What You Need To Know To Start a Business in the Education Sector

Updated on 10 June 2019

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By: David Morobe, regional general manager at Business Partners Limited

The education sector in South Africa remains one of the major challenges for our country, with many public schools struggling to yield positive results and private schools being too costly for many South African households to afford. This challenge, however, signals a gap in the market and provides an opportunity for small and medium enterprises (SMEs) in the private education sector to flourish while contributing to improvements in the education sector.

The opportunities available to SMEs wishing to enter into the education sector are extensive – from private pre-primary schools to support services and innovative educational products. If SMEs take advantage of this opportunity, the education sector can not only be improved, but also become more inclusive to provide the best prospects for all of South Africa’s children to one day contribute to a better performing economy with lower levels of inequality and lead improved lives.

Private school education has grown from 2% to 6% of the total number of enrolled pupils (about 13 million) in SA over the last four years and is set to increase over the next couple of years, predominantly in townships

The size of the industry

The education sector’s overall economic impact cannot be overstated. The education industry is vital in terms of driving growth and development in the country as it increases individuals’ employability, the level of earned income they can expect and employment opportunities available to them. Therefore, we can say that it is the backbone in creating a productive and sustainable economy and economic climate in South Africa.

In South Africa, although public spending on education (as a proportion of total government spending) has been increasing incrementally since 2010 (with a decrease noted in the 2015/2016 financial year), it is lower today (at 20.3%) than it was in the 1996/1997 financial year (at 22%). In terms of the GDP, public education spending (in 2017/2018) accounted for 6.8% of the national GDP. This is significant as it is the highest proportion recorded, with the same proportion only being spent twice over the last 20 years (first in the 1996/97 financial year and then again in 2016/17).

Although the education sector is still considered to be struggling, the sector’s future outlook provides hope that it will be turned around. This can be seen in the proposed government spending programmes recently made public in the 2018/2019 national budget. Over the next three years, the South African government aims to spend a total of R792 billion on basic education, with R35 billion being spent on infrastructure and R15.3 billion on learning and teacher support materials. The government also plans to spend an additional R324 billion on higher education and training, with R57 billion to be spent on fee-free higher education and training.

On the other hand, private school education has grown from 2% to 6% of the total number of enrolled pupils (about 13 million) in SA over the last four years and is set to increase over the next couple of years, predominantly in townships, which presents an opportunity for SMEs in the sector. Tertiary education presents further opportunities for SMEs particularly to address the dire shortage of student accommodation currently only catering for 100 000 out of a student population of more than 500 000.

It is important for entrepreneurs wishing to enter the private education industry to have a holistic understanding of the industry in which they intend to operate

Existing competitors

Competition in the education sector is too wide to mention as it effectively encompasses any private business whose core activity entails the promotion of learning and/or other related educational related services including, but not limited to preschools, private schools, special needs schools and TVET colleges,.

Some of the dominant players are:

• Curro; ADvTECH, Kumon and Spark Schools (a few private school examples)
• Innovation College, Damelin, Boston City Campus, MSC Business College, Richfield Graduate Institute of Technology, AAA School of Advertising, IMM Graduate School of Marketing, International Hotel School, (a few TVET college examples)
• Milpark University, Henley Business School, MANCOSA (Management College of Southern Africa), MONASH South Africa, Regenesys Management

Business ideas to explore

SMEs in the sector can explore the following options:

– Private schools;
– Special needs schools;
– Pre-schools (including day-care, crèches and pre-primary);
– Adult basic education;
– Further Education and Training (FET) or Technical Vocational Education and Training (TVET) colleges/ institutions;
– Special training schools – e.g. culinary, nursing, medical, fashion, graphic design, beauty, business, human resources, health and safety, information and communication technologies, etc.;
– SETA accredited training schools;
– Student accommodation; and
– Educational franchises.

Financing options

To minimise the barriers to entry for entrepreneurs seeking to facilitate a sustainable future for South Africa’s future leaders, BUSINESS/PARTNERS has a R150 million Education Fund for SMEs which has financed 42 businesses within the education sector to the value of R97 million over the last three years.

The majority of funding was allocated to pre-primary schools, private schools and student accommodation, which are seeking to correct the shortfall of accommodation available to students at tertiary level.

The funding may be used for:

– Equipment;
– Expansion;
– Management buy-outs;
– Property finance for owner occupied businesses;
– Revamps;
– Start-ups;
– Takeovers; and
– Working capital.

Legalities and regulations

It is important for entrepreneurs wishing to enter the private education industry to have a holistic understanding of the industry in which they intend to operate. This can be done by familiarising themselves with the appropriate acts and regulations. Included below is a list of some of the most relevant pieces of legislature pertaining to the education industry. Although the list is not exhaustive, it does provide a starting point from which to develop a more of an understanding of the industry.

• The Higher Education Act 101 of 1997
• The South African Schools Act 84 of 1996
• The Regulations for the Registration of Private Higher Education Institutions 2016
• The Basic Education Laws Amendment Act 15 of 2011
• The Further Education and Training Colleges Act 16 of 2006
• The Higher Education and Training Laws Amendment Act 25 of 2010
• The National Qualifications Framework Act 67 of 2008
• The National Education Policy Act 27 of 1996
• The Continuing Education and Training Act No. 16 of 2006

To ensure that they are better prepared and equipped to successfully operate in the education industry, entrepreneurs are encouraged to visit the National Department of Basic Education (in particular the resource page on education-related acts), the Department of Higher Education and Training (particularly the University Education page), the South African Qualifications Authority, and Umalusi online.

Support and training available

The ETDP SETA, which is mandated to promote and facilitate delivery of education training and development to enhance the skills profile of the sector is probably the best source of support available to those interested in the sector

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