The grow­ing black mid­dle class and con­comi­tant dis­en­chant­ment with gov­ern­ment schools is driv­ing the de­mand for pri­vate ed­u­ca­tion. Curro and sev­eral other ed­u­ca­tional in­sti­tu­tions are rid­ing the wave of de­mand.

Finweek English Edition - - IN DEPTH EDUCATION - By Ciaran Ryan

there are 12.8m learn­ers in South Africa, of which less than 5% are in pri­vate schools. Re­search by JP Mor­gan reck­ons up to 9% of SA’s pop­u­la­tion can af­ford pri­vate school ed­u­ca­tion, sug­gest­ing there’s room for an­other 424 schools ca­pa­ble of ac­com­mo­dat­ing 1 500 learn­ers each. These numbers ex­clude A- and O-level stu­dents.

That’s a com­pelling growth story, which pro­pelled JSE-listed Curro to a 33% in­crease in earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (ebitda) for the year to De­cem­ber 2016. What has grabbed the at­ten­tion of in­vestors is the ebitda mar­gin of 27% for Curro’s own­de­vel­oped schools (as op­posed to ac­quired schools), up from 23% the pre­vi­ous year. The ul­ti­mate tar­get is to lift this mar­gin to 40%. Head­line earn­ings per share shot up 55% to 43.9c (2015: 28.3c).

This has been a stun­ning in­vest­ment for PSG, which ac­quired its 50% in Curro in 2009 when the mar­ket cap was around R100m. It cur­rently sits at around R19.3bn.

Curro’s num­ber of learn­ers jumped 14% in 2016 to 47 589 in 2016. The group now com­prises 115 schools and 54 cam­puses.

There are about 140 higher ed­u­ca­tion in­sti­tu­tions in SA, of which 113 are pri­vate, at­tend­ing to the ed­u­ca­tional needs of roughly 1.1m stu­dents. Nearly 1m of these are ed­u­cated in public in­sti­tu­tions and 120 000 in pri­vate col­leges.

Roughly 160 000 stu­dents en­rol each year at SA’s 26 univer­si­ties, ac­cord­ing to a 2015 re­port by the depart­ment of higher ed­u­ca­tion. If SA catches up with other de­vel­op­ing coun­tries, where close to a quar­ter of stu­dents are in pri­vate se­condary col­leges and 13.6% are in pri­vate pri­mary ed­u­ca­tion, sev­eral mil­lion more learn­ers will find their way into pri­vate ed­u­ca­tion in the com­ing years. These are fig­ures that can­not be ig­nored. Pri­vate ed­u­ca­tion is a growth sec­tor, and will re­main so for the fore­see­able fu­ture.

Fill­ing the gap

What’s driv­ing this is the growth of the black mid­dle class and a con­comi­tant dis­en­chant­ment with public sec­tor school­ing. Pri­vate col­leges of­fer greater di­ver­sity in terms of cur­ric­ula and ex­tra­mu­ral ac­tiv­i­ties, and with

Curro’s pass rate of 99%, grad­u­ates stand a bet­ter chance of en­ter­ing univer­sity.

Now Curro is plan­ning to ex­pand its ter­tiary ed­u­ca­tion busi­ness, us­ing its teacher train­ing in­sti­tu­tion, Em­bury, as its launch plat­form. Later this year, Em­bury will re­lo­cate to a new fa­cil­ity in Durban that can ac­com­mo­date 2 600 stu­dents, more than dou­bling its ex­ist­ing ca­pac­ity of 1 000. It will also add cam­puses in Midrand and Pretoria, which will be ready for full in­take in 2018. It is also con­clud­ing a trans­ac­tion with Ba-Isago Univer­sity in Botswana to of­fer higher ed­u­ca­tion in that country.

“We be­lieve that the ter­tiary-ed­u­ca­tion com­po­nent can reach more than 100 000 stu­dents over the long term,” says Curro CEO Chris van der Merwe, who ex­plains that the group plans to spin off its ter­tiary ed­u­ca­tion busi­ness. Van der Merwe will head up the new ter­tiary level ba­sis, hand­ing over the reins at Curro to cur­rent chief op­er­at­ing of­fi­cer, An­dries Greyling, though he will re­main on the Curro board and stay on as a strate­gic ad­viser.

“Crit­i­cal to Curro’s suc­cess has been its abil­ity to of­fer qual­ity ed­u­ca­tion at an af­ford­able price, and this will re­main cen­tral to our strat­egy go­ing for­ward,” says Van der Merwe. “Our fo­cus will re­main on SA, though we see at­trac­tive op­por­tu­ni­ties in Botswana and Namibia. But if you look at SA, some 50 000 post-ma­tric stu­dents are un­able to en­ter univer­si­ties in this country be­cause we do not have the ca­pac­ity. We see this as an op­por­tu­nity, and our pri­mary re­spon­si­bil­ity is to build ca­pac­ity in this country.”

In ad­di­tion to this, Curro plans to ex­pand ca­pac­ity at its ex­ist­ing base of 54 cam­puses, aug­mented by seven new col­leges and one or two ac­qui­si­tions a year.

It has been spec­u­lated that the #FeesMustFall cam­paign, which hit cam­puses across the country in De­cem­ber 2015 and con­tin­ued through­out 2016, would im­pact en­rol­ments at public univer­si­ties in fu­ture as many par­ents balk at dol­ing out R40 000 or even R80 000 a year to send chil­dren into this bat­tle­field. There is also a fear that the country will lose some of its bet­ter ed­u­ca­tors due to the dis­rup­tions on cam­puses.

Some pri­vate ed­u­ca­tors see this as an op­por­tu­nity to wrest busi­ness away from an in­creas­ingly dys­func­tional public ed­u­ca­tion sec­tor. “There is def­i­nitely an op­por­tu­nity for pri­vate ed­u­ca­tion to fill a gap in the sys­tem,” says Alan Mur­ray, joint man­ag­ing di­rec­tor of the Guar­an­tee Trust In­sti­tute of Busi­ness, which over the last decade has grad­u­ated more than 10 000 learn­ers through its skills-readi­ness pro­grammes in the ac­count­ing, bank­ing and in­sur­ance sec­tors. Over 90% of its grad­u­ates have

Pri­vate ed­u­ca­tion is a growth sec­tor, and will re­main so for the fore­see­able fu­ture.

been placed in jobs. It has now ex­panded its cur­ricu­lum to of­fer a na­tional cer­tifi­cate in bank­ing, a diploma in tech­ni­cal fi­nan­cial ac­count­ing, and cer­tifi­cates in of­fice man­age­ment and fi­nan­cial ad­vi­sory and in­ter­me­di­ary ser­vices.

“There is no doubt that the #FeesMustFall cam­paign has hurt con­fi­dence in ter­tiary in­sti­tu­tions run by the public sec­tor, but the op­por­tu­ni­ties for pri­vate col­leges is broader than that. Tra­di­tional univer­si­ties are aca­dem­i­cally fo­cused, but grad­u­ates are ill-pre­pared for the work­place be­cause they lack the prac­ti­cal ap­pli­ca­tion and softer skills that em­ploy­ers are look­ing for, such as of­fice eti­quette and busi­ness ethics. A qual­i­fi­ca­tion is not a skill, and what com­pa­nies want are skills.

Says Van der Merwe: “Re­gard­less of #FeesMustFall, there is a short­age of sup­ply in terms of places at gov­ern­ment univer­si­ties. Curro saw the gap in the mar­ket four years ago and started train­ing ed­u­ca­tors through our Em­bury sub­sidiary. Ini­tially only pri­mary school ed­u­ca­tors were trained, but the need for train­ing high-school ed­u­ca­tors grew.”

How­ever, an in­sti­tu­tion must of­fer de­gree cour­ses as well to train high-school ed­u­ca­tors, and that is why Em­bury started de­vel­op­ing ap­pro­pri­ate de­gree cour­ses for ac­cred­i­ta­tion by the Coun­cil on Higher Ed­u­ca­tion, he ex­plains.

“Some have al­ready been sub­mit­ted to the Coun­cil on Higher Ed­u­ca­tion for ac­cred­i­ta­tion, while oth­ers are still in the con­cep­tu­al­i­sa­tion or devel­op­ment phases. It can take up to 24 months to have a de­gree ac­cred­ited by the Coun­cil on Higher Ed­u­ca­tion.”

The dis­rup­tion in public sec­tor ed­u­ca­tion is likely to ben­e­fit pri­vate univer­si­ties, which tai­lor aca­demic pro­grammes to the de­mands of the work­place.

Keep­ing qual­ity ed­u­ca­tion af­ford­able is an­other chal­lenge, as high­lighted by the Cen­tre for Devel­op­ment and En­ter­prise in a re­port en­ti­tled In­vest­ing in Po­ten­tial: The Fi­nan­cial Vi­a­bil­ity of Low-Fee Pri­vate Schools in South Africa. The study found that all low-fee schools are en­gaged in an end­less bal­anc­ing act be­tween keep­ing fees low to al­low ac­cess to the poor, and pro­vid­ing qual­ity teach­ing and learn­ing for high learner achieve­ment. The de­mand for qual­ity ed­u­ca­tion at a rea­son­able price is sub­stan­tial and grow­ing.

It’s clear that the fu­ture of ed­u­ca­tion at all lev­els in SA will fall in­creas­ingly to the pri­vate sec­tor, con­form­ing with a world­wide trend that is steadily eat­ing into gov­ern­ments’ con­trol of ed­u­ca­tion.

The de­mand for qual­ity ed­u­ca­tion at a rea­son­able price is sub­stan­tial and grow­ing. The trick is to main­tain qual­ity while keep­ing fees af­ford­able.

Alan Mur­ray Joint MD of Guar­an­tee Trust In­sti­tute of Busi­ness

Chris van der Merwe CEO of Curro

Stu­dents protest in 2015 at the Par­lia­ment precinct in Cape Town af­ter they forced their way through the gates.

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