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Private sector investments in the education industry in Egypt are of paramount importance. Over the past decade, we have witnessed a steady increase in the appetite of private equity funds and investors to capitalize from the industry. This enthusiastic appetite and lucrative appeal is owed to ever-increasing enrollments; in 2016/17, the Central Agency for Public Mobilization and Statistics reported that total enrollments at the K-12 level amounted to 20.6 million students. The growth continues — according to PwC’s Middle East Report, at the current growth rate, an estimate of nearly 2.4 million additional seats in grades 1-12 will be needed by 2022/23. According to the report, the private sector provision in the primary, preparatory and secondary stages represents 10%, 7% and 13%, respectively. Enrollment in private schools is growing at a faster rate than public schools.
Background
Under the current legislation, private schools are regulated and governed by Law No. 139 of 1981 and Ministerial Decree No. 420 dated 9 September 2014. The education industry falls under the auspices of the Ministry of Education, which is the governing authority for all schools in Egypt.
New limitation on foreign ownership
On 14 November 2019, a new decree was issued that might bring the previously witnessed rapid increase of private sector investments in the education industry to a halt. The decree limits the ownership of foreigners in the capital of private schools, and schools applying an international curriculum in Egypt, to 20%. This new limit is unprecedented in the education industry and has never been set before. This limit may be a deterrent to many and may effectively lure less investors who had been previously interested in the industry.
A point of interest: it remains unclear whether, for example, a two-layer restructure in ownership would be a successful workaround to the 20% capital limit under the new decree. The implementation of the decree is yet to be tested, particularly with regard to the number of ownership layers that would be subject to review by the Ministry of Education.
How current and future businesses are effected
Schools whose current ownership structure includes more than 20% capital owned by foreigners will be required to take the necessary measures to request an exemption. The new decree requires that current and future businesses, and investors, wanting to push capital beyond 20% foreign ownership must submit a request for an exemption to a committee of the Ministry of Education. In case of approval, no further assignment, transfer or changes to the ownership structure would be allowed without the prior approval of the committee.
What is required to tap into the exemption request
In order to apply for the exemption, the school will need to furnish a memo clarifying the nationality of its shareholders intending to own more than 20% of its capital. The memo will need to provide details of the foreigner’s role in the school’s management and operation. If the shareholders are natural persons, a copy of their passport will also need to be presented. A copy of the articles of association must be provided if the shareholders are juristic persons. The documents must be submitted to the competent department at the Ministry of Education, which in its turn will be sent to the committee for deliberation.
Conclusion
As outlined above, schools that currently consist of a foreign ownership structure in excess of 20%, and owners of schools that are or will be party to a merger, acquisition transaction or sale of equity that would result in a more than 20% foreign ownership structure, will be subject to the new decree and will be required to apply for the exemption accordingly. Only time will reveal the impact of this decree on the investment landscape and the appetite of foreign investors in the Egyptian education industry.
