Home Education Who Should Fund Basic Education in Nigeria

Who Should Fund Basic Education in Nigeria

Sometime in 2019, I actively volunteered for the Slum2School foundation.

As a volunteer in the literacy development team, part of my role was organising a weekend book club for the kids at Makoko—kids who already attended primary school in the community.

It wasn’t much; we got the kids together on a Saturday to read fun stories and rewarded them with refreshments. What was meant to be a relaxing and fun activity was a hectic                                                 English language class because the kids couldn’t read. There’s a difference between stringing words in a sentence together and reading to understand.

Some Takeaways

●      Funding is key to solving the problem of access and quality that currently plagues the low-cost k-12 education space.

●      While there is a massive opportunity for investment in the low-cost k-12 space, with over 300 million students requiring education over the next 30 years, the kind of capital necessary for funding schools here is patient capital.

●      Impact investment, which acts as a hybrid of commercial investment and aid, is ideal to fund low-cost k-12 schools. Several models are already being implemented worldwide that we can adopt in Nigeria.

These primary school kids could barely pronounce the words, didn’t understand most of the words they pronounced, and didn’t understand them well enough to have conversations about them.

Yet they progress from one class to another, and end up in Universities. This is why I advocate for more resources and attention committed to the foundational parts of the education value chain.

Foundational skills like literacy and numeracy are the requisite skills upon which people build more complex skills required in their lives. In a conversation with Stears Business, Dr. Ifueko Thomas, an educational consultant and former Director of Corona Teachers’ College, echoed this, saying, “We’ll continue to have the issues we have in  secondary schools and universities if we don’t pay attention to early years education.”

If Chinedu does not understand the sentence, “Hannah could not feed her dog,” he’ll struggle to write an application letter and have valuable conversations at school, work, and anywhere else. If you’re reading this, you probably don’t struggle with reading and comprehension like Chinedu and his friends from Makoko, but you’re a select few—many Nigerians struggle with basic literary skills.

Nigerians are not alone here. A research study reviewed different household surveys and found that after five years of schooling, less than 50% of the students in five out of eight sub-Saharan African countries were able to read. In Nigeria, 58% of children who go to school neither learn how to read nor solve maths problems.

The low quality of education stems from poor funding. When the funding is inadequate and inconsistent, it will fail to generate the desired outcome. And that’s the theme of funding education in Africa: inadequate and inconsistent.

In a previous article, I called for more investment in k-12 education in Nigeria because the current system leaves most of the weight of funding on the federal government. Although we haven’t scrutinised how the money allocated is spent, centralising the financing of primary education on one arm of the government (due to the inadequacies of others) is very dangerous.

Therefore, foundational education needs more funding: private funding.

Public returns

Education isn’t your typical investment, especially at the basic (primary to secondary) level. Education is a merit good, a commodity that should be provided based on its perceived benefit to individuals or society, not just on people’s willingness to pay for it. After the United Nations declaration of rights, all 192 member countries agreed that everyone has the right to basic education. So, governments are at least partly responsible for providing basic education.

When the government fails to provide this at the requisite quality, the private sector picks up the slack.

But even within the private education system, there is significant inequality, with low pay primary schools having dilapidated infrastructure and poor quality of teachers compared to other schools. These are neighbourhood schools that are not registered and operate without the knowledge of the government. In Lagos, 74% of primary schools fall under this category.

It is no surprise that many of the teachers in these schools are unqualified to teach—these are the teachers who tutor children like Chinedu in Makoko.

Therefore, greater investment is needed in basic education. Thankfully, the returns can be relatively high, as we will less later on. These returns are often two-fold: financial and socio-economic.  

Financial returns are the benefits enjoyed by the investors and the individual who goes through the education process. On the one hand, the investor takes home more earnings, and on the other, the student stands a chance to earn more (economic mobility). The socio-economic benefits comprise the growth the country gains from having a more productive population and the social returns, which are the benefits a society enjoys from having an educated population like less crime, more productivity, a healthier population, and so on (these are known as the positive externalities of education).

The financial returns might be challenging to estimate because that depends mainly on the investment structure and the investor’s goal. Thankfully, a report by Caerus capital, Oxford Analytica, and Parthenon-EY gives a robust picture of the business of education in Africa.

In Sub-Saharan Africa, the most significant investment opportunity is in low-cost k-12 education, based on potential impact and size of financial returns. The K-12 education system has the largest enrolment rate in Nigeria; the public k-12 education system serves about 28 million students in Nigeria, compared to 8.7 million in the private sector.

So, it’s no surprise that the investment opportunity in low-cost K-12 is around $2.5 billion.

Drilling further, the most promising education investment opportunities in Africa are within the mid-priced/premium k-12 education segments, which have the potential to generate margins as high as 30%, estimated as the difference between the cost of provision and the revenue generated. The returns are undoubtedly high.

Also, about one billion students will require education (at all levels) in Sub-Saharan Africa (SSA) within the next three decades. Putting this in context, that is equivalent to 13% of the global population or five Nigerias.

The long-term demand is huge.

The value of investment education in Brazil, China, India, and SSA has grown 50x from 2001 to 2015, although SSA only contributed less than 10% to the mix. Out of the one billion students who would require education, low-cost k-12 education has a market size of approximately 135 million students; Nigeria alone makes up 30% of that market.

So, there’s a massive market for investment in education at every point of learning. And the low-cost k-12 education level, which is our focus for this article, and the segment which serves kids like Chinedu in Makoko, makes up a significant chunk of the education market.

Given the rate and diversity of returns on k-12 investment, the next step is to identify the kind of capital this education segment requires and then find the best investor to meet that need.

Many companies have begun to reap the benefits of k-12 investments. For instance, the International Finance Corporation (IFC), the private sector investment arm of the World Bank, invested in Corona schools in Lagos and Funtaj Schools in Abuja.

There are two critical issues k-12 education faces in Nigeria: access and quality. Many children, particularly in rural areas, have minimal school spaces in Nigeria, and it is estimated that about 36% more students are out of school in rural areas than in urban areas (nearly half of the Nigerian population live in rural areas). Likewise, 98% of the children in the wealthiest quintile are bound to finish primary school compared to 20% of the poorest.

When the schools are available in rural areas, they are dilapidated, preventing students from learning adequately.

Quality is another issue that has been emphasised throughout this article. Going to school is not enough; without quality education, access to school is almost useless. Again, this is a problem for Nigeria. A survey of 8-9-year-olds in Sokoto revealed that many could not read a single word primarily because their schools aren’t good and they don’t have the right teachers.

This explains why funding in k-12 education is spent on two things: infrastructure and operations. The infrastructure spending cuts across everything from building the actual schools to maintaining them. Meanwhile, operational expenses here are everything from teachers’ salaries to training and more. Spending on these two areas is supposed to guarantee a minimum standard across schools.

By building more schools, we solve the problem of access. Meanwhile, maintaining the infrastructure and spending on operations improves the quality.

Operational funding typically makes up a large chunk of public primary schools’ budgets across Africa. Across Africa, salaries account for as high as 96% of primary school spending, which might explain why many schools have such terrible infrastructure.

To fund these two areas (infrastructure and operations), we need patient capital, a consistent and stable investment that can be sustained for a couple of years without expecting immediate returns. Although schools are capable of churning out significant returns, it might take some time for such returns to be realised.

Finding the money

Looking at the combination of the kind of financing that education requires and the type of returns it can give its investors, we can then decide what kind of investment is best suited for k-12 education in Nigeria. The ideal financing mechanism for k-12 education would be patient capital seeking a mix of socio-economic and financial returns.

Such financing can come from government funding, aid, commercial investment, or impact investment.

Let’s start with government funding. As we’ve argued before, government funding alone is an insufficient and unsustainable way to fund education, especially in Nigeria. Although basic education is the responsibility of all tiers of government, they all, directly and indirectly, depend on revenue from the federal government. Where that is lacking, education suffers.

Then we have aid.

Aid is philanthropic funding from multilateral organisations like the World Bank, the IMF, and so on. Otherwise known as Official Development Assistance (ODA), aid is one of the primary ways countries fund their basic education.

In Nigeria, aid is a crucial source of education financing, with an average of $55 million annual aid going to primary education in Nigeria between 2010-2013. Despite an almost equal split in education funding through aid, analysis shows that aid is more impactful on education when the money is spent on infrastructure and teacher training.

Therefore, aid has helped improve education outcomes in Africa, especially the enrollment rate.

However, research shows that it has not improved the quality of education. Aid also causes an unhealthy dependency on donors, which is terrible because it is largely unsustainable. For instance, the Africa Development Bank recorded that the share of aid in government education budgets in countries like Burkina Faso, Mali, and Zambia was higher than 25%, which leaves such countries vulnerable if the donors decide to pull their funding.

This dependence on aid is not something Nigeria is immune to; we’ve written about how it had hampered the growth and independence of the health sector by preventing Nigeria from weaning off the aid when the time was right.

Furthermore, aid does not always achieve allocative efficiency. For instance, the poorest countries receive less aid than more prosperous countries, even though the former need it more.

For low-cost k-12, aid would not be a dependable source of funding because household funding would be unable to make up for the shortfall when the donors withdraw their funds.

After aid and government spending, the third funding option is commercial investment.

The commercial investment comprises Private Equity (PE) and Venture Capital (VC) investments, which focus more on financial returns than impact, making it difficult to invest in low-cost k-12 education. Their desire for significant returns on investment informs why they invest in high-growth areas like education technology and mid-priced/premium k-12 education that generate about 30% returns on investments worth as much as $30 million.

In Nigeria, mid-priced/premium k-12 schools generated a tuition revenue of as much as $72 million from 2015-2016, with an annual growth rate of about 10%—appealing to commercial investors. Low-cost k-12 education cannot generate such revenue for investors because most students in this category are poor. Therefore, the investors would have to target a large number of students before they can reap the returns for their investment.

For instance, Bridge Academies, which targets low-income students in Edo state, is not expected to break even until it enrolls at least 500,000 students. This might deter commercial investors, especially if they are mainly focused on profitability.

The right investment for impact

The final investment option for low-cost k-12 schools is impact investment.

Impact investment is a perfect intersection between investing for financial returns and investing for impact or humanitarian needs. It’s a form of patient capital (investment horizon is usually 5-10 years) where the investors are concerned with the financial gain they obtain from their investment and the social impact on the economy.

The good thing about impact investment is that unlike commercial investments like PE and VC, financial gain is not the only motivation for investment, which may exclude the classes of consumers who cannot give the company that financial gain they seek. However, it is a step further away from aid as it is more concerned with sustainability. The investors don’t see it as a charity, and their desire for financial gain motivates them to see the investment through.

Impact investment at the low k-12 level can take different forms, although the focus is low-income families. On the one hand, schools can be set up to receive stipends from the students for many services. An example is Omega schools in Ghana, where students must pay a daily fee of 0.65 Ghanian Cedis (approximately ₦40) for tuition, lunch, workbooks, and more.

Another model could be where the organisation partners with the government to provide learning to its students. This is usually adopted where the government funds most of the basic education and funding efficiency—that is, the act of putting the money to the best use, is lacking.

Bridge academies adopt this model such that it receives funding from donors and the government to provide education to the students of low-cost k-12 schools at little to no cost to students. They also offer other services like teacher training and technology for managing the schools owned by the government, for which the government pays. So far, Bridge has over 500 schools with more than 100,000 students.

Then there’s a model where the school provides education to students of various income classes while providing financial aid to the students in need. Aga Khan does this by delivering k-12 education to students of all income classes but provides needs-based discounts and financial assistance to the students from low-income families.

These case studies of impact investment in different African countries provide evidence that it can be applied to the Nigerian low-cost k-12 education system. There is, and will always be, a massive demand for education due to Africa’s population. This is why there have been considerable investments in several aspects of education, particularly edtech and tertiary education. Briter Bridges estimates that from 2021 till date, the Nigerian edtech space has raised over $220 million, about 10% of the total amount raised in the tech ecosystem by companies operating in Nigeria.

However, without heavy investment in foundational education like k-12, more would need to be done to reap the returns at the other stages of education.

This story was initially published by Stearsng.

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