Egypt: Investment in education in Egypt - New regulations

In brief

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.


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.

This article can also be accessed here.


Copyright © 2023 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.