Financing education in sub-Saharan Africa: The broad policy issues

Contributor Notes

Issues of equity and efficiency of investment—some policy alternatives

This paper anlayzes the role of the International Financial Corporation (IFC) in promoting economic development in developing countries with the private sector. IFC promotes growth of new companies, indigenous companies, and helps to introduce more capital from private sources into developing countries. Many countries need to develop capital market institutions such as stock exchanges, securities companies, leasing companies, and financial intermediaries of one kind or another. IFC has a special department, partly financed by the World Bank, that has provided expertise in these areas to a number of countries.


This paper anlayzes the role of the International Financial Corporation (IFC) in promoting economic development in developing countries with the private sector. IFC promotes growth of new companies, indigenous companies, and helps to introduce more capital from private sources into developing countries. Many countries need to develop capital market institutions such as stock exchanges, securities companies, leasing companies, and financial intermediaries of one kind or another. IFC has a special department, partly financed by the World Bank, that has provided expertise in these areas to a number of countries.

Alain Mingat and George Psacharopoulos

A country’s educational system is the backbone on which many specific developmental objectives rest. The achievement of literacy, a sustainable rate of economic growth, and equitable distribution of income can be hastened through investment in education. Hence financial constraints on investment in education can have adverse long-term effects. This paper discusses these issues in sub-Saharan Africa, where financial constraints are especially pronounced, and contrasts the lessons to be drawn from two regions—francophone and anglophone Africa—that have followed different policies in financing education.

By any standard, economic growth in Africa has been slow; when it is combined with rapid population growth, the growth of per capita income in some countries has even been negative. The school-age population of Africa is the fastest growing in the world and expenditure on education is high compared with that in other developing countries, both in terms of the share of GNP allocated to education and the share of education expenditure in the state budget. The latter share is particularly high in the francophone countries.

Yet relatively high expenditures have apparently had less impact in Africa than lower expenditures elsewhere (Table 1). School enrollment ratios—those enrolled in relation to total school-age population—are substantially lower than in other parts of the developing world, while average adult literacy rates are also lower. It is also significant that while the burden of education expenditures on the state is higher in francophone than in anglophone Africa, average enrollment ratios in primary and secondary schools and adult literacy rates are appreciably higher in the anglophone countries. The effects of the higher government spending on education in francophone Africa are only evident in enrollment in postsecondary education, which is twice as high as in the anglophone group. Even allowing for differences in the social, political, and economic characteristics of the two groups of countries, the broader impact of expenditures on enrollments and adult literacy in English-speaking Africa demonstrates what could be achieved elsewhere.

Table 1

Education expenditure and educational development1

(In percent)

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Source: World Bank data.

Based on the latest data available, from the early 1980s.

Francophone countries include Benin, Burkina Faso, Burundi, the Central African Republic, Cameroon, Chad, the Congo, Gabon, Guinea, the Ivory Coast, Madagascar, Mali, Mauritania, Niger, Rwanda, Senegal, Togo, and Zaïre.

Anglophone countries include Botswana, Ethiopia, The Gambia, Ghana, Kenya, Lesotho, Liberia, Malawi, Nigeria, Sudan, Swaziland, Tanzania, Uganda, and Zimbabwe.

Given the recognized impact of widespread basic education and literacy on development, it is important to isolate those factors that could hinder the provision of education to more people, particularly where population growth rates are high. The primary factors in Africa seem to be, first, very high costs per pupil (which are mainly borne by the state) and, second, a bias, particularly in francophone Africa, toward encouraging postsecondary rather than primary education.

Costs and misallocation

In all country groups, developed and developing, unit costs rise with the level of education (Table 2). But at all education levels, unit costs are proportionately highest in Africa, particularly those of primary and secondary education in francophone Africa. The unit costs of primary education in terms of per capita national product are almost 2.5 times higher in Africa than in other developing countries; the costs of secondary education 4.5 times higher; and those of postsecondary education 8 times higher. These high costs are not attributable to either low student-teacher ratios (which, in fact, are on the high side in Africa, and particularly so in francophone Africa) or to the high quality of education, which entails expensive inputs. One cause of these high costs is teachers’ salaries, which are high in relation to available resources; primary school teachers’ wages are, on average, between two and three times higher in per capita terms in Africa then in Asia or Latin America, and wages in francophone Africa are almost twice the level of those in their anglophone counterparts (Table 3). Although part of this difference could be explained by the relative human capital shortage in Africa, a great part is due to ex-colonial links and the imitation of pay scales in the metropolis.

Table 2

Unit costs of public education at various levels

(As percent of per capita GNP)

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Source: World Bank data.
Table 3

Primary school teachers’ salaries as percentage of GNP per capita, by region, 1978

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Source: J. C. Eicher, Educational Costing and Financing in Developing Countries: Focus on Sub-Saharan Africa, 1984, World Bank Staff Working Paper No. 655.

A second reason is the very large-scale state involvement in the financing of education; this accounts not only for capital and operating expenses but also for student subsidies whose importance rises with the level of education. State subsidization of education is particularly pronounced in francophone Africa.

Such large public involvement in the financing of education would be justified if it led to a socially efficient and equitable outcome. One way to assess its social impact is to compare the rates of return to different levels of education. The social rate of return for a given education level is calculated by comparing incremental gains accruing to society from individuals who attain that education level (in relation to those obtained from attaining the level below it) with the aggregate costs (direct and opportunity costs) borne by all participants (state and individuals) in financing education. The private rate is calculated by a similar method except that it takes account only of the costs borne by individuals. It follows that the greater the state contribution to the financing of education, the greater the margin by which the private rate of return exceeds the social rate. Estimates of the social rates of return of the various education levels can help the authorities decide on socially optimal resource allocation, while estimated private rates of return measure the incentives to individuals to obtain a given level of education.

Data on returns to education in Africa show investments in primary education to be the most socially efficient. Table 4 shows the private and social rates for three education levels based on a sample of 44 countries, grouped by region or development level. The social rates of return are highest in primary education for all groups, while higher education shows the lowest social rates of return. The discrepancy between social and private rates increases with rising education level—the increasing difference being especially marked in the African countries. Since it is the size of the private returns that provides the incentive to individuals to invest in education, it follows that African students are given strong incentives to invest in postsecondary education. This incentive pattern is not conducive to a socially efficient utilization of national resources.

Table 4

Private and social rates of return to education

(In percent)

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Source: G. Psacharopoulos, “Returns to Education: An Updated International Comparison,” Comparative Education, Vol. 17, No. 3.

The strong incentives for individuals to invest in postsecondary education also raise questions of equity. It may be more equitable to provide fewer incentives to individuals to invest in postsecondary education. First, it is primary education, which can be regarded as both a fundamental right of the individual and a sound economic investment, that needs to be further expanded—given its high social returns, existing low enrollments, and more particularly its relatively low unit costs. Second, state subsidization of students tends to be greater the higher the education level. But subsidies are not always necessary, since students in higher education are more likely to come from better socioeconomic backgrounds (and could afford to bear a greater share of the cost of their education) and, again on average, will realize higher incomes from their studies. They could therefore reimburse the state for at least part of the financial support they received while studying.

Estimates of the share of student subsidies (living expenses and stipends) in secondary and higher education confirm the sharp contrast between the expenditure pattern of the francophone and anglophone countries of Africa. In both groups, public subsidization for student living expenses is notably higher than in Asian developing countries, where they represent only 4 percent of the total public cost at the secondary and higher levels. In anglophone Africa, student subsidies represent 14 percent at secondary and higher education levels, while in francophone Africa the figures are much higher, 23 and 43 percent respectively. In countries like the Congo, the Central African Republic, and the Ivory Coast, scholarships and social expenditures even exceed teaching expenditures at the higher level. Student scholarships represent on average 120 percent of per capita GNP in the Ivory Coast, 160 percent in Senegal, 700 percent in Mali and the Central African Republic, and 800 percent in Niger and Burkina Faso (formerly Upper Volta).

There certainly exist valid arguments for subsidizing education systems and for not subsidizing them, based on grounds of efficiency, equity, ideology, politics, educational quality, or the flexibility of educational institutions. But when the affordable limit of state financing is reached, as it has been in the Ivory Coast, for instance, there is no option but to increase the private share of the burden of financing education or let its quality drop.

Policy implications

The high costs of education and low enrollments in sub-Saharan Africa, often combined with a socially inefficient emphasis on higher education, imply a need to review the allocation of resources among education levels to give higher priority to primary education, especially in the francophone countries. This priority is justified on both economic efficiency and social equity grounds.

Student subsidies could be gradually abolished (or charges even introduced) to recoup part of the operating expenditures on secondary and higher education. (A limited number of scholarships or loans could be selectively provided to students in particularly adverse financial circumstances.) Reducing subsidies to individual students would improve efficiency by giving them more incentive to choose responsibly among alternative education options. Some reduction in enrollments could result, although it is known that aggregate demand is not very sensitive to increases in the cost of studies, especially when the private rate of return is already high. On the other hand, the “internal” efficiency of the education system would improve—rates of dropout and repetition would fall as students with low aptitude or motivation attracted by student aid leave the system. “External” efficiency would also improve as students would invest in specific training in response to labor market signals, helping to improve the linkage between education and the labor market. Finally, overall efficiency would improve as the resources saved could be used for primary education, where unit costs are much lower and social returns much higher. Such reallocation would raise both the real level of the country’s education investment and the overall rate of return on education expenditures.

There are many arguments for and against reducing student subsidies on equity grounds, but in general those in favor of maintaining them are unconvincing. Equity in education has two objectives. The first, equality of opportunity, means that education opportunities should depend on individual aptitudes and efforts, and not on ability to pay, geographic location, or ethnic affiliation. The second objective, income distribution within society, rests on the premise that, given initial conditions, inequality of income is increased when more is given to those who currently have more.

Improving income distribution clearly calls for abolishing subsidies. As documented earlier, average data for all countries show that the higher the education level (particularly university education), the larger are the subsidies (they are low or zero for primary education). Higher education students are, in fact, privileged in three mutually complementary ways. First, by financing their studies, the community concentrates its resources on a small number of individuals; on average about 20 percent of the resources allocated to education in African countries is concentrated on students who represent less than 2 percent of their age group. Second, higher education students tend, on average, to come from privileged socieconomic backgrounds; in most countries they contain a disproportionately high share of children of civil servants, salaried employees in the modern sector, or urban families in general. Third, these postsecondary students will enjoy higher incomes than average during their active lives and could therefore afford to reimburse the community later for at least part of the financial support they received while they were studying.

The arguments for student subsidies to ensure equality of opportunity rest on the premise that they give access to education to students who otherwise would not be able to afford it. But subsidies are not the only way of achieving equality of opportunity. Leaving aside subsidies that are given to all students, irrespective of their individual or family income status, a student who has difficulty in financing his studies could, instead of a scholarship, receive a loan that would be repayable when he is working and earning a relatively high income.

Overall, therefore, the equity arguments reinforce rather than diminish the efficiency arguments in favor of reducing subsidies to secondary and higher education and transferring the funds to primary education, where they would be used more efficiently and be distributed more widely, to the benefit of less privileged social groups. The arguments in favor of reducing or abolishing student subsidies also apply to the introduction of school charges at the same education levels.

A new policy emphasis on primary education is called for. It is important, however, to ensure that, within the differing financial constraints of countries, the allocation of resources between the various types and levels of education is consistent with national goals and social investment priorities. These goals are typically those discussed earlier, that is, to attain maximum efficiency in education expenditure and enhanced social equity both in terms of access to education and income distribution.

In general, these objectives imply that greater emphasis should be placed on primary education. This would be simultaneously economically efficient and equitable. Primary education tends to yield very high social returns, enhances productivity in a wide range of activities, and literacy fosters further learning on the job or during working life in general. More emphasis on primary education—as mentioned earlier—would enhance equity, by increasing opportunities for those who will not receive other types of education; it would also be socially desirable in many countries, particularly in francophone Africa, which have relatively low levels of primary schooling. It will be necessary, however, to ensure at the same time that the development of primary education does not exert excessive pressure to expand secondary education. Since in most countries the demand for secondary education is high, a dual approach could be taken; secondary school enrollment could be controlled by a price mechanism (increasing the cost of studies, for instance, by reducing subsidies or by introducing school charges) and by offering opportunities for rapid off-school vocational training directly linked to employment opportunities.

The changing economic situation in most countries and the adoption of new production techniques mean that school systems, particularly in technical secondary and in higher education, cannot be rigid and must adapt to changes in job conditions. It is therefore highly preferable to develop a broad technical base and to leave narrow specialization toward the end of formal training. Technical education, as commonly organized, is not only expensive but may, in many countries, be unsynchronized with the specific needs of production, so far as one can judge from employers’ statements, employees’ salaries, and the absorption of graduates by the labor market. The net result is that the rate of return on any substantial development of formal technical education may not be warranted. Given these reservations, this may be an appropriate time to examine the question of whether formal education is the best way of acquiring very specific job skills or whether these should be provided within an enterprise before and/or during employment.

Reducing costs

Education costs could be reduced by improving efficiency, particularly that of teachers. Reducing costs is a necessity for all African countries but is particularly essential for those with the lowest per capita incomes. It has been shown that for some countries it would be very difficult and a long-term proposition to achieve full enrollment in primary education without a reduction in unit costs.

A priori, two main groups of factors affect unit costs: teachers’ salaries and nonsalary teaching expenses—books, materials, and so on. (Welfare expenses are excluded.) Teachers’ Salaries affect unit costs through average wages and average pupil-loads per teacher. The higher the average salary, the lower the pupil load, and the greater the amount of teaching material used, the higher is the unit cost.

What are the possibilities for reducing unit costs per pupil? It is clearly not desirable to reduce nonsalary teaching costs; these have, in fact, fallen during the last ten years, in relative and in some cases in absolute terms, and are now very low and probably in many cases inadequate. Analyses have even shown that increasing these expenses would have beneficial effects and that their economic efficiency is frequently high.

By contrast, the scope for improving the efficiency of teachers in various ways is greater than it appears at first sight. Average staffing ratios are already high in Africa, particularly in the francophone countries, given available facilities. But fewer teachers would be needed—and costs would be lower—if the facilities were better. Moreover, in many countries pupils have short school days, justified by their age, ability to assimilate knowledge, and attention span. But there is no reason why these short days should also apply to teachers. Depending on the specific possibilities for implementing changes, the number of Working days a year or of working hours a week per teacher could be expanded.

Finally, one could consider changes in the pay of teachers. Here again, specific situations will determine which of several different types of measures is most appropriate to achieve changes. The most drastic course would be to decree salary cuts, on the grounds that teachers’ salaries in relation to per capita GNP are higher in Africa than in comparable countries, and are particularly high in francophone Africa. However, salary cuts have limitations as a measure to reduce costs. First, and for obvious political reasons, the reduction can only be gradual. Second, it would be easier to reduce teacher salaries if teachers were already well paid compared with similar professionals, such as civil servants. But this is not the case; teachers in francophone Africa are better-paid than their counterparts in anglophone Africa, but so are civil servants in the francophone countries. Third, there is a danger that reducing relative teachers’ salaries could reduce the incentives to become a teacher or for teachers to perform as well as possible. An additional, divisive, factor is that the effects of cuts may not be the same among teachers of different disciplines, particularly in secondary education. While the effects can be expected to be limited in the case of teachers of literary subjects, they may be greater in the case of science teachers, for whom competing demand exists in most labor markets. In this connection, the practice of proposing pay scales regardless of relative labor-market scarcities could also be reexamined.

Other possibilities exist for reducing average salary costs per teacher, particularly by altering the qualifications of the teaching body. This concerns a direct trade-off between the “quality” of the teacher, measured by his academic qualifications, and the number of pupils the country can afford to enroll in school within a given financial budget. Thus, while teachers with high academic qualifications are probably better-qualified to exercise their profession, employing teachers with lower qualifications (at lower salaries) would release funds that could be used to increase enrollment. The efficient and equitable use of resources may require a loss in terms of knowledge acquired by individual pupils (because teachers are less qualified) in order to achieve a gain in enrollment within a given budget.

Conscious tradeoffs

This last point illustrates the difficulty facing educational policymakers in most countries. Every decision involves tradeoffs between highly desirable outcomes. Ideally, one would like to have a higher level of enrollment, better-paid teachers, higher levels of cognitive achievement, and free education. But this review of education in Africa shows that choices among priorities have to be made.

Some of the priorities pointed out in this article may appear politically unacceptable, namely, reducing subsidies for higher education or even the recovery of part of the social cost of education from the beneficiaries. But as our review has also shown, changes in educational financing policies can have desirable effects on a variety of social welfare indicators, including equity.

Finance & Development, March 1985
Author: International Monetary Fund. External Relations Dept.