GEMS is the biggest private provider of K12 education in the world, and it has no plans to stop there. Dino Varkey, senior director of business operations at the group, talks fees, future plans and setting up shop in Saudi.
If Rip van Winkle awoke from a hundred-year slumber in the Gulf, the frenetic pace of change here would send him reeling.
Between the gold-plated malls and glitzy skyscrapers, there’d be no doubt he and the region had teleported into the 21st century. Unless, of course, he woke up in a local school. Then he could be forgiven for thinking he’d just finished a nap.
Education in the Gulf isn’t quite frozen in time, but its slow-burn revolution has been less outpaced and more lapped by the changes seen in other sectors. Despite the glut of branded schools that have set up shop here, education has largely cobwebbed.
Literacy rates across the region still fall short of the minimum 95 percent rate set for developing nations by the UN. Results from the global TIMSS exam in 2007 showed school kids in Qatar ranked alongside those in Ghana and Yemen as the poorest at maths and science.
When pitted against the 2003 results, their peers in Bahrain and Saudi Arabia are actually getting worse. Combined, this sketches a picture of a new generation of job seekers utterly unequipped for the brave new world that awaits them. But times are changing. The Gulf has finally cottoned on to the idea that if it is to have any chance of manning its future boardrooms, it needs a sea change in its classrooms. Saudi, Qatar and the UAE have all nailed their colours to the mast and pledged a radical shakeout of education.
Courtesy of their oil wealth, they have the means to make it happen. What they don’t have is the expertise. Step forward Dino Varkey. The son of GEMS founder Sunny Varkey, and heir apparent to the multimillion-dollar private education outfit, he has plans for those petrodollars. “The opportunity is here,” he says, leaning forward in his chair. “Look at the underlying demographic; the MENASA region has the youngest population under the age of 20 worldwide, the second-fastest growing population from a school perspective. It’s the sheer quantity of schools required here. “The GCC needs to create 100 million jobs, and how will that happen? By reforming the education space.”
There’s no doubt that for Dubai-based GEMS - or Global Education Management Systems, to give its full name - this adds up to an Aladdin’s Cave of opportunities.
It has little in the way of competition. By sheer scale it has the private sector nailed, owning 26 schools in the UAE alone, where a third of school kids are in private education.
Ask Varkey, and the well-oiled stats trip off his tongue. GEMS has 100,000 students in 100 schools across 11 countries, learning one of three curriculum, taught by 6,500 education professionals from 50 different nationalities. The figures are enough to make your head swim, and the group is still growing.
“In order, we’re looking to expand in India, Saudi Arabia, Egypt, Turkey and Qatar,” Varkey says. “In India, we’re looking to grow to a hundred schools in the next five years [GEMS currently runs five schools]. From a MENA perspective, we will be looking at probably another hundred schools, with the balance in Saudi and Egypt just because of the macro factors. And we’re going to continue investing in the UAE, specifically in Abu Dhabi and Sharjah.”
If that weren’t enough, bringing up the rear is a plan for 20 schools in the US.
“We’re bullish,” Varkey shrugs.
The GEMS edge is that, in style, the chain mimics an airline. School fees range from squeezed, ‘no frills’ economy prices – the $953-a-year classes held in Fujairah, for example - to premium class, and everything in-between. “Whatever the price point or curriculum, we can deliver quality education,” Varkey says. “We can customise anything, any curriculum. When we go to a country, we just need to know where the people are - then we can find the model that fits.”
GEMS has also been smart enough to shift into consulting, offering up its services to whip rival schools into shape. (“We’re like a Hilton or a Hyatt in the education space,” says Varkey, a touch ambitiously.) This hasn’t gone unnoticed by local governments, fretting over the state of the public system, helping the chain snap up 25 state schools in Abu Dhabi and a pair of private schools in Qatar. At a time when private education is being groomed as the saviour of the Gulf’s crumbling public sector, such deals could blow the education market wide open and fast track its improvement.
“To the credit of the government, they’ve recognised the situation,” Varkey says, weighing his words carefully. “In more developed markets, nothing happens in education because any good idea becomes politicised. Those same constraints don’t exist here, so they have the opportunity to make changes very quickly.”
What Varkey is edging round, is the fact that the Gulf - not having the trifling issue of ‘one person, one vote’ to contend with – has few political roadblocks to reform. But that doesn’t mean the path runs smooth.
This newfound interest in education is coming at a price for private schools, which are finding themselves increasingly under a spotlight with everything from their syllabus to their fees dictated by the state. In Dubai, for example, fee hikes are now linked to a school’s performance against a number of state-picked indicators. Along with maths and science, schools are ranked on Islamic studies classes, and their pupils’ “respect and understanding of Islam”. From history of light-touch regulation, it’s a tough pill to swallow.Does Varkey find it ironic that, in some cases, the state agencies that have handed over their classes to GEMS to run, are now regulating its schools?
His eyebrows shoot up. Then he grins broadly. “Irony is a reasonable word to use,” he admits. “Look, we welcome bodies like the KHDA [Dubai’s Knowledge and Human Development Authority], they have good intentions. And they are learning how to regulate a system. But… too often they are focused on inputs rather than outputs. Its price control – in the old days it was the textbooks you could use, number of kids in a class, space per student – rather than really looking at the academic results. All of that is an afterthought.
“As a private sector, we would always be advocates for a free market scenario, because that is the true way that schools will actually get better. In a free market set-up, where you can price it appropriately, parents can choose. If you’re not delivering quality, parents can leave.”
Which brings us on to another touchy subject; school fees. GEMS hit the headlines earlier this year when its Dubai schools announced their fee hikes for the 2009/10 academic year. The maximum 15 percent price rises, signed off by the Knowledge and Human Development Authority, sparked protests from some parents who accused GEMS of turning a blind eye to the global crisis. When the going gets tough, they raged, GEMS puts its fees up, pricing cash-strapped parents out of the market.
It’s not entirely untrue. To send your teenage child to Dubai American Academy, for example, will now set you back around AED65,000 ($17,664) a year - a 40 percent price increase since 2005, according to one parent.
With overheads, costs, and salaries plummeting in the wake of the downturn, where, ask parents, is the extra cash going?
Varkey sighs. “People seem to forget that education is one of two price-regulated industries in the UAE. For the last four to five years we’ve been capped on our price, while all of our costs were allowed to rise unchecked. None were subsidised.”
He breaks off to rustle round for a sheet of paper. “This shows that average operating costs across the board at five Dubai schools, have risen 57 percent since 2005. Fee increases averaged 27 percent. That’s a 30 percent disparity. We don’t have the flexibility to be sensitive to a downturn.”
So GEMS is playing catch-up, despite key costs such as salaries and rents dropping? “[Residential] decreases have no correlation to commercial rents,” he interrupts sharply. “Rents are not coming down for schools.”
He pauses. “Look, if we had been allowed to charge in increments each year, there wouldn’t be this dramatic shortfall now. We’ve been genuinely absorbing these cost increases – normally, in any other industry, these are offset by a price increase.”
As he gets into his stride, his speech quickens. “When we started lobbying the government [for permission to charge higher fees] five years ago, the level of increase might only have been 20 percent. But because the decision has been left pending… the size of the shortfall is now anything between 90 and 100 percent.
“Where does the money go? Back into the school in terms of infrastructure, the people, additional resources – it all goes back into the community.”
He means that literally. GEMS luxury academies are subsidising its cheaper schools, a fact that wouldn’t please premium fee-paying parents.
Despite the picketing, there’s been little sign of a recession-fuelled meltdown in private schooling. After waiting on tenterhooks during the summer, GEMS enrollment is up by 3,000 places across the UAE, proving the sector’s resilience. It seems most parents are prepared to ride out the fee hikes rather than pull their children out of private education. And what GEMS is selling – solid academic results and an edge in university admissions – is still a precious commodity.
“We’re cautiously optimistic,” Varkey says. “We’ve always said education is recession-proof and it’s nice to see that validated.”
Still, the group’s move into Saudi Arabia will be a test of his confidence. A notoriously difficult market to manoeuvre in, it’s likely to be a minefield for a Western-style education outfit. The decision earlier this year to appoint a female education minister – Saudi’s first, and an expert on girls’ education – and the reaction of apoplectic ultra-conservatives put paid to the idea that the sector is ready for radical reform. Not that Varkey isn’t aware of this.
“Historically, we’ve not looked at Saudi because it’s a difficult place for a foreign country to work in,” he admits. “And by the way, it’s still a difficult country. Education is still on the restricted list. But we’re the first foreign education company to be awarded an education services consultancy licence, and we believe we could be a tremendous partner for Saudi.”
To date, GEMS has signed a deal to manage the first school in King Abdullah Economic City (KAEC), the jewel in Saudi’s education crown, in partnership with the Saudi Arabia General Investment Authority (SAGIA). It is also offering its consultancy services across the five other economic cities, and is eyeing a string of private sector acquisitions. Ultimately, admits Varkey, the potential profits outweigh the problems.
“Saudi is absolutely the market you want to be in, regardless of the constraints. Saudi today, as a proportion of their GDP, is going to be spending more on education than anywhere else in the world.”
He settles back in his chair. “From an opportunities perspective, it’s just worth it. We have big plans.”
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