Home / RDPI News Service / Education / Booming business of education

Booming business of education

Pakistan’s education ecosystem has evolved beyond recognition over the past three decades. Aided by insufficient public-sector investment and inefficient delivery in the wake of growing need and demand of the expanding population, the share of the private sector in education has increased significantly, particularly in terms of schools, universities and vocational training institutions, but not quite when it comes to intermediate colleges and teachers training centres.

The quality gap is said to be the widest in the early stages of education. At the professional and higher-degree level, some public-sector institutions, such as Dow Medical, NED, IBA, KU, PU and QAU, are said to be ahead of the private institutions in ranking and student preference, but that has been no impediment in the way of business expansion for the private concerns.

The education was perceived by investors to be a ‘low-risk, high-return’ option. It has indeed proven to be so as it threw up a new class of education barons now upping their ante by diversifying their business interests. The wealth generated in the education sector has started flowing towards investment — BIG investment — in media (Dunya channel, for instance) and real estate.

The sector is peculiar as despite its size the bulk of investment is self-financed without involving the capital market or borrowing from the banking system. In case of schools, anecdotal evidence suggests that investors recycled profits into expansion instead of raising capital from outside.

All kinds of fabulous numbers start flying at the mention of ‘financials’. Some talk in terms of billions, while others believe the collective valuation might actually be in trillions of rupees. However, no one in the government or otherwise has actually assessed the real worth of the education sector or the market in Pakistan based on real numbers. The sector is believed to have managed horizontal and vertical expansion outside the tax net for the better part.

The propensity to spend on children education by Pakistani families has spiked as parents spend higher percentage of income on education today than the last generation did. Spending on the head is higher compared to Indians, Americans and Europeans. According to an estimate, a typical middle class urban Pakistani family spends 20-30pc of income on education; third biggest head of domestic budget after rent and kitchen.

In this special report the ‘Business’ team tries to look deeper to map progress, assess value, identify gainers/losers and mark pitfalls of transformation of a service into a commodity.

The trend of investing in the education sector started with liberalisation policies in the early 1980s and matured in the 2000s. During the current decade, more advanced forms of expansion, such as capitalisation on brands through franchises (Smart Schools, Educators, etc.) and specialised programmes (evening programmes, application assistance for foreign institutions, Career Counselling, etc) for optimal utilisation of fixed investment on buildings and campuses is gaining currency.

Inspired by the economic success of early entrants in private schools in the 1980s and their expansion in brand chains in the 1990s, multiplying assets manifold in the process within a short span (The Punjab School, City School, Foundation Public, Beaconhouse, Roots, Generations, CAS, Lahore Grammar School, etc), corporate Pakistan and the political elite were both drawn to the sector.

As business got serious many reputable new institutions with huge investments emerged on the horizon in the 2000s (LUMS, GIK, NUST, SZABIST, AKUH, ZU, Lyceum, JU, IoBM, HU, IU, etc).

Unlike other sectors there is sufficient district-wise data available on the number of institutions (public/private) and enrollment, as well as employment of teachers at different levels. Besides, the Federal Bureau of Statistics, the Academy of Education Planning and Management, the National Education Management Information System and several other bodies publish voluminous reports fairly regularly.

It is interesting that none of these reports comment on the worth of the education market, let alone details about the financials of institutions independently. This is despite the fact that all universities and most reputable schools depend on banking services for financial dealings (fee collection and salary disbursement, sale/purchase etc). It is, therefore, not hard for the government to get a handle on internal financial working for taxation purposes and monitoring movement of capital in and out of the sector.

Some 17 million students – 37pc of total – attend 87,659 private education institutions in Pakistan. A middle class family spends around 30pc of domestic budget on education compared to 2pc in the US and 17pc in India. Liberalisation without effective regulation has led to market failure resulting in abuse of dominant position, cartelisation, lack of disclosures and outright deception. The sector has thrown up a new class of tycoons with the financial muscle to create ripples in other sectors. It could be demand-supply gap, perception of falling standards at peelay schools, better employment opportunities, social prestige or whatever else, Pakistanis want to buy their children the best they can and even beyond. The natural outcome is …

According to people familiar with the issue, the legal framework to regulate the private education sector is in place, but the will and the capacity to implement it is lacking.

Higher-ups in the government at the provincial and federal level admit privately that the government has no clue about the business models of private institutions.

“The private schools and universities assume themselves above the law of the land, and like to project themselves as social workers. They are very arrogant and consider themselves exempt from any kind of financial disclosures.

“Leave aside big campuses in major cities, EDOs (Education District Officers) regulating entities in the education sector at the district level are refused entry in the premises by local schools. There have been instances when EDOs and DDOs were chased out by private security guards when they tried to approach the administration. In the absence of support from law-enforcers, they have learnt to maintain their distance,” a frustrated director in the relevant ministry told Dawn.

The private institution compete for different market segments and there are reports of turf war from different cities of Punjab, but the moment the government shows intent to regulate the sector, they close ranks to resist collectively.

“The absence of conducive environment for long-term investment in industry (energy crisis, inconsistent policy framework, excessive regulatory demands) during the past few years has attracted investible funds to the sector which is perceived to be loosely regulated with minimal government intervention. “Businesses are in for a profit. Instead of raising suspicion, the successful brands deserve a pat on the back for bridging gaps in the education system of the country,” a banker-turned-senior executive of a private university, said.

Privatisation Minister Muhammad Zubair was also impressed with the successful business model of educational institutions. “Instead of looking for excuses to stifle a thriving sector, it would be better to focus on the services they are rendering by providing options that are otherwise not there. Yes, they should not be allowed to misuse their dominant position, but we need to be watchful of our tendency to swing from one to the other extreme,” he said.

Salim Raza, former governor of State Bank, found the topic both interesting and intriguing. “The best way to discipline them would be through ensuring free competition. Let there be enough schools offering reasonably good quality education cheaper to stabilise the fee structure. As long as there exists scarcity, and quality is linked to fee in public perception, it would be hard to control hike in education cost. I see no market failure at this point,” he said.

Former finance minister Shaukat Tarin was clear in his views. “The profit margin in the education business is 30pc at the lower end. There has to be some control and like other businesses, they should be obligated to make public their audited financial accounts. Making profit is not a sin, but not declaring wealth is a punishable offence,” he said.

Tashfeen Niaz told Dawn that the Sindh Board of Revenue proposed to impose service sales tax on educational institutions, but it was shot down. “The withholding tax is weaved into fee paid by parents, and profits are liable to income tax irrespective of the source unless an entity is declared a charity and cleared for tax exemption,” he explained.

Unlike corporate entities, none of the major private institutions put its balance sheet on websites. Other details such as total enrolment at different levels and fee structures are available online.

“It is difficult to say if it was the capacity or the intent that left the market unattended for long enough for some private players to assume size and influence to game the system and become untouchables,” a federal secretary said anonymously.

Parents treat private education as a ticket for social mobility through better scope in the country’s job market. “The private English medium education, particularly at the schooling stage, is a compulsion, and not a choice, for better future prospects. Yes, private education has perpetuated the class system by tying access to quality education to affordability. There is no place for the idea of equal opportunity to all children in Pakistan. Here, the poor are doomed from the word go in the race to succeed in life,” a disgruntled parent said.

Published in Dawn, April 3rd, 2016


Credits: DAWN

Check Also

Climate change Scientists for planting more trees

Scientists at an international conference said that the climate change being a global phenomenon can …