Foreign investors keen on education

Some students will have to study online for some time yet. Photo: Chau Ky

Underpinned by favourable demographics, Vietnam remains one of the most exciting markets within Southeast Asia, according to Enrico Cesenni, CEO of Myanmar Strategic Holdings Ltd. (MSH), a holding company listed on the London Stock Exchange.

Cesenni believes demand for high-quality blended flexible education will be constantly increasing. “Thanks to the scalable capabilities built in Myanmar, MSH was able to expand to Vietnam and buy the Wall Street English (WSE) business. As of today, more than 50 per cent of MSH’s revenues derive from Vietnam and more than 70 per cent from its education sector,” he said.

MSH revenues for the six-month financial period ending March 31 increased 175 per cent year-on-year to $7.6 million. The rise is partly attributable to the consolidation of WSE Vietnam since the completion of its acquisition in July last year. The diversification of MSH’s operations between Myanmar and Vietnam mitigates the overall COVID-19 and single-country exposure of the group.

In June, global investment firm KKR also put funds into EQuest Education Group. This is the second such move from KKR in Vietnam during the global health crisis following investment into Vinhomes last year.

Ashish Shastry, co-head of Asia Private Equity and head of Southeast Asia at KKR said, “Investing in Vietnam is a key part of KKR’s strategy in Asia. As Vietnam continues to elevate on the world’s economic stage, access to affordable, high-quality education plays an important role in meeting the nation’s objectives.”

In May, Kaizen Private Equity II Pte., Ltd. and Spring Through Pte., Ltd. also poured another $1.32 million into Yola English Center. Since the pandemic, Yola has successfully converted over 90 per cent of its students to online classes.

The latest report from L.E.K. Consulting reveals that Vietnam’s economic growth has led to strong growth in private education, with the market growing at a compound annual growth rate of 11 per cent during 2016-2020. The bilingual segment in Ho Chi Minh City and Hanoi alone has grown at 17 per cent per year in the 2016-2020 period. As disposable income levels rise and the demand for English speaking curriculum surges, a higher proportion of the three million K-12 students in the two cities gravitate towards the bilingual school segment.

Challenging regulations and time-consuming licensing procedures nevertheless present problems for overseas investors looking at Vietnam’s education market.

In terms of licensing procedures, Vietnamese laws set out a wide range of regulatory requirements which may be difficult to satisfy. The authorities require certain licences and permits to be obtained such as an investment registration certificate, approval for establishment, and a licence to provide education.

Que Vu, partner at law firm Rajah & Tann LCT, told VIR that these requirements may pose a practical challenge to investors if they are not familiar with Vietnamese regulations. Now during the pandemic, the timeline to obtain all necessary licences is difficult in terms of charting an exact timeline.

“This is a practical issue since local authorities are reluctant to receive applications right now due to the escalating pandemic and lockdowns in several cities and provinces,” she said. “In our experience, we have encountered a circumstance in which the authorities instructed us to wait to submit application dossiers since they were in the process of lockdown and the digital infrastructure is still quite inadequate.”

In addition, there are still certain restrictions for education services provided on a cross-border basis. Vu noted that Vietnam has not committed to open its market on this and, currently, providing education by using edtech platforms on a cross-border basis is not specifically allowed. This may also hinder investment in educational platforms in Vietnam, and foreign investors are advised to monitor upcoming legislative updates.

Further, regulations setting out facility requirements such as infrastructure or land for educational institutions are a crucial obstacle for investors. For example, the land area for the construction of a foreign-invested university must be at least 25 square metre per student at the time of having the highest training scale in the school development plan.

In practice, investors often have difficulties finding and obtaining a land use right certificate for a proper land lot that fits with the local master plan as well as the needs of the investors. Given the high population density and limited land funds of big cities, finding an appropriate location for an educational establishment may not be an easy task for foreign investors, according to Vu.