15, the country had 1,300 government and private schools (excluding schools for adult education). Of these schools, 800 were government schools enrolling 363,235 students and 9 religious institutes enrolling 2826 students. In private schools, there were 257,405 students. After the completion of general education, institutions such as Kuwait University, colleges, and applied educational centers provide training in fields related to basic education, business studies, health sciences, technology studies, and nursing. University education is provided through Kuwait University, the only public university in the country, together with a number of private universities. Established in 1966, Kuwait University offers courses including scientific and educational specializations, social sciences, and humanities.
Kuwait excels in literacy rate
According to World Bank data, the youth literacy rate (population 15-24 years) in Kuwait was 99.5 percent in 2015, the highest being 99.7 percent in 2005. It stood at 99.4 percent for female youths (percent of females aged 15-24) in 2015, the highest being 99.8 percent in 2005. Kuwait’s educational policy is aimed at providing equal access to education to all children, including those with special needs; very much in alignment with all the advanced education systems. The adult literacy rate ( percent of people aged 15 and above) in Kuwait for females (percent of females ages 15 and above) was 95.2 percent in 2015 and 96.8 percent for males.
Government education
In Kuwait, delivery of quality education is broadly discerned as the government’s obligation. In 2014-15, the share of total government schools and religious education institutes is around 62.2 percent, with private schools accounting for the rest of 37.8 percent of the total schools in Kuwait. In the recent years, the government spending on education has shown rapid progress, with the leadership continuing to emphasize on the significance of education for producing sustainable employment for Kuwaitis and training them with the expertise to contend in the global market. Government’s education expenditure grew at an annual average rate of 14.4 percent in the four years to the 2014-15 fiscal year and constitutes 15 percent of the total government expenditure. While this may seem lower than the 17.5 percent average for the GCC, rationalizing the information in terms of expenditure per student, it seems that Kuwait spends much higher than the GCC average i.e. around $14,300 per student as against $11,000 per student for the GCC. Noteworthy, Kuwait’s expenditure per student is even higher than the average of $9,000 per student for OECD countries and $12,000 per student for Australia and the US.
Considerable improvement
The World Economic Forum’s Global Competitiveness Report 2016-17 ranked Qatar, the UAE and Bahrain high in terms of their system’s educational quality. Within the GCC region, the quality of education in countries such as Oman and Kuwait is relatively low. The primary education enrollment rate was high in Kuwait, whereas the secondary education enrollment rate was relatively lower at 93.6 percent. To address the problem of poor education quality, an authority needs to be formed under the prime minister’s purview to ensure adherence to quality. The authority along with international education experts should conduct international workshops and courses for both undergraduate and post graduate education, and technical and religious education. Teachers would require continuous training as well as an introduction of modern technology in education. The education quality in Kuwait is not even at par with its GCC peers in terms of qualification of staffs and curriculum drafting.
Upcoming projects
The government is planning to transform its education sector by building excellent worldclass universities and encouraging higher education. For instance, China State Construction Engineering Corporation (CSCEC)’s Middle East unit won a $580 million contract in June 2016, to build Sabah Al-Salem University City, run by the Kuwait government. The establishment would be set up as one of the largest campuses in the world and would feature world-class educational facilities. The development would comprise seven uniquely-shaped buildings. The project’s management facilities would be constructed, operated and maintained by CSCEC.
Growth drivers: Government support
Government spending on education has accelerated in recent years largely due to the government’s educational commitment both as a pre-requisite for economic diversification and social good.
Despite declining oil revenues, developing knowledge and expertise of locals remains a top priority, throughout K-12 education. Ongoing educational reforms should also see bigger technology usage in education, thus creating opportunities for IT players. The Kuwaiti government’s approach to transform its education sector by developing the curriculum, encouraging efficient teaching, constructing distinguished universities, and stimulating higher education bode well for the progress of the sector. Government expenditure on education affairs and services has grown at an annualized rate of 14.4 percent in the four years until 20142015 to KD 2.7 billion ($9.0 billion), accounting for 15.0 percent of the total expenditure.
The government has launched its second phase of the school education quality improvement project at the end of March 2015. Kuwait’s MoE and NCED along with the World Bank, brought into effect its five-year technical cooperation agreement concentrating on education reforms. The main agenda of the program was providing support to capacity building, improving the quality of teaching and learning, and supervising impact on schools and students. The project will also focus on expanding the capacity of the MoE and the NCED with regard to policy implementation, decision-making, and execution of integrated reforms.
The program is a part of Kuwait’s national education development plan and is closely associated with the ministry’s Integrated Education Reform Program.
The government also offers overseas education scholarships to local students to help them develop requisite skills needed for working in sectors in which the country is currently facing a dearth of workforce.
Favorable demographics
The demand for education across Kuwait will majorly be driven by population growth combined with an influx of expats. An improvement in birth rate, along with increasing number of expats, has led to rapid growth in the population base the country.
According to IMF estimates, Kuwait population is anticipated to increase at a 2.8 percent CAGR between 2015 and 2020. A rapidly expanding school-and-college-going population base is expected to increase student enrollments, thus driving the education demand in the country.
Private sector participation
Rising demand for English medium schools from expats has led to a rise in the number of international schools. Growth in the number of private colleges is also anticipated with public institutions reaching full utilized levels amid increasing enrollments. The private sector is also gaining prominence with the rise in demand for international curriculum and government’s initiatives to form public private partnerships (PPPs). Driven by these factors, the number of private schools increased from 475 in 2011-12 to 491 in 2014-15. The Kuwait Schools Development Program was introduced with the objective of constructing schools in partnership with the private sector under the build-operate-transfer (BOT) model. Private investors were required to construct, finance, and maintain the facilities, while the MoE was in charge of managing the curriculum and school administration.
Rising income level
The GCC countries rank among the wealthiest in the world. A high level of personal disposable income, coupled with a strong inclination to spend on quality education, will act the greatest driver for the education sector. Kuwait’s per capita GDP (at current prices) forecasted at $29,363 in 2015 is estimated to increase at a 2.2 percent CAGR by 2020. High and growing income level will most likely improve spending on education. Rising income levels, coupled with emerging economic activity in the country, are likely to improve education spending.
Additional private schools
Student enrollment in Kuwaiti private schools increased at a CAGR of 5.4 percent compared with a CAGR of 0.9 percent in public schools during 2010-15. This indicates a shift toward private schools for better quality of education. With Kuwait’s population expected to grow 2.8 percent (according to the IMF) over the next four years, we anticipate the private sector to expand 4.0 percent over the next 3-5 years, translating to additional 10,000-11,000 students per year. To cater to this rise in students, there is an opportunity to open 6-7 schools with a capacity of 1,500 students each year.
Tertiary segment
Tertiary education enrollment rate remains very low in Kuwait at 27.0 percent compared to countries such as Saudi Arabia (61.1 percent) and Bahrain (36.8 percent). Kuwait University is the only public university which is operating at full capacity. Though there are private universities operating in Kuwait, there still remains potential for setting up affiliated universities, like in Qatar and UAE to attract Kuwaiti and expat students who go overseas for higher quality education. There is potential for growth in the secondary segment as well with enrollment rate at 93.6 percent for Kuwait compared to more than 101-110 percent for Oman, Qatar and Saudi Arabia. Provision of quality education
The quality of education in current schools remains a concern for the MoE. The quality of education compared to the West and even some GCC remains low due to a lack of qualified staff. Therefore, this offers an opportunity for establishing high-quality schools to fill the gap. To address this concern, the Kuwait’s government is undertaking some measures to develop high-quality schools by launching the Kuwait Schools Development Program in partnership with the private sector. The first phase would cover the development of nine schools (one middle school, three elementary and five kindergartens). This phase would also include accommodation for school faculty, and an Olympic-size swimming pool.
Popular schools
Within the private school domain, the demand for International schools has increased as both Kuwaiti nationals and expats prefer enrolling their children in English-medium schools. The western curricula are most popular, followed by schools offering Arabic or bilingual curriculum. Of the total private schools in 20142015, over 340 were foreign schools, with the remaining 150 being Arabic. According to Edarabia, of the top 12 best schools, 5 of them are bilingual. Bilingual schools derive their popularity from the fact that they combine Islamic values and subjects with western curriculum.
E- Learning market
To expedite effective learning, Kuwait is gradually deploying information and communications technology (ICT). The government has been investing heavily in modernizing the education system. In 2011, Kuwait’s education ministry launched the e-education project. The program focused on digitizing textbooks by replacing textbooks with e-books starting with the high schools. The government also rolled out elearning products across schools. In May 2016, the MoE in collaboration with Microsoft conducted training sessions on technology for 650 teachers aimed at driving learning transformation across Kuwaiti schools. The education net project was launched to connect every government school and administrative facilities in the country to a nationwide data network. This undoubtedly indicates a huge market for providers of e-learning content, tools, technology and platforms. There is huge potential for elearning in the region as universities solely imparting online education are set up gradually.
Opportunity for PPP
Kuwait’s alluring policies and regulatory framework for public-private partnership (PPP) have enticed domestic as well as foreign participants to invest in the country’s infrastructure, education and healthcare facilities. The Kuwait Authority for Partnership Projects (KAPP), in association with the MoE, invited companies to participate in the Kuwait schools PPP development program (the project) in accordance with the PPP law. The project involves designing, building, financing, operating and transferring nine schools (five kindergartens, three elementary, one middle school) and one Olympic-size swimming pool comprising 10 lanes. This was in line with the Kuwait Development Plan (2010-2014) policy objectives, which aimed to increase private-sector involvement in the education sector.
Real Estate funds
We believe there is an opportunity for real estate funds to build schools and lease them to school operators in Kuwait with the following benefits:
* The funds can potentially earn up to 10.0 percent on the capital cost of the school.
* From a school’s point of view, they can shift immediately to new premises without incurring huge capital costs.
* It can be particularly beneficial if the government requires schools to move to a less congested area in the future.
We have considered scenarios to build 5,000 sq. m and 7,000 sq. m bilingual schools. The size of the 5,000 sq. m bilingual school corresponds to the size of some private schools in Kuwait. The 7,000 sq. m bilingual school has been considered keeping in mind the school’s future requirement for class/grade addition.
The capital cost of constructing a 5,000 sq. m school came in at KD7.5mn, while that for a 7,000 sq. m school was KD10.5mn. With 9.0-10 percent yield for real estate funds (charged in the form of rent), these schools can generate net margin of 8-16 percent, which is reasonable considering the margins generated by listed educational companies. On the contrary, leasing out to Asian curriculum schools would generate lower yield for real estate funds (4-6 percent) as the economics of these schools would not allow higher rent.