Nirvana of private schools getting costly
Fast-growing private education business Curro Holdings recently announced a plan to establish and run 500 schools in South Africa by 2030. But how many people can afford private schooling?
Curro believes there is huge potential for more independent schools to be developed in the country, if international trends are anything to go by. The global trend, according to its latest AGM presentation (and as captured in independent school numbers), indicates that independent schools are moving towards 20% of the total number of schools. In South Africa the figure is closer to 4%.
Outgoing CEO Chris van der Merwe said last week that if South Africa followed this trend, there would be potential for many more independent schools to be developed.
But filling up school buildings is not as easy as it sounds.
Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, said the private education sector's plans to expand were ambitious, but "it's not one of those things the market is going to get excited over because there are hurdles to achieving such a target".
Mthombeni said that while the presence of private education had significantly increased over the years, enrolments weren't going the way that experts would like. However, with the increasing numbers of people moving to cities, demand for education should increase.
She said reports showed that enrolments in schools were slowing down, simply because population growth was easing.
While Curro has increased enrolment numbers from just over 2000 pupils in 2009, when PSG became a partner, to over 35,000 in 2015, the company has struggled to fill its facilities to capacity. Van der Merwe confirmed that its 127 schools were operating at 52% capacity.
Curro has increased pupil numbers by a compound growth rate of 31% since 2012, with revenue and earnings increasing at a rate of 48% and 83%, respectively, over the same period.
Professor Ruksana Osman, head of the School of Education at the University of the Witwatersrand, said parents, particularly in this tough economy, needed to ask themselves if it was worth paying for a private education. It is hard to disagree that private schooling in South Africa is more attractive than public education - parents believe these schools offer a better education, an environment more conducive to learning, additional resources, and better policies and practices.
Year on year, the Independent Examinations Board matric results surpass the government's national senior certificate exams, and many IEB pupils go on to study at the country's top universities.
But these schools charge anything between R1500 and R21000 per month, excluding fees for sport or after-care, and not everyone can afford that. Azar Jammine, chief economist at Econometrix, said private schooling at well-known schools was unaffordable for most South Africans, but there were many low-fee private schools in the country - especially in the rural areas.
Jammine said the demand for good education was unwavering as education offered a way out of poverty for many, although the premium schools tended to be populated by children of high earners.
A report published by Credit Suisse in 2015 found that middle-class South Africans accounted for just 13.7% of the adult population. In September 2016, the National Income Dynamics Study showed that the middle class in South Africa is relatively small. Based on the study's definition of middle class as having a per capita expenditure range of R2920 to R10678 a month, the middle class made up only about 15% of the total population. Africans now outnumber whites by about two to one, the study found. Data from the South African Institute of Race Relations shows that the annual average income of South Africans in 2015 was R181579 per household, with the average household income for black people at R113197 compared to R631361 for white people. Just over 60% of adults fit into the higher Living Standards Measure categories (LSM 6-10).
Given the relatively small middle class, credit rating downgrades, low confidence, and sub-zero growth, the economic outlook is not good. Still, many families will make a plan to send their children to private schools.
"The economy would have to deteriorate a lot further before the demand for premium education dropped," Jammine said. "Middle- class parents are, however, cutting back on other expenses to be able to afford to send their kids to these schools."
But even so, schools offering quality education are likely to feel the pinch. Mthombeni said the ability for private institutions to grow under the current economic conditions was possible, but private education groups would have to focus primarily on niche segments of the market.
"The target has to be synonymous with 'affordable'," she said. "But they can't afford to go too low if they want to make profit."
In South Africa, private schools are self-funded and don't get a government subsidy.
For Curro to achieve its target of 500 schools by 2030, it is going to need more than just annual rights offers. It has had six rights offers in six years, and it still does not pay dividends to shareholders, in the name of "reinvesting". In the short term, the group plans to open Curro Castles (pre-primary schools) in Oakdene, Johannesburg, and Uitzicht, Cape Town, next year. The group will also open Curro Academy campuses in Sunningdale in the Western Capeand in Riverside and Mamelodi in Gauteng. Incoming Curro CEO Andries Greyling said the group would concentrate its expansion efforts in the Western Cape, Gauteng and KwaZulu-Natal, and would consider expanding into other regions via acquisitions.