I met Danish Faruqui, Partner, Global Education Practice, L.E.K at the International CEO’s Summit in Brussels where he presented a TED talk on the trends and opportunities in the African private education sector based on the Africa Ascendant: Mega Trends and Themes in Private Education Investment report produced by L.E.K Consulting.
Africa, he argued has a range of fundamental drivers in place that will fuel the growth of a variety of consumer-oriented businesses, including education. The continent, he said, is a fundamentally attractive region for the education sector. There are healthy demand drivers for the education sector with every segment offering a different set of opportunities. Successful investors and operators will need to carefully craft their strategy in terms of target segments, geographic presence, and value creation levers.
The Africa Ascendant-Mega Trends and Themes in Private Education Investment report examines the advantages, landscape and regional investment attributes, trends, and opportunities that are unique to the African continent; which puts it in a perfect position for private education investment in the world today. Over the next three weeks, we will be examining a three-part series on their findings.
L.E.K. Consulting, a is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. Founded in 1983, L.E.K. advises and supports global companies that are leaders in their industries — including the largest private- and public-sector organizations, private equity firms, and emerging entrepreneurial businesses.
Here are some of the key trends from the Africa Ascendant: Mega Trends and Themes in Private Education Investment report that highlight Africa’s current global position in private education investment.
These trends in turn are fueling consumerism and giving rise to unprecedented opportunities for consumer-oriented businesses across the continent. This large pool of new consumer spending has attracted the attention of investors and operators across categories. Highlighted below are some examples:
Africa’s demographic and economic dividend is giving rise to a significant opportunity for the education sector. Education is “the ultimate consumer good,” typically a first site of investment for families increasing in affluence and a segment resistant to economic shocks.
Alongside robust demand, education businesses are also typically attractive from a business model perspective, given that they demonstrate a number of favorable characteristics. See them written below:
Education industry characteristics allow fees to grow at a higher rate than most other consumer service industries. With tuition fee growth exceeding inflation levels and remaining in line with parent incomes, providers consistently witness stable, high margins.
Expenditure on education has grown despite economic downturns and was resilient even during the global financial crisis. This highlights a highly secure investment opportunity.
Overall education quality is a strong influencer of decision making, taking precedence over pricing. Consumers (parents and students) are typically willing to spend more for higher perceived quality.
A number of factors such as a long student lifetime value, predictable pricing growth, and resilience to macroeconomic fluctuations result in long-term revenue visibility characteristics that are unique to the education industry.
The education sector often has high barriers to entry such as complex and time consuming accreditation processes, the need for credibility and reputation building, and capital expenditure requirements. These all serve to limit competition.
Fees are often collected in advance of delivering education services, resulting in attractive cash-flow for providers.
The sector sees attractive margins due to cost structure and overall market demand. As education institutions are mainly fixed cost businesses, higher utilization levels drive margin growth.
Living and working across the African continent for the past five years, I have witnessed firsthand the value of education for African from all socio-economic backgrounds. There is also huge capital flight out of the continent with parents spending vast amounts of their money to education their children from school to university and beyond. There is an urgent need to build first class education institutions and infrastructure to enable African’s to spend this capital on the continent.
Next week, we are going to examine Africa’s distinct investment landscape and the characteristics that make it ripe for private education investment.