A rapidly emerging middle class is becoming prominent in Africa. Due to this shift in social demographic, schools in countries such as Nigeria are preparing themselves for a new influx of students willing to pay their way towards attaining a quality education.
Curro Serengeti Academy in Johannesburg opened just over a year ago, and is already targeting 2,000 pupils in the next decade from around 900 now, building a huge auditorium and classroom extensions.
A growing demand for private schools like Curro Serengeti from a burgeoning African middle class is creating the conditions ideal for private equity deals in the continent’s education sector. Firms specializing in private equity can expect handsome returns of anywhere between 25 to 30 percent, if they manage to take up a long-term investment of up to 12 years and adjust to possible shifts in legislation unscathed.
Development Partners International is one company with their eye on the continent. It is currently working on two opportunities in the sector, partner Eduardo Gutierrez said. Additionally, emerging markets firm Actis, which has made investments in Chinese and Brazilian education companies, is also considering investment in the continent.
“Education is a really important sector for us globally,” said Simon Harford, its co-head for Africa. “Education in Africa needs to be funded and developed and advanced and we would love to play a part in that.”
When asked, a senior private equity executive stated, ”There are a lot of rich people in Nigeria, in Dar es Salaam, Nairobi, Accra, who would like their children to get a great education.”
For those who are earning upwards of $5,000 per year, education is a high ranking obligation. Therefore, many private equity firms are catching on to this gap in the market and are coming forward to offer their expertise. “If we had the right partner we could put up 20 great private schools in African capitals in three years,” the executive continued.
Yet, investing in African educational endeavors can justifiably be viewed as a risky pursuit. Firstly, Africa is a continent where legislation has been known to change overnight. Political instability is rife and thus investment of any sort is never a fail-safe decision. ”Regulations in Africa can sometimes be relaxed, but there is still the exposure to possible sudden changes in legislation,” said Karan Khemka of consulting firm Parthenon Group, who has seen some emerging market countries ban fee increases overnight.
“We’ve seen very tight regimes become very relaxed. We’ve seen very relaxed regimes go to ultra tight,” he said.
Although these notions must be taken into consideration, private equity firms are maintaining their pursuits due to their belief that Africa needs to invest in education if it is tackle it’s unemployment problem.
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