Economic Value Analysis of Private Schools in Lagos State 1

Developing Effective Private
Education Nigeria (DEEPEN)
Economic Value
Analysis of Private
Schools in Lagos
State
Assignment Report
Economic Value Analysis of Private Schools in Lagos State
Author: Hamish Colquhoun
29 February 2015
Disclaimer
This document is issued for the party which commissioned it and for specific purposes connected with the
captioned project only. It should not be relied upon by any other party or used for any other purpose. We accept
no responsibility for the consequences of this document being relied upon by any other party, or being used for
any other purpose, or containing any error or omission which is due to an error or omission in data supplied to us
by other parties.
Contents
Glossary............................................................................................................................................... 3
Executive Summary ............................................................................................................................. 4
1. Introduction..................................................................................................................................... 6
1.1. Purpose of the Consultancy ...................................................................................................... 6
1.2. Approach ................................................................................................................................. 6
1.3. Structure of the Report ............................................................................................................ 7
2. Findings ........................................................................................................................................... 9
2.1. Question 1 – What costs would the government incur if it was providing the education that is
instead being provided by private schools?.......................................................................................... 9
2.1.1. (a) What would these costs have been over the last five years (2010/11 to 2014/15) .......... 9
2.1.2. (b) What would these costs be over the next ten years (2015/16 to 2024/25) .................... 16
Question 2 – What are the economic benefits from private schools to Lagos State? .......................... 22
3. Conclusions.................................................................................................................................... 25
4. Options and Next Steps.................................................................................................................. 26
2
Glossary
AESPR Annual Education Sector Performance Report

DFID Department for International Development
ESSPIN Education Sector Support Programme in Nigeria
GDP Gross Domestic Product
GER Gross Enrolment Rate
GPE Global Partnership for Education
DFID Department for International Development
LGA Local Government Authority
NGN Nigerian Naira
OECD Organisation for Economic Cooperation and Development
TET Fund Tertiary Education Trust Fund
UBEC Universal Basic Education Commission
UBEC-IF Universal Basic Education Commission – Intervention Fund
USD United States Dollar
3
Executive Summary
1. This report analyses the economic value of private schools in Lagos State. The analysis is
approached from two distinct angles. First it considers what the cost savings to government are
from private schools delivering education that would otherwise have been funded by
government. Second it considers the economic benefits to Lagos from private schools’ provision
of education.
2. The analysis was a desk-based exercise making use of existing data available on the private
school sector in Lagos. To make the necessary calculations, given data limitations, various
assumptions have been used. The nature of these assumptions means that the exact level of
monetary estimates should not be taken too literally, but they do still give a decent
understanding of the order of magnitude. The data for estimating the implied cost savings to
government is stronger than that for estimating the economic benefits from private schools.
3. Given the scale of private school provision in Lagos State, with nearly 7.5 million students
enrolled between 2010/11 and 2014/15, it is not surprising that the economic estimates are
large. By considering the unit cost of what the government spent on its own students, if it had
also paid the cost of providing the education in private schools over the 5-year period 2010/11
to 2014/15 its additional cost burden would have been a total N 377 billion ($1.9 billion).
4. Taking the projections forward for the next 10 years and assuming a continuation of the existing
government unit cost for education and private enrolment increasing in line with population
growth, then the projected cost saving to government from private provision of education
would be N 958 billion ($4.8 billion). If assuming an investment per student at a level that would
be required to deliver reasonable quality education, the projected cost saving to government
from private provision of education would be N 1,648 billion ($8.2 billion).
5. The analysis of the economic contribution from private schools highlighted the benefits to
students in terms of increased income alongside broader benefits to the state such as increased
tax revenues from better educated individuals and better public health. Their scale, in present
value terms, for just one cohort of students educated for one year in 2010/11 is estimated in the
region of N 504 billion ($2.5 billion).
6. International evidence has strongly emphasised that the extent of any such benefits is
completely dependent on the quality of education actually received. As such, until such time as
the government were to take on private school enrolment, ensuring an enabling environment
4
for private schools to operate would seem important to maximise these economic benefits for
Lagos. The quality of education provision is likely linked to schools’ ability to spend resources on
education inputs. This ability is constrained when school revenues are diverted towards
multiple and illegal taxation.
7. A disaggregation of the analysis showed that the biggest contribution of cost-savings to the
government budget comes from schools that are yet-to-be-registered with government.
Despite this, it is unregistered schools that face bigger challenges in terms of illegal and multiple
taxation. Their economic and fiscal importance to Lagos State suggests perhaps more can be
done to ease their hurdles in becoming registered.
8. A separate disaggregation of the analysis found that the majority of the cost savings come from
low-medium fee schools rather than high fee schools. Low-medium fee schools receive fees up
to a maximum of N 50,000 ($250) per year, which means even those at the top of the fee range
receive income that is below the level that could be judged sufficient to deliver quality
education (estimated as N78,320 ($392) for primary schools in Lagos using international
benchmarks for education inputs – see p.19). It would seem particularly counter-productive to
attempt to tax these schools. Rather it might be more effective to ensure that any ‘profit’ they
are making is not being diverted away from inputs required for education delivery.
9. Two recommendations are made for taking this report forward. The first is to share the analysis
with government and get their specific feedback on the assumptions used. These assumptions
can easily be modified and such changes are unlikely to fundamentally change any key message
from this report. This may make the report’s findings more likely to be accepted by government
counterparts.
10. The second is to develop a dialogue between DEEPEN and the relevant government department
to clarify the partnership between the government and private schools for achieving politically
set targets for education provision. The discussion should consider what the requirements are
for the government to achieve its own strategic goals for education over the next 10 years and
what the desired contribution from the private sector would be to reach those targets (in terms
of both quantity and quality). This should then provide the foundation for a debate on what
strategies should be pursued for supporting and encouraging the required input from private
schools, including in terms of their taxation treatment.
5
1. Introduction
11. In February 2015, the Developing Effective Private Education in Nigeria (DEEPEN) programme
commissioned an Economic Value analysis of private education in Lagos State. An international
consultant was contracted to carry out this study over a period of 7 working days.
1.1. Purpose of the Consultancy

12. This study fits within DEEPEN’s Rules and Standards Work Stream. It is part of a collection of
activities aimed at reducing the mix of multiple and illegal taxation of private schools. As such
the main audience for the analysis is the Lagos State government which has most control and
influence over this taxation burden for schools. Another important audience is the Association
of Schools who might use this study for their own advocacy to government.
13. The study’s premise is that private schools take on a cost that would otherwise be paid by
government given its targets for delivering free universal basic education. Further, private
schools make an important contribution to Nigeria’s economic and social development. The
extent of this contribution, however, is determined by the quality of their education provision.
As such, it is in the government’s own interest to ensure an enabling regulatory and tax
environment which recognises the cost savings these schools imply for government and
supports rather than hinders their capability to provide quality education.
14. In other countries governments have gone to great lengths to encourage greater private
provision of education in their efforts to achieve highly ambitious education goals with limited
public resources. Options pursued have included tax-exemption, subsidisation and even cost-
sharing with government.1 The present analysis intends to provoke a discussion on such options
by developing an objective estimate of the economic value of private schools in Lagos from the
perspective of the Lagos State government.
1.2. Approach
15. To ensure that the report was developed in line with the needs and interests of the DEEPEN
office the analysis was carried out in Lagos. Given time constraints for completing the work it
did not, however, involve meetings with stakeholders beyond the DEEPEN team. Neither was it
1
Beyond evidence from the Fiscal Framework report, Rwanda provides a concrete example for this. Harnessing
private provision of education became a key education sector strategy to close the gap between the cost of
government plans and the resources available to them. Recently public-private partnerships are being developed
whereby the government pays capitation grants to contribute towards the overall cost of certain private schools’
operations.
6
possible to collect and develop new data within the timeframe available. The calculations
instead make use of the existing data available for the sector.
16. The most comprehensive data source referred to is the 2010/11 private school census study.2
Almost all other information on private schools in Lagos is sample data. As such the present
analysis relies on a number of assumptions to extrapolate data from the 2010/11 census and
other sample data. This means the findings from this study should not be quoted as exact
estimates of reality but rather instead reasoned approximations. All assumptions used are
made as explicit as possible, opening them up to feedback, scrutiny and refinement in the draft
versions of this report.
17. The report’s greatest focus and emphasis is placed on the calculation of the cost savings that
private schools imply for Lagos State government. This is where data is stronger and clearer
conclusions can be reached. The report will make explicit and tangible monetary estimates.
18. The analysis is disaggregated as far as possible between fee categories of private school (low
fee, medium fee, high fee); as well as the education level offered (pre-primary, primary and
secondary); and further, between registered and yet-to-be registered schools. This
disaggregation is done because government will likely consider different taxation treatment for
schools depending on their resource generation capabilities and perceived legality; while cost
structures are different depending on the level of education offered.
19. The report will also assess the extent of private schools’ contribution to the Lagos State
economy through their provision of education. The estimates of economic contribution are
more constrained by the imperfections of the data - to avoid distracting attention with tenuous
assumptions the report will not go beyond indicative monetary estimates but instead focus on
the complementary narrative.
20. This report should form the foundation of a dialogue between DEEPEN and Lagos State
government. Assumptions and calculations can be modified to ensure that there is general
consensus for the overall findings of the study which are unlikely to change fundamentally even
with significant shifts in the assumptions.
1.3. Structure of the Report

21. The main body of this report takes two separate questions in turn:
2
Härmä, J (2011); Lagos Private School Census 2010-11 Report: Report Number LG 501, Education Sector Support
Programme in Nigeria (ESSPIN), June 2011.
7
(i) What costs would the government incur if it was providing the education that is instead
being provided by private schools?
(ii) What is the contribution of private schools to the economic development of Lagos State?
22. The first question will be answered by two sub-questions:
(iii) What would these costs have been over the last five years (2010/11 to 2014/15)?
(iv) What would these costs be over the next ten years (2015/16 to 2024/25)?
23. The final section of the report concludes and makes two key recommendations to take forward
from the analysis.
8
2. Findings
2.1. Question 1 – What costs would the government incur if it was

providing the education that is instead being provided by private schools?
2.1.1. (a) What would these costs have been over the last five years
(2010/11 to 2014/15)3
24. To calculate the cost savings to government requires two estimations: (i) The average cost for
one student to be educated in a government school. (ii) The number of students educated in
the private schools.
The average cost per student in government schools
25. Data on government expenditure on education is not immediately accessible in the full details
required to make a straight-forward estimate of unit costs for education. The following
calculations make use of the budget information provided in the 2011, 2012 and 2013 Annual
Education Sector Performance Reports for Lagos State. Government expenditure on education
in Lagos State comes for the most part from State Government and Local Government
Authorities, with minor additional contributions from the UBEC Intervention Fund and the TET
Fund:
Table X – Government expenditure (recurrent and capital) on education in Lagos State

2011-2013
(Million Naira) State Others (incl.
UBEC-IF LGA Total
Allocation TET Fund)
2011 64,934 872 23,656 719 90,181
2012 72,173 1,176 21,804 411 95,564
2013 65,944 1,030 23,228 354 90,556
Total 2011-13 203,051 3,078 68,688 1,484 276,301
% shares 73% 1% 25% 1% 100%
Source – AESPR 2013, p.18. Note that the UBEC-IF expenditure figures for 2011 and 2012 appear to have been corrected
in the 2013 AESPR and are used here instead of those reported in the AESPRs 2011 and 2012.
3
Note that this report’s terms of reference suggest a start date for this calculation of 2009/10. However, as
baseline data is from 2010/11 and the current year is 2014/15 it makes more sense to consider this period as the
last 5 years.
9
26. The available budget information breaks down the State Government spending by level of
education, but does not break down how other sources of funding are spent. To estimate the
total government spend on primary and secondary education the present analysis makes
assumptions about how the other sources of funding are allocated by level.
27. The allocations for UBEC-IF are assumed only attributable to Primary and Secondary education,
with 75% assumed for primary and 25% assumed for secondary. Likewise for LGA spending,
which is mostly to cover primary teacher salaries, 90% is assumed for primary and 10% for
secondary.4 The allocations for other sources of spending are assumed to match the State
Government’s proportional allocations presented in the AESPRs.
28. To estimate the average cost per student, this budget data can be matched against the
estimates of enrolment for number of students in public pre-primary, primary and secondary
schools over the same period:
Table X – Average government spend per primary and secondary student in Lagos State
(recurrent and capital)
Total Spend Total Public Spend per student Spend per
5
(NGN Million) Students (NGN) student (USD)
Primary &
2011 24,571 462,284 53,150 266
Pre-Primary
2011 Secondary 32,784 571,788 57,336 287
Primary &
2012 23,046 524,360 43,951 220
Pre-Primary
2012 Secondary 42,759 610,077 70,087 350
Primary &
2013 23,684 578,330 40,953 205
Pre-Primary
2013 Secondary 45,394 593,058 76,542 383
2011- Primary &
71,301 1,564,974 45,560 228
2013 Pre-Primary
2011-
Secondary 120,936 1,774,923 68,136 341
2013
Notes – USD-NGN exchange rate of 200, www.oanda.com, 28/02/2015. Note data on the split between recurrent
and capital expenditure is not complete, but for 2013 3% of the primary unit cost was for capital, while 17% of the
secondary unit cost was capital expenditure. In 2012 both primary and secondary unit costs were 4% for capital
expenditure. Data is not available for 2011.
4
If government could share actual UBEC and, more importantly, LGA allocation by levels of education this would
enhance the analysis.
5
For financial year 2011, the number of students from academic year 2010/11 are considered. In theory the actual
unit cost per student should consider an average of the students between 2010/11 and 2011/12, however this is
avoided because it risks making the calculations less intuitive for the target audience.
10
29. So based on the budget data available and the assumptions above for allocation by level of
education, the average unit cost per primary student for the period 2011 to 2013 was N 45,560
($228) and the average unit cost per secondary student is N 68,136 ($340).
30. This is only the unit cost to the government as reflected in the AESPR. There are other sectors
such as health that also spend on education. There may also be significant development partner
contributions to primary and secondary schools in Lagos State. There is no clear data for any of
these contributions. Given that donor support has most probably been focussed on the public
system, it could be argued that were there to have been more public students, assuming total
donor funding remained fixed, the support per student would have been less. This would mean
the government cost per student would have needed to be higher in the absence of the private
schools. To keep the present analysis simple this point will not be built into the analysis, but it
should be recognised that it implies that the government unit cost may be an underestimate of
the actual costs that would have been incurred. In addition, as will be shown later in the report,
although this was the actual unit cost expenditure per student, it is probable that it falls below
the expenditure required to deliver a quality provision of education.
The average cost per student in private schools
31. For the vast majority of private schools the only source of income is fees. 6 However, while there
is a broad range of data on student fee rates 7, this does not immediately translate into unit costs
for schools. That calculation requires data on the proportion of fee income that is spent on the
cost of delivering the education. Although DEEPEN’s 2014 Schools as a Business Report presents
data on schools’ profit rates, it is not clear what this profit is used for. Rather than being a sum
of money that is extracted from the school’s income without a benefit for students, it might
instead be better considered to cover the management cost of the schools or implicitly pay the
rental cost when the schools are run out of their proprietor’s property. This would be a useful
area for further study to consider whether and how private schools’ costs of delivery are
different from the government’s costs. Lessons could surely be learned one from the other in
terms of maximising efficient and effective delivery.
6
Harma (2011), p.4, “Household survey on private education in Lagos”, ESSPIN Report Number LG 503.
7
Including Harma (2011) which has a sample of 34 schools; Fusion Consulting (2013) which has a sample of 52
schools; World Bank (2014) which considers all schools within Ajeromi-Ifelodun LGA; Tooley (2013) which has a
sample of 2,290 children; and DEEPEN’s own report on Schools as a Sustainable Business (2014) which has a
sample of 55 schools.
11
32. As such, given available data, for government to deliver equivalent education the student fee
rate may be the only reasonable proxy for the unit cost per student. The 2013 report from
Fusion Consulting8 finds an average annual fee rate across 52 schools of N 45,422 ($227) for
primary schools and N 133,427 ($667) for secondary schools. The Wold Bank’s 2014 study on
Ajeromi-Ifelodun LGA9 finds average annual fee rates of N 13,500 ($68) for pre-primary schools;
N 15,450 ($77) for primary schools; N 31,500 ($158) for lower secondary and N 45,000 ($225)
for upper secondary schools. These averages mask great variety in fee levels at different
schools.
33. Tooley’s (2013) sample data allows a categorisation of private schools into low-cost, medium-
cost and high-cost.10 The definition of these categories is based on affordability. With an
estimate that about 10% of family income for the poor can be spent on school fees, low cost
schools are defined as those affordable by those on or below the poverty line; medium cost
schools are those affordable by those earning up to twice the poverty line. Tooley’s sample
breaks down as follows:
Table X – Breakdown of schools by cost category based on Tooley (2013) sample data
Low Cost Medium Cost High Cost
Fee rate per year < N25,000 N25,000 – N50,000 > N50,000
(< $125) ($125-$250) (>$250)
Pre-primary & Primary 36% 36% 29%
Secondary 7% 27% 66%
34. It is clear that there is a huge variety in costs across private schools within Lagos State.
Nevertheless, the average implied unit costs are not greatly different from those for
government schools. Note, however, that an analysis later in this document will show that both
the existing government and private school investment per student can be considered
insufficient to deliver a decent quality of education given the relatively advanced economic
development of Lagos State.
The number of students educated in private schools 2010/11 to 2014/15
35. In 2010/11 a detailed baseline study was done by ESSPIN on the population of students in
private schools in Lagos State. No more recent state-wide estimate of enrolment is yet
8
Fusion Consulting (2013), “Report on pilot study of multiple and informal taxes and levies on private schools in
Lagos State”.
9
Abdul-Hamid, Baum, Lusk-Stover & Wesley (2014), “The Role of the Private Sector in Education in Lagos, Nigeria:
An In-Depth Report”, Workshop Edition of document, World Bank.
10
Tooley (2013), “School choice in Lagos State”, Newcastle University.
12
available.11 Estimating enrolment in 2011/12 to 2014/15 therefore requires an assumption

about the growth in the number of students.
36. Various factors can be considered to estimate the potential enrolment growth rate:
12
 An official population growth rate estimate of 3.2% .
 An estimate of an annual growth rate in the number of private schools in Ajeromi-Ifelodun
LGA of 11% over the period 1997-201313.
 Enrolment of public students is more or less equivalent in 2013/14 to its level in 2010/11. 14
 The Gross Enrolment Rates, with public and private enrolment combined, were only 82%,
80% and 66% for primary, JSS and SSS respectively in 2010/11 if using the national census
population estimates. If using Lagos State population estimates made at the same time as
the national census, then the GERs would be even lower at 43%, 44% and 35% for Primary,
JSS and SSS respectively in 2010/11. If correct, these enrolment rates would imply
significant scope for expansion in student numbers. However, the validity of these GER
estimates is questionable given that the 2007 MICS reported primary GER at 104% and JSS
at 95%; while the NDHS 2013 found primary GAR to be 103% and that for secondary to be
117%.
 A large-scale sample study in 2013 found that the proportion of children in private primary
and JSS rather than government schools was significantly higher than the split found in the
2010/11 private school census. This could be explained partly by greater growth in private
schools compared to public schools.15
37. With a non-improving public enrolment rate and expected increasing demand for education
within a growing Lagos State economy, the population growth estimate of 3.2% can be
considered the minimum likely expansion of private enrolment. This growth rate will be used
for the present analysis, but will be recognised as a very conservative estimate of the growth
rate in private school enrolment, particularly noting the 11% rate of growth in private schools in
Ajeromi-Ifelodun LGA and the findings from Tooley’s 2013 sample showing a significantly
greater share of enrolment in private schools than the 2010/11 baseline.
11
DEEPEN is currently completing its own baseline analysis that will allow an update of the enrolment figures.
12
Page 5, Lagos State Government Basic Statistical Hotline, 2013 Edition, Lagos Bureau of Statistics, Ministry of
Economic Planning & Budget.
13
Abdul-Hamid, Baum, Lusk-Stover & Wesley (2014: p.17), “The Role of the Private Sector in Education in Lagos,
Nigeria: An In-Depth Report”, Workshop Edition of document, World Bank.
14
There were increases in enrolment in 2011/12 and 2012/13 but a significant drop, particularly at primary, in
2013/14.
15
Tooley (2013), School Choice in Lagos State, Newcastle University
13
38. Applying the 3.2% growth rate estimate gives the following enrolment figures:
Table X: Estimated private school enrolment from 2010/11 to 2014/15

2010/11
2011/12 2012/13 2013/14 2014/15 TOTAL
(baseline)
Pre-Primary
235,899 243,448 251,238 259,278 267,575 1,257,437
Kindergarten
Pre-Primary
256,329 264,532 272,997 281,732 290,748 1,366,337
Nursery
Primary 625,617 645,637 666,297 687,619 709,622 3,334,792
JSS 160,951 166,101 171,417 176,902 182,563 857,934
SSS 129,625 133,773 138,054 142,471 147,031 690,954
TOTAL 1,408,421 1,453,490 1,500,002 1,548,002 1,597,538 7,507,454
Answer 1(a) – What costs would the government have incurred over the last 5 years
if it had been providing the education that instead was provided by private schools
39. Multiplying the government’s cost per student by the number of students in private schools
over the last five years gives the following:
Table X – Estimated cost savings for government budget from private provision of
education over last five years, 2010/11 – 2014/15
Total Private Unit cost per Total implied Total implied
Students student if paid cost savings for cost savings for
2010/11 to by government government government
2014/15 (NGN) (NGN) (USD)
Pre-Primary &
5,958,566 45,560 271,472 million 1,357 million
Primary
Secondary 1,548,888 68,136 105,535 million 528 million
TOTAL 7,507,454 - 377,010 million 1,885 million
40. The total costs that the Nigerian government would have needed to pay over the last five
years to educate the students who were instead in private schools would have been N
377,010 million ($ 1.9 billion).
41. These costs can be disaggregated by both approval status of private schools as well as their cost
category:
14
Table X – Disaggregated total cost savings to government by private school approval status
Unit cost per
Total Private Total implied cost Total implied cost
student if paid
Students 2010/11 savings for savings for
by government
to 2014/15 government (NGN) government (USD)
(NGN)
Approved Pre-Primary
1,549,227 45,560 70,583 million 353 million
& Primary
Approved Secondary 402,711 68,136 27,439 million 137 million
Yet-to-be approved
4,409,339 45,560 200,891 million 1,004 million
Primary & Pre-Primary
Yet-to-be approved
1,146,177 68,136 78,096 million 390 million
Secondary
TOTAL 7,507,454 377,010 million 1,885 million
42. The split between approved and yet-to-be-approved is based on the data from the 2010/11 full
private school census which found 26% of schools were approved. The interest in this
calculation is to show in simple terms that it is yet-to-be-approved schools that represent the
bulk of private enrolment and thus generate the greatest savings for the government budget.
Implied cost savings to government for 2010/11 to 2014/15 were N 98 billion ($490m) from
students in approved schools and N 279 billion ($1.4 billion) from students in yet-to-be-
approved schools.
Table X – Disaggregated cost savings from low-medium cost schools and high cost schools
2014/15 (NGN) (NGN) (USD)
Primary & Pre-
195,462
Primary Low- 4,290,168 45,560 977 million
Million
Medium Cost
Primary & Pre-
1,668,399 45,560 76,013 million 380 million
Primary High Cost
Secondary Low-
526,622 68,136 35,882 million 179 million
Medium Cost
Secondary High-Cost 1,022,266 68,136 69,653 million 348 million
TOTAL 7,507,454 377,010 million 1,885 million
15
43. The categorisation of schools by low, medium and high cost is set based on data from Tooley
(2013).16 Low and medium cost schools have annual fee rates below N 50,000 ($250) per year.
What is clear to note from this table is that the majority of cost savings to government at the
primary level come from low and medium cost schools rather than high cost schools. At the
secondary level two-thirds of the savings come from high-cost schools, although note that
Tooley’s definition of high cost would also imply that all government secondary schools are high
cost given that they have a unit cost of N 68,136 ($341).
2.1.2. (b) What would these costs be over the next ten years (2015/16
to 2024/25)
44. Calculating costs for the next ten years requires two estimates: (i) What would the cost per
student be over the next 10 years (ii) How many students are expected to be enrolled in private
schools over the next 10 years.
Unit cost per student
(i) Status Quo scenario for Unit Costs
45. In estimating the costs over the last five years a government unit cost of N 45,560 ($228) for
primary and N 68,136 ($341) for secondary was used based on its actual budget allocations for
education during that period. A continuation of these unit costs will be considered the status
quo scenario for the next 10 years.
(ii) Quality education scenario for Unit Costs
46. Given Lagos State’s relatively high GDP per capita compared to the region, the existing unit
spend per student at the primary level is low. Bringing together data from across the continent,
UNESCO find that there is a general tendency for public expenditure per primary pupil to
increase to around 10-15% of GDP per capita as country income levels rise.17 Given GDP per
capita of N 607,286 ($3,036) in Lagos18, this would require a unit cost of around N 60,000-90,000
16
Tooley (2013), “School choice in Lagos State”, Newcastle University.
17
UNESCO Institute of Statistics (2011: p.37), “Financing Education in Sub-Saharan Africa: Meeting the Challenges
of Expansion, Equity and Quality”, Montreal, Canada.
18
Lagos State Government Basic Statistical Hotline 2013, p.5, shows GDP per capita for Lagos in 2010 of NGN
607,286. Applying exchange rate used throughout this report of USD-NGN 200 gives GDP per capita of $3,036.
Given economic growth since 2010 this GDP per capita is likely to now be higher.
16
($300-450) for primary schools. With expected GDP per capita growth this unit cost would also
be expected to progressively increase over the next 10 years.19
47. The same research also finds that the ratio of secondary to primary unit costs converges
between 1 and 2 in richer countries as the secondary Gross Enrolment Rate increases. As the
primary unit cost increases to N 60,000-90,000 ($300-450) this could imply a secondary school
unit cost of around N 90,000-135,000 ($450-675).
48. As such, it seems likely that the government would need to increase its average spend per
student if it were to achieve its own targets for delivering quality education. Using World Bank
benchmarks and regional experience to construct the components of this unit cost can also be
informative. Regionally in sub-Saharan Africa primary teacher salaries have been on average 4.1
x GDP per capita.20 The GPE benchmark is for a ratio of 3.5 x GDP per capita. However, as
countries get richer usually this ratio falls towards the ratio found in OECD countries of 1.2 x
GDP per capita.21 Assuming for Lagos a teacher salary ratio of 3.0 x GDP per capita implies an
average teacher salary of N 1,821,859 ($9,109) per year. With a teacher-pupil ratio of 40 this
would be a unit cost of N 45546 ($228) per student. Following guidance for a further 50% of
teacher costs to be spent on other education inputs 22 (textbooks and other learning materials,
curriculum development, teacher training, school running costs etc.) the total recurrent unit
cost would need to be N 68,320 ($342).
49. In addition, as we are talking about new students entering the system, there would also need to
be capital investment in classrooms. Assuming a unit cost of classroom construction of N
4,000,000 ($20,000)23 and again a student-class ratio of 40, this implies a capital cost per
student of N 100,000 ($500). Spreading this cost over 10 years and adding it to the above
estimated recurrent unit cost gives a total annual cost per primary student estimate of N 78,320
($392).
19
In 2009 countries in sub-Saharan Africa with GDP per capita greater than $3,000 spent the following per primary
student: Angola ($181), Cape Verde ($483), Swaziland ($683), Namibia ($972), Mauritius ($1,158), South Africa
($1,325), Botswana ($1,574). (UNESCO Institute of Statistics (2011: p.85)).
20
21
Ibid.
22
23
Data for Nigeria from DFID 2009 Education Portfolio Review.
17
50. If setting secondary costs per student at a multiple of 1.5 of the primary unit cost, in line with
international experience for wealthier countries, then the secondary unit cost would need to be
N 117,480 ($587).
51. For both primary and secondary these costs per student would be expected to rise over the next
10 years as the Lagos State economy continues to grow. For simplicity in the present analysis
they are kept constant, but it should be recognised that this makes the estimate for the total
potential cost savings for government to be a minimum figure.
Expected number of students
52. For the last five years an expected private enrolment growth rate of 3.2% was assumed based
on the assumption that at minimum private schools increased their enrolment at the same rate
as population growth. The present analysis will continue this assumption for expected growth
for the next 10 years, such that private schools absorb their share of the growth in the number
of school-age children.
53. An alternative way for the government to approach this question is to consider what its targets
are for Gross Enrolment by 2024/25, how much of this growth it expects to be able to achieve
through increases in its own budget and how much it would target for private schools to
contribute. Depending on the interest and feedback on the present analysis, this could be a
useful exercise to be developed in collaboration between DEEPEN and Lagos State government.
Unless enrolment in public schools grows at a faster rate than existing levels, it would seem
likely that private school enrolment will grow quicker than what is assumed above. This is
because continued economic growth in Lagos State should continue to increase the demand for
education, while applying national population census estimates there is a definite scope for
enrolling more students particularly at secondary level where GERs were 75% and 61%
respectively for JSS and SSS in 2013/14. If the Lagos State population estimate figures are
correct then the GERs for primary, JSS and SSS would have been only 41%, 41% and 33%
respectively, implying even more scope for enrolment increases.
54. The implied number of students in private schools is as follows:
Table X – 3.2% enrolment rate growth to accommodate population growth

2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Total
Pre-
276,137 284,973 294,093 303,503 313,216 323,238 333,582 344,257 355,273 366,642 3,194,914
Prim K
Pre-
300,052 309,653 319,562 329,788 340,342 351,233 362,472 374,071 386,041 398,395 3,471,609
Prim N
Prim 732,330 755,765 779,949 804,908 830,665 857,246 884,678 912,988 942,203 972,354 8,473,086
JSS 188,405 194,434 200,656 207,077 213,703 220,542 227,599 234,882 242,398 250,155 2,179,851
SSS 151,736 156,591 161,602 166,773 172,110 177,617 183,301 189,167 195,220 201,467 1,755,585
18
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Total
Total 1,648,660 1,701,417 1,755,862 1,812,050 1,870,035 1,929,876 1,991,632 2,055,365 2,121,136 2,189,013 19,075,045
Notes – Pre-Prim K = Pre-Primary Kindergarten. Pre-Prim N = Pre-Primary Nursery. Prim = Primary. JSS = Junior
Secondary School. SSS = Senior Secondary School.
Answer 1(b) – What costs would the government incur over the next 10 years if it
were to provide the education that could otherwise be provided by private schools.
55. Multiplying the government’s required cost per student for the two scenarios by the projected
number of students in private schools over the next ten years gives the following:
Table X - Scenario 1 – Status Quo unit costs

2024/25 (NGN) (NGN) (USD)
Pre-Primary &
15,139,609 45,560 690 billion 3.4 billion
Primary
Secondary 3,935,436 68,136 268 billion 1.3 billion
TOTAL 19,075,045 - 958 billion 4.8 billion
Table X - Scenario 2 – Quality Education unit costs (recurrent costs)

Unit cost per Total implied Total implied
Total Private
student if paid cost savings for cost savings for
Students 2015/16 to
by government government government
2024/25
(NGN) (NGN) (USD)
Pre-Primary &
15,139,609 68,320 1,034 billion 5.1 billion
Primary
Secondary 3,935,436 102,480 403 billion 2billion
TOTAL 19,075,045 - 1,437 billion 7.1 billion
Note – Total numbers in billions may not sum exactly due to rounding.
Table X - Scenario 2 Contd – Quality Education unit costs (classroom costs)

Unit cost per Total implied Total implied
Total additional
student if paid cost savings for cost savings for
Private Students
by government government government
2015/16 to 2024/25
(NGN) (NGN) (USD)
Pre-Primary &
469,446 10,000 4.694 billion 23 million
Primary
Secondary 112,029 15,000 1.680 billion 8.3 million
TOTAL 19,075,045 - 6.374 billion 31.3 million
19
56. The potential cost savings to the government budget over the next ten years could be N 958
billion ($4.8 billion) in the status quo scenario and N 1,443 billion ($7.1billion) in the quality
education unit cost scenario.
57. Disaggregating these projected cost savings by (i) school approval status and (ii) school cost
category gives the following (indicatively for status quo scenario only):
Table X – Disaggregated cost savings by approved vs. yet-to-be approved schools (Status
Quo unit costs scenario)
2014/15 (NGN) (NGN) (USD)
Approved Pre-
3,936,298 45,560 179 billion 0.9 billion
Primary & Primary
Approved Secondary 1,023,213 68,136 70 billion 0.3 billion
Yet-to-be approved
Primary & Pre- 11,203,311 45,560 510 billion 2.5 billion
Primary
Yet-to-be approved
2,912,222 68,136 198 billion 1.0 billion
Secondary
TOTAL 19,075,045 958 billion 4.8 billion
58. The key finding from this disaggregation by school approval status is that N 709 billion ($3.5
billion) of the potential N 958 billion ($4.8 billion) cost savings to government over the next 10
years comes from schools that at present do not have government approval.
Table X – Disaggregating cost savings by private school fee category

2014/15 (NGN) (NGN) (USD)
Primary & Pre-
Primary Low- 10,900,519 45,560 497 billion 2.5 billion
Medium Fee
Primary & Pre-
4,239,091 45,560 193 billion 1.0 billion
Primary High Fee
Secondary Low-
1,338,048 68,136 91 billion 0.5 billion
Medium Fee
Secondary High-Fee 2,597,388 68,136 177 billion 0.9 billion
TOTAL 19,075,045 - 958 billion 4.8 billion
20
59. The key finding from this disaggregation by school fee category is that more than half of the
potential N958 billion savings to government over the next 10 years comes from low and
medium fee schools where the annual fee rate is N 50,000 ($250)and below.
21
Question 2 – What are the economic benefits

from private schools to Lagos State?
60. This section summarises the economic benefits from private schools to Lagos State. The
economic benefits from students being educated in private schools come both to the individual
student and also to Lagos State as a whole.
Income benefits to individuals
61. The most tangible benefits to individual students are in terms of increased income both through
getting better paid jobs and being more likely to find employment. Data since 2000 has found
that globally an additional year of primary education increases an individual’s annual income by
on average 8% and an additional year of secondary education by on average 13%. 24 These
global averages clearly mask a variety of different returns in different countries. The
international evidence strongly emphasises that it is the quality of education received that
determines the extent of the return to education.25 In addition the structure of the local
economy, including its competitiveness, openness and speed of growth all determine the extent
to which more productive workers are actually rewarded.
62. Evidence on the wage return to education specifically in Nigeria has suggested that returns have
been lower than international averages, but more recently have been improving.26 The trouble
with this data is that it measures the returns to students educated several decades in the past in
a system likely very different from that at present, while the structure of the economy has also
changed greatly. For that reason, in trying to quantify the economic returns to students’
education it is defensible to make use of the international averages.
63. For the sake of making some simple aggregate estimates of the benefits it is assumed that the
additional wage is earned relative to the state average income.27 Given the 2010 estimate of
average income in Lagos State of N 607,286 ($3,036)28 an 8% wage return to primary education
implies an additional N 48,600 ($243) annual income for each student in primary schools in
24
Colclough et al. (2010: 739), “The changing pattern of wage returns to education and its implications”,
Development Policy Review, 2010, 28 (6)
25
Hanushek & Woessmann (2008), “The role of cognitive skills in economic development”, Journal of Economic
Literature, 46:3
26
Oyelere (2011), “Have returns to education changed in Nigeria? Uncovering the role of democratic reforms”.
27
This will marginally overstate the returns to lower levels of education and understate the returns to higher
levels. A more detailed analysis could be done to give more precise estimates.
28
Lagos State Government Basic Statistical Hotline, 2013 Edition, Lagos Bureau of Statistics, Ministry of Economic
Planning & Budget.
22
2010/11. A 13% wage return to secondary education implies an additional N 79,000 ($395)
annual income for each student in secondary schools in 2010/11. Assuming, very
conservatively, a working life of just 10 years, an average lag of 8 years for each primary student
to enter employment and an average lag of 4 years for each secondary student, and that future
benefits are discounted at an annual rate of 10% 29 then the discounted present value of income
gains to students in private schools in 2010/11 is N 252 billion ($1.3 billion).
Non-income benefits to individuals
64. The benefits from education which raise the welfare of students beyond income include:
enjoyment of education in itself, greater productivity in activities beyond formal employment,
improved health through greater understanding of health issues, better use of financial assets
(saving and consuming more efficiently); increased agency; job satisfaction beyond salary; and
many other examples. Monetising these returns is unsurprisingly difficult and few studies have
tried. One study that does - McMahon (2004) – estimates these benefits to be 80% of the level
of the income benefits.30
Broader economic benefits to Lagos State
65. Possible benefits to Lagos State beyond the individuals educated include: improved public
health, fiscal returns to government from higher tax revenues, political and institutional benefits
(e.g. stronger respect for human rights) 31, reduced risks of conflict32, environmental benefits and
both improved climate change mitigation33 and adaptation34. Monetising these social benefits is
again extremely difficult. One study that attempts to do so finds in Africa that they are greater
than the wage benefits to the individual.35
66. For the sake of having a monetary estimate of the total economic benefits to Lagos State for the
cohort of students educated in private schools in 2010/11 the present analysis will assume
29
The discount rate used by DFID Nigeria in the economic appraisals of its programmes.
30
McMahon, W. (2004) “The social and external benefits of education”, Ch.6 in ‘International Handbook on the
Economics of Education’
31
Appiah, E. & McMahon, W. (2002), “The social outcomes of education and feedbacks on growth in Africa”,
Journal of Development Studies, 38 (4), 27-68). For a more recent review of the evidence see Kremer et al. 2011
draft paper, “Education as Liberation?”
32
See Global Monitoring Report 2011
33
Wheeler, D. and Hammer, D. (2010) “The Economics of Population Policy for Carbon Emissions Reduction in
Developing Countries”, Working Paper 229 Center for Global Development, November 2010
34
Blankespoor, B., Dasgupta, S., Laplante, B and Wheeler, D. (2010) “Adaptation to Climate Extremes in Developing
Countries: the Role of Education”, World Bank Policy Research Working Paper 5342
35
McMahon, W. (2004) “The social and external benefits of education”, Ch.6 in ‘International Handbook on the
Economics of Education’
23
simply that the social and indirect private benefits are valued equivalently to the direct income
gains for educated individuals. This is in line with the findings from McMahon (2004). This
would imply a total present value of economic benefits for the one year of education delivery in
2010/11 of N 504 billion ($2.5 billion).
67. In private schools, students pay all the costs of their education but can only be expected to
value their own benefits and not those to society as a whole – for which reason they will
underinvest in education compared to the optimal level for the Lagos State economy. This is the
basic reason why in many countries the public sector ensures its own provision of education or
subsidises the private provision of education.
Employment Creation
68. Given political targets for employment creation, the fact that private schools employed an
estimated 118,785 teachers in 2010/11 36 can also be considered an important benefit. This
compares to the 112,217 workers in the Lagos State Public Service37 and 3,800,531 in the total
workforce.38
36
Härmä, J (2011); Lagos Private School Census 2010-11 Report: Report Number LG 501, Education Sector Support
Programme in Nigeria (ESSPIN), June 2011.
37
Lagos State Government Basic Statistical Hotline, 2013 Edition, Lagos Bureau of Statistics, Ministry of Economic
Planning & Budget.
38
National Bureau of Statistics (2010), National Manpower Stock and Employment Generation Survey.
24
3. Conclusions
69. This report has shown the cost savings to the Lagos State budget from students being enrolled in
private schools to be very large. Over the 5-year period 2010/11 to 2014/15 these cost savings
were a total N 377 billion ($1.9 billion).
70. There are different ways to consider the potential cost savings for government over the next ten
years. This report chooses to estimate annual enrolment growth of private students
conservatively at just 3.2% in line with estimated population growth for Lagos. Assuming a
continuation of the status quo government unit costs per student, the total cost saving to
government from private provision of education would be N 958 billion ($4.8 billion).
71. If instead higher unit costs were assumed in line with international estimates required to deliver
a quality education, then the total cost savings to government from private school provision
over the next 10 years would be N 1,443 billion ($7.1 billion).
72. The key message is that by taking on students who would otherwise be educated at government
expense, private schools generate significant cost savings for the government. This would
suggest that, from a pure budgetary perspective at least, it is in the government’s interest to
facilitate private schools’ provision of education. The burden of multiple and illegal taxation on
private schools clearly runs contrary to this. Other countries have instead chosen to encourage
private school expansion as a way to achieve ambitious education targets with constrained
government budgets.
73. It would be a useful exercise for the government to consider what targets it wants to achieve for
enrolment over the next ten years, the extent to which it is willing or able to allocate sufficient
public resources towards the desired expansion and the extent to which it would want the
private sector to pick up any gap outstanding. This could then lead into a consideration of what
incentives could be used to encourage both the quality and quantity of private school provision.
74. An analysis of the economic benefits from private schools highlighted the benefits to students in
terms of increased income alongside broader benefits to the state such as increased tax
revenues from better educated individuals and better public health. Their scale, in present
value terms, for just one cohort of students educated for one year in 2010/11 can be estimated
in the region of N 504 billion ($2.5 billion).
75. International evidence has strongly emphasised that the extent of any such benefits is
completely dependent on the quality of education actually received. As such, ensuring an
enabling environment for private schools to operate would seem important to maximise these
25
economic benefits for Lagos. The quality of education provision is likely linked to schools’ ability
to spend resources on education inputs. This ability is constrained when school revenues are
diverted towards multiple and illegal taxation.
76. A disaggregation of the analysis showed that the biggest contribution of cost-savings to the
government budget comes from schools that are yet-to-be-registered with government.
Despite this it is unregistered schools that face bigger challenges in terms of illegal and multiple
taxation, while the standards for achieving registration can be prohibitively difficult. Given that
the bulk of the N 377 billion ($1.9 billion) savings to the government budget over the last five
years has come from these unregistered schools, perhaps more could be done to support their
registration and protect them from taxation burdens that reduce their ability to deliver quality
education.
77. A separate disaggregation of the analysis found that the majority of the cost savings come from
low-medium fee schools rather than high fee schools. Given that the level of fees for low-
medium fee schools does not go beyond the likely unit cost required to deliver quality
education, it would seem particularly counter-productive to attempt to tax these schools.
Rather it might be more effective to ensure that any ‘profit’ they are making is not being
diverted away from inputs required for education delivery.
4. Options and Next Steps

78. Two recommendations can be proposed for taking this report forward. The first is to share the
analysis with government and get their specific feedback on the assumptions used. These
assumptions can easily be modified and such changes are unlikely to fundamentally change any
key message from this report. This may make the report’s findings more likely to be accepted
by government counterparts.
79. The second is to develop a dialogue between DEEPEN and the relevant government department
to develop the understanding of the partnership between the government and private schools
to achieve politically set targets for education provision. The discussion should consider what
the requirements are for the government to achieve its own strategic goals for education over
the next 10 years and what the desired contribution from the private sector would be to reach
those targets (in terms of both quantity and quality). This should then provide the foundation
for a debate on what strategies should be pursued for supporting and encouraging the required
input from private schools, including in terms of their taxation treatment.
26
80. Should the government not be open to this dialogue in terms of recognising the private sector
as a partner for achieving its own goals, then DEEPEN needs to use this report’s findings to more
directly provoke the debate on the appropriate fiscal treatment of private schools in Lagos
State.
27

Economic Value Analysis of Private Schools in Lagos State 1

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Economic Value Analysis of Private Schools in Lagos State 1

Încărcat de

Drepturi de autor:

Formate disponibile

Developing Effective Private

Education Nigeria (DEEPEN)

Author: Hamish Colquhoun

AESPR Annual Education Sector Performance Report

1.1. Purpose of the Consultancy

1.3. Structure of the Report

22. The first question will be answered by two sub-questions:

2.1. Question 1 – What costs would the government incur if it was

The average cost per student in government schools

Table X – Government expenditure (recurrent and capital) on education in Lagos State

The average cost per student in private schools

The number of students educated in private schools 2010/11 to 2014/15

available.11 Estimating enrolment in 2011/12 to 2014/15 therefore requires an assumption

Table X: Estimated private school enrolment from 2010/11 to 2014/15

Unit cost per student

(i) Status Quo scenario for Unit Costs

(ii) Quality education scenario for Unit Costs

Expected number of students

54. The implied number of students in private schools is as follows:

Table X – 3.2% enrolment rate growth to accommodate population growth

Table X - Scenario 1 – Status Quo unit costs

Table X - Scenario 2 – Quality Education unit costs (recurrent costs)

Table X - Scenario 2 Contd – Quality Education unit costs (classroom costs)

Table X – Disaggregating cost savings by private school fee category

Question 2 – What are the economic benefits

Income benefits to individuals

Non-income benefits to individuals

Broader economic benefits to Lagos State

4. Options and Next Steps

S-ar putea să vă placă și