Author: Mpho Dube: Principal, Absa CIB, Consumer Goods and Services Sector and Lesley Bradley Corporate Director, Absa CIB.
Astute investors and entrepreneurs are casting their eyes toward the private education market in Africa as they seek to not only unlock investment opportunities but participate in a sector which can materially address inequality on the continent.
The Private Education sector has been identified as a key focus area for us as a bank and it is one of the areas where we have invested resources in developing skills and capabilities.
If we consider for a moment that the total population of the African continent is 1.46bn people and across the public sector education channels, there are around 158 million people enrolled in public education there is a natural “demographic dividend” which suggests a large potential customer base – something which is attractive to both entrepreneurs and investors.
Another key element is that education has evolved beyond school infrastructure and it has become an entire ecosystem which will be home to billions of dollars of investment in the coming years.
This can be captured perfectly in the Botswana public education ecosystem. Enrolment at a Pre-Primary school level is 24000 students annually and this jumps to 314 000 at a Primary school level and 175 000 in the Secondary education level before falling sharply to 60 000 at a Tertiary level. It is clear that there are opportunities to capacitate the education system from foundation level through to Tertiary.
The COVID-19 lockdowns accelerated the rate of adoption of technology at all groups as online and blended learning models came to the fore. World-class institutions from universities to business schools have been able to democratise access to their content and organisations like Coursera have become multi-billion dollar businesses. On one hand, this lowers the barriers to access to high-quality education – something which should be a huge boost for the continent. On the other hand it puts pressure on the existing education systems to ensure that they deliver content that is relevant and develops fit-for-purpose workforces of the future.
Research out of IMARC suggests that the EdTech market for Africa will grow from $2.8bn to $5.2bn by 2028.
How does a bank play a transformative role in the financial trajectory of an education business?
This is an important question as the role of a bank goes far beyond simply extending capital to a school or EdTech entrepreneur. It has also informed our decision to invest in capacity for our education cluster within the bank.
Historical data shows that the average school takes about.7 years to reach 80% capacity – this is not a short-term investment with short-term cashflows to present to a credit committee. Many of these schools do not have the balance sheets to buy their own properties which means that they are tied into long-term leases and many of these schools were punished under COVID lockdowns as their cashflow models were not sufficiently robust.
A number of the innovative low-fee or no-fee paying models are now recipients of donor, grant or Development Finance Institutions (DFI’s) and we are seeing increased appetite from sophisticated managers who are prepared to invest in education businesses for predictable long-term cash-flows or property assets.
Once the school has hit operational capacity, this comes with its own unique set of challenges. Many of these schools are run by educators who have limited experience in running businesses and getting students on seats is only part of the challenge – do you have credit vetting and collection models to ensure that you are recruiting the right students and that these students are paying on time? Once you have collected the cash, are you able to reconcile it against the correct students?
Have you given consideration to insurance and compliance requirements in your specific jurisdiction?
Absa is trusted by some of the largest and fast-growing education institutions on the continent because we have invested in understanding the sector and being a partner of choice on many of the above. Our mandate goes far beyond taking an education entrepreneur to a credit committee.
Innovation in the private education sector will be critical for skills development and economic activity on the African continent. As a leading Pan-African banking group, we have recognised the transformative effect of investment in the sector and we are looking forward to playing our part in helping entrepreneurs deliver returns for their stakeholders while exposing the continent to innovative new skills.