Tag: investing

Investing in Private Education in the Gulf

Posted on December 21, 2011

Investors in the Middle East looking to add to their regional portfolio may want to consider buying into a private education firm in Saudi Arabia. According to a new study by Booz & Company, paid annual tuition fees for private schools in the Arab Gulf will more than triple to almost US$17 billion by 2020.

Illustrating the draw of private educators in the region, former U.S. President Bill Clinton was in Dubai this week to launch the Varkey GEMS Foundation in Dubai, a philanthropic effort of GEMS Education chairman Sunny Varkey. Varkey is among the richest Indian expatriates in the Gulf, and his private school operation is considered the largest in the world.

The Booz report suggests that population increases and a lack of quality in government schools will push more students into the region’s private education sector, already one of the largest in the world. But more importantly, parents told researchers they would be willing to pay more for education.

“The overall operating environment for private schools does not yet attract local and international investors in sufficient scale to develop the market,” the report notes. “Some institutional investors have begun to express interest; however, thus far these players have been limited to private equity funds and others with existing connections in the region.”

The biggest opportunity in the Arab Gulf is the Saudi Arabian private education market, the Booz report says, as only 14% of students there are enrolled in private schools. The Kingdom is also investing in school construction as part of social spending programs resulting from the Arab Spring.

Other education consultancies have made similar analyses. According to Sammon Group, which builds educational construction projects, 6,200 schools will be needed across the region to accommodate its future student population. Another consultancy, The Parthenon Group, recently authored a report on investment opportunities in K-12 and higher education in the United Arab Emirates and Saudi Arabia. They estimated investment opportunities in regional K-12 could near US$3.5 billion in 2012, and US$1.2 billion in the higher education sector.

“There is a clear trend toward private education and a preference for international and mixed curriculum schools because students choose education in English at both secondary and tertiary levels,” stated Karan Khemka, partner and head of the consultancy’s emerging markets practice, in a release.

Much focus has been paid to the effort to improve higher education in the Arab Gulf, as oil-rich countries splash out billions on bringing the biggest names from America and Europe to their countries. The UAE has funded the Sorbonne and New York University to set up campuses in Abu Dhabi, while Qatar has gathered well-known American universities, from Weill Cornell Medical College to Northwestern University, in an ‘Education City’ cluster inside its capital of Doha. (Arabic Knowledge@Wharton is based in Abu Dhabi, in facilities provided through a partnership between the University of Pennsylvania’s Wharton business school and CERT, Abu Dhabi’s Center of Excellence for Applied Research and Training.)

According to a report by the Institute of International Education and the Lebanese Association for Educational Studies, there are now 7.6 million higher education students in the region, up from 2.9 million a decade ago. In that same period, the number of universities in the region grew from 174 to 467 today.

But would-be education investors should pay heed to the failures in private education that have already happened in the Gulf. Virginia’s George Mason University shuttered its campus in 2009 when it didn’t reach enrollment targets, and Michigan State soon after closed most of its Dubai satellite campus after losing millions.

Posted in Finance and Investment | Also tagged , | Leave a comment

Tapping a Growing Halal Market

Posted on September 9, 2011

Investors with an eye on the Islamic world have witnessed parallel growth in two industries serving Muslims worldwide: halal products and Islamic finance.

Halal — Arabic for “allowed” — signifies a product created in adherence with Islamic guidelines. Halal products are spread across several industries, including foodstuffs, cosmetics, fashion and health care. Islamic finance is banking that follows Muslim precepts, such as the banning of interest on savings and loans.

Intended to serve more than one billion Muslims across the world, both markets boast compelling figures. Global Islamic finance is now considered to be a nearly $1 trillion industry, while as of last year, the worldwide halal market was worth an estimated $630 billion. That includes Europe and North America, which account for 12% of the global halal market.

The growth of these industries has spurred some investors to develop new financial products that combine bits of both, including halal food indices and equity funds. In April, the SAMI Halal Food Index was launched, while in August, Malaysia-based OSK-UOB Islamic Fund Management started the Global Food Islamic Equity Fund.

There are already numerous Islamic funds and indices for Muslim investors, such as the Dow Jones Islamic Index, that shun companies engaging in anything un-Islamic — such as the production of alcohol — and carry a low level of debt and interest earnings. But Rushdi Siddiqui, SAMI Halal Food Index chairman and global head of Islamic finance for Thomson Reuters, noted in a statement that the SAMI index specifically targets investors wanting a piece of the halal market’s growth. “Why not create a halal food index that captures those companies, and have it available for all investors?” Siddiqui asked. “A Halal food index would build bridges to Muslim investors [and] generate Sukuk (Islamic bond) issuance for financing halal food companies, and the money [would stay] in Muslim countries for the development of the halal food industry.”

According to Md Noor A. Rahman, chief executive officer of OSK-UOB, growing pressure on foodstuffs availability has provided investors an opportunity to profit. “An increasing global demand for food, coupled with the growth of the halal food industry, [has] resulted in a niche market,” he said in a statement.

But would-be investors in halal should consider some pitfalls, detailed in a May report on the global halal market by the Canadian government’s agricultural department. Overseas companies trying to break into the Western halal market have stumbled over export and logistics costs, and have lost savvy customers to bad packaging and labeling, the report notes. The halal market is also fragmented because of different Muslim sects, income disparities, ethnicity and several other factors, requiring a local approach rather than a one-fits-all scheme. Additionally, “consumers may lose confidence in the product’s halal status,” the report warns. “It is important to ensure that halal certification comes from a reputable body. Halal status should be preserved, not misused. If consumers lose confidence in the product’s halal status, they will not continue to buy it.”

There is also the reality that halal products can sometimes cause public relations issues for retailers in the West, because a Muslim association with a product or service could alienate some customers. In August, Whole Foods was forced to do an about-face and apologize after the company sent an email to its stores instructing employees not to mention Ramadan, the Muslim holy month, in conjunction with the promotion of a halal food line on its shelves.

Posted in Knowledge@Wharton Today | Also tagged , , | 4 Comments