BlueOrchard Brief: African education sector offers opportunities for impact investors

10/02/2022 Blog

Market commentary

Zurich, 10 February 2022 – The education sector in Africa offers interesting opportunities for investments with an impact focus. Read below a commentary by BlueOrchard’s Regional Director for Africa and Latin America, Yann Groeger, on how these have increased in light of the Covid-19 pandemic.

The pandemic was a wake-up call for many schools in Africa to invest in information and communication technologies. This included IT professionals, new websites with rich learning content, and teacher training and development to enable home schooling, among other things. Additional capital is now required to reopen these facilities, which were closed due to the Covid-19 pandemic. However, many schools lack the funding needed to do this.

According to a 2020 study by the NGO “Opportunity EduFinance” nearly 98 percent of schools in Africa experienced income declines in light of the pandemic. Over 2020, these averaged 80 percent* and the main reason for this is lower fee income. This is because, on the one hand, many institutions were closed, and on the other hand, household incomes have declined.

Government spending in the education sector has increased in recent years, but higher spending has not kept pace with population growth and increasing school enrolment. As a result, many educational institutions are looking for funding options. This presents an opportunity for investors to provide support and generate returns. That the education sector is supposed to be risky from an investor’s point of view is a big misconception. The example of many microfinance institutions in Africa shows that loans to schools are very well served on average – provided those take a suitable approach to lending and risk analysis.

Moreover, many operators of schools in Africa are entrepreneurial. They started as teachers and then later opened a school – with the vision of providing opportunities for the next generation. In that sense, they are social entrepreneurs, pursuing both return on investment and educational goals. That’s a perfect fit with impact investment strategies.

The social impact that can be achieved by investing in African schools is far-reaching. In 2018, for example, about half of the children who lacked a basic education lived in Africa** and this has obviously worsened with the pandemic. But schools are not only important in Africa in the context of education. They are often safe havens that provide shelter, meals, and medical and emotional support for children.

* Source: Impacts of COVID-19 on the Affordable Non-State School Sector | Opportunity International Edufinance. Median revenue loss.

** Source: UNESCO Institute for Statistics database, UIS Fact Sheet no. 56, September 2019.

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