Petro Dollars Being Invested in Education - Finally!

HSBC, in a recent report, estimated that $1.5 trillion in oil revenues were earned by Persian Gulf governments between 2002 and 2006 ( Kuwait , Qatar , Oman , Saudi Arabia , Bahrain and the U.A.E.)  Moreover, Samba Financial Group ( Saudi Arabia's second largest bank), estimates that these Gulf States “may earn $1 trillion a year till 2027.”  To give it some perspective, the combined population of the GCC countries is estimated at only 37 million of which 34.5% are non-GCC nationals or expatriates. This is no doubt a huge cash windfall for the GCC governments, but is this being invested wisely?

Unlike the passive petrodollar investments from previous oil booms (protect capital with some appreciation), this round is starting to show signs of investments that will have longer lasting impact.  I am not talking about the real-estate/ tourism boom (ala Dubai ), or the surge in recent global acquisition activity (eg. SABIC's $11 billion purchase of GE's Plastics division), which by the way in their own right are positive steps, I am instead referring to the ultimate source of owning your own destinies - education. 

So in addition to building the biggest tourist attractions in the world, shouldn't investments be made to build the best schools, the most prestigious universities, state of the art scientific and social research centers, think-tanks, etc.?  After all, these investments will lay the ground for the goose that will lay a trillion golden eggs of knowledge and global competitiveness capabilities and perhaps deliver it in an exemplary way unique to the region's identity.

The biggest story, which is the first promising sign in this direction, is that the Prime Minister of the UAE, Sheikh Mohammed bin Rashid al-Maktoum recently launched a $10-billion fund to promote education in the Arab world.  The fund will provide grants to students, researchers, academics and experts to write, research and help translate books into Arabic. Sheikh Mohammed said he is investing money in education and “the development of knowledge” in the region to eliminate illiteracy and to create an educated generation.

Another significant initiative is the launch in Fall 2009 of a graduate university in Saudi Arabia, The King Abdullah University of Science and Technology (KAUST), which will have a $10 billion endowment–the sixth largest in the world.   The initiative is also launching a $100-million-a-year global research partnership program to fund work by scientists who agree to become affiliated with the new university.

Other initiatives include a $500 million allocation for research in universities in Saudi Arabia which is 20 times the allocations received in past years.  Even private investments are making their way into educational initiatives.  Abraaj Capital (one of the region’s prominent Private Equity players) has acquired an undisclosed but 'significant' stake in Dubai-based Global Education Management Systems (GEMS), which owns and manages a number of primary and secondary schools across the Middle East .

These are indeed steps in the right direction and the region’s leadership should be congratulated on this renewed focus on education.  However, much is still needed to be done at the grass root level as well as implementing with quality the planned education investments.  McKinsey recently wrote an analysis on 'Improving Education in the Gulf' that should serve as a guide for some next steps and areas of focus.

Comments

[AHMED SIROHEY]

It is indeed good news to know that some of the muslim countries have finally come out of slumber and realised that education and research can push the country towards sustained growth.The OIC countries are lacking in education and unfortunately the leaders in the most of countries are disloyal to country and people.Moreover the standard of education in public schools is deteriorating every passing day.The ruling class is enjoying the wealth of countries and poor is pushed to wall.The socalled nobleman or leaders in OIC countries are mostly from those families which served the masters and now conquered thier own people.They have no connection with the masses and they destroy the talent of muslim world deliberatly to please their new mastwers.In this situation ME education investment is real good news.

[Rafi-uddin Shikoh]

Dear Mr. Ahmed Sirohey. Indeed the trend is positive in making strategic investment with long term sustainable benefits. You can read more about the King Abdullah University of Science and Technology (KAUST) in a recent article we had done. (http://www.dinarstandard.com/innovation/KAUST112107.htm)

Abraaj capital - who I have mentioned in the blog estiamtes that accross the MENA and South Asia region assessed value of Education investment needed is $114 billion. Private investments are certainly needed and we will be tracking this.

Finally, one other key point relating to other major OIC markets such as Turkey, Pakistan, Indonesia, Nigeria, Bangladesh etc. is that their respective corporate sectors should look to invest in education as well. All major Turkish conglomerates (eg. Koc, Sabanci..) have invested greatly in education and have created marquee institutions themselves. Perhaps some of the MENA education funds would look into other OIC markets as well.

A few additional Funds investing in the education sector in the region are:

- Addax Education Holdings ($100 mill fund in partnership with Addax Bank and Jordaninvest to invest in and manage for-profit pre-school through secondary (K-13) schools and other education related businesses accross MENA region)

- The Center of Excellence for Applied Research and Training (CERT), the commercial arm of the Higher Colleges of Technology in the UAE has initiated an investment fund CERT Capital. The fund is investing in the embryonic and evolving technology, healthcare and education sectors.