Expanding the role of the private sector in Saudi Arabia's education and training sector

Saudi Arabia is a youthful country, with a third of its population under the age of 15, and in recent years the country’s leaders have invested billions of dollars to educate these young people to lead the planned transformation of the country from an oil-rich state to a diversified, knowledge-based economy. School enrolment numbers and university graduation statistics have improved, but the ultimate goal of realigning the Saudi workforce has proved more elusive. The focus of many of the recent efforts in the education and training sector are on providing young people with the soft skills and vocational qualifications that are required by the private sector job market. However, demographic pressures as well as the ups and downs of the world’s crude oil markets mean that the clock is ticking to reach this goal. By the time Saudis who are 15 years old in 2016 turn 30, they will each be competing against 10m Saudi nationals for a job, according to research by consultancy firm McKinsey.

Budget Allocations

After a year in which it managed to cut overall spending by 14.5%, the Ministry of Finance announced that in 2016 it had budgeted expenditure of SR840bn ($223.9bn), with education and training receiving the second-highest allocation after the armed forces and security. The education and training budget accounted for SR191.7bn ($51.1bn), or 23%, of planned expenditure. Following the government’s reaffirmation of its commitment to spending on education, in June 2016 it released the National Transformation Programme (NTP), a five-year strategic development plan for the economy, which pledged an additional SR24bn ($6.4bn) to support reforms in education.

In line with its aim to encourage privatisation of some of the country’s economic activities, reduce red tape for private businesses and nurture more public-private partnerships, the NTP forecasts the number of students in non-government schools to double to 15% and targets a 10-fold increase in students who enrol in vocational training courses. “The government is looking to invest in smarter, more efficient ways, and greater private sector involvement in the education sector will be key moving forward,” Mohammed Alzaghibi, CEO of Tatweer Company for Education Services, told OBG.

School Numbers

The compulsory education system in the Kingdom is structured to include six grades at primary-school level and three at intermediate level, followed by a further three years in secondary school. As of 2015 there were 7.5m children attending schools, according to the latest available data from the General Authority for Statistics (GaStat). Gross enrolment at primary-school level stood at 106.8% while net primary school enrolment was 97.9%. There were 3.8m children at primary schools, 1.79m in the intermediate years and 1.8m at secondary school. Girls constituted 49% of the total school population. The data shows that 11.4% of schoolchildren – 846,996 in total, of which two-thirds were boys – attended private schools. Girls represented 37% of students receiving a private primary education, 37% of students receiving an intermediate private education and 33% of students at private secondary schools. According to data from the Saudi Arabian Monetary Authority, there were 31,000 schools in Saudi Arabia in 2014, of which 16,600 were schools for girls.

International Comparisons

Data compiled by the OECD shows that there is some room for improvement in Saudi Arabia’s schools. At least 90% of students are enrolled in school in the Kingdom for 11 years, while the OECD average is 13. By comparison, in Germany and the UK, students are enrolled for 15 years, while the figure for the US is 12 years. In an average OECD country, 98% of the school-age population between the ages of five and 14 are enrolled in school, with rates of 99%, 98% and 97% in Germany, the UK and the US, respectively. In Saudi Arabia the rate is 88%. The Kingdom was ranked 35th out of 41 countries when the level of upper secondary attainment was compared for people aged 25-64 and 25-34, and when the level of tertiary achievement for people aged 25-34 was measured it ranked 34th. The results may be unrepresentative however, because up to a third of the Kingdom’s population are expatriates, of whom only 18% have achieved secondary school leaving certificates. However, even taking that fact into account, there is some way to go to reach average OECD standards in terms of the adult population.

International Tests

In 2015 school students in Saudi Arabia took part in two international comparative studies designed to assess student performance in maths, science and languages. When the results are revealed they will give an indication of the success of educational reform in the Kingdom in recent years. The International Association for the Evaluation of Educational Achievement has been conducting the Trends in International Mathematics and Science Study (TIMSS) every few years since 2005. The latest TIMSS, conducted in 2007, surveyed grade-eight students from a total of 48 countries. While the average score in the test was 500, students in Chinese Taipei ranked first with a score of 598, while students in the UK came seventh, with a score of 513, and the US just behind in ninth place, with a score of 508. Saudi Arabia was ranked 46th out of 48, with a score of 329, ahead of Ghana and Qatar. The results of the 2015 TIMSS tests, which were conducted in 59 countries from March to June 2015, are due to be published in November 2016. Whatever the results, the new NTP has set a target of improving Saudi Arabia’s performance to 450 in maths and 480 in science by 2020.

Details of another key survey are also anticipated. Conducted every three years, the latest edition of the OECD’s Programme for International Student Assessment (PISA), which took place in November 2015 and examined 15-year olds from 70 countries, are set to come out in late 2016. Saudi Arabia participated in this international assessment, which focused on scientific literacy, but did not enter students for the previous assessment in 2012.

Private Schools

Just 11.5% of the school-age population of Saudi Arabia is enrolled at private schools. In neighbouring countries, such as Bahrain, the proportion of school pupils in private education is significantly higher: latest available data from the government indicates that in 2014 around 34% of all pupils were enrolled in the island nation’s 72 private schools. Factors affecting this difference may include affordability, perceptions of the benefits of private education over state offerings and the range of alternative systems available.

While both Saudi Arabia and Bahrain have similar per-capita GDP, at $24,406 and $24,855, respectively, according to World Bank estimates from 2014, the figure for Saudi Arabia may not be indicative of the typical spending power of its citizens. According to an analysis of figures from the General Organisation for Social Insurance, conducted by researchers at Jadwa Investment, the average Saudi in the private sector earned SR5519 ($1471) a month in 2014, while Saudis in the public sector earned 1.7 times that amount, or SR9382 ($2501). This equates to an average annual tax-free salary of $30,012 for the 3.3m Saudis working in the public sector, and $17,657 for Saudis in the private sector. Jadwa Investment reported that in 2016, 1.6m Saudis worked in the private sector – 33% of the total Saudi workforce of just under 5m. The figures suggest that many of the more senior post holders in public service would be able to afford to invest in private education for their children if there was a clearly perceived benefit to doing so, and if fees were commensurate with their salaries.

Investment Challenges

However, if private education is to grow significantly and attract more investment, the government may need to introduce reforms to the way it interacts with the sector. The release of the NTP, which sets out specific aims for more private involvement in the sector, will be welcomed by investors who have been waiting for more concrete and detailed reforms to be announced. Delegates at a meeting of the MENA Private Equity Association, held in 2013, outlined the main challenges they saw in the Saudi market place, some of which related to government policies and the speed at which they sometimes changed. Examples cited included the unexpected tripling of teacher salaries, paid for by a government subsidy that is due to expire in 2018; Saudiisation quotas for teaching staff but a lack of suitably qualified Saudi teachers with both subject skills and spoken English; government-fixed tuition fees for education companies that had to rent or buy property at the commercial market rate, which left companies with limited revenues against potentially increasing costs; and delays in dealing with requests for tuition fee increases.

State Benefits

The fact that so many of these investor concerns relate to government policy and implementation does at least give that same government the power to make changes that could create a more fertile investment landscape. If private companies are prepared to take on some of the burden of building schools, easing capital outlays, and employing more teaching staff, the public sector wage bill will decrease as a consequence, constituting definite advantages for the authorities. The budget for public sector wages in 2015 was SR450bn ($120bn), more than half of all predicted expenditure, according to the local media.

New Leadership

Two men who will wield considerable influence in making decisions about government expenditure and education policy were appointed in December 2015, shortly before the budget for 2016 was announced. Ahmed Al Eissa replaced Azzam Al Dakhil as Education Minister, with responsibility for schools and higher education, and Ahmed Alfahaid became the new governor of the Technical and Vocational Training Corporation (TVTC), the government body responsible for organising the training of Saudis in workplace skills. The new education minister came to his position with experience of working in the private sector and gave two speeches outlining his determination to boost private sector involvement in education within six weeks of being appointed. In January 2016 local media reported that he had revealed a four-point plan to strengthen private sector participation in education, including the formation of an investment firm within the state-owned Tatweer holding company that is charged with delivering education reforms. In February 2016 Al Eissa was quoted in the Saudi Gazette, saying, “The ministry views the private sector as the driving force for the development of education in the Kingdom. The ministry aims to support the private sector and devise strategies to attract more investors.” Al Eissa added that the scope of privatisation would not be limited to the opening of new fee-paying schools, but that services, such as school cafeterias, could potentially be run by private companies. These words were welcomed by existing private education providers in the Kingdom, such as the publicly-listed Al Khaleej Training and Education, which was founded in 1993 and has run private schools in Saudi Arabia for six years. “We are optimistic and supportive of the new minister and looking forward to the involvement of the private sector in the ministry’s initiatives,” Alwaleed Aldryaan, CEO of Al Khaleej Training and Education, told OBG. “The announcement that government facilities would be open for the private sector to run is one that is of great vision, and we are anxious to learn the details.”

Higher Education

According to data published by GaStat there were 1.3m students enrolled at 28 state universities in Saudi Arabia in the 2014/15 academic year, including 692,673 women, who represented 53% of the total student body. Overall, there are 34 universities in the Kingdom, when private institutions are included.

In that year, 314,529 new students were admitted to state universities on a mixture of undergraduate and graduate degree courses. Of the new intake, 149,304 were male students, 47.5% of the total. Female students account for a significantly higher proportion of those completing studies and receiving their degrees. Of the 2013/14 graduating cohort of 153,221, 56% were female. At the postgraduate level 16,580 students were awarded postgraduate qualifications from state and private universities in 2014/15, including 11,509 higher education diplomas, 4632 master’s degrees, 84 fellowships and 355 doctorates. Women received 39.8% of all master’s degrees awarded and 27.6% of all doctorates.

Overseas Students

One of the most visible benefits of Saudi Arabia’s second oil boom from 2003 to 2013 was that the government paid for thousands of its young people to study abroad at some of the world’s leading universities. The programme was originally called the King Abdullah Scholarship Programme, but the name was changed to the Custodian of the Two Holy Mosques Scholarship Programme when King Salman bin Abdulaziz Al Saud came to the throne. In addition to these scholars, the families of tens of thousands of young Saudis pay for them to study abroad.

In the academic year 2014/15 there were 183,532 students studying abroad, 157,095 of them on scholarships, according to GaStat data. Female students accounted for 26% of all students abroad, and the same proportion of women received funding under the scholarship programme. In that year 21,356 Saudis graduated from foreign universities, including 20,997 scholarship students. Of those graduates, 28.5% of scholarship recipients and 28.3% of the total were Saudi women. The graduates included 9160 people who completed undergraduate degrees, 8821 who received master’s degrees, 1388 awarded doctorates. Business and management was the most popular subject for male and female students completing their studies abroad at all levels, with 5703 graduating, including 1313 women. The second most popular subject area was engineering with 3559 graduates, including 128 women, followed by health with 3518 graduates, including 1269 women, informatics with 2515 and humanities with 1083 graduates.

Vocational Education

For students who choose not to attend universities there are a number of technical colleges and training institutes offering a range of specialist vocational training to men and women. Of the 1032 training institutes in 2014/15, 945 were run by private sector operators and 65 were state-run, with the latter only offering courses to male students. Of the 128,098 men enrolled in training institutes, 18,199 attended public sector institutes, while 101,426 were training at private sector institutes. There were 58,015 women receiving training at private institutes. A total of 87 state-run technical colleges were operating in 2014/15. Of this total, 52 offered courses to boys and 35 catered to girls.

The body overseeing this sector is the Technical and Vocational Training Corporation (TVTC). The TVTC has tried a number of strategies in recent years to improve the quality of vocational training and education in Saudi Arabia and to attract more students to practical courses with work-based skills. It has developed public-private partnerships to create training institutes for oil and petrochemical giants Saudi Aramco and Saudi Basic Industries Corporation, but has also worked with employers to foster the development of training in a number of other industries. The TVTC has also hired international training advisers and further education specialists to improve the quality of education and training in its technical colleges.

Colleges Of Excellence

The biggest flagship project to be launched in vocational training in recent years was the Colleges of Excellence (COE) programme, which aimed to provide vocational skills for hundreds of thousands of young Saudi men and women by working in partnership with established vocational training colleges and companies from the UK, the US, Canada, Australia, Spain, Germany and the Netherlands. The model was for the Saudi government to build the colleges, and for international partners to run three-year courses consisting of a foundation year, covering English and IT skills, followed by a two-year post-secondary diploma in dozens of skills that ranged from aeronautical engineering to hairdressing and from car mechanics to health care. The training providers were to operate from 36 colleges and, in 2014, the British government’s UK Trade and Investment Department hailed the award of four COE contracts to English educational establishments as a £1bn British export triumph. The contracts were initially for 12 of the first group of colleges, with a further four to follow at a later stage. However, by early 2016 it had become apparent that up to two-thirds of the new COEs run by international providers had found difficulty in recruiting and retaining students. “It was a good pilot and a good experiment, and hopefully the lessons learned will make the new waves of COEs more successful,” Aldryaan told OBG.

Khaleej Training and Education was not involved with the COE programme, and the firm believes that more partnerships between Saudi training providers and international companies might provide a new solution. “The idea of bringing in experiences of foreign colleges is a good one,” Aldryaan told OBG. “Involving local education players would enhance the experience further, in my opinion.”

Jobs For Saudis

Young Saudis leaving school or university in 2016 face a number of challenges as they attempt to enter the labour market. Those who have succeeded in education may find their level of attainment helps them to surmount these obstacles, but others may find it a hindrance. The population of Saudi Arabia has tripled since 1975, its ranks swelled by an influx of foreign labour, but there has also been substantial growth in the national population. In December 2015 McKinsey estimated that the labour pool of Saudi workers would grow from just under 5m in 2016 to 10m by 2030.

The government knows that there will not be enough jobs in the public sector for all these people, and so the challenge is to reform and expand the private sector. However, as the private sector has grown, the impact on jobs for nationals has been negligible. An October 2015 report by the IMF noted that the private sector had grown by 7% per annum since 2000, creating 3.6m jobs, but that only one-fifth of these jobs went to Saudi nationals.

Quota System

In 2011 the government introduced the Nitaqat (“ranges”) system to improve Saudiisation levels. Quotas were introduced for each employment sector, backed up by a system of rewards and penalties. In some industries, such as construction and retail, employers have consistently complained that a large part of the problem is that they cannot attract young Saudis to join their businesses, and that many applicants lack the practical skills required. In the same year, and in the immediate aftermath of the Arab Spring, the government announced it would employ any young Saudi who wanted a public sector job.

Working Hours

There have been attempts to reduce the typical working week in the private sector to make it more attractive for Saudis. According to a 2016 labour market report by Jadwa Investment, in 2012 the average private sector employee spent 12.8 hours longer at work than his public sector counterpart. However, by 2015 this differential had been reduced to 8.8 hours, and a 48-hour week had become typical for private sector workers.

In December 2015 the Majlis Ash-Shura, or Consultative Council, discussed the issue of reducing working hours further to 40 hours, but the change had not been implemented by late 2016, and the proposal was meeting with some resistance from many businesses. The Makkah Chamber of Commerce and Industry told the local press that the 40-hour week would cost the country SR100bn ($27bn) a year and 4bn in lost working hours.

Employment in the public sector holds another obvious attraction for young Saudis, because in 2016 the average pay is 1.7 times higher than in the private sector, according to Jadwa Investment, even though minimum wages for Saudi workers in the private sector have been introduced. On the demand side of the equation, many private sector businesses have grown on a low-wage, low-skill model, and so they do not require highly educated staff who generally expect higher salaries.

A study by the Ministry of Economy and Planning (MEP) pointed to some worrying trends in the labour market. In 2014 more than 237,000 Saudi men and women entered the labour market while only 99,000 left it, with demographics alone providing growth pressure. In the same year the MEP noted that university graduates were making up an increasingly high proportion of the unemployed, from 49% in 2013 to 51% in 2014. Although the proportion of unemployed Saudis who said they were not interested in working only represented 1% of the total, their numbers had grown by 297%, from 14,103 in 2013 to 55,985 in 2014. The MEP report said that many of these people felt the jobs offered to them in the private sector were beneath their level of educational achievement.

Employment Problems

Jadwa Investment’s analysis of the labour market in 2015 found that the total number of citizens in the labour pool grew by 49,000, the slowest rate of growth in the Saudi labour force since 1999, creating a fall in the participation rate to 40.2% as more nationals remained in education. In the private sector, 369,000 extra jobs were created, but the number of Saudis in the private sector actually fell by 43,000.

At the same time, public sector hiring was also slowing down, according to research by Jadwa. “There is a skill mismatch between private sector needs and Saudi job-seekers, which will continue to be a major obstacle in reforming the labour market,” noted the report. “Also, the segmentation between Saudis and non-Saudis in wages, work hours, and skills remain a key factor in the private sector’s tendency to hire non-Saudis.”

The same report also acknowledged that the other key part of the equation concerns the high unemployment rate of Saudi women, particularly among those who have excelled in their education. In 2015 the Saudi female unemployment rate rose to 33.8%, up from 32.8% the year before. The unemployment rate for Saudi females, aged 20 to 29, is now 61%. The report noted that reducing female unemployment by half could reduce the overall Saudi unemployment rate from 11.5% to 7.4%.

However, through a number of proposals outlined in Vision 2030, the government is planning to target increasing the level of female participation in the labour force from 22% to 30% by 2030.

Outlook

Significant improvements in the quality and range of learning opportunities have resulted in more young Saudis spending a longer time in education and leaving with higher qualifications. The macroeconomic challenge is to create a labour market that can both use their skills and meet their expectations. In light of the current fiscally restrictive environment, bringing in greater private investment will be key to developing the sector long term.

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The Report: Saudi Arabia 2016

Education & Training chapter from The Report: Saudi Arabia 2016

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