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Private schools must diversify income

THE statement released on May 8 by the Minister of Primary and Secondary Education, Cain Mathema, is a serious poser for the operations of private schools.
Education, as an economic sector, contributes more than 10% to the gross domestic product of Zimbabwe.

The Brett Chulu Column

Private schools have had to be strategically alert and agile to respond to the extremely high inflationary environment in order to keep their operations afloat. In the wake of the near-hyper-inflationary (The Economist defines hyper-inflation as 50% per month inflation persisting for at least two months) that picked momentum last year, private schools found themselves exposed in that they could no longer levy fees in forex (a stable store of value) following the demise of the multi-currency regime on June 24 of 2019.

Many of the private schools tried to get around the forex restriction by resorting to forex indexation (what some economists refer to as real dollarisation or covert dollarisation). They did this by using a private unit of value, but which, to all intents and purposes, tracked forex rates.

Government got wind of such-like schemes that were gaining widespread use in the wider economy and, in response, government published Statutory Instruments 212 and 213 in 2019, explicitly outlawing any covert dollarisation. The economy largely responded by heavily discounting the local currency with monetary indiscipline (unrestrained money printing) adding fuel to the fire which saw official year-on-year inflation (understated in my opinion) closing 2019 at 521%. A number of economic players adopted a futures pricing model which added a future inflation premium. It is under such a monetarily unstable environment in which private schools found themselves operating in.

The burden of operational challenges borne by private schools took a landmark turn in February 2016. The bulk of private schools were affected when on February 3, 2016 government withdrew teachers under the Civil Service Commission working in private schools (mission schools were not affected). This followed a statement by the then finance minister Patrick Chinamasa in the 2016 budget statement that private schools were working as commercial entities and therefore should pay the salaries of teachers working in those private schools. At the time of the 2016 national budget announcement, the government was envisaging saving US$72 million a year in salaries. This was a sudden fixed cost that pivoted away from government to private schools.

The Covid-19 crisis has left private schools heavily exposed.The lockdown came right after schools closed for the first term. The fees cycle for virtually every private school is termly. Government regulations require schools to apply to the Education permanent secretary for approval of any fee increases. That requires private schools to first seek the approval of proposed fee hikes from the majority of parents through extraordinary general meetings (EGMs) or any acceptable way of obtaining consent from the majority of parents.

Obtaining this parental approval has proved to be not a challenge. Once private schools get the parental say-so, it is next to impossible for the Education permanent secretary to overturn the fees application if parents have consented. Covid-19 restrictions on social gatherings have made it impracticable to hold face-to-face EGMs, let alone prepare meaningful budgets on which to base fees hikes.

With the extension of the lockdown coinciding with the period the second term of the schooling year was to commence, the conundrum for the private schools is that the cashflow situation is now precarious given that their major source of income to fund operations are termly fees and sometimes in-between term fees hikes.

The February 3, 2016 government action to cease payment of salaries of teachers in private schools has returned to haunt private schools.The salaries expenditure is a significant fixed cost for private schools. These schools have a legal responsibility to meet their contractual obligations, failing to do so may expose them to costly litigation. The force majeure rule is difficult to invoke in employment contracts as the Labour Act has specific provisions and processes to be followed when employers find it operationally and financially difficult to continue paying employees.

Many private schools, as agile as ever, innovatively introduced the virtual school (e-learning) model in order to justify the levying of fees. However, their biggest challenge is that they carry legacy costs from the their brick-and-mortar facilities which still demand a share of the budget. E-learning alone, without the legacy costs, would mean a significant reduction in the operational budget.

If the Education minister is correct in stating that a number of private schools deviated from laid down statutory procedure, it may suggest that the issue of e-learning and the temporarily redundant brick-and-mortar facilities’ legacy costs being absorbed into fees is a possibility. The bunching of e-learning costs and legacy costs can explain why the “irregularly-levied” fees could have alarmed the minister to the extent of threatening to de-register any private schools that continue to offend.

The challenge private schools are facing is an existential one, complicated by a traditional fees-only business model. Private schools, due to reality, are trying to introduce a disruptive business model, based on e-learning delivery methods.

By their nature, disruptive business models significantly cut costs to enable the service to be provided at low cost. For private schools, using the disruptive model only is very problematic because of the legacy costs. So the e-learning programme has mutated into a sustaining innovation, an upgraded version of an old model, hence a higher delivery cost.

These realities are an opportunity for private schools to re-imagine their business models and diversify away from fees-only model. There are several alternative income streams they can tap into first as pilot models.

Some of the private schools have tracts of land they can turn into thriving agro-businesses. They can adopt the endowment fundraising model to mobilise resources from their vast alumni network.

Such funding mixes can allow private schools to fund fixed costs associated with curriculum delivery when force majeure events such as Covid-19 strike. Some co-educational private schools strategically closed the hole occasioned by dwindling enrolment by making the schools mixed gender. It is not enough; Covid-19 has just proved it.

It would be a serious strategic blunder for private schools to celebrate any announcement of a return to the brick-and-mortar school — the income diversification agenda should be pursued with energy as more crises are coming. The writer sits on the board of a private school. These views are personal.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com.

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