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Barons in education business

November 26, 2012

Education has evolved into a lucrative business in Pakistan while a variety of factors influence the quality and pace of its growth. 

In the end, however, it is the demand and the willingness of households to spend substantially more on education, that has led to the emergence of a class of ‘education barons’ in the country.

Profit margins in the sector are believed to be larger than those in many other enterprises, against risks that are projected to be minimal. The initial capital requirement depends on the size and scope of the project. Low cost viable options are also available. Besides, the domestic education market is big with promising scope as people’s thirst for education grows and the ability to cover its cost improves.

The market is believed to be tilted in favour of those who game the business to squeeze students in order to extract maximum profit. More than anything, analysts believe that disclosure requirements discouraged popular education brands from listing in stock exchanges. “There is not a single education company operating in the capital market”, an analyst confirmed.

“From all I know the average return in education business is 200 per cent and more. It is not an accident or a tradition that only shops beat schools in numbers in Karachi” an expert who occasionally writes on the sector commented.

“Some high-end private schools have campuses but most are located in cramped rented spaces devoid of supporting facilities, pay little to teachers and charge students at whim. The regulatory bodies in the sector are archaic and corrupt. There are, however, exceptions particularly in the higher education segment”, he added.

There is little denying the fact that today people of the country are more inclined towards education than ever. It is increasingly perceived as the most effective driver to facilitate upward social mobility. Besides, the influx of technology has democratised knowledge and infused competition amongst youth with a passion to excel and succeed.

On an average, a young urban family spends 10 to 15 per cent of its monthly income on schooling. The trend is almost class insensitive. The spending on education often increases to touch as high as 70 per cent equivalent of monthly income of some households as their children climb the education ladder.

The gradual withdrawal of the government from the social sector and significant induction of private investors in the education sector started in the mid-1980s. The trend gained momentum in the 1990s. People blame less than required level of public investment in education to be the culprit. This seems to be partially true. The fact is that the public sector is not oriented to respond to the changing trends in education, especially in a transforming society.

Enterprising people capitalised on the opportunity by providing the product to match the demand and investing in creating brands. Initially, people with a background in teaching entered the education business.

Their success, however, made the corporate sector look at the social sector through a business prism.

“The attractive margins and the virtually captive market was irresistible enough, but scarcity of skills needed by growing institutions also provided impetus to big boys of trade and industry to pour in money in the sector”, a businessman told Dawn.

“Besides profit, the activity earns businessmen in society that many crave for once they have succeeded”, another tycoon from Lahore said.

Last year, parents spent at least Rs65.5 billion ($644 million) on 25,000 Pakistani students studying abroad.

On an average, it cost Rs2.5 million to finance a year’s study in an average college abroad. Most of these 25,000 students went to the UK, followed by Australia, the US, Canada, Singapore, Hong Kong, Netherlands, Malaysia, etc.

The monthly fee per child in prestigious local schools (City, Beacon, Roots, Lahore Grammar, etc) is more than double the minimum wage (Rs7500) in Pakistan. The list of aspirants to enter such schools is many times more than their capacity to accommodate and thus the scope for a further hike in fees.

Many known universities in the private sector charge Rs300,000 or more annually. A family with three university going children, studying at a local private college, spend over a million rupees annually or Rs100,000 monthly. For higher education there has been a fee raise in government-run universities as well but they still charge a fraction of their counterparts in the private sector.

The mammoth growth of school chains across the country and their increasing assets with buildings and campuses in many cities covering localities with market potential tell tales of their success. More enterprising ones have introduced franchises to cover the market in lower middle and low income areas. For example Beacon House has introduced a franchise by the name of Educators. Another chain is said to be franchising Kehkeshan.

The capital generated from the education sector has actually started flowing in other sectors as well. Over the last month, two out of the three newly launched Urdu daily newspapers are owned by education barons.

It is hard to determine the actual size of the private sector-led education economy because of issues associated to documentation. Random facts and figures suggest its size is larger than the most liberal estimates.

In many newspapers, education-related advertising competes with auto, banking, telecommunication, and construction sector. The Sunday edition of a leading English newspaper last week contained a dozen advertisements of local and foreign universities. A senior marketing executive in Karachi told Dawn that the education sector has been a leading advertiser in the print media for the last 25 years but its share has increased.

“Last years total advertising spending in Pakistan was estimated at Rs32billion that included print, radio and electronic media. Of Rs12 billion spent on print media, at least Rs1.8 to two billion came from the education sector. This sector concentrates on bigger newspapers generally” an advertisement manager disclosed.

Syed Khalid Shah, president of All Pakistan Management Association of Schools, said they represent private schools charging under Rs2000 monthly fee. “We maintain accounts like any other business and pay whatever is due judiciously”, he told Dawn.

Several attempts to solicit views of the Federal Board of Revenue on the size or the contribution of education business to national kitty did not succeed. All senior officers including the spokesperson could not make themselves available for comments on the subject.