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African middle class still attracting private education companies – despite slower growth

Africa’s middle class continues to attract interest from private education companies, even as the continent experiences slower growth.

Among these is South Africa’s ADvTECH. The Johannesburg Stock Exchange-listed company runs close to 90 private primary and tertiary education facilities in South Africa (including Varsity College, Crawford Schools, Vega and Abbotts College) and now has its sights set on other African markets.

In 2014 it expanded to Botswana with the acquisition of Gaborone International School, and last year the International Finance Corporation (IFC) acquired a 2.5% equity stake in ADvTECH for R190m (about US$13m at the time) – which the company said would fund its growth in rest of the continent. This year it acquired a majority stake in University of Africa, a private distance-learning institution based in Zambia.

Jaco Lotz, who heads international business development at ADvTECH, said public schools in African markets are under pressure from limited funds and resources, and there is a growing demand for quality private education alternatives.

“In Africa you have seen substantial growth over the last 10 to 15 years – and the middle class is really building up as a big component… And those kids in the middle class do not have access to sufficient options.”

While there are disagreements as to how big Africa’s middle class actually is – and even how to define it – research shows that disposable incomes are growing (albeit off a low base). And although economic growth on the continent might have slowed in recent years, placing pressure on middle-income households, Lotz said that quality education is typically seen as a priority expenditure for parents – even during tough times.

“It is very difficult to estimate how this is going to play out because parents will do anything to get their kids into a school. We often see that it is a priority. But if you compare what South Africans spend on education, versus countries like Kenya, then [South Africans] are still somewhere between 10-15% of their salary – where in other countries in Africa, it’s up to 40-50%,” he noted.

“It is difficult to think how the budget is going to change in families – and that we do not know. But if it becomes that critical then people are going to make bigger sacrifices.”

Lotz said the company is looking at opportunities in English-speaking countries, particularly Namibia, Botswana, Tanzania, Zambia, Kenya, Uganda and Ghana.

Other industry players have also been slowly expanding into African markets where there is a generally untapped potential for private education institutions. South Africa’s Curro Holdings acquired a 50% stake in BA Isago University in Botswana in November last year, while Educor is seeking a continent-wide footprint.

Entrepreneurs have also spotted the opportunity. Nigerian businessman Princewill Omorogiuwa has pan-African ambitions with his Simon Page College of Marketing (now in Ghana, Kenya and Nigeria). And Fred Swaniker, the founder of the African Leadership Network (ALN), told How we made it in Africa in 2015 that he plans to launch 25 world-class, African-focused universities in the next 25 to 30 years with an innovative fee payment model.

“What we ask is that everyone pays at least what they can afford. So we will assess the financial circumstances of students who apply, and if they come from a middle class family, then they will pay the full fee. If they come from a disadvantaged background then we will give them some form of a scholarship,” Swaniker said.

“But we expect everyone to pay at least something so that it is sustainable and we can really provide education to hundreds of thousands of people across Africa.”

 

This article first appeared on How we Made it in Africa

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