{"id":606104,"date":"2023-09-11T00:00:00","date_gmt":"2023-09-11T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/blackboards\/govt-imposed-cap-on-tuition-fee-hikes-limits-growth-and-profit-potential-for-private-schools\/"},"modified":"2023-09-11T00:00:00","modified_gmt":"2023-09-11T00:00:00","slug":"govt-imposed-cap-on-tuition-fee-hikes-limits-growth-and-profit-potential-for-private-schools","status":"publish","type":"blackboard","link":"https:\/\/enterpriseam.com\/egypt\/blackboards\/govt-imposed-cap-on-tuition-fee-hikes-limits-growth-and-profit-potential-for-private-schools\/","title":{"rendered":"Gov\u2019t imposed cap on tuition fee hikes limits growth and profit potential for private schools"},"content":{"rendered":"

A tighter cap on how much privately owned schools can raise tuition fees will hit profitability and slow investment in growth<\/strong>, 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.<\/p>\n

Essential background: <\/strong>Last week, the Education Ministry issued a decree introducing a new tiered system<\/a> 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\u2019s purview, among them institutions owned by associations and other bodies. (Thing: CAC, MBIS, BISC.)<\/p>\n

International and private schools have been lobbying the Education Ministry to <\/strong> allow them to raise their tuition fees beyond the 7% threshold <\/strong> to be able to cover rising costs<\/a> 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\u2019 demands to keep price hikes under control, the source added.<\/p>\n

REFRESHER- <\/strong>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 \u201cunfair\u201d increases. Private providers were allowed to raise prices by as little as 7% each year<\/a> on their 2015-2016 fees<\/a>, 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.<\/p>\n

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

The EGP deval is a continuous pain point for int\u2019l schools: <\/strong>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\u2019 financial resources, particularly in the face of recent currency devaluations, CIRA Education CEO Mohamed El Kalla told Enterprise. <\/p>\n

Will we see fewer foreign teachers in Egypt as a result? <\/strong>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. \u201cThey want to get paid in hard currency so they can save and have the benefit of some that money when they return home,\u201d he said.<\/p>\n

Not all schools can afford to cut int\u2019l staff: <\/strong> \u201cLabor 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,\u201d El Kalla told us. <\/p>\n

And it\u2019s leading to some business going on pause: <\/strong> CIRA Education is freezing projects with a high composition of foreign staff, El Kalla said.<\/p>\n

ANOTHER LIMITATION- New regs on school uniforms: <\/strong> 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. <\/p>\n

What industry players wanted to see: <\/strong> Schools would have been better able to maneuver the new caps if the ministry\u2019s decision had accounted for the percentage of foreign staff members on schools\u2019 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.<\/p>\n

Some room to push the cap \u2014 if you can convince the ministry you\u2019re making a loss. <\/strong>\u201cSchools 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%,\u201d Karim Mostafa, CEO of education management company Eduhive, told us. However, \u201cthe application process for such exemptions is time-consuming and in some cases takes more than four months,\u201d said Rogers.<\/p>\n

One industry association exec thinks the 7% price hike will still allow most schools to live to see next year. <\/strong>\u201cThe adjustments are still far from covering the extra costs incurred by the schools due to inflation hovering near 40%, but it\u2019s a good improvement that will allow schools to survive this school year, given they can make another raise next year,\u201d Private Schools Owners Association Chairman Badawy Allam told Enterprise. <\/p>\n

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