TOPIC: How to Attract Foreign Direct Investment (FDI) In The Education Sector of United Arab Emirates And What Will be Its Impact
Submitted by “Rahul Mutha S” in Partial Fulfillment of the requirement for the Degree
Masters of Business Administration
Under the Guidance of
“Prof. Arindam Banerjee”
018415MENTOR: Dr. Arindam Banerjee
Associate Professor – Finance, Amity University Dubai
Mentee: Rahul Mutha S
Masters of Business Administration, Amity University Dubai
00MENTOR: Dr. Arindam Banerjee
Associate Professor – Finance, Amity University Dubai
Mentee: Rahul Mutha S
Masters of Business Administration, Amity University Dubai
How to Attract Foreign Direct Investment (FDI) In The Education Sector of United Arab Emirates And What Will be Its Impact
UAE’s Education sector is all set to hit the record of having the highest number of Private educational institutes in the whole of GCC followed by Saudi Arabia ; Kuwait. United Arab Emirates has experience a decade of sustained growth due to the Impact of Globalization and rapid Development Enforcements. Education Sector which accounts for approximately 24% of the total government expenditure has a market size of US $7.31 Billion. Due to an increase in the expat population in United Arab Emirates, there is demand of more Private segment educational institutes within the region. The private education sector has seen an enhancing growth over the recent years as the enrollment level has increased to about 5.5% annually. Based on an incremental demand of price segment, the UAE market for Private Education Institutes has grown to about 6% ; is more likely to set up an affordable budget Education Institutes. Government of UAE has been promoting foreign investments into the Private Education Sector to fill the demand – Supply gap due to raising Expatriate population and also has open doors for cross border flow of funds.
The study presents a positive outlook for the education market in the UAE, and perceptively presents not just opportunities but also challenges for those involved in shaping the future of education in the country. The Statistical tool we would be using is “Co-relation Method” to find the relation between the Increasing Enrollment Levels of students grade wise (K -12) into Private Segment School, Universities therefore, this would have an immense impact on the No. of Private Segment Schools in the region. This study would help us analyze is the Number of Private school directly proportional to increase or decrease in the level of enrollment.
World bank has defined Foreign Direct Investment as” Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments”
Current Scenario of UAE with respect to Foreign Direct Investment:
There has been an inflow AED 4.73 Billion into Dubai during the year 2017 which pushes itself to 11th Position on the Global Ranking Board. Global Inward Foreign Direct Investment (FDI) has increased 6 basis points during the second quarter of 2017. Worldwide and provincial elements are driving Investors to be more careful of their investments, especially in capital concentrated enterprises. FDI is considered the most suitable form of External Finance.
H.E Hussain Ibrahim, Minister of Education said that UAE has attracted close to US $ 11 Billion during the year 2017 in the Education Sector which accounts for approximately 22% of the total foreign direct investment into the Middle East. “UAE is said to have a friendly business environment due to its excellent infrastructure, relatively diversified economy, and Political stability which positions itself as the most preferred destination in the world for investments”. There is a need for approximately 175,000 Seats i.e. close to about Operation of about 220 more school within this region to overcome this demand due to a rapid increase in the Expatatiries Population relocating to United Arab Emirates. It also stated that the Education Sector in United Arab Emirates requires a large amount of Development Funds ; Foreign Capital for its continuous growth. The Public Education System gives importance to the National Curriculum but still the American ; British Curriculum are a popular choice among the parents. The government also intervenes by increasing its participation in the Private Sector which includes Public – Private Partnerships which will help them deliver higher academic standards throughout the region. A foreign Investment into this sector will play a role of a catalyst which will boost the economy as well as the sector’s horizon. UAE is attracting various Foreign Education Players to expand their operation in this region as well as investors to invest in this sector. There are various ways by which an Education Groups from other regions can enter into this region – Some of the business models used are briefly described below:
Joint Ventures ( Strategic Growth Partner)
Tie – up with an existing education operator
A OpCo / PropCo Model
Acquisition of Existing Educational Institutes
A Management Operator model.
The Comprehensive writing focused on economies relating to experimental discoveries and hypothetical basis has a tendency to exhibit that FDI is essential for supported monetary development also, improvement of any economy in this period of globalization.
Asma Dakkak, Research Manager MENA Region “The Increased demand for education presents opportunity for real estate stake holders (Investors, Developers & Builders) are seeking to increase the exposure to alternative sectors due to its competitiveness. There is an attractive financial returns for the investors & the growth of private schools is in line with the government policy to raise education standards across the region.
OBJECTIVE OF CONDUCTING THE RESEARCH
The Primary objective of conducting this research is to get an in – depth knowledge of the education sector in United Arab Emirates and how the government is able to attract Foreign Investments into the Private Segment due to an incremental rise in the enrollment level of students over the past recent years bridge the demand and supply gap and analyze the future growth aspects.
To explore & identify the factors for substantial Increase in the Investments into the Education Sector.
To study & analyses the factors which would have a huge impact on the Education Sector in United Arab Emirates.
To assess FDI as a determinant for growth of Education Sector.
To study the opportunities of FDI in education sector in UAE.
To study the need of FDI in education in UAE.
METHODOLOGY OF STUDY
The research analysis would be conducted using “Correlation Analysis.”
Correlation Analysis is statistical tool use to find relationship between two numerically measures continuous variables.
We are trying to establish a possible connection between two variables which are as follow:
1. Enrollment Level of Students (Independent Variable)
2. No. of Private Schools in United Arab Emirates. (Dependent Variable)
Correlation Analysis will help us determine if there is systematic change in one variable, there will also be a systematic change in the other variable. Depending on their Value they can be either a Positive Correlation or a Negative Correlation.
For Example: There is an incremental raise in the Enrollment level of students in the Private Schools across UAE, so there is a need for more schools in United Arab Emirates which would directly attract the need for Foreign Investment in this region to fill the gaps.
So with increase in the enrollment levels of students the no of private schools also increases.
NEED & IMPORTANCE OF STUDY
FDI & Economic Growth have a direct relationship with each other. There has been a rapid inflow of FDI into the UAE market which has created a huge impact in the Education Sector & is one of the reasons for its rapid growth which is directly improving the Economy of United Arab Emirates in a significance manner. During the year 2017, United Arab Emirates had an inflow of $11 Billion from Foreign Investments into the Country which has an impact of an increase in 2.0% in the overall GDP of the country.
FDI is a prevalent and fundamental factor in affecting the contemporary procedure of worldwide financial advancement. The investigation endeavors to break down the imperative measurements of FDI in UAE. The examination works out the patterns and examples, primary determinants and venture streams in UAE.
The investigation additionally looks at the part of FDI on financial development in India. FDI is considered as the most reasonable type of outside fund. Also, it is increment in rivalry for FDI inflows especially among the creating countries.
The kind of research conducted here is said to be purely an Exploratory Research from the data available to us from The Ministry of Education & Various other Reports. Information was mainly collected from various Journals, Previous Research Papers, Education Reports from the Ministry of Education, Articles published in Khaleej Times & Gulf News.
Statistical Data have been collected from a defined source being the previously publishes reports. The data has been studied, analyzed, categorized & displayed to forms graphs for better interpretation of the data.
This Research Paper has major Practical Implication for Education Groups willing to expand their operation or business activity into this region with A School, A Nursery or An University. Private Education Groups are working closely with the Government to overcome the demand to provide 175,000 seats with ease by The Expo 2020.
SIGNIFICANCE OF EDUCATION SECTOR IN UAE
H.H Sheikh Nahyan Bin Mubarak Al Nahyan said, “Education is a constitutional right of every citizen. It is a pillar of the National Agenda in line with Vision 2021. Ministry of Education has developed Education 2020 strategy to develop of a first-rate education system.”
UAE wants to change the dynamics of Education in United Arab Emirates and soon it will be known as an educational pivot. UAE need funds, expertise and technology in this sector and FDI would solve this problem by letting more inflow of Capital for Expansion Purpose. By giving the correct learning and abilities to the adolescent, national advance and financial development can be guaranteed. The UAE education system recognizes the role of education in infusing the values of secularism, egalitarianism, respect for democratic traditions and civil liberties and quest for justice. With on increasing expatatiries population in UAE, the demand for educational institutes has also gone up significantly. UAE Education market is one of the biggest in the whole of GCC.
Education sector in UAE is developing and has risen as a solid potential market for interests in preparing and institutions, because of its ideal socioeconomic and being an administrations driven economy. UAE is a very lucrative & profitable destination for investment in education sector because of the high demand and market size. Moreover the mindset of Indian students regarding quality is foreign degree with good placements.
Investment Vertices into Education Sector
The investment into the Education sector can mainly be in four verticals:
Education delivery (Pre-Kindergarten – Higher Education)
Education service (Professional Development – Education Consulting)
Education Support Service (Text book distribution, Catering etc.)
Education Infrastructure (Property Maintenance, Information, Technology Networks etc.)
Main Indicators 2015 2016 2017 2018 (e) 2019 (e)
GDP (billions USD) 357.95 348.74 378.66e 400.90 422.89
GDP (Constant Prices, Annual % Change) 3.8 3.0 1.3e 3.4 3.2
GDP per Capita (USD) 37,361e 35,384e 37,346e 38,436 39,342
General Government Gross Debt (in % of GDP) 18.7 20.7e 20.7e 20.8 20.8
Inflation Rate (%) 4.1 1.8 2.1e 2.9 2.3
Current Account (billions USD) 16.66 8.41 7.88e 8.46 10.70
Current Account (in % of GDP) 4.7 2.4 2.1e 2.1 2.5
The UAE economy keeps on adapting to outcomes of the 2014 oil stun with a GDP development anticipated that would have achieved 1.3% out of 2017 (instead of 3% out of 2016). Monetary execution stayed stifled in 2017, mostly because of cuts in oil yield as a major aspect of OPEC assertions. Gross domestic product is relied upon to develop significantly in 2018 (3.4% as per IMF, 3.9% as indicated by UAE Ministry of Finance) as both oil and non-oil yields are anticipated to develop more than by 3% out of 2018 in Abu Dhabi, the biggest and wealthiest emirate in the nation. Over the medium term, the nation’s economy is relied upon to get a lift from its facilitating of the World Expo 2020.
Source: IMF – World Economic Outlook Database, 2017
NEW FORMS OF INVESTMENMTS (NFI’S)
There are various forms of Investments that Private Firms incorporates while entering into a new market. This can be divided into 2 main forms described below-
NFIs in Dubai mirrors the financial development of the economic & monetary base. There is a continuous growth of small sized companies in this sector as it is said to be the most defensive & safest base for investment. Alliances can be done through Joint Ventures, Strategic Partnerships, Sub – Contracting, License Management, and Mergers & Acquisitions.
REASONS FOR FOREIGN INVESTMENTS INTO THE EDUCATION SECTOR:
There are generally two ways in which the investors from Foreign Land can be benefited by investing capital into the Education sector of United Arab Emirates:
Investment at a Business Level or
Investment in the Physical Real Estate Asset
INVESTMENT AT A BUSINESS LEVEL INVESTMENT IN THE PHYSICAL REAL ESTATE ASSET
Long Term Revenue Generation Minimal Asset Management Required
Negative Working Capital Long term single let asset
Diversification Benefits Diversification Benefits
FOREIGN DIRECT INVESTMENT IN UNITED ARAB EMIRATES:
With a standout among the most open and creative economies the U.A.E. is a trustworthy and critical monetary accomplice of the United States, and the two nations share one of the quickest developing business and exchange organizations in the world.
UAE Business Council has declared that “For the past six years, the U.A.E. has been the U.S.’ largest trading partner in the Middle East. Bilateral trade between the two countries has grown 80 percent in ten years (2004 – 2014), with trade reaching an impressive $24.9 billion in 2014. The U.A.E. provides the 8th fastest growing source of foreign direct investment (FDI) in the US, reaching $27.6 million in 2014, with U.S. FDI to the U.A.E. hitting $15 million.”
United Arab Emirates is said to be the 9th largest recipient of Foreign Direct Investment in the whole of Asia. UAE attracts, most of its investors from United Kingdom, India & Other GCC Countries. There had been a drastic downfall in the economy of UAE between 2010 & 2013 which led to decrease in the inflow of FDI into the region & the due to the development regulatory & reforms UAE had attracted USD 8.9 Billion inflow of money into the region. According to preliminary results by the International Institute of Finance, “FDI inflows to UAE rose to nearly USD 11 billion 2017, with the country drawing 22% of total investment made in the Middle East and North Africa region”.
Education Sector, Being the most defensive sector in United Arab Emirates it continues to attract Private Equity Investors & Strategic Buyers with very attractive returns. There is a positive demand of Private Education due to increase in the population of school going children, Income Growth, Consumer Preference for Private Education & Government Privatization initiative.
PRESENT SCENARIO OF EDUCATION SECTOR IN UNITED ARAB EMIRATES:
Number of Private School in UAE Emirates Wise
EMIRATES DUBAI ABU DHABI SHARJAH AJMAN AL AIN RAK UAQ
NUMBER OF SCHOOLS 193 254 104 48 55 8 6
NUMBER OF STUDENTS 265,299 214,587 149,600 87,148 42,657 20,458 12,367
Exhibit 1: Table showing the Number of Private Schools in all the Emirates of United Arab Emirates
“Dubai” & “Abu Dhabi” being the major Emirates in United Arab Emirates are the main hub for business activities in UAE due to the population & developments. Dubai, having only 193 Privates Schools which or owned by the firms registered within the country & outside the region can accommodate 50,712 students more than Abu Dhabi having 254 Schools. There is a need for more Private Schools in this region due to the increasing Population of People migrating to UAE for a better standard of living.
Exhibit 2: Table showing total number of students in Public & Private Sector
Number of Students in Public / Private Schools
YEAR 2011 2012 2013 2014 2015 2016 2017
PUBLIC 163,183 162,541 158,248 161,809 157,414 154,328 151,549
PRIVATE 373,860 392,677 425,737 458,743 471,193 480,254 496,238
This table clearly shows that there are more enrollments into the Private Sector than the Public Sector due to better quality of Education which helps students to enter an arena of life and face challenges from the beginning.
Table 3: Requirement of Additional schools by 2020
Requirement of Additional schools by 2020
EMIRATES NO. OF ADDITIONAL SCHOOLS
Abu Dhabi 22
There is a need to fill the “Demand – Supply Gap” in the education sector in this region due to the raising expatatiries population. An addition of these schools would accommodate 75,000 more students which means there is a need for more foreign investments to develop more schools.
Exhibit 4: Comparison of Compounded Annual Growth rate (CAGR) of Students in UAE during 2015 – 2017
Comparison of Compounded Annual Growth rate (CAGR) of Students in UAE during 2015 – 2017
REGION UAE SAUDI QATAR OMAN KUWAIT BAHRAIN
SECTOR CAGR% CAGR% CAGR% CAGR% CAGR% CAGR%
Private 5.70% 5.80% 10.70% 9.60% 4.10% 6.30%
Public 1.20% 6.10% 2.80% 1.40% 0.80% 2.10%
On an average, there is comparatively more Annual Growth of Private Schools in the whole of GCC than the Public Schools present in the region.
Exhibit 5: Table Showing the Current Scenario of Foreign Direct Investment in United Arab Emirates
FOREIGN DIRECT INVESTMENT 2014 2015 2016
FDI Inward Flow (million USD) 10,823 8,795 8,986
FDI Stock (million USD) 100,164 108,959 117,944
Number of Greenfield Investments*** 334 336 301
FDI Inwards (in % of GFCF****) 11.8 9.1 9.1
FDI Stock (in % of GDP) 24.9 29.4 31.8
Source: UNCTAD, Latest available data.
Exhibit 6: Enrollment Growth throughout the GCC education sector
Enrollment Growth throughout the GCC education sector
REGION K-12 HIGHER EDUCATION
PRIVATE PUBLIC PRIVATE PUBLIC
United Arab Emirates 5.50% 0.50% 9.40% 15.25%
Saudi Arabia 4.60% 3.00% 42.30% 9.50%
Qatar 12.10% 4.30% 5.90% 2.10%
Oman 22.70% 0.50% 11.90% 19.40%
Kuwait 5.60% 1.00% 7.40% 11.00%
Bahrain 6.30% 4.40% -7.10% 6.50%
Source: GCC Education Report, 2017
We can interpret that there is a constant rise in the Enrollments level of Students into the Private Sector Schools compared to the Public Sector Schools in all the Countries present in the GCC, which means that Private Schools hold more role in the development of the Economy of the region.
FAVOURABLE SIDE OF PROMOTING FDI IN THE EDUCATION SECTOR OF UNITED ARAB EMIRATES
These are the certain positive implication the Education Sector will have with the rising Foreign Investments in the region:
There will an increase in the number of Private Nursery’s, Schools & Universities.
There will be an increase in the number of student’s enrolments year on year.
Students will be able to join a foreign curriculum institutes which will broaden the horizon of level of education Eg. It will enable Indian students to access superior quality higher education in the country itself at relatively lower cost, and thus not permit the outflow of our foreign exchange reserves.
Opportunities of International Qualification & degree
It will create Competition within the institutions leading to quality improvements.
DARKSIDE OF PROMOTING FDI IN THE EDUCATION SECTOR OF UNITED ARAB EMIRATES
The main motive of FDI in any of the Sector is to generate more profits then earning in the home country so investors pool min their money and invest in a foreign land to obtain this motive. Since foreign investors aim to extend their profits, foreign academic establishments would launch courses that the market desires, create a hype about the particular course through advertisements and attract more students for which they charge usuriously hefty fees. So there’s the likelihood of commoditization and exploitation of education.
FDI in the Education Sector also gives rise to unhealthy competition between various institutes present in the Foreign Land. Competition can be in form of Number of Courses provided, Scholarship Programs, Infrastructure provided, facilities provided etc. which would be exploitative as is prevalent in most private institutions today.
Further FDI in education would hamper the development of indigenous and critical research within the Institute
PARTNERSHIPS OF UAE GOVERNMENT & FOREIGN INSSTITUTES
A number of international Institutes have campuses and / or programs in the UAE. Some are housed in special zones, including Dubai Knowledge Village and Academic City. Other special programs include:
The Sorbonne opened its Abu Dhabi campus in 2006 and awards qualifications under French regulations and standards set by the Sorbonne in Paris.
New York University is the first comprehensive liberal arts and sciences campus with a robust research component to be operated abroad by a major US university. NYU Abu Dhabi graduated its first class in spring 2014 with 150 students from 39 countries. The campus has a permanent home on Saniya Island to house 2,000 students.
Johns Hopkins’ Bloomberg School of Public Health is helping establish a public health doctoral program in the Emirates.
Other US institutions include the University of Washington, Boston University and Rochester Institute of Technology.
DATA ANALYSIS OF ENROLLMENT LEVEL & NUMBER OF PRIVATE SCHOOLS IN UAE
Data is analyzed using “Correlation Analysis”
Correlation Analysis is statistical tool use to test relationship between two numerically measures continuous variables or between quantitative variables or categorical variables.
Correlation can be of three types which are mentioned below:
Correlation test shows the strength of the correlation between two quantitative variable i.e. Student Enrollment Level (Dependent Variable) & Number of Private Schools (Independent Variable) and displays Pearson, Spearman, Kendall correlation coefficients with p-values and scatterplot diagram.
ENROLLMENT LEVEL OF STUDENTS NUMBER OF PRIVATE SCHOOLS
The chart shows the scatter plot (drawn in MS Excel) of the data, indicating the reasonableness of assuming a linear association between the variables.
PEARSON’S CORRELATION COEFFICIENT
Definition: This defines “The measure of strength of the association between both the variables.”
Analysis: Using the above formula, The Pearson’s Correlation Coefficient is 0.74569 which clearly shows that there is a positive relationship between both the dependent & independent variables.
SPEARMAN’s CORRELATION COEFFICIENT
Definition: “Spearman’s rank correlation coefficient or Spearman’s rho is a nonparametric measure of rank correlation (statistical dependence between the rankings of two variables)”.
Analysis: Using the above formula, The Spearman’s Correlation Coefficient is 0.9333 with a p value of 0.0007 which is lower than 0.05 which clearly shows that there is a positive relationship between both the dependent & independent variables.
KENDALL’S CORRELATION COEFFICIENT
Definition: “The Kendall rank correlation coefficient, commonly referred to as Kendall’s tau coefficient (after the Greek letter ?), is a statistic used to measure the ordinal association between two measured quantities”.
Analysis: Using the above formula, The Kendall’s Correlation Coefficient is 0.8333 with a p value of 0.0009 which is lower than 0.05 which clearly shows that there is a positive relationship between both the dependent ; independent variables.