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Pre-Feasibility Study
HIGH SCHOOL
Small and Medium Enterprises Development Authority
TU2UT TUINTRODUCTION TO SMEDAUT ........................................................................ 5
TU3UT TUPURPOSE OF THE DOCUMENTUT ................................................................... 5
TU4UT TUCRUCIAL FACTORS & STEPS IN DECISION MAKING UT ......................... 6 TU4-1 UT TUSWOT ANALYSISUT ............................................................................................ 6
TU5)UT TUTax deduction income slabsUT ...................................................................... 33
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11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY This SME venture entails establishing a high school in Lahore, the second largest city of Pakistan. The school will be catering to children of middle to low income economic stratum, recognizing the need for a high caliber yet low-cost institute. Being cognisant of the financial constraints of most parents, the school will charge an affordable fee. The school will practice advanced educational procedures – using modern teaching methodology, covering an extensive curriculum which is up-to-date with international standards, and hiring qualified and experienced faculty. The school will have state-of-art infrastructural facilities including spacious classrooms, well-equipped science and computer laboratories, and a resourceful library.
Evident from the performance of education sector in Pakistan, quality education is a luxury only the rich can afford. Despite the efforts made by the government, most public schools are failing due to shortage of qualified or committed teachers, limited curriculum and out-dated teaching methods. With inadequate financial resources of the government, private sector investment is the only hope left for the revival of the education sector. Primary to high school level education is most crucial for initial development of a child and his future as a professional. Admission to the best colleges and universities is mostly dependant on the quality of education a student receives till his matriculation. Keeping this in mind, establishing high schools will be the most beneficial decision an entrepreneur can take to help rebuild this sector.
The total project cost for setting up this school is estimated at Rs. 6.367 million. The project is financed through 50% debt and 50% equity. The project NPV is around Rs. 14.736 million, with an IRR of 65% and payback period of 2.38 years. The legal business status of this project is proposed as ‘Sole Proprietorship’.
The overall proposed capacity of the school is 735 students. Each class level from Nursery – Matriculation has two sections. The maximum number of enrollments per class is limited to 30 students, to keep a manageable student-teacher ratio and to allow maximum attention for each student. The proposed building will be acquired on rent, covering an area of 3-Kanals to accommodate the proposed student strength.
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22 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA
The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.
SMEDA has so far successfully formulated strategies for industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.
33 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT This particular pre-feasibility comes under the ‘Education’ sector, a sub-sector of the ‘Service’ division and is in regard to setting up a “High School” in any big city of Pakistan.
The objective of this pre-feasibility study is primarily to provide an overview of the high school business. This project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, marketing, finance and business management.
Strengths Low student-teacher ratio Recognized by the BISE English as a medium of instruction Affordable to middle income group Accessible location Well-trained and qualified teaching staff Up-to-date and extensive curriculum Well maintained order and discipline Environment conducive to joyful learning Adequate security measures Availability of adequate and modern facilities Contribution to societal development
Weakness Time required for gaining recognition in the society Higher rental cost for accessible locations Insufficient area for playing fields to practice sports such as cricket, hockey
etc. Opportunities
Overall increase in demand, linked with the growing population. Government incentives and policies conducive for private investment in
education sector Gap between number of school going age children and actual enrolments in
schools Growing general public awareness (especially in urban areas) about
importance of quality education Limited access to affordable, quality education. Minimal budget allocation by government to education sector Limited number of government/public schools Poor facilities in government schools
Threats
New entrants can easily share the business Difficulty in retaining qualified teachers Revival of public/government schools in the future through effective
government policies and regulations.
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55 PPRROOJJEECCTT PPRROOFFIILLEE
55--11 OOppppoorrttuunniittyy RRaattiioonnaallee A well-educated and well-trained population is essential for the social and economic well-being of a country. Globally, it has been observed that countries attach the highest priority to education since the development of other sectors like health, agriculture and industry is dependent on the development of education. In the face of growing demand for education world over, it is readily conceded that investment in the quantity and quality of education contributes greatly to the accumulation of efficient human resource and sustained socio-economic growth.
With growing public awareness, the overall demand for education is already on the rise and is likely to increase further over the years. The gap between the number of school-going age children and the actual enrollments in schools calls for immediate attention to increase the supply of schools.
The Government of Pakistan accepts education as fundamental right for its people and is commitment to provide education to every citizen. But unfortunately, the Government faces constraints due to limited financial resources available for the education sector.
Children of relevant age group have inadequate access to education. Educational institutions lack basic facilities. The target of minimum essential requirement of competencies for quality education has not yet been achieved. Educational institutions face shortage of qualified and motivated teachers, especially female teachers. Therefore, the private sector investment is being encouraged with various incentives to lower the burden of the Government.
During the fiscal year 2008-2009, the total education budget was Rs. 275.5 billion, including development budget of Rs. 75.1 billion and recurring budget of Rs 200.4 billion. The education budget as percentage of GDP, for the past ten years, is given in Table below.
Table 5-1: Expenditure on Education during 2000-01 to 2008-09 TP
1PT
(Billion Rs.)
Year Current Development Public sector % of GDP % of Total Expenditure
Although, traditionally, private schools had been a luxury only the rich can afford, this is not necessarily the case in current re-emergence of the private sector in Pakistan's education system.
Keeping in view the significant role of the private sector in promotion of education at various levels, Pakistani Government has introduced the concept of Public-Private Partnership. Government incentives to private sector educational institutions are:TP
3PT
Provision of free land, or land on concessional rates in rural/urban areas Exemption of 5% - 80% income tax to private sector institutions for their faculty,
management and support staff Utilities availability on non-commercial rates Provision of concessional financing for establishing rural schools Exemption of custom duties on import of educational equipment Undertaking necessary legislation to give Charter to private sector institutions
and facilitating their day to day affairs
Private schooling has now become important for the country. Enrolment in private primary schools was in the order of 29 percent of total enrolment in 2007-08. During 2007-08, at the middle school level, the private sector had a share of 31 percent of total enrolment. At the secondary and higher secondary level in the same year, the private sector share was 29 percent and 18 percent respectively of the total enrolment.TP
4PT
TP
2PT Private sector data is estimated
TP
3PT Education sector reforms Action Plan 2001- 2005 (http://www.moe.gov.pk/esrdocs.htm)
Figure 5-1: Private and Government school enrollment
EnrollmentPrimary level
Private Schools
*29%
Govt. Schools
71%
EnrollmentMiddle level
Private Schools
*31%
Govt. Schools
69%
EnrollmentSecondary level
Private Schools
*29%
Govt. Schools
71%
EnrollmentHigher Secondary level
Private Schools* 18%
Govt. Schools
82%
55--22 PPrroojjeecctt BBrriieeff
This study describes the investment opportunity for setting up of a high school in any big city of Pakistan to provide education to the children of middle and lower middle income group. The school will start its operation by starting classes from Nursery to Matriculation (Secondary school). Providing education from primary level onwards ensures consistent quality of education from an early stage.
By offering quality education and modern facilities, the school is expected to earn early recognition and parent’s trust and preference. The school can be opened in big cities like Karachi, Lahore, Islamabad, Peshawar, Quetta, Multan, Hyderabad, Rawalpindi, Faisalabad, etc. The area should be selected near the residents of middle income group.
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55--33 PPrroojjeecctt CCoosstt Initial project cost is estimated at Rs. 6.367 million. The financial structure for the proposed pre-feasibility is assumed to consist of 50% debt and 50% equity. However this composition of debt and equity can be changed as per the requirement of the investor.
55--44 PPrroojjeecctt RReettuurrnnss The project returns detail is given in the following table:
Table 5-2: Project Returns
Equity Project Net Present Value 14,718,882 14,736,057Internal Rate of Return 96% 65%Payback Period (Years) 2.02 2.38
55--55 VViiaabbllee SSiizzee The minimum viable size for this particular school is around 720 students.
55--66 PPrrooppoosseedd CCaappaacciittyy aanndd PPrroodduucctt MMiixx For the purpose of this feasibility study, strength of 735 students has been proposed. The first year student intake is 294 students, increasing gradually to 735 students in the fifth year. A student dropout rate is assumed to be 5%, and new student intake is 70%.
A total of 24 classrooms have been proposed for this school, each class level (Nursery – Class X) has two sections. Maximum capacity per section is 30 students. Subjects offered in Matriculation will be Science (Physics, Chemistry and Biology) and Computer Sciences (Physics, Chemistry and Computer Studies).
Schools in Pakistan typically have classes from Nursery to Matriculation; therefore getting admission at Nursery level is relatively easier than at a later stage. This particular school will follow the same pattern. The school will begin its operation by starting classes from Nursery to Matriculation. Providing education from elementary level onwards not only ensures consistent quality of education from an early stage, but also makes it convenient because the admission process does not need to be repeated before college, as would be the case if the school only provided education till primary or middle level.
A table of the number of students taken at each class level is given below:
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Table 5-3: Year-wise Number of Students
Students/Year Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Nursery- Prep 78 89 111 124 135 135 135 135 135 135 Class I - IV 120 158 198 221 240 240 240 240 240 240 Class V- VIII 96 158 198 221 240 240 240 240 240 240Class IX – X - 79 99 110 120 120 120 120 120 120Total students 294 485 605 676 735 735 735 735 735 735
55--77 PPrrooppoosseedd BBuussiinneessss LLeeggaall SSttaattuuss The legal structure of the business entity can either be sole proprietorship or partnership. Although the selection totally depends upon the choice of the entrepreneur, this particular feasibility is based on a Sole Proprietorship.
66 IINNDDUUSSTTRRYY AANNAALLYYSSIISS In Pakistan, education remains inequitably distributed among various income groups and regions. Literacy and participation rates are below those in other South Asian countries with similar level of economic development. Due to financial constraints and requirement of managerial capacity, education targets have remained unaccomplished. Programs approved by the Government were not completed because of inadequate resource allocation. The slow implementation of programs/projects undermined the efficiency of the system at all levels, significantly in terms of qualitative improvement.
Education is the key to change and progress and the Government of Pakistan has adopted this sector as one of the pillars for poverty reduction and benefit of masses. The Government is committed to provide best educational facilities to its people within the minimum possible time, by introducing its incentive for private investment and the concept of Public-Private partnership as described earlier in the report. The Education system of Pakistan is divided into the following tiers:
Table 6-1: Education System in Pakistan TP
5PT
Level Classes Student Age Duration Elementary (Montessori) Playgroup, Kindergarten 3-5 years 2 yearsPrimary I-V 5 years 5 yearsMiddle VI-VIII 10 years 3 yearsSecondary IX-X 13 years 2 yearsHigher Secondary XI-XII 16 years 2 yearsB.A (Graduate Degree) 2 yearsM.A (Post-graduate Degree) 2 yearsM. Phil/ Ph.D. 3 years TP
5PT Educational Guide of Pakistan (2007-08)
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According to Pakistan Social and Living Measurement (PSLM) Survey, the over all literacy rate, in 2007-08 was 56% compared to 55% in 2006-07. Literacy remains higher in urban areas (71%) than in rural areas (49%) and more in men (69%) compared to women (44%).TP
6PT Comparatively high incidence of illiteracy among
female may be due to pervasive gender inequality and limited access to the available educational facilities. A comparative picture of literacy rates of both sexes by province and rural/urban division is given in table below:
Table 6-2 Literacy Rates in PercentageTP
7PT
2006-07 2007-08 Province/Area Total Male Female Total Male Female
Pakistan 55 67 42 56 69 44RURAL 48 63 32 49 65 36URBAN 73 80 66 71 81 65Balochistan 42 58 22 46 66 23Rural 33 49 13 34 51 15Urban 60 75 41 60 78 39NWFP 47 67 28 49 68 33Rural 47 68 26 48 68 30Urban 64 78 49 65 80 52Punjab 58 67 48 59 70 48Rural 53 66 40 55 68 44Urban 75 81 69 74 80 69Sindh 55 67 42 56 69 42Rural 37 54 17 41 59 22Urban 74 81 65 74 82 66 The government is making serious efforts to improve the access of education by enhancing educational facilities. The rural- urban distribution of both public and private institutions and enrollments is given below (Table 6-3 to 6-5):TP
8PT
According to the Economic Survey of Pakistan 2008-09, Pakistan has a total of 146,603 primary schools in 2007-08 with an enrollment of 17.228 million students and 438,823 teachers, which gives a student-teacher ratio of approximately 39:1.
TP
6PT Economic Survey of Pakistan 2008-09 (www.finance.gov.pk)
TP
7PT Economic Survey of Pakistan 2008-09 (www.finance.gov.pk)
Total 20,756 125,847 146,603 5,610,595 11,617,679 17,228,274
At the middle school level 489 new schools have been established since July 2007. The number of middle schools in 2007-2008 is now 40,829 both in rural and urban with 320,609 teachers functional and total enrollment of 5.362 million students, giving a student-teacher ratio of 17:1.
Table 6-4 Total Middle Schools and Enrollment
Schools Enrollment Urban Rural Total Urban Rural Total
With 353 new schools added since July 2007 a total of 23,964 secondary schools with 374,249 teachers are functional in 2007-08. Total student enrollment is 2.426 million giving an approximate student-teacher ratio of 7:1.
Table 6-5 Total High Schools and Enrollment
Schools Enrollment Urban Rural Total Urban Rural Total
As shown in the tables above, with the exception of primary level schools, the numbers of school under the private sector category are more than in the public sector. Irrespective, the number of enrollments are higher in the public sector schools. It is evident from these figures that most of Pakistan’s population, despite the availability, cannot afford private schools. Conclusively, quality education is a TP
9PT Other public sector means institutions managed by Ministries/Divisions/ Department other than the
Ministry of Education/Education Departments
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luxury only few can afford. The best schools of Lahore not only charge a high tuition fee but also have limited admissions and majority of children have to settle for substandard quality of education.
77 MMAARRKKEETT AANNAALLYYSSIISS Currently three categories of schools are being run in Pakistan, catering to three main segments of the market: high, middle and low income groups. The schools, which serve the high-income groups, are running in the private sector. These schools usually charge fee in the range of Rs. 4000 to Rs. 12,000 per month per student e.g. Lahore Grammar School, Beaconhouse School System, National Grammar School and Aitchison etc. These schools have large facilities and enjoy a high repute due to their modern system of education, use of advanced teaching techniques and qualified and specialized faculty. Most private schools fall in the second category (middle income) having a monthly fee range from Rs. 2500 to Rs. 4000 e.g. Convent of Jesus & Mary and Defence Public School. The third category is the low-income group with a monthly fee between Rs. 500 to Rs. 2500, e.g. Educators and Cathedral. Most schools belonging to this category have facilities even less than the minimum requirement. These schools have less space per student and high student teacher ratio.
This proposed school caters to the needs of children of middle income group. There is stiff competition amongst the school running in the market. Parents are curious about the future of their children so they contemplate extensively before admitting their children in any school. Following are the main factors (not conclusive) on the basis of which parents make their choice of schools.
1. Distance from home 2. School track record/history 3. General reputation 4. Tuition Fee 5. Qualification and experience of the school head and other faculty. 6. Physical infrastructural facilities. 7. Courses offered and medium of instruction.
Besides the above, there are some other subjective, social and status considerations which also play an important role in parent’s decision making.
88 KKEEYY SSUUCCCCEESSSS FFAACCTTOORRSS Considering the current education situation of Pakistan; it is essential that intensive investment is made in the right type of education, yielding high returns in terms of enrollment and achievement rates. For any school to be successful high priority should be attached to providing education of substantial quality.
The key lies in careful selection of education curriculum and creative teaching methodology. A well researched, extensive curriculum and modern teaching tools should be followed.
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Children entering school in nursery, prep, class 1, and class 2, from age three to seven, are capable of learning and absorbing material very quickly. At this level, experienced and qualified teachers are mandatory to the development of the child’s communication and social skills.
A well qualified faculty sets an institution apart from all others. Teachers that are willing to work intensively with students to induce an atmosphere of learning would be an asset to any school.
The importance of training the teaching staff cannot be emphasized enough. Teacher trainings should be a regular practice to ensure consistent quality of education. Additionally, the success of a school hinges on the dedication, competence and constant supervision by the principal, who should evaluate the performance of teachers and students through regular checks.
Introducing English at an early stage is a feature especially attractive to parents. "English medium" schooling is sought after by parents of all income groups. Parents can perceive the opportunities the knowledge of English can open up for their children.
In addition to the above factors, the teacher student ratio should be kept at minimum level. The area of the classrooms should be in line with the number of students in each classroom. Moreover, the classrooms should be substantially ventilated.
For pre-school students, classrooms should be well equipped with teaching as well as extracurricular activity aids.
Parents are conscious about the well being and safety of their children at schools, therefore, it is suggested that the school ensures security. The school should preferably be located in a less populated area or at a location with minimum traffic flow.
Teacher parent interaction should also be a regular feature of the education system.
99 RREEGGUULLAATTIIOONNSS The schools are required to be registered with the Education Department (Provincial) in the office of Education Directorate Schools. The application is to be submitted on a prescribed form and can be obtained from the department.
The next process is the recognition of institution from the relevant Board of Intermediate and Secondary Education (BISE). The detailed regulations, rules and requirement of minimum infrastructural facilities along with application form can be obtained from the BISE office. Contact Information of BISE is given below:
Board of Intermediate & Secondary Education
Address: 86 Mozang Road, Lahore.
Phone No: (92) (42) 99200192-197
Fax No: (92) (42) 99200113
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1100 HHUUMMAANN RREESSOOUURRCCEE The quality of Human Resource ensures success and survival of any organization. Hiring quality human resource will ascertain success of this high school. For progression of the school it is important to manage human resource systematically and efficiently. The qualification and experience of the staff should be well scrutinized. The number of administration and maintenance staff remain the same for the ten year time period. Experienced teachers and subject specialist are hired yearly, as students add up and consequently additional sections become operational. Key personnel proposed for the school and their salary structure are given in table 10-1:
Table 10-1 Staff Acquisition Plan based on first year requirement
1111 EEQQUUIIPPMMEENNTT//FFUURRNNIITTUURREE RREEQQUUIIRREEMMEENNTT Detail of total equipment/furniture requirement and investment for the project is given below. Supplier information of equipment and furniture is provided in the Annexure.
Table 11-1 IT Equipment
IT EQUIPMENT Quantity Unit Cost Amount (Rs.) Computers - office 4 25,000 100,000Computers - laboratory 15 25,000 375,000Networking Cost Lump sum 50,000 50,000
Positions Number Salary/month Total Salary/Year Administrative Staff (Rs.) (Rs.)
1122 IINNFFRRAASSTTRRUUCCTTUURREE Though ideally, a purpose built building can best suit a school, however any building in a peaceful environment can be rented out.
For the purpose of this study, the option of getting a two-story building for school on rent has been recommended. Monthly rent of the building is taken at Rs. 300,000 for an area of 3 kanals. Proposed areas within Lahore are Iqbal Town, Johar Town, Faisal Town, Saddar – Cantt, Wapda Town, and newly established housing schemes on Raiwind road and Ferozpur road.
Table 12-1 Area Requirements
Space Requirements Area/Room No. of Rooms Total Area Administrative Block (Sq. ft) (Sq. ft)
Capital Investment Rs. in actualsOffice school equipment &Library Books 1,098,365 Furniture & fixtures 2,542,150 Computers & equipment 750,000 Pre-operating costs 396,093 Total Capital Costs 4,786,608
Working Capital Rs. in actualsUpfront building rent 900,000 Upfront insurance payment 54,918 Cash 625,542 Total Working Capital 1,580,460
Total Investment 6,367,068
Initial Financing Rs. in actualsDebt 50% 3,183,534 Equity 50% 3,183,534
EQUITY
Internal Rate of Return 96%
Project Returns
65%2.382.02Payback Period (Yrs)
PROJECT14,736,057 14,718,882 Net Present Value
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1133--22 PPrroojjeecctteedd IInnccoommee SSttaatteemmeenntt Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 11,133,000 18,335,835 23,076,659 26,537,165 30,168,318 31,135,686 32,692,471 34,327,094 36,043,449 37,845,621 Faculty Salary 3,660,000 7,299,600 8,319,960 9,311,676 10,242,844 11,267,128 12,393,841 13,633,225 14,996,547 16,496,202 Gross Profit 7,473,000 11,036,235 14,756,699 17,225,489 19,925,475 19,868,558 20,298,630 20,693,869 21,046,902 21,349,419 General administration & selling expenses
Year - IX Year - XYear - VI Year - VII Year - VIII
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T1133--77 SSuubbjjeecctt DDeettaaiillT
Subject Detail
Sections 2 2 2 2 2 2 2 2 2 2Subjects I II III IV V VI VII VIII IX XUrduEnglishMathsComputer sciencesScienceArtIslamyatSocial StudiesGeographyHistoryPhysicsChemistryBiology/Computer