Low- to mid-fee private schooling

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Low- to mid-fee private schooling

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Country

South Africa

Sector

Education

Sub Sector

Formal Education

Indicative Return

20% - 25% (in IRR)

Investment Timeframe

Short Term (0–5 years)

Market Size

538,000 students are enrolled in private schools.

Average Ticket Size (USD)

USD 1 million - USD 10 million

Direct Impact

Indirect Impact

Business Model Description

Establish or acquire independent, low- to mid-fee private school chains in the primary and secondary education phases.

Expected Impact

Enable access to more affordable private school options and help address education access and quality needs.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Disclaimer

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Country

South Africa

Region

South Africa: Eastern Cape
South Africa: Northern Cape
South Africa: Free State
South Africa: North West
South Africa: Mpumalanga

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Sector

Education

Development need
South Africa has one of the most unequal school systems in the world. More than three-quarters of children aged 9 cannot read. For each 100 learners starting school, 50-60 will reach Grade 12, 40-50 will pass Grade 12 and only 14 go to University.(1)

Policy priority
The Early Childhood Development (ECD) sector suffers from uneven resource provision - reducing the potential for ECD to enhance returns from later phases of schooling, especially for children from lower socio-economic backgrounds.(2) More adults are attaining upper secondary education yet are less likely to be employed than those with a tertiary degree.(4)

Gender inequalities and marginalization issues
South Africa has made good progress in eliminating gender inequalities relating to access to education, with the ratio of girls enrolled at secondary and tertiary level being greater than that of boys.(18)

Investment opportunities introduction
The education sector's low productivity is contributing to a skills deficit and constraining growth across the national economy.(5) It is a significant factor frustrating the country's commitment to addressing Apartheid's legacy of economic inequality.

Key bottlenecks introduction
Challenges including poor infrastructure and supply of qualified teachers are hampering quality within the basic education system.(1)

Sub Sector

Formal Education

Development need
Despite low access to tertiary qualifications, South Africa spends a larger share of its wealth on public funding of primary, secondary and non-tertiary post-secondary education than most OECD and partner countries.(4) Further, the ECD sector suffers from uneven resource provision - reducing the potential for ECD to enhance returns from later phases of schooling.(3)

Policy priority
Early Childhood Development (ECD) and upper secondary education - Despite the importance of the sector, ECD attracts only 1-2% of the total budget for public education.(3) The majority of the South African population has an upper secondary or non-tertiary post-secondary qualification (where most spending is allocated).

Gender inequalities and marginalization issues
Female participation in tertiary education has increased sharply, mainly in soft skills areas and not in STEM (science, technology, engineering and mathematics) fields. Few women in South Africa are researchers .(18)

Key bottlenecks introduction
Basic education is hampered by challenges including poor infrastructure and an undersupply of qualified teachers.(1)

Investment Opportunity Area

Low- to mid-fee private schooling

Business Model

Establish or acquire independent, low- to mid-fee private school chains in the primary and secondary education phases.

Market Size and Environment

Critical IOA Unit

538,000 students are enrolled in private schools.

Private schools accounted for 4.25% of the learner enrolment base (538,000 students) in 2014, growing marginally to 4.85% of enrolments (632,000 students) in 2019.

SPARK schools, a for-profit, affordable schools chain, charges fees ranging from R25,000 - 35,000 per year.(14)

Indicative Return

IRR

20% - 25%

Profit margins of 30% to 40% are achievable with higher monthly fees above R3,000.(14)(17) For medium-fee schools (below R3,000/month), returns of up to 30% are common.(17)

Low-fee private schooling will likely result in 'survivalist' returns.(17)

A for-profit chain of 10 schools charging fees of R11,700 (2015 estimate) per year, with over 600 learners in each school and centralised administration, would be viable and able to cover the finance costs of a R30 million loan at 5% interest over 20 years.(9)

Investment Timeframe

Timeframe

Short Term (0–5 years)

Small-sized schools can be up and running and self-sustainable in a relatively short time - under two years.(14)

Establishing larger institutions requires sufficient lead times to set-up facilities and operations, and attract sufficient students to sustain their operations. Larger school investments will require a longer term perspective to allow schools to grow to cost-effective size.(9)

Ticket Size

Average Ticket Size (USD)

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Capital - Requires Subsidy

Teacher compensation is a high share of school operating budgets and many low-fee schools struggle to provide salaries comparable to public sector schools, especially because the latter feature strong teachers unions. Teacher retention and hence quality can thus prove challenges.(9)

Capital - Limited Investor Interest

Access to affordable finance and premises can be a constraint (9), although there is increasing availability of specialised finance offerings.

Two-thirds of the country’s children live in the poorest 40% of households.(15) Continued school expansion to meet their needs may reach a lower bound affordability threshold that still excludes a significant portion of households.

Market - Highly Regulated

Navigating regulatory requirements to complete registration can be complex, making ongoing compliance difficult, and sanctions for non-compliance potentially severe.(2)

Sustainable Development Need

Expanding the independent schooling sector, especially for low-fee schools, can provide child guardians with more affordable private school options and help address access and quality needs.

Basic education is hampered by challenges including poor infrastructure and an undersupply of qualified teachers. More than three-quarters of children attending Grade 4 cannot read for meaning, deepening their relative learning disadvantage as they proceed to higher grades.(8)

Grade 12 pass rates for private schools demonstrate inequities in quality: the national Grade 12 pass rate was 81.3% for all South African schools, yet the pass rate for South African independent schools was 98.82%.(4)

Gender & Marginalisation

Boys were identified as an at-risk group, with 84% of boys not reaching the lowest benchmark.(8)

Expected Development Outcome

Quality, affordable primary and secondary schools; demographic profile comparable to the national distribution of school-aged children reflected in private school enrolments; comparable learning outcomes for children drawn from the higher and lower income quintiles

Gender & Marginalisation

Increasing access to low-fee private schooling can close the gap of women's participation in STEM (science, technology, engineering and mathematics) programs and degrees.(18)

Primary SDGs addressed

4 - Quality Education

4.6.1 Proportion of population in a given age group achieving at least a fixed level of proficiency in functional (a) literacy and (b) numeracy skills, by sex

4.a.1 Proportion of schools offering basic services, by type of service

Current Value

(a) Literacy 15–34 year olds - males: 93.8% (2017), females: 96.8% (2017). (b) Numeracy 15–34-year-olds - males: 92% (2017), females: 91.1% (2017).(20)

Target Value

Improving literacy by supporting the use of African languages as a medium for learning and teaching is a priority of the Department of Basic Education (DBE). It has been implementing Early Grade Reading Study (EGRS) at the provincial level since 2015, in collaboration with academic researchers.(18)

Secondary SDGs addressed

5 - Gender Equality

10 - Reduced Inequalities

Directly impacted stakeholders

Corporates

School operators and entrepreneurs supported with investment

Indirectly impacted stakeholders

People

Students with newfound access to affordable private schooling

Outcome Risks

Funding support for independent private schools can undermine addressing quality and infrastructure gaps in publicly owned institutions.(16)

Impact Risks

Stakeholder participation risk due to increased inequality for the most marginalized segments: the private school sector's cost-based exclusions of poorer South Africans can deepen social inequalities.(16)

Impact Classification

B—Benefit Stakeholders

What

Provide affordable, quality alternatives to publicly funded education

Who

Children from the bottom 50% of households by household wealth

Risk

Small to mid scale risk considering potential trade-offs between commercial potential, quality and affordability

Impact Thesis

Enable access to more affordable private school options and help address education access and quality needs.

Policy Environment

Government recognizes independent schools sector as 'small but important' allies in promoting development within South Africa's education sector.(12)

Private, for-profit education enterprises have limited access to government as a buyer of services, impairing their ability to expand access to quality private offerings.

Financial Environment

Financial incentives: For-profit independent schools are ineligible for government subsidies. However registered, non-profit, independent school operators can access government subsidies, up to 60% of the equivalent cost in public schools.(8)

Regulatory Environment

South African Council for Educators (SACE): Schools must comply with guidelines set by provincial education departments and be registered with SACE.

Umalusi: Schools must receive accreditation from Umalusi, the accrediting body.

Private Sector

Curro, ADvTECH, PLG Schools, SPARK Schools, Sifiso Learning Group Ltd

Government

National and provincial Departments of Basic Education, Independent Schools Coalition of South Africa, South African Council for Educators (SACE)

Non-Profit

LEAP Science and Maths Schools