A tighter cap on how much privately owned schools can raise tuition fees will hit profitability and slow investment in growth, school officials tell Enterprise. The execs were reacting to an Education Ministry decree that sharply caps tuition rises at higher-end schools. The result: Already-struggling private-sector school operators will be less profitable, less able to hire foreign staff, and less likely to invest in growth in a climate that is marketed by high inflation, poor availability of FX, and a divergence between the official and parallel market value of the EGP against foreign currencies.

Essential background: Last week, the Education Ministry issued a decree introducing a new tiered system of caps on annual hikes of tuition fees at privately owned schools teaching both local and international curriculums. Under the new system, schools that charge tuition fees of EGP 35k and above will not be allowed to hike fees by more than 6% for this academic year, down from the previous 7% cap. The decision does not impact schools that fall outside of the ministry’s purview, among them institutions owned by associations and other bodies. (Thing: CAC, MBIS, BISC.)

International and private schools have been lobbying the Education Ministry to allow them to raise their tuition fees beyond the 7% threshold to be able to cover rising costs on the back of soaring inflation and a weakening local currency, a government source told Enterprise on condition of anonymity. The ministry introduced the tiered system after mulling how much of an increase to allow; that process involved listening to operators and to parents’ demands to keep price hikes under control, the source added.

REFRESHER- Since 2017, international and private schools have faced a cap on tuition fee hikes after parents lobbied the ministry to put a stop to what they said were “unfair” increases. Private providers were allowed to raise prices by as little as 7% each year on their 2015-2016 fees, which the government deemed their baseline year, meaning the actual increase increment has remained steady each year. Private schools with tuition fees below EGP 10k per year had a 10-25% cap on their annual tuition fee increases.

A brief reprieve: Last year, the Education Ministry agreed to allow schools to calculate the annual increase based on the previous academic year rather than the 2015-2016 fees, providing some breathing room.

The EGP deval is a continuous pain point for int’l schools: The devaluation of the EGP poses a significant challenge for international schools, most of which have contracts with their international staff committing to paying a significant portion of their salaries in foreign currencies. This practice has been straining the schools’ financial resources, particularly in the face of recent currency devaluations, CIRA Education CEO Mohamed El Kalla told Enterprise.

Will we see fewer foreign teachers in Egypt as a result? The tightened cap has prompted some schools to modify their agreements with their international staff by offering a larger portion of their salaries in EGP rather than hard currency, considering the current difficulties in sourcing FX, El Alsson Executive Director Karim Rogers told Enterprise. This kind of contractual adjustment is often met with resistance by foreign teachers, some of whom end up quitting, said Rogers. “They want to get paid in hard currency so they can save and have the benefit of some that money when they return home,” he said.

Not all schools can afford to cut int’l staff: “Labor costs in international schools account for up to 60% of expenditures, and the schools are constrained from reducing the share of foreign staff within their workforce, as international agreements mandate maintaining a specific level of foreign staffing,” El Kalla told us.

And it’s leading to some business going on pause: CIRA Education is freezing projects with a high composition of foreign staff, El Kalla said.

ANOTHER LIMITATION- New regs on school uniforms: Education Minister Reda Hegazy issued a decision to standardize school uniform specifications for all students in Egypt, including those in public, private, and international schools, aiming to reduce financial burdens on families. The decision bans schools from mandating parents to buy uniforms from specific sources, cutting schools off another possible source of revenues for schools that sell uniforms in-house. The decision also called on schools to avoid complex uniform requirements and encouraged the use of standard colors and logos.

What industry players wanted to see: Schools would have been better able to maneuver the new caps if the ministry’s decision had accounted for the percentage of foreign staff members on schools’ payrolls and set the fee increases accordingly, El Kalla suggested. Alternatively, it would have also been favorable if the ministry were to consider the cap on a case-by-case basis, he said.

Some room to push the cap — if you can convince the ministry you’re making a loss. “Schools that can provide proof of incurring losses can apply to the Education Ministry for exemptions from the current caps and in some cases the requests came back with approvals for increases of between 15-60%,” Karim Mostafa, CEO of education management company Eduhive, told us. However, “the application process for such exemptions is time-consuming and in some cases takes more than four months,” said Rogers.

One industry association exec thinks the 7% price hike will still allow most schools to live to see next year. “The adjustments are still far from covering the extra costs incurred by the schools due to inflation hovering near 40%, but it’s a good improvement that will allow schools to survive this school year, given they can make another raise next year,” Private Schools Owners Association Chairman Badawy Allam told Enterprise.

Your top education stories for the week :

  • AfricInvest buys into BUE: Pan-African private equity firm AfricInvest is investing USD 40 mn(EGP 1.2 bn) in British University in Egypt (BUE) to boost the university’s growth plans.
  • CIRA bonds and buyouts: CIRA Education is set to securitize future cashflows worth EGP 700 mn before the end of the month.
  • Egypt x Japan x Jordan: Foreign Minister Sameh Shoukry discussed introducing an Egyptian-Japanese school model in Lebanon with his Japanese and Jordanian counterparts during a three-way meeting last week.
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