Profit Issue 17 by Pakistan today

welcome

INCENTIVISING CONSUMERS FOR DESIRED BEHAVIOUR he promise of digital banking is alluring. The realization so far has been elusive. Though the field might not exactly be dormant, it is still littered with a series of halfsolutions. For instance, take the forays of the telecom industry into the sector. Both Telenor’s Easy Paisa and Jazz Cash might have made significant strides in terms of volumes of transactions, but they require the registered network of shopkeepers to do their business. That isn’t as seamless and sexy as the idea of making micro-transactions off one’s own cell phone. But what about the other end? What about the banks that are branching out (no pun) into digital? Well, as opposed to their telecom counterparts, though they have made their account holders the principal agents of their products, the volumes are woefully low. There might be many reasons for this, but the lack of merchants and vendors accepting payments via banking apps would top the list. That, and the cumbersome (and needlessly intrusive) process or registration for these digital wallets. Fintech apps such as SimSim only don’t ask for what the user has had for breakfast; everything else is on the questionnaire. Surely this is a problem that could be solved. There certainly are a lot of vested interests in ensuring it is. For the government, the delicious prospect of documenting the cash economy. For the users, phenomenal ease. For the vendors and merchants, increased commercial activity. First of all, the government should incentivize digital banking. First, by removing any and all taxes on such transactions. On their end, the banks, telcos and fintechs should also remove transaction costs; perhaps even pay user to reel them in? They could also incentivize these for the merchants as well; a points system could be an idea. Our other main story: whether Lahore would go vertical or would the accent continue to be on horizontal, discusses the issue threadbare. It also takes views of five builders who have opted to jump in the fray by building apartment blocks. With land prices escalating in Lahore, it is only natural that people would move towards vertical living. Common sense would dictate that the rising trend for apartment living in Karachi and Islamabad, should also have arrived in Lahore – by now especially after the government’s move to increase the height limit for construction of high rise residential

apartment buildings. Apart from the distance and amenities factor, apartments also have a good thing going for them on the security front. Having lived in both apartment complexes and gated housing communities, one can personally vouch for the better security from burglary etc. that apartments provide. This is probably due to the more manageable sprawl of the apartment complexes. Economists believe that consumer behavior can be influenced by incentives. By that logic, apartment culture should be all set to thrive in Lahore. However, consumer behavior is an unpredictable science and there is still a big question mark on whether the Lahorites will be willing to accept this modern way of living despite all the incentives? But then an argument can be made that the right incentives are yet to be set for Lahorites to truly embrace apartment living. Three factors that point towards apartment-living still not the ‘in-thing’ in Lahore are: a) compared to Karachi and Islamabad land prices are still not high enough; b) the building height limits still are not high enough for the high rises to emerge, bringing down the cost factor; c) the roads in the periphery are continuously being developed and widened to commute at pace, and combined with low fuel prices, the commute time/cost argument does not hold. Another interesting bit is that apartment blocks under construction are targeting the rich and nouveau riche, for not a single project in downtown Lahore is meant to provide affordable housing for the middle class. One of the project owners claims that the reason is, once the affluent adopt it, the hoi polloi shall follow suit. Anyway for the current projects there would be enough demand from expats etc. if one is able to successfully do some personal selling but for the landscape of Lahore to change sooner or later Lahorites will also have to take a cue from other cities.

Babar Nizami

Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Editor Reporting: Farooq Baloch l Reporters Aisha Arshad l Arshad Hussain l Usman Hanif l Syeda Masooma l Ahmed Ahmedani Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulﬁqar Butt (Lhr) l Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Publishing Editor: Arif Nizami Contact: proﬁt@pakistantoday.com.pk

FROM THE MANAGING EDITOR

“Mere announcements will not help increase exports unless words are translated into action” APTMA Chairman Aamir Fayyaz

QUOTE

BRIEFING

“The current export portfolio is marred by a lack of diversification as a few products are exported to limited markets” All Pakistan Business Forum President Ibrahim Qureshi

was the increase registered of car sales in first 11 months of financial year 2016-17 to reach 172,911 units. Car sales have increased despite the inclusion of Punjab taxi scheme, while sales of Suzuki Motors Company have declined by 2.199 per cent only because of Punjab taxi scheme in 2015-16. In May 2017, the automotive industry sold 17,478 units up by 12.5 per cent compared to 15,278 units sold in May 2016 and up by 9.24 per cent or 15,863 units compared to April 2017. The PSMC sold 88,347 car units in last eleven months down by 2.19 per cent compared to 90,290 car units sold in same period 2015-16. The major reason for this decline was the Taxi scheme of Punjab government, the analyst said. Indus Motors (INDU), despite its operational issues in the plant, sold its 49,667 units in July-May 2016-17 up by 37.56 per cent compared to 53,410 units sold in the same period last year. In May 2017, it sold 4,220 units compared to 5,207 units in May 2016.

3.12pc

provincial budget was presented by the Gilgit-Baltistan government for the fiscal year 2017-18 which included Rs 28.2 billion for non-development and Rs 18.30 billion for development expenditures. Apparently to show the big budget outlay, the provincial government has also included Rs3.03b worth federal annual development program in the area and Rs7.84b as wheat subsidy given by the center, in the next budget, ballooning it to Rs 54.40b as compared to Rs37b of the previous financial year. He informed that the new fiscal budget includes Rs28.2b of non-development expenditures and Rs18.3b of Annual Development Program while allocation for food subsidies is Rs7.84b. Out of the non-development budget Rs19.30b were fixed for disbursement of salaries while Rs3.21b were allocated for handling office work. The other no development expenditures included grants of Rs 4.74b, Rs78.4m for Governor Secretariat, Rs85.6m for chief minister secretariat, Rs4.40b for internal security and prisons, Rs5.66b for education department, Rs4.6b for health, Rs 5.12b for finance sectors and others.

Rs54.4b

Rs681.36b have been released by the federal government for different social sector developmental projects under Public Sector Development Programme (PSDP) 2016-17 as against the total allocations of Rs800b. According to latest data released by ministry of planning, the government released Rs 22.573 billion for Pakistan Atomic Energy Commission (PAEC) against its total allocation of Rs28.625b. The government also released Rs 193.67b for infrastructure and development projects under National Highway Authority (NHA) against its total allocation of Rs192b. In addition, Rs 129.78b were released for Water and Power Development Authority and other power sector projects as against the total allocation of Rs130.867b for current fiscal year to overcome the shortage of energy in the country.

BRIEFING

“We are in the process of finalizing some agreements with international airlines and educating youth in the sector” PTDC Managing Director Abdul Ghafoor Khan

QUOTE

40.56m

is the number of mobile internet subscribers in the country, the highest ever number achieved said the Pakistan Telecom Authority (PTA). Pakistan is one of the many developing countries where the usage of internet is on a rise day by day; the main source of connecting to the internet is through mobiles. 29pc of mobile phone users are now internet users as well which stood at 22pc at the end of the previous fiscal year in June 2016. On an average, the number of mobile internet subscriptions stood at 976,600 per month compared to mobile subscriptions at 703,617 per month in the past 10 months, according to PTA.

may be allowed to be raised from commercial banks by the Economic Coordination Committee (ECC) for installation of new gas pipeline from Karachi to Lahore. According to a senior government official, the Rs183b collected under GIDC has been spent on plugging the gas deficit and in financing other infrastructure projects. Previously, the gas utilities had already borrowed Rs101b from banks for the pipeline augmentation project which is being carried out to improve the capacity of their network. The ECC has been sent a summary by the Ministry of Petroleum for which permission has been sought to raise additional financing from banks for the construction of the new pipeline. SNGPL has concluded the first phase of its rehabilitation project which will improve gas transmission from Karachi to Lahore.

Rs175b

cost of the Kachhi canal project had gone to the pockets of commission agents, said the Prime Minister Nawaz Sharif. He directed exemplary punishment for the defaulters and ordered the placing of delinquent officials before the Cabinet. Interestingly, despite the directions of PM and the decision of CCI, the ministry of water and power was not ready to take strict actions against all those who caused misappropriation. A sum of around Rs 26 billion loss occurred to the national exchequer. The sources also said that the government has still not any taken action against those responsible for delays and irregularities in Kachhi canal project while the cost of supplying water to the parched land and over two million population of Balochistan has soared up to over Rs 80 billion.

75pc

20.6pc

savings have been achieved by the Central Directorate of National Savings (CDNS) till mid last month during the final quarter of current fiscal year i.e. from July 1st to June 13th, 2016-17. The target for the year 2016-17 was Rs228b, while the Directorate had managed to achieve Rs218b in the previous fiscal year. As per notification issued by the federal government, the rates for Defense Savings Certificate, Special Saving Certificate and Account, Regular Income Certificate and Savings Accounts had been revised upward at an average of 7.54pc, 6.03pc, 6.54pc and 3.95pc respectively. The profit rate of return for specialized savings schemes like Bahbood Savings Certificates and Pensioners’ Benefit Account had also been revised up and fixed at 9.36pc to provide safety net to specialized segments of the society.

increase was seen in imports during the first 11 months of the financial year 2016-17 to reach all time high at $48.539b. According to the data released by Pakistan Bureau of Statistics (PBS) here on Monday, the country’s exports stood at $18.541 billion in last eleven months of the current fiscal year compared to $19,140 billion down by $599 million, while imports of the country touched $48.539 billion compared to $40,247 billion in the same period last year. Trade deficit further enhanced up to $29.998 billion in July-May 2016-17 up by 42.12 per cent compared to $21.107 billion in the same period last year. It surged by 60.79 per cent in May 2017 on YoY basis, while enhanced by 8.52 per cent up on MoM basis.

Rs188b

BRIEFING

“The government has declared M-3 industrial estate as a SEZ where a 10-year tax holiday will be available to the new industrial units” Faisalabad Chamber of Commerce and Industry Vice President Ahmad Hassan

QUOTE

5.5pc

growth was registered in large-scale manufacturing (LSM) during the first ten months (July-April) of the current fiscal year as compared to the corresponding period of the last year, mainly contributed by textiles and food & beverages. On year-on-year basis, the industrial growth increased 9.72pc during April 2017 as compared to the corresponding period of the last year. However, on month-on-month basis, the industrial growth decreased 17.88pc in April 2017 as compared to the growth of March 2017. The highest growth of 4.40pc was witnessed in the indices monitored by the ministry of industries; followed by 1.08pc growth in the products monitored by the Provincial Bureaus of Statistics and 0.10pc growth in the indices of the Oil Companies Advisory Committee (OCAC).

loan has been approved by the World Bank (WB) for improving financial and banking services. The project would improve access to financial and banking services for 50pc of all adults, half of them women, throughout Pakistan by 2020. It will also boost private sector credits to small and medium businesses to 15pc from 7pc in 2015. The Financial Inclusion and Infrastructure Project will give $137m to help millions of Pakistanis, especially women and the poor who do not have bank accounts and cannot get loans, to have access to these and other financial services. It will upgrade Pakistan’s payment systems to ensure affordable and faster payment services. $86m Karachi Neighborhood Improvement Project would benefit almost one million residents, business owners and commuters by improving living conditions in the Saddar, Korangi and Malir areas of Karachi.

$233m

have been sought by the Pakistan State Oil (PSO) from the ministries of finance and power to clears the bank loan which was obtained through Pakistan Investment Bonds (PIBs) in 2013 ostensibly to give an end to the menace of circular debt. Pakistan Muslim League-Nawaz (PML-N) government had obtained loan from the banks through PIBs in June 2013 to reduce the burden of Pakistan State Oil and also to get rid from the circular debt. And, the government paid Rs98b to PSO under the head circular debt after getting Rs43.80b loan. However, now state-owned oil giant PSO is in a fix how to clear the loan as final date to clear the debt was July 19, 2017 which has expired now and it (PSO) is unable to pay back the amount of loan. It has also been learnt that PSO has paid Rs38b for financing cost of loan which was taken through banks from 2009 till March 2017. Also, PSO has to collect Rs 150b from state owned GENCOs, Rs 66b from HUBCO, Rs 33b and 20 crore from KEPPCO. More, PSO’s receivable from PIA are at Rs 15b and 30 crore while Rs 12b and 20 crore from Sui Northern Gas Pipelines Limited (SNGPL) on account of Liquefied Natural Gas (LNG) supplies.

Rs60b

loan has been given by the Asian Development Bank (ADB) to the government for power-sector reforms. It is the third tranche of Sustainable Energy Sector Reforms Programme which started in April 2014. This programme consists of five tranches ,out of which three have been completed. In the previous two tranches the Manila based institution had loaned $1.1b to carry out reforms in the country’s ailing power sector. The Ministry of Water and Power’s report on energy sector reforms has disclosed that recovery of bills from consumers had gone down to 92.2pc in first half of financial year 2016-17 from 94.6 pc in June 2016. Line losses saw a slight reversal as they decreased from 17.9pc to 17.2pc in 2017 although they were still way above the limits set.

$300m 10

$2b

Gwadar-Nawabshah gas pipeline project has been abandoned by the incumbent government in light of the brewing diplomatic crisis that has afflicted the Middle East since Saudi Arabia and other GCC countries cut ties with neighbouring Qatar. This project was considered as a substitute to the Iran-Pakistan (IP) gas pipeline since the US led sanctions on Iran for their nuclear programme. As per the IP gas pipeline agreement reached with Iran, Pakistan was supposed to start receiving gas from January 2015 and in case if this agreement wasn’t honoured, the latter would have to pay a penalty amounting to $3m daily. Under this gas-supply purchase agreement (GSPA), Iran was legally allowed to sue Pakistan for not meeting its obligation, but decided against it.

BRIEFING

Will Lahoris be Lahoris or will they finally embrace the high-rise apartment living, a hallmark of a truly metropolitan city?

VERTICAL?

STAY HORIZONTAL OR GO

By: Syeda Masooma espite the population of Lahore doubling over the past decade or so, the ever increasing sprawl and spread of it--which now extends from Shahdara at the banks of Ravi to Manga Mandi--makes sure that Lahore doesn’t make it to the list of the most densely populated cities of the world. With continued increase anticipated in the city’s population, demand for housing units is also expected to remain high. However, the city’s expansion at its periphery all round, save where the border is, means increased distances, longer commute time and fuel cost for the professionals, workers, students who have to make a beeline to Gulberg, The Mall and other central city locations.

REAL ESTATE

LDA doubles the height level ith close-to-city-centre land for housing hard to come by, and prohibitively expensive to boot, the Lahore Development Authority (LDA) has recently almost doubled the permissible height limits for residential apartment buildings, almost doubling it from 45 ft. (ground plus three floors) to 80 ft. (ground plus six floors). As a consequence, developers have stormed in to gain a piece of this newly available pie, and many apartment buildings and luxury vertical housing projects have sprung up, with seven projects already in different stages of construction, at least another 10 under consideration for regulatory approval and an expected 30 more in the planning stages. Most of these projects plan to provide luxury housing to the upper strata of the society. And most of these are located in upscale neighbourhoods like Gulberg, and contain high-end amenities including private security guards, elevators, gym, swimming pool, 24 hours backup electricity, etc.

For the rich and nouveau riche o who is the main taker of these apartments? So far, the trend reflects that it won’t be the locals of the city, rather overseas Pakistanis or people from other cities moving to Lahore for business or a job. Till now the market response from local Lahoris at best is tepid, with different stakeholders having divergent views with regard to it becoming the fad or fading out. Profit reached out to constructors, developers and LDA to find out what these extravagant projects are all about.

Whos and Whys of these projects’ clients irst and foremost, almost all industry players interviewed proffered that overseas Pakistanis were the predominant amongst the patrons, with most of the rest being from other cities desirous of having a pad at Lahore, along with students from other cities coming to Lahore to study, newly married couples and

The clinching argument Commute fatigue making people opt for apartment living than travelling long distances. Living in a one-kanal house with his doctor spouse and two kids in a posh, suburban Lahore neighbourhood, Shehzad is a well-heeled lawyer, with a demanding routine. He wakes up early and leaves home by seven in the morning, for a one-hour drive to his city-centre chamber, where he organizes himself to represent clients in various courts commencing hearing at nine. His wife embarks on her routine a bit later, on her way to hospital after a detour, dropping her children at school. Though accustomed to driving, she is often heard complaining on the long commute. From eight in the morning till early evening, the retinue – the cook, the maid, the guard and the gardener – lords over the house. The couple returns home exhausted from their professional duties, exasperated by the long drives, the kids’ requirements and servants’ demands – and the cost of living on top of physical grind that it all adds up to. The idea of living in an apartment close to work, and sizable reduction in number of servants adding to the savings, starts to look appealing. Shehzad reaches out to his wife to discuss investing in a project that he was familiar with through a newspaper ad. For Mrs Shehzad the idea is not appealing at all, for she is fond of her house and the lavishness and privacy that it affords to the family. Frustrated as she is at the effort involved in driving and handling many servants, she is still unwilling to forego her style. To her it is irrational to abandon her house and live above the ground in an apartment. Probable loss of privacy is also an issue with her. While the couple debates on the pros and cons, a non-resident Pakistani friend of Shehzad calls and shares what to the latter was a good investment he had just made in a luxury finished and furnished apartment in Lahore that would be delivered to him in three years. And that clinches the argument for the couple! foreign-returned folks. The expat Pakistanis are not living here, but they wish to have a home of their own whenever they come to visit. According to Umer, they want to have a neat, clean, secure and fully functional place to return to instead of a house where either the air conditioners are not working properly, the electricity is out or something else is not operational. Then there are students from wealthy families residing in other cities. Their parents buy such luxury apartments not only to give their children a fancy and secure place to stay while they go to college and university but also to have a place of their own to stay when they visit rather than paying to stay at a hotel or staying at a relative or friend’s place. Another client base are people who have returned from abroad after having experienced the apartment living culture there for a few years but have had to move back. For them to suddenly come back and adapt to the conventional way of living in houses in Lahore is not easy so a fully serviced apartment like the one they’ve recently left is quite appealing. In addition to this those non-resident for-

eign professionals working at various multinationals in Lahore are also prospective buyers. Multinationals can rent out or simply buy multiple apartments for their employees’ accommodation. The influx of foreign based human capital is also bound to increase in the coming years given the huge investment being made by China with regards to China-Pak Economic Corridor (CPEC). Reportedly already there is an increase in demand for lodging of Chinese nationals deputed here under the CPEC mission. For them the prospect of apartment living will be quite attractive especially the secured living aspect of it, which is currently missing from Lahore altogether. Usman explained that there are also some locals who live in big houses but when their sons and daughters get married, they buy them apartments instead of a separate house. Some even make this investment for their unmarried children for when their kids tie the knot and need a separate, private place. That clearly reflects that at least for now there is perceptible aversion amongst the La-

“We Will transfer the oWnership of land on Which the building is situated to the investors in proportion of their investments in the Whole project. for instance a three bedroom apartment oWner Will gain a bigger piece than a tWo bedroom apartment oWner, but at the end of the day the residents of the project Will be the oWners of the Whole area.” Usman Nawaz, Marketing Manager, Hyde Parks (owned by the Holiday Inn)

horites for apartment living unless they have experienced apartment living or are saving on the hassle of buying or building houses for their ‘just-married’ kids. The prevalent sentiment is that “residence should be on firm ground, not in the air – literally.” Empire Holdings Director Umer Elahi (Opus Luxury Residences), Hyde Parks (by the Hospitality Inn) Marketing Manager Usman Nawaz, and DCC Developers CEO Shahnawaz Durrani (Address 73) all agree that majority of the apartments they have sold were taken by the Pakistani expats, or young couples seeking to live an independent, efficient and comfortable environment. LDA Director Architect Arif Bashir seems to have more faith in his city than the sales figures suggest, “Lahore has expanded horizontally by a great deal, that has made

housing possible but people have to commute a lot. So on the face of it, the apartments will become the new trend. Islamabad and Karachi have already moved to apartment-living, and Lahore too is likely to join them.”

cost eﬃcient in the long run hese ‘luxury apartments’ are anything but a low-cost affair. Yet, the developers insist these are cost effective when it comes to day-to-day expenses. Not only all the amenities like gymnasium, swimming pool, residents lounge, rooftop garden, and in some cases football field, etc. are all provided within the apartment block. And built in are lower utility bills, lower cost of domestic helpers and above all lower fuel costs due to proximity to the main commercial areas in the city. People, Usman says, especially those living overseas or those who might have to leave the place vacant for a given time period regularly, also prefer security over anything else. “To the buyers it is a huge incentive to be able to lock their apartments and come back after months to find everything as they

had left it.” Umer shared this sentiment and added, “Until we are managing the building, or say until all of the apartments are sold out, we are also offering services to manage the apartments themselves. The owners can drop their keys with us and we will get it cleaned and managed in their absence.” Tackling the widespread fears of natural disasters, like earthquakes, these apartment builders said that they have taken the necessary precautions to strengthen the buildings and on top of that they have also transferred the ownership of land to its customers in respect to their investments.

builders enumerate slew of beneﬁts e will transfer the ownership of land on which the building is situated to the investors in proportion of their investments in the whole project. For instance a three bedroom apartment owner will gain a bigger piece than a two bedroom apartment owner, but at the end of the day the residents of the project will be the owners of the whole area,” said Usman. Umer reassured that all necessary measures were thoroughly incorporated when the structure of the building was being designed to make it fireproof and resistant to earthquakes. In jest, he asked, “Do people ask these questions when they are buying a house on the ground, because all these things are equally relevant there?” He added, “So it is not as much a factor in people’s decisionmaking when they have to choose between a house and an apartment, rather the facilities

“W

real estate

“FOR AS LONG AS WE ARE MANAGING THE BUILDING, OR SAY UNTIL ALL OF THE APARTMENTS ARE SOLD OUT, WE ARE ALSO OFFERING SERVICES TO MANAGE THE APARTMENTS THEMSELVES. THE OWNERS CAN DROP THEIR KEYS WITH US AND WE WILL GET IT CLEANED AND MANAGED IN THEIR ABSENCE” Umer Elahi, Director, Empire Holdings(Opus Luxury Residences)

they gain and the peace of mind they have even if they are not there all the time is what tilts the balance in their choice to invest.” The industry players are also convinced that the housing opportunity they are providing in the cost they are offering is impossible to gain in a 10 marla house for instance, all things considered. Hammering at its advantages, Umer said, “You might get the simple cement structure or basic facilities like air conditioning in the same cost as you can have for a two bedroom apartment, but the amenities and the central location that we are offering is not possible in that budget.” Indeed, a major chunk of the new projects coming up are located within Gulberg, save one in Garden Town called Florets, and Florets too have a different story to tell. While projects like Empire Holdings and Hyde Parks are positioning themselves for the elite with upscale pricing that goes up to Rs25,000 per square feett, Florets seems to have downscaled to attract a wider range. Florets Marketing Manager Faisal Azeem informed that majority of their sales have been made to the customers already residing in or near Garden Town. “For them the location was not a big factor but the luxuries that they would receive without any

cost top up brought them towards this project.” He had an added detail to share saying that most of his customers were doctors by profession, which he meant as an explanation to the higher SECs that the project was targeting.

Viable investment for the apartment owner? egarding the location of these luxury apartment buildings LDA Director Architect Arif Bashir said that there was no restriction on these projects to be focused on any one area. But since these were all done by private builders and developers, it was not LDA’s discretion to choose the location. He, however, backed the point made by Usman, Elahi and others that LDA makes it a point to only pass those projects that have shown enough strength and durability builtin in their architectural design. “A team of LDA inspectors regularly checks quality of under-construction buildings to ensure the approved plans are being adhered to,” he added. As far as the investment viability of these apartments is concerned, Profit re-

“APARTMENT LIVING CAN BE COMPLICATED. EVEN THE WALK TO ELEVATOR FROM APARTMENT EVERY DAY CAN BE PSYCHOLOGICALLY TIRING IF IT IS LONG. YOU WILL NOT REALIZE THESE THINGS ON PAPER, WHICH IS UNFORTUNATELY WHAT HAPPENS TO MOST OF THE PEOPLE WHO BUY APARTMENTS JUST BY SEEING ITS SIZE” Shahnawaz Durrani, CEO DCC Developers

ceived several different and even opposing points of view by different stakeholders. While Usman and Umer concurred, “these apartments provide an excellent investment opportunity to owners. They can rent them and have regular income and can also gain through capital appreciation when the value of land rises.” But a property dealer who also owns a developer business, speaking on condition of anonymity said, that investment purely with the intention of return is better if done on land. “The increase in the value of construction is largely dependent on the economy and overall quality of construction. The land however always appreciates and then there is also a bigger market for real estate in lands than houses or apartments.” However, he did not disagree with rent as a good opportunity for those seeking an income source. “Rent will add to their earnings but an empty piece of land has a higher chance of gaining value because as the construction gets old, its resale value decreases.”

Good business ne thing common to all apartment projects interviewed by Profit was ‘all equity, no debt’. The advances paid by investors at the time of booking, however, were included in the project building and finishing costs by the developers. All the project owners sounded optimistic about the future of the industry. A key distinguishing factor, however, remains that unlike the other two metropolitans, the apartment projects springing up in Lahore are not only marketed as luxury residences and are equipped for the upper class. This might mean apartments being used by the elite for business or pleasure, as opposed to being purely residential. To tackle this, Umer, Usman, Shahnawaz and Faisal, all insisted that they thoroughly interview and vet the clients that come to them and only make the sale when they are satisfied that the purchaser intends to use the apartments for nothing other than residential purposes for himself/herself or their families. Usman said, “That it is a potential issue cannot be denied but we have a responsibility towards those customers who have trusted us in keeping this place not only safe for living but also quiet and nonviolent. So we have had to let go of some lucrative deals only to make sure that our existing customers do not have to face any problems.” He added, “We will make a society of the residents where each owner will have one vote and they will be in control of what happens in the vicinity. For instance if the residents feel that they need to add a football field in the area, they will all agree and contribute to make that shared field available for all the residents.” Finally, from the perspective of the developers and directors of these projects, they might not be as profitable as they appear. Umer said, “Obviously there are profits and that’s why people are coming in this business, but this is a very tricky business. When you start building horizontally, you can progress step by step. You start with 10 acres, then another 10 acres and so on. In a vertical building you cannot stop until the project is finished. So you have to plan it that way.” Elaborating on why luxury apartments might not reap as much monetary return as

the sellers might say, he said, “The margins aren’t that high in the end. LDA has a rule that one car, one parking spot for 1,000 square feet. We are making two basements for parking that is for 36,000 sq. ft., and we are not selling it. It is extremely expensive to construct basements but you can’t sell it. Then there are generator rooms, maintenance rooms, mechanical rooms etc. – all part of the construction but they cannot be sold. So if you are making 100,000 square feet, the saleable area is about 60,000 square feet. So 40 per cent is gone straight away. Then you are giving generators, proper fire fighting equipment, standby power generation. One generator alone costs Rs15-20 million – enough for constructing the complete structure of a 10-marla house. Then there are elevators, and smart metering. So at the end of the day, the margins are not high.” However by doing extensive independent research Profit learned that the margins are actually quite handsome, above 100% in fact. See graphic on titled ‘Profit Research’ to

understand what the developer actually makes.

Anybody’s guess

hether these projects become the doorway to an all new market in Lahore or whether they face difficulty in future because the market is just not ready is anybody’s guess. The overseas Pakistanis remain their safest bet, with those migrating from other cities being the second-best patrons. Whether the locals take more time to adjust to apartments as homes or they take jump towards making Lahore the exemplar of luxury vertical living, the jury for now remains out on it. For now entrepreneurs like Umer, Usman and Shahnawaz are wagering on the latter, with LDA coming out in support by granting its seal of approval to such projects. How all this pans out, only time will tell. n

REAL ESTATE

‘Address 73 Developers: DCC Developers No. of apartments: 35 Location: 73-L, Gulberg III, Lahore, Pakistan. Price range: Rs. 12,000 per sq. ft., expected to reach Rs. 25,000 per sq. ft. near completion

alking out from under his father’s shadow, Dascon Construction, Shahnawaz Ayaz Durrani set up his own, DCC Developers, launching ‘Address 73’. His project, he insists, is different from the plethora of luxury apartments hitting the market. According to him, here is why. Apartment living also has a lot of complications. From garbage removal to elevator maintenance can be a nightmare. Then there is the walk to and from elevator to the apartment; if long it is psychologically draining, impacting resident satisfaction. Such things are not visible on the plan, but hit people once they live there. Address 73 has given such factors due consideration. The cargo elevator meant for garbage etc. is at the back. From welcoming to maintenance staff, the project will be like any five star hotel, apart from room service. The building would be covered in weather-insulated façade, which no other building in Pakistan is, the Packages Mall being an exception. Most project owners interviewed by Profit held forth that they would be transferring land ownership to customers, to Durrani it is a terrible idea. “In jointly-owned land, there is no boundaries demarcation. If land ownership is transferred, the part of location a client wants would an intractable issue”. “It would also be a hassle for customers to get separate registrations for apartment and land. So rationale demands that only the property rights of the apartments are transferred.” For contingencies like earthquakes and fire being – risk factor being higher in vertical buildings – the building is earthquake proof up to over 10 Richter scale. Two non-slippery fire escapes are strategically located; the walls and paints are fire resistant. The project was to be completed in two and a half years, the deadline being March 2018. It would be delivered in the next six months – ahead-of-time completion a nice surprise for most clients. He aims to make Address 73 a flagship project for his company and for his own reputation. “I am looking to exceed the promises I have made to my customers, giving them more amenities and higher finishing level – at no additional charge. There are plans to provide resale and renting services to owners, at no commission. If customers wish to rent or resell their apartments, they come to us. This is not a contractual obligation yet, but we might add it in the contract. The block will have a governing board, deciding on changes required. There would also be rules to follow. For instance, drying clothes on the balcony would not be allowed as it spoils the façade for everyone. The apartments startup sale price was Rs12,000 per square feet. Durrani anticipates it should be double that. It is not the value-addition of the place that matters to clientele but prefer security, amenities and freedom from the hassle of managing big houses, with many servants, and management costs. He has kept one of the three penthouses for himself and plans to live in the block. “In the next 10 years I see myself living in and running the project – hopefully the first of many, exhorting other developers to follow the highend aesthetics and facilities.” n

Florets Luxury Apartments Developers: Abbas Developers No. of apartments: 56 Location: 127, Ahmed Block, New Garden Town, Lahore, Pakistan Price range: Rs 15 million (average) lorets Luxury Apartments offering 56 two and three bedroom apartments at an average price of Rs15 million, said Marketing Manager Faisal Azeem while talking to Profit -- which translates to per sq. ft. price of Rs12,400. Constructed by Abbas Developers, designed by Ayes Associates UK Ltd, with its tagline “Simplicity is the ultimate form of sophistication”, Florets has chosen to keep its prices lower and target market wider than projects like Hyde Parks and Opus Luxury Residences. Commencing construction in December 2016, aiming to complete in December 2019, Florets is built on LDA’s revised rules: 80 feet height, with ground plus six floors. It covers a total area of four kanals and has apartments ranging from a covered area of 925 sq. ft. to 1680 sq. ft., in addition to penthouses. It was on the grapevine that cricketer Wahab Riaz was also a silent partner in the project, but Fasial Azeem denied this. “Wahab is a very good friend of our CEO Ghulam Abbas, and while he attends our functions, he has no stake in this business.” Most of Abbas Developers’ portfolio is located at Lahore, though it also contains Bahawalpur Pace, Bahawalpur Trade Center, Awan Plaza and SITC Hospital in Bahawalpur, while Bismillah Tower, is Gulistan-e-Johar in Karachi. The brochure of this purely residential block boasts of facilities like fully-equipped kitchens, attached servant residences, gymnasium and swimming pool (with complimentary membership for two years), rooftop garden and guest rooms. Generators, elevators, car parking with 75 slots, fire safety and maintenance are also mentioned as features on offer. The project’s website also mentions provision of inhouse first aid facility for 24 hours, and on-demand monthly rental service for individually furnished apartments. Every year between 800,000 to a million families move to La-

hore, said Faisal. With prices reaching up to 40 lacs per marla in Garden Town, vertical living is the best, if not the only answer for such families. “It’s builder’s responsibility to make such residences available to people.” In the very next breath though, he mentioned that nearly half the apartments [already sold: around 80 percent, with doctors predominant among its high-end customers] so far snapped up have been taken up by people already residing in Garden Town. “For them location has not been as important a factor as all the amenities at Florets.” There is a three-year flexible installment payment facility available to the customers with a 10 percent advance payment and at least 30 of the 56 apartments have already been booked. Happy at his project’s success, he said, “Location-wise we don’t even consider any other project as our competition. We have three dimensional access to parks, with educational institutions, shopping and entertainment areas as well as hospitals in close vicinity. Moving out of the city within minutes through Thokar Niaz Beg or to approach The Mall and old parts of the town through signal-free Ferozpur Road or the Gulberg Main Boulevard is also a benefit.” CEO Ghulam Abbas had said while talking to media awhile ago, “We wish to request developers to start vertical movement and eliminate the concept of four and eight kanal houses, for around 50 families can be accommodated into 4-5 kanal plot, in a secure environment. With apartments becoming common, almost 90 percent of the population will be living at the same standard and fewer people will be subjected to such status sickness. This sickness leads to frustration and corruption. “There is shortfall of ten million houses in Pakistan. According to our real estate analysts 700,000 houses are needed every year but only 250,000 houses were being constructed, which adds to the shortfall. So government should also keep its policies benign towards real estate business because the industry is supporting employment in the country.” n

REAL ESTATE

Opus Luxury Residences Developers: Empire Holdings No. of apartments: 42 Location: 30-A, Block L, Gulberg III, Lahore, Pakistan Price range: Rs17 million to Rs30 million mer Elahi, Project Director Empire Holdings, began his project Opus Luxury Residences in the early 2016, hitting a roadblock soon after. Umer explained that abrupt halt was because the government raised taxes on real estate. “We had the permission but the project had not been started. That’s why the confusion, over reapplying for the clearance from FBR and LDA or commencing work, forced the 2-3 month break on us… The people in LDA themselves weren’t aware of the laws… We still don’t know everything, but we decided to go through with it because we can’t wait forever.” Coming from textile manufacturing and trading business, Umer has decided to invest himself in residential projects with Opus being the first of many that he wishes to build. Comprising of 42 apartments on ground plus six floors with two basements, Opus offers the affluent two and three bedroom apartments and penthouses, with tab range between Rs17 to Rs30 million. Thus far only four to five apartments have been taken. While Umer is aware that Lahorites might not yet be enamoured with the idea of vertical living, he is confident the trend will catch on. “New generation is coming, and change is inevitable. 3G, 4G and Uber, Careem are perfect examples. They are not a luxury anymore, they are a necessity. It’s not optimism or prediction, but apartments are the future.” Three out of his five clients, however, are overseas Pakistanis. “One of them lives in the US and owns two houses in DHA. He comes to Pakistan twice a year but cannot live in his houses because there is always something wrong, pipes are blocked, ACs or something else are out of order. He plans to sell those houses and buy more apartments. He asked us whether we could take care of his apartment in his absence; we said, yes, for a charge, until we are managing the building. Such concerns are very important to people and they prefer apart-

ments over houses.” He believes. Lahore is not accustomed to vertical living because of height limit. “Here we have 80 feet, which personally speaking is nothing. In that limit you can go ground floor plus six which doesn’t even allow the cost to be divided, because land is a major cost. It makes up for 30-35 percent cost, and if you can’t divide the cost, how can you give affordable living?” He added, “Land availability is also limited now. There is no other option apart from going vertical. In fact now LDA has also made it a compulsion to allocate some part of the land to apartments even in housing societies. LDA has approved some 30 odd projects and 26 more are in the process of being approved.” Proud of his project, Umer said with a smile that his luxury apartments are providing housing and amenities at a price which is not possible to have in a house. Even if someone is able to build a house in the same cost, he will only have a brick and cement structure without air conditioners, pool, gym, security, standby generator capacity, and kids’ play area. “You can’t have 50, 60 people in your house for your child’s birthday but we are providing a 12,000 square feet rooftop with a proper seat-

ing area. This is a whole community in itself with everything in the same place which provides a lot of convenience, especially in modern-day hectic lifestyle.” In addition to all this, Empire Holding is also providing its customers with kitchen and electrical appliances, and smart metering with a standby backup support of power generation. Umar also plans to manage the building for the first few years including development of SOPs, cleaning, keeping insurance in place, and building a community of residents. Eventually the equity of the entire project will be transferred to his customers in proportion of their apartment’s area. He plans to keep a few apartments for himself which he might rent out. By 2018, he plans to start another project incorporating all the experience from this first one. He intends to continue this business, despite ‘the profit margin’ not high enough. “Obviously there are profits and that’s why people are coming in this business, but this is a very tricky business… I don’t have any high profit expectations from this project, I am here to learn. The business perspective is there but the learning curve is more important. If I learn something, I can create a niche and make more money.” n

Oyster Court Luxury Residences Developers: Keystone Properties Size of the project: 12 kanal No. of apartments: 98 Location: Gulberg 3, Lahore, Pakistan Price range: Rs17 million to Rs48.6 million

pread over 12 kanals, Oyster Court Luxury Residences is an upmarket project by Keystone Properties – also known for their Heritage Luxury Suites. With two seven storey towers, offering one-bedroom (covered area 1,100 sq ft to 1,500 sq ft), two-bedroom (1,900 sq ft to 2,290 sq ft) and three-bedroom (3,200 sq ft) apartments at an approximate price of Rs17, Rs29.5 and Rs 48.6 million respectively. As per the Oyster Court website there five one-bedroom, seven twobedroom, and two three-bedroom apartments on each floor, totalling 98 apartments on ground plus six floors. Four elevators, swimming pool, spa and fitness gym in both towers, along with round-the-clock electricity backup, car parking and firefighting equipment are among the facilities offered. Keystone Properties shall manage the block for a decade at a monthly service fee. This management tenure is subject to negotiation and can last longer than a decade. Oyster Court apartments come with the option of furnishings which include air conditioners, kitchen equipment, TVs, bed-sets and dining tables. The management is also willing to provide fully serviced apartments including housekeeping, deep cleaning, valet parking, laundry, Wifi, and newspaper services. Residents may opt to rent out, through Keystone at a management fee of five percent of the rental income – also open to negotiation between the owner and Keystone. Customers can choose a staggered payment plan spread over two years, or a down payment plan at a discount. Oyster Court has brought on board Colliers International as its selling agent. The multinational company’s Pakistan division is finding customers for buying and renting apartments. Colliers has a multitude of impressive names on its clients list, including Avari Hotels, Pakistan Defence Officers Housing Authority, Design Developers, and Hydra Properties. This may provide an edge to Oyster Courts over competition in finding international clients, since the market trend already reflects that a major proportion of customers buying these apartments are expats and overseas Pakistanis wishing to invest in Pakistan, also serving the dual purpose of a residential oasis on visits back home. Considering the target market of investors, as opposed to luxury residence seekers, Oyster Courts has topped up their selling points with a promise of seven percent rental yield to their clients, if the customers choose to rent out through the company. The Oyster Courts’ marketing approach – not just residential option, but short-term (rent) and longterm (capital appreciation of property) returns – might turn out to be the difference. According to Colliers research – published on Oyster Court website – the potential of increased value appreciation and rental income has shown a positive trend since the turn of the decade, and is expected to keep an upward trajectory. n

REAL ESTATE

Hyde Parks Developers: Maverick Size of the project: 10 kanal No. of apartments: 52 Location: 19-E/2, Gulberg 3, Lahore, Pakistan Price range: Rs15,500 to Rs21,000 per sq. ft. ith hospitality projects like Holiday Inn Express and Hospitality Inn, the Maverick Group launched Hyde Park Serviced Residences in Dec 2015 – its first residential project in Pakistan covering a 10 kanal area with 54 apartments and four penthouses (eleven apartments on each floor up till fourth floor and five apartments and two penthouses on fifth and sixth floor, with covered area ranging from 2,550 sq. ft. to 3,874 sq. ft. at a price ranging between Rs15,500 to Rs21,000 per sq. ft). The plan suggests no commercial activity, save a single for-residents-only shop, and it would be ready for possession by summer 2018. Marketing Manager Usman Nawaz said, Hyde Park is the pioneer of luxury apartments in Lahore, though now half a dozen others are at or nearing completion, and a few dozens more in the pipeline. “No other project compares to Hyde Park as none is operating on such scale – size maximum four to five kanals while ours is on 10 kanals. Oyster Court might be larger, but it is not just the size of the plot but the quality of the location that matters”. “Vertical living in Lahore in near future is inevitable. It is impossible to buy land for residential purposes in Gulberg, and far easier to buy an apartment with all the facilities in the block. People will prefer living in the busy and central location of Gulberg over quieter suburbs. “The cost of living in a house is much higher, and commute from far away is a major issue. Apartment covers a smaller area but at the same time the living standard rises.” A unique Hyde Park feature is transferring land ownership to the apartment buyers. “They will not only own the apartment but according to its will also have a share in the land, which is more expensive than the construction. So it is a solid investment.” Usman is not worried about the possibly prevalent sentiment in Lahore, preferring a house over the apartment. “People do com-

pare both... but those opting for a house over an apartment are not our target market.” “The CPEC has opened doors for the Chinese market. If you are moving to another country, you wish to stay in a safe place. Plus they appreciate the convenience.” He added that even locals are going for these apartments as it presents a good investment opportunity both in terms of rental income and capital appreciation. While he advocates that Lahore is ready for vertical living, he insists: “If anyone makes 700 apartments in a building here like in Karachi, he would definitely be at a loss. Population of Lahore is not that high and combined with the local culture, such a project wouldn’t be successful. There is a reason why people will buy apartments and in a place less central that reason would be lost. “Hyde Parks will have all facilities within the building – including swimming pool, gym, backup generator capacity, elevators and even trained staff to take care of management and services. The location is foremost, design and structure come second but are equally important. We could have made 25 more apartments even in this height but that will defeat the purpose of design and

view we are providing to our clients,” said Usman. n

REAL ESTATE

That is exactly what Feroze1888 accomplished, its sales growth since 2013 being a whopping 47 per cent

By: Arbab Ibrahim akistan’s textile exports have been falling at 3.5 per cent per year since fiscal 2013. Yet Feroze1888 Mills Limited has increased its sales – which emanates entirely from ex-

ports – by almost a half during the same period, courtesy vertically integrated operations that gives it a competitive advantage, says its financial chief. “The company performs the entire process of spinning, weaving, cycling and stitching itself by using the state of the art machinery, rather than involving middlemen,” the company’s chief financial offi-

cer Imran Tola said while talking to Profit in an interview. This, according to Tola, increases their profitability in an environment where very few competitors are vertically integrated. Feroze Textile Mills is the local partner of the 1888 Mills, LLC of the United States, a leading manufacturer of home

and commercial textiles catering to the retail, hospitality and healthcare markets worldwide. For the fiscal year ending June 30, 2016, the company earned Rs19.7 billion in sales, up 47 per cent from 13.5 billion it grossed in FY13. Its profit for the latest financial year was calculated at Rs3.8 billion. Given its very small free float (less than 0.5%), the stock is not covered by market analysts who could comment on its strengths or weaknesses. However, the company’s CFO says the expansion has been funded through the company’s own retained operations and it has almost no debt on its balance sheet. In 2010, Feroze Textiles Mills and 1888 Mills USA jointly acquired Nakshbandi Industries to expand their manufacturing operations, and later named it to Feroze1888 – the company has increased its earnings per share by 388 per cent

American retail giant Walmart, earning “Supplier of the Year award in 2008 and the Execution Excellence award 2010”. A look at their website suggests the company’s client list is not limited to just Wal-Mart. It has on its list the likes of Target, JC Penney, Sears, and Carrefour to name but a few. Feroze Textiles began its operations in the late 1970s with a single weaving unit and today it is the leading manufacturer and exporter of specialized yarn and textile terry products in Pakistan. It enjoys four per cent share in the international market for terry towels (bath towels, bath robes, beach towels, and kitchen supplies) and accounts for almost a quarter of total terry towel exports from Pakistan with a monthly capacity to produce up to 4.5 million pounds of terry fabric. The company exports almost all the articles it produces to international markets

since 2011 with its stock trading at Rs120 per share as on June 16, 2017. “The stock price does not show the accurate position of the company,” Tola said – most of their shares are held by the sponsors and their relatives, leaving only 564,872 shares (free float) for the public to trade. Talking about the company’s strength, Tola said, they were recognized by the

with little to no sale in Pakistan, thus its sales almost entirely comprises of exports. “We have no plans to sell our product locally as prices here are very low; we earn huge profits by selling our stuff internationally,” Tola said. However, the company recently opened its doors to Pakistani buyers by opening up a factory outlet in SITE area Karachi. Tola says, his company has little

‘THE CHIEF FINANCIAL OFFICER OF ONE OF THE LEADING EXPORTERS OF TERRY TOWELS SAYS VERTICAL INTEGRATION GIVES COMPETITIVE EDGE TO HIS COMPANY’

“THE COMPANY PERFORMS THE ENTIRE PROCESS OF SPINNING, WEAVING, CYCLING AND STITCHING ITSELF BY USING THE STATE OF THE ART MACHINERY, RATHER THAN INVOLVING MIDDLEMEN” Imran Tola, CFO Feroze 1888

competition from local players in the export market as their main rivals are from countries like China, Vietnam, Bangladesh, India and Sri Lanka. In the same breath, he complains how lack of incentives given by the government hurt them in the international market, which is very competitive. “Other countries provide their industries with major incentives while the Pakistani government does little besides dishing out hollow promises that are never fulfilled,” the CFO said. In January 2017, the prime minister announced a Rs18,000 crore stimulus package aimed at textile exporters with an objective to grow Pakistan’s textile exports at over 10 per cent per annum to hit $20 billion by 2020. Under the package, sales tax, customs duty on import of textile machinery and cotton have been abolished. However, Tola doesn’t seem to be optimistic about such packages. Citing the recent example, Tola said the prime minister abolished sales tax and customs duty on the import of textile machinery and cotton but on the other hand, the funds for disbursement of duty drawback to exporters against realization of export proceeds are yet to be released. “We have not been able to claim duty drawback from the government as the funds for it are yet to be released,” says Tola. (Duty drawback refers to a refund in payments that were initially collected upon importation of foreign-made goods. These payments could have been for Customs duties, sales taxes, or other fees. Customs issues these refunds only when the imported merchandise is either exported or destroyed.) n

TEXTILE

COVER STORY

BANKING

By: Farooq Baloch & Syeda Masooma akistan’s first Unicorn [a billion-dollar startup] will be a fintech, which will provide a platform play as opposed to a single app,” Planet N Group of Companies’ Founder and Coach Nadeem Hussain said at Digital Banking and Mobile Payments Summit 2017, a gathering of who is who in the country’s banks, fintechs and telcos. The financial clairvoyant didn’t stop there. “I see a major cyberattack in our digital world in the next three years. It’s at that time our [banking] industry will wake up to see the significance of what cyber security

“P

the dark? To find out the rationale behind his predictions, Profit caught up with him later and expanded the discussion further.

Pakistan’s first Unicorn will be a fintech platform play? he highest possible chance Pakistan can create a Unicorn will be a fintech platform play, Hussain said. “We don’t have that kind of power in any single app. We may have got an app valued at $100 million or $150 million, but a billion dollar is a big number,” he said explaining why he thinks the country’s first Unicorn will be a fintech company.

“WE DON’T HAVE THAT KIND OF POWER IN ANY SINGLE APP. WE MAY HAVE GOT AN APP VALUED AT $100 MILLION OR $150 MILLION, BUT A BILLION DOLLAR IS A BIG NUMBER” Nadeem Hussain, Planet N Group of Companies’ Founder and Coach

is,” he said. Considered to be a pioneer of mobile banking, Hussain also predicted that Pakistani commercial banks would not come up with anything of significance in the digital space and their customers would force them to open up their systems to APIs [application programing interface] of fintechs. He followed up with one more prediction: these banks will end up buying fintechs as opposed to creating them. When it comes to digital banking, Hussain has a knack for seeing the future well in advance. But, are his predictions just plain obvious or alternatively more like a shot in

Explaining, Citibank's former country head said that a fintech platform, which can develop multiple solutions like those offered by Chinese ecommerce giant Alibaba Group will have a real chance of potentially becoming a Unicorn. Alibaba Group is the holding company of Ant Financial, the world’s largest fintech company valued at $60 billion – that equals four Deutsche banks. Yes, you read that right. Fintechs are typically

standalone Internet-based financial services companies that compete with traditional banks in a marketplace. Over the past decade, they have changed the way banking and financial transactions are done thus increasingly getting high valuations by investors. “The top five valued companies of America in 2016 were the Googles, the Apples and the Amazons, they are no longer the Exxons, the Fords and the General Motors,” Chris Skinner said explaining how technology has changed things in the last 20 years – he is one of the top 40 most influential people in financial technology and a leading expert on information security.

Has Pakistan the potential to produce a fintech? omething is changing. The digital platform revolution that we are seeing today… the integrated open market-

“S

accounts online that’s really easy to use. It is expanding rapidly across Asia, which is why its valuation almost doubled in a year,” he added. Cutting-edge fintech companies and financial innovation are changing the competitive landscape, and are redrawing the lines of the financial services industry, says Global Fintech Report 2017 by PricewaterhouseCoopers. This growing market segment has already produced many Unicorns, a clear indication fintechs are on a roll. But, has Pakistan got the potential to produce one?

Can do, says Hussain ou have to be cognizant that it can be done,” Hussain said adding as one builds up a billion-dollar business, he should be clear on how much money he is prepared to spend and risks he is willing to take. “If you do that you are

“Y

‘CUTTING-EDGE FINTECH COMPANIES AND FINANCIAL INNOVATION ARE CHANGING THE COMPETITIVE LANDSCAPE, AND ARE REDRAWING THE LINES OF THE FINANCIAL SERVICES INDUSTRY, SAYS GLOBAL FINTECH REPORT 2017 BY PRICEWATERHOUSECOOPERS. THIS GROWING MARKET SEGMENT HAS ALREADY PRODUCED MANY UNICORNS, A CLEAR INDICATION FINTECHS ARE ON A ROLL’ places, which connect people who have money with those who need money, just as Uber does with cars,” Skinner said in his presentation in the digital banking summit. The industrial model of high valuation businesses, which require physical manufacturing of products, has changed and tech companies are frequently becoming highvalued entities, the expert said, backing it with examples, particularly from fintechs. Paypal, valued at $48 billion in October 2016, may be the oldest and most established fintech company in America, but it doesn’t stop new fintech startups from gaining traction. It is evident from Paypal’s new competitor Stripe, which saw its valuation increased from $5 billion in 2015 to $9 billion a year later. “Stripe is an API for doing merchants

on the right track.” Nadeem Hussain himself has invested in startups to exploit the areas that he predicts will soon become relevant. But, are his predictions a case of crying wolf to generate business for his startups or he is actually putting his money where his mouth is? There are currently 27 fintech companies in Pakistan, out of which seven belong to Planet N Group, which is 90 percentowned by Hussain, His holding company is in the process of launching Publishex. This upcoming startup has integration with Telenor, Zong and Jazz and will offer nano payments based on credit balance on customer’s SIM as opposed to his mobile account.

Aden Davies rings alarm bell “There is a real chance that a bank will fall in 2017 as attacks get more advanced and the hackers get further inside the network,” said Aden Davies, Director of Portfolio Management at 11FS, a top-notch fintech consultancy company based out of United Kingdom. “The challenges faced by SWIFT in 2016 show that critical infrastructure is at risk and it only takes a handful of weaknesses to be exploited for major damage to be done,” he said referring to the Bangladesh bank heist. In February 2016, cyber criminals stole nearly $100 million from Bangladesh’s central bank, which was connected with Society for Worldwide Interbank Financial Telecommunication (SWIFT), one of the most secured information and money transfer networks globally. Shortly after that incident, Russian officials disclosed that hackers stole more than $31 million from their central bank and commercial banks. In November of the same year, £2.5 million were stolen from 9,000 accounts of Tesco Bank, England. “They [banks] haven’t created any model that looks at the long tail customers, which is typically what the fintechs look at. That is, small ticket items with high value,” Hussain said – and he seems to be doing exactly that. Publishex’s integration

BANKING

with top three telecom operators would mean a target market of 122 million SIMs, their combined user base as of May. However, Hussain’s Planet N is not the only contender for first movers’ advantage in the fintech race. Financial Ninja (Finja) is another interesting fintech startup to watch out for. “We wish to digitalize the money. What Whats App has done to messaging, we want to do to payments in Pakistan,” Finja’s Founder and CEO Qasif Shahid told Profit in an interview. His company, in partnership with Finca Microfinance Bank, is developing a digital payments platform SimSim.

Digitalizing money, making Pakistan cash-light hahid aspires to make Pakistan a cash-light economy in the next three to four years and he chose to do it with ‘free payments’ through SimSim. “Our value to the microfinance bank is that through this opportunity the bank has to grow exponentially that has never happened before for a microfinance bank,” he said. Giving background of his statement, the CEO said microfinance banks have failed the world because their business model is analog. For example, he said Professor Muhammad Yunus made this model 40 years ago in Bangladesh but this model had only 300 million global customers during this time. By contrast, cellular companies gained five billion in 20 years. “That type of growth is very elusive for a microfinance bank on its own,” Shahid said referring to the latter.

“THE TOP FIVE VALUED COMPANIES OF AMERICA IN 2016 WERE THE GOOGLES, THE APPLES AND THE AMAZONS, THEY ARE NO LONGER THE EXXONS, THE FORDS AND THE GENERAL MOTORS” Chris Skinner

Right now, Finja has 20,000 users and a few hundred merchants on its platform but it believes if e-commerce remains free, there is a real chance that 100 million people will reinvent their relationship with money in three to four years – that’s the market it aims to tap into. The numbers for fintechs may look small at the moment but Hussain thinks it will take one to three years for these companies to fully evolve and provide full range of services in payments, savings, credit, wealth management, and information – the five areas of fintech that people grow in globally. Standalone fintechs have been a major business threat to financial services sector, but one can’t write off cellular operators when it comes to digital payments. According to the PwC study, telcos and big tech companies are seen as potentially large disruptors to the banking sector because they are able to innovate at a far faster pace than incumbents. “Telcos can play a big part in the digital revolution from a fintech prospective,”

Hussain said. They will end up giving voice for free because data is going to drive the fintech play, he said. They have a large customer base (140 million), they need to translate this data through machine learning and Artificial Intelligence to create solutions for their customers’ financial need, he added. Telcos have long been dominating the digital payments scene in the country. The country’s first mobile payments platform EasyPaisa of Telenor Bank alone accounts for 70 percent of the market. It claims to have processed five per cent of Pakistan’s GDP in 2016 at more than 1 million transactions a day – the country’s official GDP was $300 billion as measured in May, 2017. “We are aiming to digitize almost 100,000 merchants by 2020,” President and CEO Telenor Bank Ali Riaz Chaudhry told Profit – currently there are only 35,000 merchants that accept debit or credit cards. Powered by a total retail merchant universe of nearly two million, Pakistan’s retail payments market is estimated to be more than $150 billion – this is nearly 10 percent more than Hungary’s entire economic output of 2014. By contrast, the digital payment penetration remains much smaller at $150 million or mere 0.1 percent – that is almost all retail transactions are done in cash.

‘TELCOS HAVE LONG BEEN DOMINATING THE DIGITAL PAYMENTS SCENE IN THE COUNTRY. THE COUNTRY’S FIRST MOBILE PAYMENTS PLATFORM EASYPAISA OF TELENOR BANK ALONE ACCOUNTS FOR 70 PERCENT OF THE MARKET. IT CLAIMS TO HAVE PROCESSED Bullish on the FIVE PER CENT OF PAKISTAN’S GDP IN 2016 AT MORE future of fintechs ussain may have the most bullish THAN 1 MILLION TRANSACTIONS A DAY – THE take on future of fintechs, but he doesn’t seem too optimistic about COUNTRY’S OFFICIAL GDP WAS $300 BILLION commercial banks’ understanding AS MEASURED IN MAY, 2017’

of threats facing digital banking. The Planet N’s founder says Pakistani banks don’t think they are vulnerable and they are not even bothering about information security. “Not a single [Pakistani] financial institution or telco was using their services,” Hussain said, referring to Pakistan-based information security companies that are developing solutions for clients all over the world but not contacted by local financial institutions. These banks are using technology that just feels comfortable, the banker said. They may have their own systems but the fact that these banks are complacent makes them vulnerable, he said. “Banks think the safeguards they have in place are adequate,” he added implying it may not be a good idea. When Hussain was running Tameer Microfinance Bank’s EasyPaisa service, the bank was hacked. As a result, it had to bring its system down, and spend a lot of money to fix it. “We had a high-powered telco as a partner with sophisticated firewalls and hacking pulse, but we still got hacked,” Hussain said -- he refused to reveal the details though. If a sophisticated player can get hacked, other places, which have weak cyber security protocols, are certainly vulnerable, he said. “I think only an attack, and hopefully I am wrong, will shake us up to get us to the right level of cyber security,” Hussain said. And his statement doesn’t come without a basis. The banker relates his observation to the experience he had at a commercial bank where he had seen, firsthand, sophistication of cyber hacking – the recent developments in online security tell a similar story. According to a post by information security research firm, SecurityIntelligence, there has been a fundamental shift in the manner online crimes are taking place and

“WE WISH TO DIGITALIZE THE MONEY. WHAT WHATS APP HAS DONE TO MESSAGING, WE WANT TO DO TO PAYMENTS IN PAKISTAN” Qasif Shahid, Finja’s Founder and CEO

they are happening at a scale not seen before. These crimes are committed by groups of people who use increasingly sophisticated techniques and collaborate with each other to target financial institutions. “There is a real chance that a bank will fall in 2017 as attacks get more advanced and the hackers get further inside the network,” said Aden Davies, Director of Portfolio Management at 11FS, a top-notch fintech consultancy company based out of United Kingdom. “The challenges faced by SWIFT in 2016 show that critical infrastructure is at risk and it only takes a handful of weaknesses to be exploited for major damage to be done,” he said referring to the Bangladesh bank heist. In February 2016, cyber criminals stole nearly $100 million from Bangladesh’s central bank, which was connected with Society for Worldwide Interbank Financial Telecommunication (SWIFT), one of the most secured information and money transfer networks globally. Shortly after that incident, Russian officials disclosed that hackers stole more than $31 million from their central bank and commercial banks. In November of the same year, £2.5 million were stolen from 9,000 accounts of Tesco Bank, England.

Looming threat hough major incidents, these are only a handful of examples of a looming threat facing financial institutions. Media reports suggest 2015

and 2016 were the busiest years in terms of cyber attacks on banks. And that’s only the beginning. Given hackers had developed advanced techniques to breach existing security protocols, SWIFT warned that these attacks were set to rise globally. Lo and behold! Barely five months into 2017, a major global attack ‘WannaCry’ already infected hundreds of thousands of computers in more than 150 countries across the world. Last month’s ransomware attack exploited a security flaw in Microsoft XP operating system. The attackers locked access to user files and demanded the target pay $300 if they wanted their files decrypted. The attack wasn’t targeted on Pakistan but the attackers did come here, Hussain said– and that was even before his prediction. We could not find any official data about how many attacks have taken place in the past or value of losses suffered or amount recovered by banks. The State Bank of Pakistan’s response to Profit’s queries – shared with them three weeks in advance – was awaited till the filing of this report. Three of the top five commercial banks, we contacted for this article, didn’t entertain us either, leaving many important questions unanswered. However, industry sources say cyberattacks are taking place on a daily basis and there is no system in place for sharing of such information or dealing with a sophisticated attack. “Many cyberattacks are taking place in the country already. Our user data, such as credit card information, is being used by hackers on a daily basis but no one is sharing that information,” said Barrister Zahid Jamil, an international expert on cybercrime. Pakistani banks, at least a few of them,

BANKING

are now looking set to transition from basic bricks and mortar model to the much-advanced digital banking, making online security even more relevant. But, almost all the experts we spoke to echoed Hussain’s views, agreeing Pakistan has one of the world’s weakest information security systems in place. “One needs to make sure they have barriers to avoid such attacks and minimize the damage,” Group Chairman Standard Chartered PLC, Jose Vinals told Profit in his recent visit to Pakistan – Standard Chartered Bank (SCB) is the first bank in Pakistan to move to internet banking. Though he acknowledged banks all over the world are attacked every day, Vinals disagreed that banks were taking it lightly. “Cyberattacks are at the top of the agenda for all international banks and many local banks in many countries of the world,” he said recalling his reflections from the meetings he had with heads of banks and regulatory bodies in many countries of the world. The SCB’s global chief said, they have upgraded their security system recently to make it more robust. “It’s impossible to say we are 100 percent protected, but we are doing our best to avoid such attacks,” he said.

Two-factor authentication, the way to go hen it comes to cyber security of banks, some experts say two-factor authentication is an effective and

“WHEN YOU ARE CHARGING RS60 ON A LOCAL REMITTANCE OF RS1,000, THAT IS SIX PER CENT, IT BECOMES VERY EXPENSIVE” Rainer Rathgeber, Ufone’s CEO

nearly foolproof technology because hackers can’t access the target’s mobile phone, where the banks send temporary codes. However, not all banks use this technology. Even those who do have limited its use to funds transfer while accessing one’s account doesn’t require this additional layer of security. “In online banking there should be two to three factor authentication as opposed to the current practice where you go online, enter your password and access your account,” Jamil said. He argues that PIN and password model only ensures user authentication, but it doesn’t tell if a document is tempered – and that is apparently what happened in Bangladesh. SWIFT says it detected a simple malware on the bank’s computer systems that targeted a PDF reader, used by the bank to check statement messages. Using malware, the hackers bypassed primary risk controls by tampering with the statements. “The way they [banks] email monthly statements to clients without any password protection is very unsecure,” Jamil said of all Pakistani banks including SCB’s local operations. The barrister says banks should use digital signature, which is more secured and ensures encryption of documents so that no one can tamper them. Use of decentralized ledger system can be another way to prevent against cyberattacks, according to

Skinner, the information security expert. “Decentralize the structure of the system into lots of different servers around the network, rather than having one central server that runs the system,” he said during the digital banking summit while responding to a question. When a company has hundreds of points then hackers have to attack all of those to get a breach, which makes the institution far more secured than when they have only one central point, he added. Other experts say hackers are more skilled in cyber security, therefore, only a combination of best technologies or an emergency response team, as opposed to a single solution, can help form a sound strategy. Apparently, Pakistan has none. “We don’t have any financial computer emergency response team (CERT) in Pakistan at the moment. If I can be specific, not a single bank is prepared to deal with any major cyberattack on their systems,” Jamil said. Under CERT banks share data with each other and depute people on information sharing on real-time basis to address threats. In fact, the handling of recent attacks by private sector and the regulator indicates such information is restricted from becoming public. For example, EasyPaisa and JazzCash, the digital payment platforms of two large cellular service providers (Telenor and Jazz respectively) were hacked but they didn’t share any information with the industry. In fact, mobile accounts of JazzCash agents were compromised twice in a month despite the company’s claim to have fixed the loopholes exploited by hackers in the first incident – but they chose not to alert others in either case. Similarly, the SMS service can be useful as customers can alert their bank

“ONE NEEDS TO MAKE SURE THEY HAVE BARRIERS TO AVOID SUCH ATTACKS AND MINIMIZE THE DAMAGE AND I BELIEVE BANKS AREN’T TAKING IT LIGHTLY AS CYBERATTACKS ARE AT THE TOP OF THE AGENDA FOR ALL INTERNATIONAL BANKS AND MANY LOCAL BANKS IN MANY COUNTRIES OF THE WORLD” Jose Vinals, Group Chairman Standard Chartered PLC

in case of unauthorized access by hackers, but this is a paid feature that comes with a federal tax, which discourages consumers to avail this security layer. Most banks in Pakistan have outsourced cyber security and call centers to third parties, which is dangerous from a security point of view because they are not bank employees, Jamil said. We could not figure out how much money banks are spending on information security and what their strategy is because none of those contacted, including the regulator, answered our queries. “If a major cyber attack takes place on Pakistani banks, it will be a huge economic loss, it will be a loss of trust in electronic banking, and hurt the whole ecommerce sector,” Jamil said.

Banks not coming up with anything significant in digital arena ussain’s prediction about a cyberattack on financial institutions wasn’t the only bitter pill for bankers to swallow. His harshest

forecast, which may have made bankers in the room rather uncomfortable, was the one about commercial banks’ inability to do anything significant in the digital arena anytime soon. Asked to explain, the founder of EasyPaisa said banks’ business model doesn’t make them hungry for fintechs. The numbers he shared seem to agree. More than two-thirds of banks’ earnings come from government treasury bills and Pakistan Investment Bonds, which require no brains. In a country of 200 million, there are only 1.8 million active banking customers, 40,000 point of sale machines, and 1.1 million credit card customers. “It has been the same for the last 15 years,” Hussain said. Most banks are in five big cities and are not expanding geographically. The total SME lending from banks has come down from 17 per cent to six per cent while credit to agriculture remains under six per cent. “No one has really come up with an innovative model for a long time and this state of play will remain unchanged in

near future,” Hussain said pointing towards the budget deficit, which forces the government to borrow. The government remains the single-largest borrower of banks for over a decade now. “I have a sense that we [banks] will stay dependent on the government,” former finance minister Shaukat Tarin told Profit in a recent interview. Banking has a small footprint in the economy, for its coverage is only 33 percent of the GDP, he said. “Some of these banks have almost forgotten how to lend and it will take them a long time to build the capacity to lend to customers.” When the central bank started reducing its monetary policy rate in mid-2015, banks, which were enjoying 5 to 7 percent risk-free spreads, suffered notable losses in the years that followed. As a result, they shifted focus back to consumer lending. Hussain, however, says most of this lending is going to the salaried class and not the self-employed people. “By and large, expecting commercial banks, barring a few, to become tech savvy and provide their customers a digital journey is a long ask,” Hussain said. The global stats for legacy banking seem to support his point of view. Only three percent amongst CEOs of leading banks have professional technology experience, according to Skinner, the fintech expert. Even at the board level, the number is only six per cent. “When you have no one in the top management who understands fintech, you are fatally flawed,” the expert said. This, he says is the biggest problem for banks wanting to move to fintechs. “The real challenge for banks is how to play in a marketplace when they are playing on a proprietary avenue,” he said

BANKING

adding it is difficult because it requires change in thinking and culture. Agreeing with Skinner, Bank Alfalah Limited’s then CEO Atif Bajwa said, the challenges of moving to digital banking essentially emanate from the old people in the boardroom. It reflects a mindset, traditional model of revenue, and traditional ways of delivering to the customers, he said. “We have been in this comfort zone for so long that we are finding it difficult to transition very quickly,” Bajwa said, admitting the industry needs more people in the C-suite who understand fintech, which is the number one issue they face. The legacy banking and old mindset at the board level may have been hindering the transition to digital banking, but that is not the challenge facing the industry. For example, BAFL had the most aggressive approach in expanding its digital footprint recently, but it still faced problems in certain aspects of digital banking. When Bajwa took charge in 2012, digital was one of the two major areas of focus for the new management. They were one of the first banks to come into Point of Sale (PoS) machines business and grew their footprint very fast, according to Amaar Naveed Ikhlas, Head of Digital Banking at BAFL, which now accounts for 60 percent of the PoS machines in the market. “To become the best transactional bank you have to make transactions easy, cheap, and user friendly in every way. And to do that, you need to go digital,” Ikhlas said, explaining why they focussed on digital. BAFL had been able make some in-

“TO BECOME THE BEST TRANSACTIONAL BANK YOU HAVE TO MAKE TRANSACTIONS EASY, CHEAP, AND USER FRIENDLY IN EVERY WAY. AND TO DO THAT, YOU NEED TO GO DIGITAL” Amaar Naveed Ikhlas, Digital Head, Bank Alfalah

“WE ARE AIMING TO DIGITIZE ALMOST 100,000 MERCHANTS BY 2020” Ali Riaz Chaudhry, President and CEO Telenor Bank

roads to digital by increasing its ATM network from 300 in 2012 to 650 now. It makes payments to 350,000 EOBI customers and 1.1 million BISP beneficiaries besides moving Rs20 billion government to people in quarterly payments. Despite notable success on digital

front, Ikhlas doesn’t seem to be happy with the existing digital payments ecosystem. They launched their own platform

Mobile Paisa in collaboration with Warid, but it faded away after the latter’s acquisition by Mobilink. Eventually, they had to continue their services through EasyPaisa agents’ network because of customer convenience. But that didn’t turn out to be viable for them. Government pays BAFL and it puts the money into customers’ accounts who either go to ATMs or agents to withdraw that money. “For them this transaction is free and we compensate the agent from the fee we charge from government,” Ikhlas said. That is of every Rs10, up to 60 percent goes to the agents of EasyPaisa. Explaining, he said Jazz and Telenor let other players use their agents and charge the cost of management, which has opened up an opportunity for them to make more money at the expense of smaller players. “The game is just of the fee business, there is no float,” he said. Ikhlas is not the only one complaining about the duopoly of EasyPaisa and JazzCash. “When you are charging Rs60 on a local remittance of Rs1,000, that is six per cent, it becomes very expensive,” Ufone’s CEO Rainer Rathgeber said in an apparent reference to market leader EasyPaisa. Speaking to a group of journalists in Karachi earlier this year, Rathgeber said, 98 percent of all fee is going to the agents and rest to the telcos or banks, which is not a successful model. “The poorest is paying the highest and retailers are the only beneficiaries,” he said. This is one of the reasons why Ufone, the parent company of Ubank, is more into microfinance, and into payments, the CEO said. Ikhlas, the BAFL’s digital banking

head, says the current mechanisms support big players like EasyPaisa and JazzCash but other players are not able to do it. He went a step further in suggesting people in Pakistan didn’t do banking through mobile as it is done in other successful countries in the world. “If we ask EasyPaisa about how many accounts are there in Telenor Bank, they might say 10 million, but how many are actively used is a different story,” he said, adding, agents’ accounts are there, but not of consumers. In over the counter transaction, which still account for more than half of total branchless banking transactions, people at both ends are actually giving and taking actual cash. If one looks at over the counter transactions, the fee is under threat, he said, adding only Easy Paisa and JazzCash will survive because they have invested so much money in this. In digital banking, the growth didn’t come where it should have been. “We are still stuck at the point for digital transactions to take a leap,” he said.

shiﬞing strategies anks are very proprietary right now, but over time, they will open up their system so that fintechs can integrate with them, Hussain says. And this, according to him, will be driven by customer pressure or regulatory requirement. “If customers demand their information to be available with a particular fintech with their consent, the banks will have to comply or they will go to another bank,” Hussain said. “Some banks will open up

“The chAlleNGes of movING To dIGITAl BANKING esseNTIAlly emANATe from The old people IN The BoArdroom. IT reflecTs A mINdseT, TrAdITIoNAl model of reveNue, ANd TrAdITIoNAl wAys of delIverING To The cusTomers” Atif Bajwa, Former CEO Bank Alfalah

voluntarily because they see this as a business and build up a model where they make money but others will be forced to do it eventually,” he said. This has happened in Middle East and North Africa (MENA) and other parts of the world, he said. According to the PwC’s latest study on fintechs, many financial services leaders fear losing business to innovators, starting with payments, fund transfer and personal finance sectors. The vast majority (88 percent) believed that part of their business is at risk to standalone fintech companies. “This business risk is due to developments in fintech and has grown to an estimated 24 percent of revenues,” the study says. “Innovation is coming from outside financial services and being driven by a variety of sources including tech companies, e-retailers, and social media platforms,” it says, adding this approach certainly has been prevalent in some Asian markets. Hussain says a lot of banks have jumped into branchless banking but that is not necessarily a profitable business. “It’s a fat driven

herd mentality as opposed to strategically thinking what needs to be done,” he said. “Right now, they don’t think fintech, but when they have figured out how profitable these fintechs can be and what the improved customer journey is, the same banks will have opened up to the fintech APIs and will look into acquiring them,” Hussain said. Given fintechs are still in their infancy in the country, it may be too early to expect any merger or acquisition in this space, but recent developments indicate there have been several mergers and acquisitions in fintech space and there appears to be a shift in banks’ strategies towards them. According to Crowdfundinsider.com, 2015 saw 427 fintech mergers and acquisitions, up 14 percent over 2014. Similarly, the PwC’s 2017-study on fintechs says funding of such startups has increased at a compound annual growth rate of 41 percent over the last four years, which comes down to over $40 billion in cumulative investment. Big banks’ fintech investing strategies are shiting, CNBC reported in a post in April 2016. “This year, big banks seem more eager to partner with or buyout startups challenging crucial lines of business in the financial services industry,” it said. More recently, banks are committing big bucks to buyouts and it comes after a year in which fintech funding hit new highs, it said.

BANKING

OPINION

Syed Mazher Iqbal

10 facts about milk that you should know People who do not know how UHT aseptic processing and packaging technology works will keep spreading rumours about milk packed in cartons huge public debate about milk quality has been raging in recent months. A lot of confusion and doubts spread through the mass media and the social media with misleading, speculative and irresponsible commentary. To clear the confusion, public awareness of 10 key facts about milk is vital.

A Fact 1

The very first food a new-born consumes is motherâ&#x20AC;&#x2122;s milk. This is how the Creation intended it to be. Milk is designed by nature to be the complete and the ideal food.

Syed Mazher Iqbal is the CEO of Haleeb Foods and a fellow at the Institute of Chartered Accountants of Pakistan. He has been instrumental in financial and operational turnaround of Pioneer Cement and General Tyre Pakistan as MD and DMD respectively.

FMCG

Fact 2 Cowâ&#x20AC;&#x2122;s milk typically comprises about 87.7 per cent water, 4.9 per cent lactose (carbohydrate), 3 to 4 per cent fat, 3.3 per cent protein, and 0.7 per cent minerals. The composition varies depending on the breed of the cow, the animal's feed, the stage of lactation and other factors. Buffalo milk contains all the nutrients in higher proportions than cow milk, with fat content on average being twice as high as in cow milk. Health professionals therefore recommend modified dosages of these milk nutrients for human consumption.

Fact 3 Milk is a valuable nutritious food that contains fat, lactose (carbohydrates), protein, water soluble vitamins B1, B2, B3, B5, B6, B12, vitamin C and folate, and the fat soluble vitamins A, D, E, and K. It is also a good source of calcium, magnesium, phosphorus, potassium, selenium, and zinc, and small amounts of copper, iron, manganese, and sodium. Minerals have many roles in the body including enzyme functions, bone formation, water balance maintenance, and oxygen transport.

Fact 4

It is misleading to say that packaged milk does not contain fat. As per Pakistan Standards and Quality Control Authority PS 5344:2016 where UHT processed milk is legislated, UHT treated packaged milk must contains the minimum of 3.5% fat, unless a special low-fat variant is being offered. The cream layer on top of UHT treated milk does not form simply because UHT treated milk is homogenized â&#x20AC;&#x201C; a process that breaks down the fat molecules in the milk in a way that the fat content of milk gets equally distributed in each and every drop of milk in the carton. Therefore, when homogenized milk is boiled the fat does not separate and rise to the top as cream layer, as it does in the case of loose milk.

Fact 5 Milk is a highly perishable food item that quickly loses freshness and expires, unless it is kept cool at less than four degrees Centigrade or processed under hygienic conditions. To

prevent this from happening, gawalas or middlemen put ice of questionable quality to keep the milk cool during the period they procure it from milk farmers and deliver it to milk consumers. They also adulterate the milk with a variety of substances – starch, flour, urea, vegetable oil, etc. – many of which are harmful and even toxic. However, milk processing companies like Haleeb have established what are referred to as ‘cold chains’, eliminating the middleman by collecting milk directly from registered farmers, test it for impurities and toxins (total 30 different tests) and then immediately cool it in chillers, before transporting it to the processing plant in special tankers that maintain the required low temperature in transit. Comparisons between the gawala and milk processor’s value chain are akin to transporting an infant in a car without appropriate seat belts or a driver’s license!

of the milk without addition of any preservatives. UHT milk processing is a common processing technique globally used in over 170 countries since 1970.

Fact 6

Boiling milk at home kills about 50 to 70 percent bacteria, because at home the cooker temperature averages only between 70 and 100 degrees centigrade typically. Another issue of boiling milk at home is that it destroys vital nutrients. On the other hand, in the UHT process, the milk is very rapidly heated to a temperature exceeding 137 degrees centigrade and kept at this tem-

UHT processed milk is safe and nutritious, owing to the high quality European technology used and the strict quality controls exercised. Haleeb and many other dairy processors take raw milk directly from registered farmers, conducting at least seven different quality tests at collection points and rejecting any raw milk failing any test. Further comprehensive testing takes place at the main centers and then at Plant (30 tests) before its aseptic processing, (aseptic, definition: free from contamination) that includes pasteurization, homogenization and UHT (Ultra High Temperature) treatment, and finally to its aseptic packaging. All this investment, effort and technology is just for one purpose – to ensure that the milk which reaches consumers is safe, healthy, nutritious and free from contaminants and harmful substances.

Fact 7 There is absolutely no need and no economic sense at all for milk processors who market milk in sterilized Tetra Pak cartons, to add anything to the milk bought from registered farmers. And why processors do not have to add any preservatives is simply because they have established technology based procedures from the very first step (milk collection) to the very last step, which ensure the high quality and nutritional value

Fact 8 The quality of milk (like of any food item) deteriorates if the milk is exposed to any one of three things – sunlight, moisture and air. Milk in glass or plastic bottles for instance, even if aseptically sealed, will deteriorate in a few days because the aseptic sealing may deter moisture and air but it will not stop light. Thus milk in such packaging must be kept refrigerated and consumed in a few days at best. Unlike the glass or plastic bottle, UHT carton packaging has proven to be formidable against all three contamination risks in milk.

Fact 9

perature for less than just 4 seconds, before it is rapidly cooled back for further processing. The UHT treatment eliminates harmful bacteria, while preserving the nutrients. UHT treated milk does not need to be then boiled before consumption. That’s only half the technology story.

Fact 10 The other half of the technology story is the remarkable Tetra Pak carton! This is made of six layers of three materials very tightly compressed together to form one layer or ‘wall’. There is one layer of paper (essentially to give the carton shape and stiffness), four layers of PE (a kind of plastic) and one layer of aluminum foil. This six-layer carton developed by Tetra Pak of Sweden and used in over 170 countries effectively prevents the milk inside the carton coming into contact with sunlight, moisture or air which are the source of milk deterioration ( sunlight effects on product colour and taste , moisture and air is good source of microorganisms which can spoil milk). This practically means that no preservatives need to be added, no refrigeration is required for unopened cartons, and, the UHT treated milk in an aseptic carton can be kept sealed for up to three months, for consumption as and when needed. Milk is a critical part of our diet and as such we need to be sure that the milk we consume is of the highest quality. People who do not know how UHT aseptic processing and packaging technology works will keep spreading rumours about milk packed in cartons. But if one makes a little effort in understanding the real facts, then the only conclusion one will reach is that milk in cartons is safe and nutritious and should really be the only choice to make. Haleeb milk is registered with and certified by PSQCA (Pakistan Standards Quality Control Authority), the federal authority for national standards and quality control. This certification is a proof of the quality of Haleeb milk, in accordance with the standards and quality controls benchmarked by PSQCA for milk. This certification is renewed, in line with the set standards by PSQCA, on regular intervals after testing the quality of Haleeb milk. To conclude, we believe that it is better to rely on products that are in compliance with national food security standards and are duly tested for their quality.

FMCG

By: Aisha Arshad fter opening a physical store and receiving a valuation of $1 million for his first startup AutoX – an online portal for automobile accessories – finance graduate cum entrepreneur Mufeez Rana decided to further venture out in a broader market segment. “With AutoX there is a very small the segment of market: people who have cars and out of those as well very few would go online to purchase a car accessory,” says Rana of his startup that he began in February 2016. He thought of initiating a startup that could reach out to a bigger customer base and while roaming around in Lahore’s markets to find his cousin’s ‘A’ level course books, Rana stumbled upon an idea to tap into a potentially huge yet mostly untouched segment in Pakistan’s e-commerce: stationery and art products. With the intention to build Pakistan’s largest stationery and art shop online, Rana and his partner Zeshan Afzal, CEO VentureX, launched StationeryX on May 7, 2017. “While I was looking for my cousin’s course books, we were not able to find everything in one shop. We spent hours going from one shop to another, that’s where it struck me,” says Rana. “People do not have time to spend in

stationery shops and keep finding their required items, so we decided why not provide them with a complete solution on their doorsteps,” the entrepreneur added. “StationeryX is a complete solution for office stationery, school stationery and art products. I mean whatever it is, you name and we have it,” the CEO introduced his venture. A seasoned businessman himself, Afzal with his contribution in Peshawar Zalmi, JS Global Capital and Sadaqat Group, to name a few, was looking for youth startups to invest in. After meeting Rana and seeing the poten-

‘IF SOMEONE WANTS TO BUY PROPERTY ONLINE, THEY GO TO ZAMEEN.COM AND IF SOMEONE WANTS A CAR THEY GO TO PAKWHEELS. SIMILARLY WE WANT TO BECOME THE GO-TO PLACE FOR STATIONERY’ Mufeez Rana, CEO StationeryX

tial in the 28-year old entrepreneur and his startup, Afzal came on board. “I don’t invest in startups, I invest in people,” says the majority shareholder designated as chief visionary of StationeryX, “Good entrepreneurs can make a bad business work and bad entrepreneurs can mess up an otherwise good business.” Launched a month ago, StationeryX was able to raise $100,000 in seed funding from Elahi Group of Companies with a valuation of $500,000. When asked what motivated EGC to invest in a young startup, Danish Elahi, CEO EGC, in an email response to Profit said, “The business model in the specific field of stationery has a huge niche as Pakistan is a country with more than 50 per cent of its 250 million population under the age of 21; so the target market in addition to the B2B scope of the business is enormous.” In addition to the scope of the business, Elahi said EGC also evaluated the startup team and “the team with the likes of Mufeez as CEO and founder Zeshan Afzal was the easiest and primary sale point.” According to Rana, EGC is not merely bringing $100,000 investment, the conglomerate has a shareholding in over 80 companies and their inclusion can bring business from all those companies as well which is in addition to the seed money. Whether it was novelty of the idea or the entrepreneurial savvy of the duo, Rana and Afzal were able to convert the idea into a running business in less than five months. However, once in the market StationeryX now relies on its customer base which according to the CEO is ‘huge’. “We are receiving major orders from in-

‘THE BUSINESS MODEL IN THE SPECIFIC FIELD OF STATIONERY HAS A HUGE NICHE AS PAKISTAN IS A COUNTRY WITH MORE THAN 50 PER CENT OF ITS 250 MILLION POPULATION UNDER THE AGE OF 21; SO THE TARGET MARKET IN ADDITION TO THE B2B SCOPE OF THE BUSINESS IS ENORMOUS’ Danish Elahi, CEO Elahi Group of Companies

terior Sindh [and Punjab], Thatta, Badin and Gujrat are the places where we have our reach,” says Rana about his newly found startup StationeryX. “People in bigger cities have a lot of options; they can just go and buy, but people in rural area have very limited options even though they have money,” he said of his core clientele up till now. “Schools and local offices from [rural areas] are ordering their stationery in bulk from us, they say that we have provided them with a convenience on their doorsteps, previously they had to travel all the way to Lahore and Karachi but now they can get everything delivered,” said the Chief Visionary. While the entrepreneurs have found a strong market in rural areas, another major chunk of the business will be driven by corporate clients, which Rana aims to add to his portfolio soon. “Whether it’s a property dealer, a startup or an MNC, they all need stationery and they are our target market,” said the CEO. “If we are able to get business from a bank or a large multinational, we can further tap the market as people will trust us with big names in our portfolio,” he added. Gaining brand trust among the clientele is what stands as the largest challenge in front

‘I DON’T INVEST IN STARTUPS, I INVEST IN PEOPLE. GOOD ENTREPRENEURS CAN MAKE A BAD BUSINESS WORK AND BAD ENTREPRENEURS CAN MESS UP AN OTHERWISE GOOD BUSINESS’ Zeshan Afzal, Chief Visionary StationeryX

of the CEO. Once that is accomplished, he believes, his aim of becoming the largest stationery brand in the country will be fulfilled. “If someone wants to buy property online, they go to Zameen.com and if someone wants a car they go to Pakwheels. Similarly we want to become the go-to place for stationery,” he said. We asked the 28-years-old CEO as of what would be his strategy to achieve the said goal, oozing confidence, he said, “Market competent price, quality and good customer service.” In order to maintain customer service and personal level communication with the clientele, Rana and Afzal have been sending out personal notes to potential clients, which promise that in case of poor quality or a product against what was committed by company, the company will provide a replacement or refund within 24 hours – this is what the brace say is their effort to maintain quality and customer relationship. As far as the price is concerned, Rana stated that some people have found his pricing ‘better than wholesale rates’. This according to the CEO is because the startup is playing on volume of scales instead of profit margin.

As a reflection of so far, so good, the 12 member team of StationeryX has been sending 15 orders a day on an average. Although Rana says the startup is intending to grow the number of orders but they want the process to be gradual as the team is testing itself at the moment. In addition to the current wide range of stationery and art products available on the website, StationeryX is also catering customized orders. “If there’s a product that is not available on the website, our customers can upload a picture of it and we’ll provide them with the desired item,” the entrepreneur said of the customized order system. Rana is also working on to add complete range of school curriculum to the portal. This will also be a part of the corporate social responsibility that the startup is intending to fulfill. “People often talk about giving back to the society, but nobody knows how. So what we have decided is that on the purchase of 10 curriculum sets, one set will be donated to an underprivileged child,” said Rana. It is also important to mention that the startup is also giving discounts to children with special needs. “In addition we are also looking forward to sending 10 children back to school, so a certain percentage of our profits will go to this cause and we’ll be able to provide education to 10 children from underprivileged background,” the Chief Visionary further stated StationeryX aim. Though the startup is in its infancy, the CEO and the chief visionary are aiming high for StationeryX. Both Rana and Afzal intend to open a physical store of StationeryX a few years down the lane, which Áfzal says would be a “stationery themed store”, whereas Rana from there onwards intend to become stationery and art product supplier to Middle East. Together they want to become ‘the best and the largest stationery brand in Pakistan’.

STARTUP