New Investment Segments for Middle Eastern Companies
The boom in education sector is a quiet engine behind China’s growth, says expert.
As Arab companies embark on a quest to further expand their global footprint and enhance their position as reliable investment partners for complex international projects, new and promising investment segments are emerging. Many of these are attractive not only from an investment perspective, but also as vehicles for Corporate Social Responsibility and government relations in developing countries.
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Arguably as the world’s fastest growing consumer market, China is undergoing a period of immense societal change. Many segments of the Chinese consumer society have already reached a point of relative maturity, as reflected in a growing demand for premium services using proven international models. One notable area is the market for personal enrichment and education.
The Chinese government’s focus on educational reforms is unparalleled in its history. Coupled with parental investment in their children’s education, it is considered to be one of the key factors that have propelled the Chinese development over the past two decades, regarded by many as the ‘quiet revolution’ behind its growth. Consequently, the private education in China has positioned as one of its most attractive investment segments.
In the period from 2008-2013, parental spending on private education in China grew at a mind-boggling compound annual growth rate of over 20 percent. Spending grew even more exponentially in the early childhood (two-six years) sector. Nonetheless, it remains a fragmented oligopolistic market thus leaving plenty of space for new players.
The auspicious year of the Dragon (2012) saw an additional population increase, with cities like Shanghai experiencing births at a 10-year high. These baby dragons and their parents will soon be in need of early education. Urban migration continues and by 2025 China is expected to have 221 cities with population exceeding one million. Moreover, the affluent Chinese middle class is expected to make up 80% of the population by 2025. This coupled with the recent government loosening of its one-child policy restrictions indicates that the market is likely to continue developing at a steady pace.
Beyond demographics, growth prospects in the private education segment are largely driven by the changing consumer attitudes, as the parents become more discerning and seek globally competitive education for their children. They are also increasingly concerned about the competitiveness of their children from early age, with preschool enrollment rates jumping from 50.9 percent in 2009 to over 65 percent today.
The major driver behind this is a sustained increase in purchasing power. As is traditional in many Asian countries, on average parents spend 50% of disposable income on their children’s education, viewing it as an investment in their future. The Chinese middle class parents spend on average between $7,000-$20,000 and more per year on tuition fees for their preschoolers to immerse them in an English language environment from early age, preparing them for international careers with high job-entry barriers and for study abroad. In fact, nearly 60% of urban population hopes to send their children to high schools and universities abroad.
With proven success in educational investment by organizations such as The Qatar Foundation, Arab companies are well positioned to tackle this vast market, in China or at home. As Chinese parents are on a lookout for new study destinations, the Persian Gulf is well positioned to attract discerning Chinese students to the leading Western institutions already established in the region.
(Ivana Beveridge is a Partner at Sunrise International Education)