Profit issue 07

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8 Weekly Roundup 12 Why Fauji Meat is the smartest decision made by the Fauji group in decades Farooq Tirmizi 14 Raiding the sports league market

20 20 Money well spent?

28 Chasing the dream 32 Selling like hot cakes

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36 Why face the ban? Kashif Syed 40 Talking Heads

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42 42 A treasure hunt at Karachi’s ‘chor’ bazaar 47 OLX — Thousands of products in the palm of your hand

CONTENTS

WelcoMe

FINGERS CROSSED hings aren’t too bad on the foreign exchange reserves front. At $22.4 billion, our reserves seem to be sitting pretty; higher than they have ever been, in fact.

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Appearances can be deceptive, however. You see, most of our foreign exchange reserves are borrowed money.

This money will keep trickling out every time an installment has to be paid.

But what about actually earning money instead of borrowing it, you ask. Well, our only two sources of earning foreign exchange are remittances and exports.

Things aren’t all too peachy in the middle-east, where the bulk of our remittances come from; employment opportunities are drying up. And our exports have also been falling.

Now though the situation in the middle-east is an unactionable variable for us, we could do something about the exports. And the government has tried to spur things with a whopping 18,000-crore-rupee incentives package.

tor will have the primacy in any Pakistani export initiative, those babus will be working with the giant, rickety textile concerns of ye olde. Not an inspiring combination.

Taxpayers can take heart in knowing that the effect of this stimulus is going to be evaluated after six months.

If the exporters aren’t able to reach the 10% target by then, the scheme of things could be reviewed. If it turns out to be a flawed initiative, not all of the Rs 18,000 crores would have gone down the drain.

That, at least, is the theory. We speak to former chairman All Pakistan Textile Mills Association (APTMA) in this issue to find out what we should expect going forward.

For those who would rather read more entertaining stuff, I would recommend Haider Ali Daud’s story on how he is planning to launch Pakistan’s first Kabaddi league. This, and much more in this issue of Profit.

Hope you enjoy reading this...

Alas, if this were only a problem that one could throw money at. The money will be doled out through babuled government departments. And since the textiles secBabar Nizami

Publishing Editor: Arif Nizami l Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Editor Reporting: Farooq Baloch Reporters Karachi: Aisha Arshad l Nida Jaffery l Arshad Hussain and Usman Hanif l Reporters Lahore: Syeda Masooma l Abbas Naqvi and Hassaan Ahmed l Reporters Islamabad: Amir Sial 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 Contact: profit@pakistantoday.com.pk

FROM THE MANAGING EDITOR

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“Pakistan has reiterated its firm commitment and continues to provide full support for TAPI pipeline”

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“Indonesia-Pakistan trade has grown and the volume has touched an all-time high of $2.2bn” Ambassador of Indonesia to Pakistan Iwan Suyudhie Amri

Mobin Saulat, MD Inter State Gas Systems

Rs 10,000 crore liability of Pakistan Steel Mill is being planned to be paid off by selling non-core land of National Bank Pakistan (NBP) and Sui Southern Gas Company (SSGC) bonds. Finance Minister Ishaq Dar held a meeting this week to find a way out, as the government’s decision to hand over the closed industrial unit on lease to prospective investors hinges on clearance of its balance sheet. The gross liabilities of the PSM stood at Rs20, 660 crore as of September last year out of which payables to the National Bank of Pakistan (NBP) and Sui Southern Gas Company (SSGC) amounted to Rs10, 0oo crore, said sources in the Ministry of Finance. In NBP’s case the financial advisors hired for conducting the PSM privatisation transaction have proposed that the government may settle the liabilities by selling non-core land and utilise the proceeds for settling remaining liabilities of the bank and the employees. SSGC meanwhile has been promised that it will be ill be given interest bearing bonds against its total payables.

144% growth in bank loans was witnessed in 2016 as reported by the State Bank of Pakistan (SBP). Banks remained cautious for more than a decade when it came to extending loans.

Their advances to the private sector were limited mainly because the government was the major borrower. The overall increase in advances over the 12-month period was Rs790 billion compared to the rise of Rs323bn a year ago. However increased activity was limited to a few sectors, like construction cement, auto, agriculture and services. Manufacturing is not showing significant growth as exports are still in decline. Rising advances reflect a vital change in the banking industry. They indicate a reduced role of the government and increased role of the private sector as a borrower. However, the major change is in the lending approach adopted by banks.

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300,000 tonnes of urea fertiliser export has been allowed under the government although the Rs200/bag subsidy to farmers has not been extended. The move aims to partially offload substantial surplus stocks built through domestic production with subsidised gas and public sector imports. The export will be allowed till April 28, 2017. The State Bank of Pakistan in a similar mechanism adopted for sugar exports will monitor the export quantity. It is expected that international fertiliser prices – which are now beyond $255 per tonne – would help offload the 300,000 tonnes urea approved for export.

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3.7%

was the Consumer Price Index (CPI) in January as reported by the Pakistan Bureau of Statistics (PBS). The annual inflation rate measured by the Consumer Price Index (CPI) captures prices of 481 commodities in urban centres. It was the second consecutive month that the annual inflation rate remained at 3.7%. The figure remained unchanged due to improved supply of perishable food items, but sugar prices have started to increase after the government’s decision to allow export of the commodity. However market forces are now expecting an uptick in inflation, resulting in an increase in the government’s borrowing cost.

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“The bullish trend in the economy is proof that the country is heading towards a promising future” Gilgit-Baltistan Minister for Information Iqbal Hassan

worth of profits and dividends from foreign investments was repatriated in the first six months of fiscal year 2016-17 as reported by the State Bank of Pakistan (SBP). The amount was less than Foreign Direct Investment (FDI), which amounted to $1,080m for the same six-month period FDI details show a one-time inflow of about $450m in December from the Netherlands for the acquisition of Engro Foods. This pushed the overall FDI to a higher level than the total repatriation of profits and dividends over the same period. The country has been trying to bridge the gap in revenue collection created by falling exports through remittances, which were close to the size of the deficit. But remittances have now started declining in the wake of massive job cuts in the Middle East. The highest amount was repatriated by financial businesses (banking) amounting to $180m. The second highest amount was sent by the power sector, which repatriated about $89m. Repatriated profits from the food and beverages sectors were $73m and $78m, respectively.

$951million

out of annual allocations were disbursed to federal ministries in the last seven months against a target of over 50%. The release of funds to the federal ministries as of Jan 20 (about seven months) amounted to Rs7, 500 crore against an annual allocation of Rs23, 430 crore, according to Planning Commission of Pakistan. On top of that, the government disbursed less than 39pc funds for the overall Public Sector Development Programme (PSDP) that also includes major corporations, special areas and special programmes in the first seven months of this fiscal year. The federal government’s development programme therefore appears slowing down this year. Substantial shortfalls in revenue collection during the period contributed to lower disbursements for the development programme, said an official explaining that it was practically impossible to contain major ‘on-tap’ expenditures like debt servicing, defence and running of the government.

32%

Rs2-10

is to be invested by Coca Cola in Pakistan. The investment is being made to set up plants in both Faisalabad and Islamabad.

Coca Cola Beverages Pakistan Limited Group Director Public Affairs Atilla Yerlikaya, while visiting the Board of Investment (BoI). The company has already invested $500 million during this year on upgrading existing plants in the country.

Yerlikaya during his visit sought BoI’s support for rationalisation of the tax regime in Pakistan and curbing infringement as some groups were violating industrial property rights and the practice was not only defaming original brands but was also reducing the country’s revenue.

was the increase in the prices of ghee and cooking oil as palm oil rates have increased in the international market.

According to the figures of Pakistan Bureau of Statistics (PBS), palm oil imports in July-Dec 2016 fell to 1.214 million tonnes, costing $844m as compared to 1.327m tonnes worth $829m in same period 2015. Therfore the average per tonne landing price of palm oil in July-Dec 2016 stood at $695 per tonne as compared to $625 per tonnes in same period 2015. Cooking oil production plunged to 155,528 tonnes in July-Nov 2016 from 161,017 tonnes in corresponding period 2015. However retailers and wholesalers maintained that the prices had been increased on the basis of quality where some had increased by Rs8-10/bag while others by only Rs2/bag.

$200 million

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“Pakistan International Airlines need a well-envisioned business plan for its revival ” Federal Minister for Planning Development and Reform, Ahsan Iqbal

QUOTE

22 tons

of coal went missing from an entire hopper wagon of a freight train that was transporting imported coal from Port Qasim to a power plant in Sahiwal. It was the second coal consignment for the 1,320-megawatt Sahiwal coal-fired power plant to test the expertise of PR in timely delivering the cargo. Officials working on the power plant have voiced concern over the missing coal, which was imported from South Africa. The matter has however been describes as a leakage rather than theft. The PR spokesman insisted that in order to avoid such incidents in the future, the railways had decided to design a locking device for the freight wagons.

will remain the interest rate for the next two months announced the State Bank of Pakistan (SBP) while revealing its monetary policy statement that is announced every two months. The central bank has maintained the rate since May 2016 and remains Pakistan’s lowest in over four decades. Majority of the analysts argued that the rate had bottomed out and foresaw gradual upward revision going forward. The monetary policy rate was in double digits (at 10%) in the first half of fiscal year 2012-13. SBP Governor Ashraf Mahmood Wathra optimistically explained that the current account deficit has increased because of higher import of plants, machinery and projects equipment. The imports will help increase [industrial] production. This should be seen in a positive way. Large-scale manufacturing grew by 3.2% during the first five months of the current fiscal year and further increase is expected on account of growing infrastructure spending and recent policy support for export oriented sectors, Wathra added.

5.75%

million was the fall in exports to China in first half of fiscal year 2016-17 as reported by the State Bank of Pakistan (SBP). The report also stated that exports to two of the largest regional countries, China and India, declined while imports grew rapidly, thus causing a trade imbalance. The government has been trying to develop economic relations with China for the last three years. This has helped China emerge as Pakistan’s largest trading partner. In July-Dec, Foreign Direct Investment (FDI) from China was just $204m against $444m during the same period of the last fiscal year showing that FDI from China has been falling in recent months. Pakistan’s imports from India however were at a record high at $1.8bn in 2015-16 indicating that economic relations with the neighbouring country remain intact despite pressure on the government to cut all ties with India.

$770

Mian Mansha brings Hyundai cars back to Pakistan South Korean carmaker Hyundai Motor Co is expected to resume assembling of cars in Pakistan, according to a statement sent to PSX by Nishat Mills Limited. Nishat Mills Limited (NML), listed on PSX, is the flagship company of Mian Mansha’s Nishat Group established in 1951. It is one of the most state of the art and the largest vertically integrated textile companies in Pakistan. It has a strong balance sheet and a rigorous marketing strategy. The memorandum of understanding between the two companies stated that the joint agreement will call for “negotiating and establishing a framework for setting up a green project for assembly and sales of HMC passenger and 1 ton range commercial vehicles in Pakistan subject to statutory and regulatory approvals.” The share price of NML noticed an upward trend with the share price increasing by Rs 4.77, a 2.79% increase on Friday.

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1.6% or more of GDP is the cost of cronyism leading to politically connected firms in Pakistan getting more credit than others.

The World Development Report 2017 says that cronies were able to secure preferential treatment and blocked entry of newcomers through regulatory barriers, like limiting access to loans, ease of licensing requirements, energy subsidies or import barriers. It reveals that such loan recipients were less productive and had 50pc higher default rates. The report urged developing countries and international development agencies to rethink their approach to governance as a key to overcoming challenges related to security, growth, and equity. The report finds that good policies are often difficult to introduce and implement because resistance to reforms that can disturb the political equilibrium.

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OpiniOn

Farooq Tirmizi

Why Fauji Meat is the smartest decision made by the Fauji group in decades Most investors still think of Fauji as primarily a fertilizer manufacturer; in the case of FFBL, that is about to change he worst way to think about a profitable investment strategy – whether it be as an individual investor or as a CEO thinking about how to deploy the company’s cash – is to be focused solely on the most profitable investment opportunities. The right way to think about investment strategy is to think about the most profitable investment opportunities from amongst those that you understand.

The enemy, in other words, is not your luck or your circumstances, but not knowing the limits of your own mind and capabilities.

Over the past decade, the military-owned Fauji Group – consisting largely of the Fauji Fertilizer Company (FFC) and Fauji Fertilizer Bin Qasim (FFBL) – have made forays into two completely new businesses.

The first was clearly a “me-too” strategy of entering the dairy business by purchasing noon pakistan (makers of the nurpur brand of dairy prod-

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Farooq Tirmizi is an investment analyst based in New York

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ucts) and renaming it Fauji Foods. The second was to start a greenfield investment in a new meat export business called Fauji Meat.

The market loves the former decision, largely because it thinks that foreign investors love consumer-facing businesses and will bid the stock price of Fauji Food up. it has largely ignored the latter decision, in large part because the market still does not know how to full value the meat business. (The stock price of FFBL, which is the parent company of Fauji Meat, assumes the value of the meat business at zero rupees.) i would argue that Fauji Meat is a much better decision by the Fauji Group than Fauji Food. not only is it an investment in the kind of business opportunity that takes advantage of pakistan’s natural competitive advantages, but it does so in a manner that does not require the Fauji management team to enter a business that is completely different from the one they are used to running.

(Disclosure: i worked as part of a team of consultants that advised FFBL on the financial feasibility of Fauji Meat in 2012. i am no longer affiliated with that consulting firm, ASi partners, nor do i receive any compensation from FFBL or any related entity.)

The meat export opportunity

The business logic behind Fauji Meat is simple: pakistan is one of oldest, most fertile areas of the world and has abundant food resources of its own, and has the good fortune of being located next to a region that is cash rich and food poor. The six Arab states of the Gulf Cooperation Council and iran all have tremendous hydrocarbon resources that have meant that they have higher per capita incomes than pakistan, but they do not have the capacity to grow most of their own food, making them reliant on imports.

“These countries are importing most of their meat from Brazil which is half way around the world and we can’t get our meat to them from two days shipping time away. We should kill ourselves out of embarrassment,” Kazim Namazi, a partner at ASI who worked on the Fauji Meat feasibility, used to say. He was referring to the fact that Brazil accounts for approximately 52% of the total meat imports of those countries, despite being on the other side of the planet.

The market opportunity is not insignificant: the six Gulf states and Iran imported $6.4 billion worth of meat in 2015, the latest full year for which figures are available from the World Trade Organization. More than half of that opportunity comes from Saudi Arabia alone. Pakistan’s share of that market is miniscule, though it has been growing over the last few years.

Pakistan’s exports of meat reached $264 million in 2015, up from just $13.8 million in 2003, which represents an average annual growth rate of 27.8% over a 12-year period. While that number is a relatively small proportion of Pakistan’s total exports, it nonetheless represents one of the fastest growing categories of exports the country currently has.

One of the companies that has contributed to that export business is Al Shaheer Corporation, a publicly listed company that operates both a meat export operation as well as a domestic retail chain of high-end butcher shops. (Disclosure: In 2010, I worked on the financial analysis and project management of the launch of Al Shaheer’s retail chain called Meat One.) Fauji Meat, however, is a much larger operation with a much higher production capacity and significantly more investment than Al Shaheer. Most analysts expect Fauji Meat to become the dominant player among Pakistani meat exporters by the end of 2017, its first full year in operation.

How the meat business will transform FFBL Investors are used to thinking about FFBL

as a reliable dividend play in the fertilizer manufacturing sector of Pakistan. And while news of progress on Fauji Meat does occasionally move FFBL’s stock price, the bulk of the news that moves the stock has to do with its fertilizer business. Indeed, the market does not appear to be pricing in the value of the meat business into FFBL’s stock price at all.

That is probably a mistake, because if all goes according to plan, Fauji Meat is expected to account for up to one-third of the consolidated revenues of FFBL by the end of its second year in operations. At a ceremony in Port Qasim to mark the launch of Fauji Meat’s commercial operations on January 15, FFBL CEO Syed Aamir Ahsan told The Express Tribune that he expects Fauji Meat to reach revenues of between Rs1,600 and Rs2,000 crore within two years.

The new abattoir that Fauji has set up in Port Qasim has the capacity to produce 100 tons of meat a day on one shift, which can be doubled with relatively minimal capital expenditure by adding a second shift, suggesting that the new business line has scalability.

But what really makes Fauji Meat Ltd (FML) the more attractive subsidiary (despite the unfortunate acronym) for FFBL is the fact that it is still a commoditized business-to-business enterprise, unlike Fauji Food, which will require Fauji management to learn how to manage a business that requires building a distinct brand identity and

managing the unique dynamics of a direct relationship with consumers.

In other words, Fauji Meat will allow FFBL to grow its revenues into a business that has fundamental attributes similar to the one it has been in for decades. Fauji Food will require its management and board to learn an entirely new type of business essentially from scratch. Which do you think has the higher probability of success?

Of course, managing a business where the raw material is live animals is very different from running one where the raw material is just natural gas. But the fundamental management skills required – a strict eye for standards, adherence to process, and an uncompromising attitude towards quality assurance – are likely common between the two. The food business would require the additional skills of knowing – and caring – about how consumers perceive your brand, something one suspects is not a task the manufacturers of fertilizers generally have to deal with.

Both new subsidiaries may well end up being successful. The one thing that can be said for sure is that the market would do well to recognize the potential gains from both relatively soon.

MARKETS

sports

By: Syeda Masooma

kabaddi..kabaddi..kabaddi...

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S ince independence, Kabaddi is the only game that has kept Pakistan in the top ranks of the international ecosystem of sports. And yet we continue to exclusively be a cricket crazy nation. There remain only two dozen test cricket playing countries while 35 countries across the globe have national kabaddi teams and this number is still growing. The potential for this game to expand is so much higher than cricket, and by some sheer dumb luck, our kabaddi team is still among the top three in the world.

No one seems to be thinking to save this one sporting title that we have left, or at least no one did, until now! Following the trail of Pakistan Super League (PSL), Founder & CEO of Strawberry Sports Management Haider Ali Daud Khan is all set to hit the sports block with Kabaddi Super League (KSL) in 2017. Strawberry Sports Management has decided that it’s time for Pakistanis to touch base with the sport.

The ancient game of Kabaddi (literal meaning-holding hands) is considered to have originated in Tamil Nadu. Its first in-

With a predominantly cricket crazy nation it is difficult to imagine a sport that could generate even a fraction of that fervour.

Founder & CEO of Strawberry Sports Management Haider Ali Daud Khan has set out to do just that with Kabaddi Super League (KSL), a sport he believes has been forgotten and has the potential to become the next big thing ternational exposure is believed to have been in 1938 in Calcutta where it debuted in the Indian National Games.

However, Haider believes that the game has a much older and more powerful history. He attributes the origins of the game to 4000 BC in geography of modern day Iran. To him it was never a sport, rather a skill mastered by warriors and the royalty themselves. Overtime only two versions of the game have survived which form the basis of the modern day game.

One of the versions is titled circle style (mud kabaddi), mostly prevalent in Pakistan and Indian Punjab. There is a flexibility of having 10 to 12 players on the team. In addition to players on the ground, there are four substitutes in the squad and two more officials. Of the16 official members, only ten are allowed to play at a time.

The other format is called the Asian style (or mat kabaddi) which is normally played on a mat within the confines of a gym.

Haider is determined to bring the game back to its long lost glory – at least among the higher factions of the society.

Taking an independent stance, he has decided to stay away from state sponsored games. Haider has arranged the Kabaddi Super League (KSL) as a private initiative the first ever of its kind in Pakistan.

Even though leagues are supposed to be privately owned and managed enterprises, the renowned PSL is not entirely

THE ANCIENT GAME OF KABADDI (LITERAL MEANING-HOLDING HANDS) IS CONSIDERED TO HAVE ORIGINATED IN TAMIL NADU. ITS FIRST INTERNATIONAL EXPOSURE IS BELIEVED TO HAVE BEEN IN 1938 IN CALCUTTA WHERE IT DEBUTED IN THE INDIAN NATIONAL GAMES

privately owned. However, KSL is completely privately organized and managed and will be played in the ‘circle style’ format.

“You will see various city based franchises, but there won’t be any departments playing in this league.” He added, “To understand this project, it’s very important for us to understand the multiple stakeholders of the game. All these games operate in their own particular peripherals in every country so to promote any game as a league one has to understand its different stakeholders.”

Listing down the stakeholders in this particular case, he said, “If we talk about kabaddi, there is the Pakistan Kabaddi Federation, then comes the state, which in this case is Punjab Sports Board, which has consented to giving us their space to conduct this tournament – and then there are the players.”

Some of the players in the tournament belong to different departments – WAPDA, Pak Army, Police etc. – and there are also some independent players who are not related to any department. Either way, they will lose their departmental identity and will be exclusively playing for KSL for the duration of the league.

There will be six teams for the first season which can be scaled up to ten teams for the upcoming years. The league itself is a ten-year format. Haider is hopeful that the sport will grow multifold in the years to come.

The model of the league is based on corporate sponsorship and there is an annual franchise fee that will come from the team owners. These team owners will own the teams for the duration of the league and players from various cities and departments all across Pakistan will take part in the league.

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Haider explained that the model of this league is very similar to the ProKabaddi League (PKL) model in India where two entities are responsible - the Mashal Sports Company and the Star Sports media group who jointly own the PKL. The main difference between between KSL and PKL he noted was that in India the Kabaddi federation is the exclusive technical contributor which helps in managing players and maintaining discipline and order in the games and the tournament when it happens while its Pakistani counterpart will not have any direct involvement in KSL. The drafting process for the teams in this league is quite similar to PSL. The team owners will be allowed to choose players from the nationwide pool of players.Players need prior consent of their respective departments in order to be part of the selection pool.

Unlike PSL however, KSL does not have any international players for its first season. “This is a conscious decision that we have taken not because of budget constraints but because of the security challenges. Let’s say we have ten international players and seventy local players; all our players would be ignored and the system would be focused on those ten only”, explained Haider.

“KSL will be a men only league at the beginning but there is no denying that an ecosystem has been established that allows women to take part in the game.” said Haider. This ecosystem didn’t develop too long ago but has proven to be successful in a very short time.

“Last year our women’s team went to Iran and won 4 out of 6 games, landing a silver medal. After that, we had the first women’s national championship about a month ago and the standard of the game was very good.” he opined.

Even though Haider is optimistic about the league, he made no bones about the state of sports in the country altogether.

He said, “In Pakistan the advent of events like leagues took so long because there is a genuine void of sports here despite the presence of good players”. However, he doesn’t hold any single institution responsible for the downward drive. “If you know all the stakeholders of the game and the plight of sports in general in Pakistan, it doesn’t mean that none of these stakeholders are working.

According to Haider the factor most lacking is coherence between the different stakeholders. He also accentuated the lack of imagination as being a major hurdle in proper development of sports in the coun-

NOW, DAUD IS DETERMINED TO BRING THE GAME BACK TO ITS LONG LOST GLORY – AT LEAST AMONG THE HIGHER FACTIONS OF THE SOCIETY. THE WAY HE HAS CHOSEN TO DO SO IS TO SHED THE SPOTLIGHT ON THE GAME AND BRING OUT ITS TRUE STANDING IN OUR CULTURE AND IN THE INTERNATIONAL ARENAS 16

try.

Haider is also aware of the risks of this tournament from a business and profitability point of view. The biggest stakeholder – Corporate sponsors – are not being attracted to these platforms because Pakistan has not been able to produce a champion player or team in the past few years.

He said, “This is the void that we thought needed to be addressed by a sports management company.” There have been instances when despite winning the Asia cup or producing tennis and squash champions, the nation itself does not seem to be interested in any sport other than just cricket. This could be a potential threat to the success of the entire league.

Haider however also looks at this as a big opportunity. “Frankly when I look at sports, I don’t consider it a very technical matter and you need to understand how it is played. Around the world, there has been a story first and then the sports come in. So we believe that first of all we are building a story around the sports, which is far more important and a bigger message than the technicalities of the sport.” he explained.

When asked why he chose kabaddi with an audience that is predominantly

“KSL DOES NOT HAVE ANY INTERNATIONAL PLAYERS FOR ITS FIRST SEASON WHICH IS A CONSCIOUS DECISION THAT WE HAVE TAKEN NOT BECAUSE OF BUDGET CONSTRAINTS BUT BECAUSE OF THE SECURITY CHALLENGES. LET’S SAY WE HAVE TEN INTERNATIONAL PLAYERS AND SEVENTY LOCAL PLAYERS; ALL OUR PLAYERS WOULD BE IGNORED AND THE SYSTEM WOULD BE FOCUSED ON THOSE TEN ONLY” Haider Ali Daud Khan, Founder & CEO of Strawberry Sports Management

cricket crazy he said, “We did proper research and found that while cricket is what it is, in terms of any sport which has a potential for scalability and which is currently understood and played by a large number of people, Kabaddi was the clear winner”.

His endeavors are not a spur of the moment decision. Before starting to brand KSL, he researched the feasibility of Kabaddi as it has mostly been a rural game.

“Sitting here in a Metropolis and talking about Kabaddi we may not be able to comprehend it but around 60pc of population in the rural areas still plays it. Moreover in the last 20 years there has been a net migration from rural areas to urban areas, so a considerable proportion of the metropolitan cities are a fan of the game. Besides cricket and kabaddi don’t have to be mutually exclusive and people can enjoy both.”

He further said, “I am a firm believer that growth of any sport is not a zero sum game but since the unfortunate attack on the Sri Lankan cricket team in 2009, there has been no international cricket in Pakistan. Our team is travelling across the globe but there is a dearth of this sport actually happening here”.

Talking about sports and its positive effects on the economy he said “the truth is that whenever a sports event happens in a particular geography, a whole economy develops around it. So even if there are not big sponsors like Coke and Pepsi, there are a plethora of sponsors who wish to do trade marketing and have booths and not necessarily massive amounts. So even if we don’t have bigger sponsors, we will have several smaller sponsors.”

So far Strawberry Sports Management does not have any public relations manage-

ment company or marketing agency on board but they are planning to take someone on board. However, he doesn’t consider a PR agency as a major factor in promotion of a game event. He also dismisses any criticism about people not showing up on an event like Kabaddi super league.

Haider tried to debunk this perception by sharing his personal experience. “For a game that is considered to be a Punjabi game, I was at a match happening in Bannu between Bannu district and Peshawar district which was not featuring a single national player and the crowd was more than 50,000 people and the only advert for that match was local cable TV of Bannu which was activated two weeks prior to the match and the announcement was made only on speakers, therefore there is a lot of potential on ground.”

He is convinced that cricket has become a bit of a fraught despite heavy popularity of PSL. “Even though I am a big fan of PSL myself, because it has opened room for imagination for leagues happening in Pakistan, the structure underneath the game has all gone dilapidated.” With Kabaddi, the conditions are the opposite as there is a strong structure but the game needs to be pushed into the limelight.

Talking about the costs and expenses

of the event Haider said, “We are ourselves doing all the cost contributions, the owners of teams are paying for the costs of the team and sponsors are only for the tournament, not for covering other costs but the actual costs will come out when the deal is closed”.

“Until then I can give you an approximate idea that the average price of one of our teams is about one tenth of the average price of a PSL team.” he revealed.

Players are at the center stage of this game so they are being given several financial incentives. He said, “Considering my own expenses, I cannot give you an accurate estimate because the cost isn’t only in monetary terms but also in time and effort.

But in monetary terms, around Rs 1 to 2 crores have gone in pre-financing.”

The source of revenues for him and his team in terms of event management comes from event sponsors, franchise fee coming from the team owners, gate revenue, media rights monetization and merchandizing of the overall event.

The merchandizing of individual teams would be their own responsibility, but the tournament’s merchandising will be ours. The expenses on the other hand include venue arrangements, opening and closing ceremonies, marketing (media cost,

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PR, digital, conventional etc.), prize money, (player’s fees would be picked up by the team owners), annual payments to the federation and payment for media rights. The guests and judges that we are inviting also incur cost. Delegates, technical experts, observers, members of contemporary federations etc.

An interesting aspect of the expenses of KSL as compared to PSL is that for popular games like cricket, the channels pay for these rights but for this Kabaddi tournament the organizers have to pay the channels to televise it. Haider hopes that for the first couple of years this is an expense that would turn around to the revenue side.”

This is not the first experience for Haider to arrange such a tournament, although not on such a huge scale. A while ago, he had arranged a Rugby match and that match helped in encouraging the company to delve into sports that don't have wide appeal.

“We have a women’s team and a men’s team for Rugby. There are some private clubs and also some state institutions supporting.” he said. Delving deeper into the details of the game he said that since Rugby and Kabaddi are both contact sports, a few players are part of the national teams of both sports. “Three national rugby players are also three national kabaddi players.

These both are full contact sports so players can build skills of both without compensating on the other one.”

Haider’s plans are beyond this KSL

“WE DID PROPER RESEARCH AND FOUND THAT WHILE CRICKET IS WHAT IT IS, IN TERMS OF ANY SPORT WHICH HAS A POTENTIAL FOR SCALABILITY AND WHICH IS CURRENTLY UNDERSTOOD AND PLAYED BY A LARGE NUMBER OF PEOPLE, KABADDI WAS THE CLEAR WINNER” 18

series. He is going to organize two more national super leagues for wrestling and rugby. “We are doing three leagues for now, Kabaddi, Volleyball and Wrestling. In the first season of all three games, that will happen in 2017, we will only have national players.”

He also plans to extend his company’s training and development operations to international players as well. “We will be able to train and develop international players as well, but our primary motive remains to train our own players first.

There are proper management and training

opportunities in many foreign countries already so we want to focus on our own players first.”

The title of ‘Strawberry’ sounds unrelated to a sports company but Haider has an elaborate explanation for this too. “We didn’t want to have a very corporate name and we decided not to get hung up on the short term consciousness of awkward sounding name and chose Strawberry. It is a fruit associated with instant energy.” He added, “Secondly this fruit has its seeds on the outside and because our vision and mission is all about bringing Pakistan to the outer floors.”

Describing his vision with respect to the whole league he said, “We have no false hopes that by having these leagues, these games would jump to the top overnight. The players who will join now have come through a system and have their respective age groups. Someone who can only play for two more years won’t be able to play for this ten year format.

As for future players Haider said “we need to scout newcomers and young players and if they are looking at the game sitting on the fence thinking this could be their profession and turn that passion into a career, that would be the ultimate result. The current players can also continue to be part of the game and give back to the game by coaching and training new players.” n

DISRUPTION

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COVER STORY

Will the massive Rs18,000 crore stimulus package help revive Pakistan’s moribund textile exports?

By: Syeda Masooma

COVER STORY

hen they first came into office, the Nawaz Administration’s pronouncements on the textile industry were a libertarian’s dream come true. Commerce Minister Khurram Dastgir was repeatedly quoted in the press as saying that the exporters had nobody but themselves to blame for slowing exports and declining global competitiveness. Gone were the days, it seemed, when the All-Pakistan Textile Mills Association (APTMA), the representitive body of the textile industry, could successfully argue its way into government favours.

Yet, after three and a half years of resisting, it appears that the Nawaz Administration finally gave in. In January 2017, Prime Minister Nawaz Sharif signed off a Rs18,000 crore stimulus package for Pakistani exporters (the largest beneficiary of which is the textile sector) that gave APTMA most of what it asked for.

So what changed? Why did the prime minister give in to the textile industy’s demands now? And what exactly did APTMA ask for and what did it get? More importantly, what does the country get out of spending Rs18,000 crore in taxpayer money?

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The macroeconomic background hen the Nawaz Administration took office in May 2013, it inherited a macroeconomic mess.

Economic growth, as measured by the gross domestic product (GDP) growth rate, had come to a virtual standstill and had averaged less than 2.5% over the past five years. Per capita incomes were stagnating, and poverty – after having declined for a decade – was on the rise again. And that is before one even begins to discuss the mess that was the country’s hodgepodge of an energy sector.

The one area that was doing well, though, was Pakistani exports, including textiles. For the calendar year 2013, Pakistan’s exports touched $25.1 billion, close to their highest level ever. Textile exports hit close to their peak, at $13.8 billion. More importantly from the new government’s perspective, growth over the past decade had been robust.

Overall exports had been growing at 7.7% per year for the past ten years (through 2013),

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“WE ARE GETTING ELECTRICITY AT 1.5 TIMES THE PRICE AND GAS AT TWICE THE PRICE AS OUR COMPETITORS IN THE REGION. TRANSLATE ITS EFFECT AS A 35% CONTRIBUTOR TO A PRODUCTION PROCESS AND YOU WILL SEE HOW DIFFICULT IT BECOMES TO CONTROL COSTS” Aamir Fayyaz, APTMA Chairman

textile exports had been growing at 5.2% per year during that same period, and non-textile exports had been growing at an astounding 12.2% per year during that decade.

Perhaps it is unsurprising that the one area that the prime minister felt he did not need to put out a fire was in exports. And so when the textile industry approached him, with the same talking points it had been using

in years past, it was easy for the government to feel that there was little urgency in needing to act.

By the end of 2016, however, it was abundantly clear that the policy of benign neglect was not working. While the rest of the country’s macroeconomic indicators had stabilized, exports were clearly suffering. In the three years the government had been in office, exports had declined by an average of 6.6% per year, down from $25.1 billion in 2013 to $20.4 billion in calendar year 2016.

Textile exports were down 3.5% per year during that period and non-textile exports were down a distressingly high 10.8% per year over that three-year period.

So when in September 2016, APTMA Chairman Aamir Fayyaz approached the government for an assistance package to help the textile industry and boost exports, the prime minister and his cabinet were far more receptive.

The negotiations et even at that moment, the prime minister was not easily convinced, not least because of resistance from the finance ministry and the Federal Board of Revenue (FBR). It took four months of painstaking negotiation to hammer out the deal. At one point, the prime minister asked Fayyaz and Finance Minister Ishaq Dar to sit in one room and work out the details of the

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agreement in detail while he continued to seek input from other cabinet ministers and the FBR on the pros and cons of the deal.

That effort appeared to pay off in January 2017, when the prime minister announced the Rs18,000 crore stimulus package aimed at textile exporters and which seeks to grow Pakistan’s textile exports at over 10% per year to hit $20 billion by 2020.

While the market and journalists alike appear ecstatic at the prospect of the effects of this package, Profit decided to skip the euphoria and ask the man behind the plan what he asked for, what he got, and what he hopes to achieve from this stimulus package.

The textile worldview o talk to a Pakistani textile exporter is to step into a singular worldview.

Industry participants are convinced of the economic value of what they do for a living and feel that the government has been insufficiently supportive of their businesses and therefore are betraying the macroeconomic interests of the country at large. APTMA office holders tend to be the most fervent advocates of this worldview.

“The textile industry has linkages forwards and backwards; it is linked to agriculture through cotton which is the only cash crop of Pakistan, with cottage industry, as well as the entire fashion industry,” said APTMA Acting Secretary General Anisul Haq, perhaps confusing the meaning of the term “cash crop”. (All major crops grown in Pakistan are cash crops.)

“The textile industry has always been the engine of growth for any country. Link this industry to all these other sectors and you will see how much impact textiles have on the economy,” he added.

He is not wrong about the importance of the industry to Pakistan’s economy, and certainly its exports, since textiles account for about 60% of the total value of good exported by Pakistan.

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The case for the stimulus amir states that negotiations between APTMA and the government began in September 2016. Every month, federal officials sat down with textile lobbyists for two and a half hours to discuss the industry’s proposals and the

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government’s counter-offers. How Fayyaz made the case to the prime minister is practically a case study in how to make a winning argument.

“We said to the prime minister that we appreciate the fact that, over the past three years, your government has achieved a certain level of macroeconomic stabilization,” said Fayyaz. “When this government came into power, Pakistan’s foreign reserves were almost depleted, power outages were 10 to 12 hours per day, and gas was not available in Punjab throughout the winter months. GDP growth had come down and the economy was in shambles. So we appreciate that the government has managed to recover several of these losses. But we also strongly urged the PM and his team that the country had to focus on export-led growth.”

Yet even while praising the government’s efforts, Fayyaz pointed out that the gains were more fragile than they appeared.

“Even though foreign exchange reserves are

much higher than three years ago, it is all borrowed money that has to be paid back with interest. We have to earn that money, which we believe is done either through exports or through foreign remittances.”

Pakistan’s annual remittances from expatriates total $19 billion, the bulk of which are sent by low-wage workers in the Middle East. Fayyaz believes that those economies are slowing down and hence growing the current account surplus through remittances is unlikely. That leaves exports as the other way to increase reserves without borrowing. Unfortunately, on that front, Pakistan’s performance has been less than stellar.

“In the last three years we have been losing our export markets. In 2013, our exports were $25 billion. Now they are down to $20 billion,” said Fayyaz. According to him, the main reason for this decline is the loss of competitiveness of the Pakistan’s industries, which he blames on the high costs of doing business in Pakistan.

COVER STORY

“In the textile sector, our main competition is from India, Bangladesh and China.

Our cost of doing business is going up against these countries so we are gradually becoming uncompetitive and losing our market share,” he said.

Among those higher costs? A higher minimum wage and higher energy costs, says Fayyaz.

“Our minimum wage is Rs 14,000 a month, approximately $135. In Bangladesh it is $68. Our energy cost is around Rs11 per kilowatt-hour (kwh) while our competitors are getting it at about Rs7 per kwh. We are getting gas at $9 per million British thermal units (mmbtu) while Bangladesh is getting it at below $5 per mmbtu.”

In making his case for why Pakistani business faces higher costs, Fayyaz was at times prone to exaggeration. For example, he claimed that energy costs as a proportion of total production costs for Pakistani textile companies was 35%, a claim contradicted by the financial statements of publicly listed textile companies, which put the number around 10%.

“We are getting electricity at 1.5 times the price and gas at twice the price as our competitors in the region. Translate its effect as a 35% contributor to a production process and you will see how difficult it becomes to control costs,” he said.

Higher costs, he said, translate into not only an uncompetitive and expensive endproduct, but also lower profits that can then be reinvested into upgrading and improving the industry’s infrastructure, a vicious cycle that he maintains the textile sector needs the government’s help to break out of.

“THE TEXTILE INDUSTRY HAS ALWAYS BEEN THE ENGINE OF GROWTH FOR ANY COUNTRY. LINK THIS INDUSTRY TO ALL THESE OTHER SECTORS AND YOU WILL SEE HOW MUCH IMPACT TEXTILES HAVE ON THE ECONOMY” Anisul Haq, Acting Secretary General APTMA

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One area where the textile lobby acknowledges the government has already helped to reduce costs is financing. “A while before the government announced this package; they have provided the opportunity of long term finance at 5% for 10 years. You can adjust the payments and periods but you can get finance at a 5% cost,” said Fayyaz.

What the industry demanded he industry fundamentally made four demands, two of which the government accepted outright, one of which the government mostly accepted, and one that the government did not.

Demand 1: Tax-free imports of cotton The first was to have the ability to have

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tax-free imports of raw materials, particularly cotton, into the country. “If the main raw material that the industry needs is pricey, then how can you expect the final product to be competitive?” said Fayyaz.

The existence of this demand contradicts the textile industry’s claim that its prosperity helps Pakistani cotton farmers. The reality is that many of the value-added textile manufacturers, particularly those that make readymade garments, do not use local cotton and instead import their cotton from other countries. This is because their buyers do not trust the quality of Pakistani cotton and prefer them to use cotton imported from other countries.

In making its case to the government, the textile lobby had claimed that it plans to use more of the country’s local cotton, much of which is exported to other countries, as part of its own raw material for higher-value exports. Indeed, Fayyaz said: “One aim for us is to convert more local raw materials into finished goods. By doing that alone we can gain $12 billion and this is other than our exports targets of 10% annualized growth.”

Presumably that $12 billion figure refers to the additional value of exports compared to the $4 billion in raw cotton and cotton yarn the country exported in 2016.

However, when confronted with the question of why the industry is asking for exemption from paying taxes on imported cotton when it is claiming that it will use more local cotton, Fayyaz did not give a clear answer, instead changing the subject to the fact

that Bangladesh got tariff-free access to the European Union before Pakistan did.

“The demand for imported raw materials by foreign buyers has many reasons. We have had GSP Plus status [for European Union markets] only since 2014, while our competitors like Bangladesh have had that advantage for decades now. Our products were taxed and more expensive so buyers went to other countries’ products instead.”

Bangladesh does not grow its own cotton and also has to import cotton, but this is a factor that Fayyaz did not address.

He also considers the ‘bad press’ as a contributor to the shift in demand from our raw materials to other countries’ products.

“When Pakistan is being painted as an insecure country to go to and do business with, and when the buyer isn’t coming to Pakistan, it is difficult to get customers for value added products. Therefore, we only sold raw materials for which the buyers didn’t have to come here.”

Nonetheless, despite the incoherence of the case for the demand for tax-free imported cotton, the government agreed to the textile lobby’s demand, although they added some conditions that purportedly seek to protect the interests of local cotton farmers. The government will allow tax-free imports of cotton into the country after the local cotton harvest is over in December.

Fayyaz claimed that this measure would not discourage local cotton farmers. “Our local cotton price is derived from the international price. So just because the imports have become cheaper, the local produce’s cost would not be affected. Therefore, we have asked the government to waive this duty after the local farmers have harvested their cotton crop.”

It is unclear how APTMA expects a lower-priced imported competitor to not have any influence on the cotton crop in Pakistan.

Demand 2: Tax-free imports of manmade fabrics

The textile lobby’s second demand was that the government should allow the tax-free imports of those man-made fabrics (MMFs) that are not produced in Pakistan. Fayyaz said: “Only polyester is made in Pakistan. All other MMFs are imported. One of our demands was to make all those imports tax free and the government accepted this demand as well and taxes on all MMFs apart from polyester have been abolished.”

Demand 3: Tax rebates for exporters APTMA considers this a partially fulfilled demand, even though the government essentially agreed to the textile lobby’s proposal for tax rebates on exports. The rebates are essentially a payment the government would make to exporters after receiving a payment for their goods sold abroad. The purported reason for the payment is to compensate the exporter for any local taxes they may have paid in manufacturing their product for export.

APTMA had asked for rebates increasing with the value addition levels of the exports, set at a 5% rebate for yarn and grey fabric, 6% for processed fabric, 7% for textile made-ups, and 8% for textile garments. The government essentially agreed to the demand,

but just modified it to reduce each of the rebate numbers by 1%. So the final rebate rates announced the government were 4% for yarn and grey fabric, 5% for processed fabric, 6% for textile made-ups and 7% for textile garments.

This incentive is also conditional on the industry fulfilling its promise of higher exports. Fayyaz said: “The prime minister was concerned with our ability to deliver results and when we assured him that we will be able to increase the textile industry’s exports by 10% annually, he was bold enough to take this decision right then and there.”

The rebate will be given only if the exports are shown to have increased. In six months’ time, individual businesses will report their results and only those who have achieved a 10% annualized growth in those six months would receive this rebate.

Demand 4: Subsidized energy The one demand for which APTMA showed the greatest creativity into crafting proposals was seeking subsidized energy costs. It suggested using a weighted average cost of energy across all provinces which would raise prices in Sindh and Balochistan but lower them in Punjab and Khyber-

COVER STORY

its formal list of demands once the talks with the government actually began.

What the country gets in return or his part, while the prime minister was willing to listen to the industry make its demands, he was also keen to make one of his own: insisting that the public’s money being spent on the incentive package yield tangible results for the country and its economy. On that front, the textile lobby promised to raise Pakistan’s textile exports to $20 billion by 2020.

That would require a 12.8% annual growth rate in exports from 2016 export levels, which the lobby, for some unspecified reason, has been rounding downwards to 10% per year.

“The PM asked us about the results we could give if our proposals were accepted. We told them that if we are granted the concessions and returns that we are demanding from the government, we can deliver 10% annual growth in our exports,” said Fayyaz.

The $20 billion number does not appear to be based on any econometric or financial analysis, but on an anecdotal survey conducted informally by the APTMA management of its members. “We consulted with our colleagues and promised 10% growth if the government committed to what we were demanding. In the next year we can achieve $1.2 billion increase, approximately $1.35 billion increase in the year after and so on and eventually reach the target of $20 billion textile industry exports in 2020,” said Fayyaz.

The textile lobby is keen to emphasise the macroeconomic benefits of raising exports. “Note that with $7.5 billion increase

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Pakhtunkhwa. The lobby suggested having an exchange rate adjustment in energy costs, and also asked for a removal of all government taxes and surcharges on electricity and gas billed to textile exporters. The government, however, was in no mood to alter its energy policy, which it believes will ultimately result in a greater supply of electricity at lower costs to all consumers.

Needless to say, the textile industry was not pleased at being rebuffed at what they saw as one of their most critical demands.

Fayyaz lamented: “No matter where the theft or losses happen across the country, the tariff payers are paying that money. I don’t mind paying those surcharges as a domestic consumer but when we are in a competition with international producers, we need the slack of not paying the cost of what we are not even consuming.” He said that manufacturers use independent electricity feeders and have to pay the bills on time, so they do not deserve to be made subjected to the surcharges and other such costs.

However, he said, “The prime minister said that in the future our energy costs might decrease. We also told the PM that we will continue to press upon this issue as energy costs remain one of our biggest hurdles in cost reductions.” He appears hopeful that if the textile industry participants continue to pressure the government, the administration

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will eventually give in.

The non-demand: Exchange rate depreciation The textile sector had also initially considered asking for the government to allow the rupee’s exchange rate with the dollar to depreciate in order to improve competitiveness. Most independent economists, as well as analysts at the International Monetary Fund, believe that the Pakistani rupee is an overvalued currency. However, it was made clear to APTMA that Finance Minister Ishaq Dar considered the exchange rate to be nonnegotiable and was not willing to even discuss it as part of the negotiations. Hence, APTMA did not even end up including it in

per annum, we wouldn’t need to borrow from IMF or World Bank. In the last IMF two-year package, they loaned us $6.5 billion. So we can make much more with exports than we have to borrow.”

The APTMA chairman appears to be mixing up foreign exchange reserves with the government’s external debt and borrowing obligations. While the government’s IMF loans had the effect of raising the country’s foreign exchange reserves, the cause of turning to the IMF in the first place was a balance of payments crisis when the government ran out of money to pay off its external creditors.

If the textile industry is able to raise exports by an additional $7.5 billion a year, it will stabilize the country’s foreign exchange reserves, but will not do anything to the government’s debts or the possibility of a debt crisis.

“I always maintain that economic security is the most important thing for attaining national security. If we are begging for economic security then our national security is compromised,” said Fayyaz.

What will it take to achieve $20 billion by 2020? hile many in the industry, particularly the officer bearers of APTMA, appear to believe that government incentives will be enough to achieve the growth needed to hit the $20 billion target by 2020, Fayyaz acknowledges that meeting that target requires significant investments on the part of the industry itself, something that many players have failed to do in the past.

“There are certain companies – big and small – who have never reinvested in their machinery,” said Fayyaz. “In textiles, technological advancement is happening all the time. So if a company today is still using the plant they established in 1980, in which let’s say 1,200 labors are working, today a new plant of the same capacity can work with 600 or even 250 people. So irrespective of what the government does, if someone hasn’t reinvested in the technology they are never going to make money. There are also some people in the industry who have not developed any innovation in their product. They are still making the same thread. The world has moved far ahead. There is innovation in yarn,

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PERHAPS IT IS UNSURPRISING THAT THE ONE AREA THAT THE PRIME MINISTER FELT HE DID NOT NEED TO PUT OUT A FIRE WAS IN EXPORTS. AND SO WHEN THE TEXTILE INDUSTRY APPROACHED HIM, WITH THE SAME TALKING POINTS IT HAD BEEN USING IN YEARS PAST, IT WAS EASY FOR THE GOVERNMENT TO FEEL THAT THERE WAS LITTLE URGENCY IN NEEDING TO ACT in fabric, in processed fabrics. So those who haven’t innovated are also losing at that. Then there is also the issue of economies of scale.

At a certain scale today a company is not viable. If I take the example of spinning, a plant with 15,000 spinners is not viable. They have to compete in the world with India, with China, where there are 200,000 spinners under one roof.”

However, the APTMA chairman is also convinced that the investment needed to move the industry forward need not come from Pakistani companies alone. “We are also trying to get Chinese to invest in Pakistan.

They don’t have the GSP Plus status so their exports are 11% more expensive than ours.

Add to that the 7% rebate they would get if they bring their operations to Pakistan, and their margins would improve instantly by 18%. So we are trying to get them on board as well.”

So should the country be skeptical of the textile industry’s ability to live up to their word or optimistic?

Fayyaz said that there are some people who feel like they have had enough with the textile industry and now they wish to move their investments somewhere else. But there

IN JANUARY 2017, PRIME MINISTER NAWAZ SHARIF SIGNED OFF A RS 18,000 CRORES STIMULUS PACKAGE FOR THE EXPORTERS THAT GAVE APTMA MOST OF WHAT IT ASKED FOR

are also many industry players who are willing to construct brand new spinning wheels today. Such plants are more energy efficient, have higher productivity and have lower labor costs, so they will be profitable. However, those who are still running the plants established by their third generation ancestors, for them there is little hope even from this package. “So if you are prepared to do your part as well and expand or improve your operations, now you have the chance to benefit from the rebate and duty removals. The lower operational costs of new investment coupled with low cost financing opportunities and the 4% rebate to be provided by government will definitely add to the profits for such players.”

Despite many challenges and pressure exerting factors prevalent in the country for the past few years, there have been some composite units who had always done good and remained profitable. Fayyaz mentioned such units as another factor that would help in improving exports. “The composite units have many advantages over other factories, in their value chain, supply chain, cost savings as well as leave time benefits. They have different accounting processes as well and have the liberty of counting profits only on their final product.” This not only allows them a wider maneuvering range but the customers also prefer to work with such companies. They have more control over their quality, production process as well as time routines so it is better for clients. Aamir believes that many members of APTMA are already considering expanding their business vertically. Adding a backward or forward production unit or establishing a complete production chain would allow the companies to gain more customers, save more costs and achieve their exports targets as well. n

COVER STORY

industry

A decision to wind up the family business resulted in a successful sale that gave birth to a new business model. 10 years on and Chase Up has grown from strength to strength with its eyes now set on disrupting Punjab’s market and eventually going for an IPO 28

By: Aisha Arshad

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t was back in 2004 when Bashir Abdul Ghaffar decided to wind up ‘Chase Up’ Departmental Store, the garment business his late father Abdul Ghaffar had found 20 years ago in the neighborhood of Bahadurabad (present day location of Imtiaz Super

Store).

The reasons to close down were many; mainly the losses the family was bearing for a long time and a higher pricing model for the premium product range that was not working out well for the business. In order to get rid of all that was left behind of the family-owned garment merchandise, Ghaffar brothers – including Bashir, Farooq and Iqbal Abdul Ghaffar – decided to put on sign board reading clearance sale, which offered up to 5060% off.

To their surprise, the sale that was

meant to clear the stocks of the store became an instant hit among the masses. Flocks of customers rushed in day and night at the Shaheed e Millat, NIPA and Clifton outlets. As a result, the company had to source additional supplies from its vendors, extending the sales for almost three months as opposed to the planned two weeks.

It was only then that the Ghaffar brothers understood the mantra of selling their products: competitive and affordable prices for good quality garments – an idea

that was so successful during the sale days as a fluke.

Chase Up Departmental Store closed its doors once the sale ended, however a new idea was born out of the death of this family business – a value mart with affordable prices.

In 2005, the business restored the NIPA outlet, albeit with an exception; the family business of Chase Up Departmental Store split into three separate businesses to be headed by three sons of Abdul Ghaffar.

Farooq Abdul Ghaffar ventured out with Chase Value Center and Iqbal Abdul Ghaffar initiated Chase Shopping City; Chase Up was taken as a brand name by Bashir Abdul Ghaffar.

‘’THE FIRST NAME THAT SHOULD COME TO ANY CUSTOMER’S MIND FOR RETAIL SHOPPING – REGARDING GROCERY OR NON GROCERY SHOPPING – SHOULD BE CHASE UP; THAT’S OUR AIM’’ Muhammad Meraj Hussain – Head of Marketing at Chase Up

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rent prospects of becoming a national value mart – a go to place for affordable shopping.

Talking about the sourcing of Chase,

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A LITTLE WHILE LATER, IN 2005, THE BUSINESS RESTORED THE NIPA OUTLET, ALBEIT WITH AN EXCEPTION; THE FAMILY BUSINESS OF CHASE UP DEPARTMENTAL STORE SPLIT INTO THREE SEPARATE BUSINESSES TO BE HEADED BY THREE SONS OF ABDUL GHAFFAR

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Even today the three are still perceived as one company by customers, however internally there’s no relation whatsoever between the companies.

Chase Up which is now headed by Bashir Abdul Ghaffar’s sons Salman Bashir (current CEO), Jawwad Bashir and Mustafa Bashir, extended the product range by introducing cosmetics, jewelry, crockery and grocery in its stores..

Today, with more than 1,500 employees and a newly established head office in Karachi, Chase Up is on the way to become a corporate entity. After being in business for more than 30 years, the owners have now decided to transform the departmental store model into a corporate model. In order to do so, Chase Up has set up its IT department, HR Department, Marketing Department and other operational departments in last one year.

Chase Up is currently the largest non-grocery store and the second largest grocery store in the city. The departmental store also expanded to Punjab two years ago, opening its largest outlet in Multan.

The brand has also aggressively expanded in Karachi, where previously only three stores were operational for 20 years under the family banner now a decade after restructuring the business model Chase Up witnessed increased sales which helped the family to expand into seven outlets within a very short span of time.

With a total of seven outlets and an online store, Chase Up also currently leads among the family competition.

Chase Value Center and Chase Shopping City both hold three outlets each with an online store owned by Chase Value Center.

Muhammad Meraj Hussain, Head of Marketing at Chase Up, discusses the company’s struggles, rerouting and cur-

which Hussain considers the company’s strength he said, ‘’Our directors are themselves buying heads for their respective categories [because of which] our sourcing is very strong.’’

The directors, Bashir Abdul Ghaffar, Salman Bashir, Jawad Bashir and Mustafa Bashir personally look after the buying of garments, crockery, cosmetics and gro-

cery respectively and maintain the sourcing from China where 90 percent of nongrocery items are merchandised from. ‘’With good buying and good sourcing, we are able to transfer good quality [merchandise] at very low prices to our end customers,’’ Hussain said of the aspect that surrounds the current business model.

As per Hussain Chase Up keeps its sales

margins as low as possible and in certain cases beats the wholesale rates as well. ‘’The current business model is giving maximum benefit to our end customers and [making] minimal profits,’’ he said of the strategy that has enabled Chase Up to grow at a rate of 18-20 percent every year – accumulating a 90 percent growth in last five years.

Hussain openly admitted that Imtiaz Super Store, its biggest competitor and retail giant, is currently the market leader with a huge margin. However, he proudly mentions the narrowing gap with every passing day. Some industry experts even say that Chase Up currently holds 18 percent market share in major categories of grocery against the 20 percent of its competitor -- a narrow margin to be filled.

Although, the company’s strength till today remains to be garments, children garments in particular, as per Hussain Chase Up is determined to become the market leader in grocery category as well -- an arena that the company stepped into back in 2009. In order to tap a greater market, the company plans on expanding its recently launched online store which currently features grocery items mostly. ‘’Chase Up was not online for so many year because we were strengthening our offline business,’’ said the Marketing Head. Hussain says it will take time to introduce all products of the physical store in the online store, however, ‘’the company sees it in a positive way and is optimistic’’ with the response it has received for grocery so far.

In order to further strengthen the brand presence and establish Chase Up as a major player amid the growing competition, Hussain indicated that company’s focus area will now be Punjab where customers with ‘huge pockets’ are attracting major retail players. The already operational Multan store is also the store with the highest footfall of 1,000 customers per day.

Seeing the success of its first store in Punjab -- which Hussain considers the new battlefield of retail market -- the company plans to invade Faisalabad in 2017.

Industry sources also claim that the company will also venture out for an IPO in future. The Marketing Head himself indicated that there’s a possibility of such an initiative in next five years or so. ‘’Strategy is to embed Chase Up’s name in every customer’s mind,’’ Hussain told of his foremost priority. ‘’The first name that should come to any customer’s mind for retail shopping – regarding grocery or non grocery shopping – should be Chase Up; that’s our aim,’’ he said with a determination with which the company was founded some 30 years ago.n

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By: Nida Jaffery

ive years ago, a young housewife Sumera, aka Sam, ordered a customized cake for her daughter’s birthday party.

She, along with her husband Waseem, went all the way to the baker’s house, 40 minutes away from the party venue, to pick up the Barbie Doll cake. The fondant cake that cost 400 riyal at the time was nothing less than a sugary heaven; yet Sam knew she could do a better job herself. This sparked her interest in baking and she thus began her entrepreneurial journey. Today, she sells one of the most sought-after designer cakes in Karachi, and the demand for her cakes is only growing despite a high price tag attached to them.

With a limited to negligible social life in Jeddah, Sam had the time to learn baking and cake designing. In 2010, she made 40 cupcakes for a Valentine’s Day party at her husband’s office – and that’s when her

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ENtrEprENEurship

work was noticed leading to her first-ever order from one of her husband’s colleagues and an online business she started in Jeddah to sell her designer cakes.

Within a year, the expatriate couple moved to Pakistan and decided to launch their designer cake business in Karachi with a minimal initial investment, which they refused to disclose.

To encourage his wife, Waseem made a Facebook page where his wife sold customized cakes as per customers’ needs, which paved way for her to reinvest her profits and open her first physical outlet – a distinctive tread in the retail setting where businesses usually go from conventional to online.

The influx of new internet users has expanded the size of Pakistan’s online market and helped women like Sam launch Facebook-based businesses to reach out to a market of 30 million users. In other words, they have been able to target an audience difficult to reach physically – and that too, from the comfort of their homes.

According to industry estimates, Pakistan’s e-commerce transactions are worth $300 million – Facebook-based transactions account for more than a third of this growing market segment.

The significance of this online segment can be gauged from the success of Sam’s business, which is now expanding physically by reinvesting profits earned from the online platform.

Five years into the business, Sam’s Chocolate Factory has an online shop, a bakery at Malir Cantt with a kitchen above it, and another outlet that they launched in September of 2016 at Zamzama – one of the most sought-after business locations in the upscale neighborhood of Clifton, which accounts for more than 80 percent of her clientele.

“OUR DESIGNER CAKES ARE EXPENSIVE BECAUSE WE DO NOT INCLUDE THE WEIGHT OF THE FONDANT. WE WEIGH ONLY THE SPONGE WHEN GIVING A POUND” Sumera, aka Sam

34

“Eighty per cent of our business still comes from digital platforms mainly Facebook,” said Waseem. “Also, eighty per cent of our regular client base is located in DHA and Clifton. This is the major reason we’re opening another outlet at Zamzama.”

For people with a sweet tooth, Sam’s

Chocolate Factory is nothing less than a delight. This bakery and confectionary business specializes in designer and customized cakes and sells a pound for Rs 2,000 – almost double the average market price – with a minimum order size restricted to three pounds. The bakery takes additional delivery charges of Rs 500. This high price label and delivery charges, however, aren’t causing any slowdown in the demand for her cakes.

“Our designer cakes are expensive because we do not include the weight of the fondant. We weigh only the sponge when giving a pound,” said Sam. Unlike other novice start-ups in Pakistan, Sam’s Chocolate Factory defied all odds and went from an online business to a conventional business rather than operating the other way around. Even after five years

of its inception, Sam’s online shop is working better than her conventional outlet. The owners refused to disclose the tax numbers but contrary to many other retail stores of the same size, they have been filing taxes for the last three years.

The outlet offers a variety of cakes and the everyday bestsellers are chocolate devil and lemon tarts. The finely decorated bakery at Malir Cantt, 7 kilometers east of Karachi’s airport, with its display festooned with creamy chocolate fudges and flavored biscuit tarts has grown its client base by embracing international standards of cake decoration.

“We import the chocolate we use from Malaysia,” said Waseem. He further explained that all of the equipments used in baking are professional and many are imported from countries like UK, USA and Canada.

The business is jointly managed by Waseem and Sam who opted for separate departments each. Sam looks after the baking and designing whereas, Waseem holds the responsibility of the administration and marketing. Hailing from a customary domestic culture, Waseem rose above the conventional mindset and encouraged Sam to initiate her own venture.

“He has been very supportive of me throughout. We proudly call it a family project,” Sam said of her husband. “We started on a tiny mahogany table and made this big together. He used to deliver cakes himself in the beginning when we did not have drivers for delivery.”

Rapidly growing businesses with female proprietors aren’t a common occurrence in Pakistan –it therefore doesn’t come as a surprise that IBA singled out this venture in 2013 to be studied under the Women

MORE THAN

THE INFLUX OF NEW INTERNET USERS HAS EXPANDED THE SIZE OF PAKISTAN’S ONLINE MARKET AND HELPED WOMEN LIKE SAM LAUNCH FACEBOOK-BASED BUSINESSES TO REACH OUT TO A MARKET OF 30 MILLION USERS

Entrepreneurship program initiated by AMAN Center for Entrepreneurship Development (AMAN-CED), IBA in collaboration with The World Bank.

Sam has been attending the sessions at AMAN-CED, IBA for the last few years and has collected praises from the attendees each time.

Currently, Sam’s kitchen employs four professional bakers, three kitchen workers, nine cake designers, two secretaries, two drivers and a few other management employees. The number of employees counts up to almost 30, each working in their specialized division.

Sam believes women prove to be better cake designers. Therefore, all the nine designers are young girls with interest in arts and craft.

“We do not look for education while hiring but we focus on their artistic abilities,” said Sam. “I personally train each of the girls and help her master the art of cake design.”

Whether the credit is given to skilled designers, professional bakers or both, Sam claims her bakery receives negligible complaints.

“We have baked more than 9,000 customized cakes in the last four years and have received COMPLAINTS less than 10 complaints,” said

9,000 10 4 CAKES BAKED IN THE LAST YEARS WITH LESS THAN

Sam. She explained that the number of complaints are very small and can be neglected in such a huge business.

Waseem said that they plan on going one step at a time with opening their second outlet at Zamzama being the first step and shifting the kitchen there in a few months, the second.

“We have had our ups and downs but we look forward to going a long way.” the entrepreneur couple said about their future endeavors for Sam’s Chocolate Factory.

ENTREPRENEURSHIP

iopinion

Kashif Syed

helping in running illegal cab operation: none of the Uber or Careem drivers are legally compliant to drive as a Taxicab Driver using Uber or Careem's App Service. They only hold a driver’s license which entitles them to drive their own private car but not to drive a public passenger vehicle to generate income. The license to drive a taxicab is different than private Car Driving License. The worst ith the launch of the recent ride-hailing part is that for a small gain owners and vendors are also in services namely Uber and Careem and breach of the law which can also get them in trouble with many others joining the bandwagon the law. later, the life of the daily commuter Section 3 and 5 of THE BALoCHiSTAn, n.W.F.p., pUnseems to have eased out tremendously.

JAB, SinDH MoToR VEHiCLES oRDinAnCE 1965, Many of these services have believed to WEST pAKiSTAn oRDinAnCE XiX oF 1965 states have filled the void that had long been clearly that : created due to inefficient functioning of CHApTER ii LiCEnSinG oF DRiVERS oF MoToR VEthe public transport system in the counHiCLES try.

Section 3. prohibition of driving without licence. (1) no perHowever, when global companies enter potential markets abroad, it is son shall drive a Motor Vehicle in any public place unless he mandatory that they respect bylaws and operate within the jurisdiction of holds an effective licence authorising him to drive the vehithe country concerned. cle; and no person shall so drive a Motor Vehicle as paid The problem employee or shall so drive a public service vehicle unless his licence specially entitles him so to do The Government is using an extract of the legislation called “THE Section 5. owners of Motor Vehicles not to permit contrapRoVinCiAL MoToR VEHiCLES oRDinAnCE 1965 (ordinance vention of section 3 of or section 4. no owner or person in XiX of 1965)” to bring ride-hailing companies under the jurisdiction of charge of a Motor Vehicle shall cause or permit any person the law. it discusses the taxi cab driver licensing requirement and a perwho does not satisfy the provisions of section 3 or section 4 mit requirement as mandatory for operating as a Taxicab owner operato drive the vehicle. tor. it doesn’t account for the legality of Third party Cab Company 2- Cars used to provide cab services are also non-compliproviding leads to taxi drivers. ant with the Taxicab Permit: none of the cars that are being used to provide the cab servWhat laws are being breached? ices using Uber or Careem app are compliant with the law to According to the government notification: provide the taxicab services. To provide a taxicab service, 1- Drivers driving without a proper license and vendors/owners you need a Certificate of Fitness of the transport vehicle and a permit to operate that transport vehicle as a taxicab. The permit is issued by the provincial Transport Authority and Kashif Syed also contains the route permit for the desired region.

Section 39 and 44 of THE BALoCHiSTAn, n.W.F.p., pUnJAB, SinDH MoToR VEHiis Cofounder & Managing Director/CEO Limofied CLES oRDinAnCE 1965, WEST pAKiSTAn oRDinAnCE XiX oF 1965 states clearly that: Section 39. Certificate of fitness of transport vehicle. (1) Subject to the provisions of section 40, a transport vehicle shall not be deemed to be validly registered for the purposes of section 23, unless it carries a certificate of fitness in Form 1 as set forth in the First Schedule, issued by the prescribed authority, to the effect that the vehicle complies for the time being with all

Why face the ban?

W

36

the requirements of Chapter VI and the rules made thereunder ; and where the prescribed authority refuses to issue such certificate it shall supply the owner of the vehicle with its reasons in writing for such refusal.

Section 44. Transport vehicles not to be used or driven without permit: (1) No owner of a transport vehicle shall use or permit the use of, and no driver of a transport vehicle shall drive or cause or permit to be driven, the vehicle in any public place, save in accordance with the conditions of a permit authorising the use or driving of the vehicle in such place granted or countersigned by a Regional or Provincial Transport Authority.

The big picture I have spoken to numerous car owners in Karachi, Lahore, Islamabad and Faisalabad and they all seem to share the same concern. When a car is registered for commercial taxi service, it loses its resale value for being an Ex-Taxi car. I was unable to comprehend this logic of trying to get away from registering the car for commercial use. n Well! Are the cars not being run as a taxi? n Are there no gains to be made from the cabbing business? n Regardless of what the car is being registered for , wouldn’t the car have massive numbers of kilometres clicked on the odometer? n Or are these owners planning to sell the car to its new owner by providing them with misleading information that the car was not being used for taxi services? n Doesn’t this quantify as a form of corruption? n Is that what we are teaching to our next generation, to lie and cheat in an attempt to generate profits in business? n Last but not least, can you run illegal business in UK, AUS or USA and not get caught by the regulatory authorities?

About the overheads of running a business such as cost of licensing, cost of business

operations and eventually losing the equity value of the vehicle,I believe that all the above mentioned are costs of running the business and if one wants to run the business on low and unjustified fares then he does not have too long to last in the taxi business.

Why Limofied was saved from the ban?

Limofied has not been accused in the list in Punjab and Sindh because it has never been pretentious about its operations. It has not claimed to be a taxicab company. Instead it has always been marketed as a “Chauffeured Car Service” or a “Limousine Service”. Therefore, Limofied does not fall in the list of cab service companies. Moreover, Limofied is registered as a Public Limited company and is listed on the Security Ex-

change Commission of Pakistan (SECP) . It has always vowed to pay the government its due share of taxes.

Solution I believe that the solution to the prevalent problem of government calling action against the ride-hailing companies is very simple.

1. Follow the law! Register yourself with the governing bodies for Taxi Business Operations by doing the following: a. As a driver get the Taxi Cab Driver License Endorsement to drive Taxicab from the Provincial Transport Authority. b. Obtain the Contract Carriage Permit as a “Public Service Vehicle” for the region to operate as “Limousine owner”

from the PTA. The Contract Carriage Permit allows you to operate a Limousine Service and this way your car can avoid the Taxi Signage although this does not avoid the car as being registered as a Limousine, which is still better than a Taxicab. c. Get comprehensive insurance for your car and third party liability insurance for the business. d. Register with Limofied for the PreBooked work as a Chauffeured Car Driver.

2. Make a business plan and do your financial projections.

3. Learn the basics of accounting for depreciation of assets 4. Do a thorough analysis of Cost of

Goods Sold. If you think the fare you are charging the passenger is justifying the cost of running operations, you will still be making a profit and you will stay in business in the long run. The vital key to business operation is money making and generating profits, and if the business fails to do , then there is no reason for you to keep running that business in a loss and lose one’s assets and money.

Unless the Government introduces a whole new range of regulations to run taxi operations, this seems to be the only viable solution or you will have to face fines. This is a very clear case of breach of transport laws and it will be very hard to avoid fines and keep operational.

TECH

ENERGY

By: Abbas Naqvi

38

“

our children and the generations to come will curse you for wasting Diyaar so ruthlessly,” rebukes a middle-aged man to Siddiq, the owner of a small eatery, while sipping on hot tea and warming his hands on the crackling fire.

“Well, we don’t have an alternative and there’s no wood that burns like Diyaar!” responds the jovial Siddiq, adding that the wood burns for much longer than other woods like the longleaf Indian pine (commonly known as Chir).

When winter embraces the picturesque valley and temperatures fall to sub zero levels, locals in the valley resort to burning Diyaar to rescue themselves from the benumbing cold, since availability of gas is a novelty unknown to the locals. The burning of Diyaar has accelerated deforestation to alarming levels. Siddiq is just one of the thousands of locals who have no choice but to put the valuable wood to domestic use such as cooking food or lighting fire to stay warm.The crises of energy shortage cannot be emphasized enough. It is an unceasing menace gripping the rural areas with much greater intensity than the urban cities. Unfortunately, it is one of the main reasons that hinder the development of rural areas and the inhabiting population.

“This wood would sell for over Rs 20,000 in Karachi or Lahore but will burn out here in just one night,” says Siddiq, pointing to a huge plank of burning Diyaar while revealing that

Y

“WELL, WE DON’T HAVE AN ALTERNATIVE AND THERE’S NO WOOD THAT BURNS LIKE DIYAAR!”

majority of the people do not sell the wood but consume it in the winters to guard against the harsh weather conditions. The Forest Department has made it illegal for the locals to cut down Diyaar trees to limit deforestation; but people continue to do so, getting away mostly by hoodwinking the authorities.

Cedrus deodara or Himalayan cedar (Diyaar) - is a large, evergreen coniferous tree native to eastern Afghanistan, Pakistan and India and sells for Rs 4,000-6,000 per cubic foot. The tree typically grows to over a hundred feet, at altitudes of 5,000 feet to 10,000 feet and can live up to a thousand years, according to locals. It is used for making doors, wooden floors, ceilings and walls. The tree is worshiped by Hindus who consider it as having esoteric properties, other than combating fungus and being used for aromatherapy in the traditional Ayurvedic medicine.

The region’s disputed status and the never-ending violence across the LoC of the most heavily militarized border in the world has put the regional economy in a dismal state. Selling wood is one of the few options locals have as a means of livelihood.

“We don’t have any employment opportunities here in Kashmir.

Whatever little we earn is through tourism, which is not much,” says Siddiq, who has served as chef in local hotels in Islamabad and has a passion for cooking. He, and many of his male family members have had to relocate to different cities in order to secure jobs as a means of making their ends meet. But Siddiq returned to his hometown Doarian (in Muzaffarabad) to look after his parents and start a family.

Around seven lakh tourists visited Kashmir in the summer of 2016, according to local sources. This number is reduced to a mere thousand in winter, adding to the already prevalent poverty.

“It’s a sight to behold in winters but people don’t come because the re-

“YOUR CHILDREN AND THE GENERATIONS TO COME WILL CURSE YOU FOR WASTING DIYAAR SO RUTHLESSLY” gion lacks basic necessities like gas and electricity,” says Amir, a tourist guide, highlighting the beauty of the scenic valley. What makes it worse is the ever deteriorating relationship amongst the arch rivals; India and Pakistan. The Indian side can be easily seen at many points on the main Neelum Valley road, with Neelum River serving as a natural border between the two states.

With over thirty billion dollars allocated for power projects in the China-Pakistan Economic Corridor (including the 969 MW NeelumJhelum hydropower project),which is expected to be completed later this year, at least the energy crises plaguing the region would reduce. In addition, the decision of Sui Northern Gas Pipelines Limited (SNGPL) to set up LPG-air mix plants in Kashmir, KPK and Gilgit-Baltistan in order to provide gas to the region will reduce deforestation as modern energy producing methods will replace the traditional wood burning. . The power generating projects will not create job opportunities overnight, the change will be subtle and will take time to creep in. Only then will we be able to rescue our valuable forest reserves and preserve the area for our later generations to admire and value.

Infact, what is needed are more consolidated efforts by the government to strive for better relations with India. This will relieve the political pressure that the region is currently facing. Once this is underway, efforts can be made to improve the socioeconomic structure of the region. n

INSIGHT

TALKING HEADS

“We are part of an industry that is changing at a very fast pace and things are becoming irrelevant in no time with the evolution of technology. We started from providing just the basic connectivity in the form of SMS and voice and now, that has drastically evolved. It has been a journey of minutes to megabytes to delivering moments.”

Irfan Wahab Khan CEO Telenor Pakistan

“We segregated the market such as that microfinance is for those people, who have some business acumen, know where markets are, and they are situated in katchi abadis, but there is no institution willing to lend them money.”

Qazi Azmat CEO, Pakistan Poverty Alleviation Fund (PPAF)

“In all emerging markets including Pakistan, content consumption is moving from live TV to on-demand platforms.

However our competition is not Netflix or any other international player – it is piracy.”

Farees Shah GM Iflix

40

42

By: Usman Hanif

INSIGHT

eadlights and bumpers hung from shop fronts, shock absorbers dumped at a place, vehicle engines cluttered the walkway, people crammed shoulder to shoulder - the usual hustle bustle of the market greeted Razi Khan as he entered Shershah upon the advice of his mechanic.Quite intriguingly, Razi Khan’s car mechanic claims that a second hand original engine can be bought at half the price of a new local one which is certainly more durable and better performing compared to the local one.

Shershah Kabari Bazaar continues to attract Razi Khan, and many others like him and hence remains Pakistan’s biggest spare parts market. Despite its relevance to the local market, it is losing its customer base and businessmen to other markets fearing the volatile law and order situation.

Shershah junk market is situated adjacent to the Shershah Bridge at the junction of Sher Shah Town and Lyari Town. It has been known for easy access to machine spare parts and scrap material for a very long time, but unfortunately the market is now segregating and dispersing to different areas of Karachi city and Shershah now is a mother market to smaller markets.

Spare parts markets at Shafiq Mor, Sharifabad, Magazine Line behind Tibet Centre Saddar or Mukka Chowk of Azizabad are substantiation that the spare parts market is dividing up within the city.

One reason behind this division is the growing size and population of Karachi city. However, traders at Shershah market believe that security challenges are the major reason behind the market split-up.

Traders at Shershah junk market are moving their businesses by opening small scale shops in the newly burgeoning markets instead of expanding their businesses at the

H

TRADERS AT SHERSHAH JUNK MARKET ALSO IMPORT PARTS IN BULK FROM SINGAPORE AT LOW COST AND SELL LOCALLY EARNING LUCRATIVE PROFIT MARGINS DESPITE THE SET PRICE OFFERED TO SUBSEQUENT PURCHASERS BEING LOW IN COMPARISON TO THE PRICE OF LOCAL PARTS existing location as an attempt to counter apparent dangers of surrounding areas of Shershah market.

Shershah market is surrounded by low-income settlements which are thought to be the stronghold of Lyari Gangwar criminals.In October 2010, at least 12 men died in an attack allegedly carried out by the neighboring Lyari gang war criminals when the traders refused to pay extortion money.

After the incident, the police installed more than 15 check posts, overtime the number has reduced to one with - the Jahanabad post which already existed before the terror attack.

“Shershah junk market is like a mother of those different markets, customers still have to come here as no market provides the variety of spare parts as this market does,” says BhaiJaan an aged trader at the market.

“Everything from needle to ship is found in Shershah junk market” is a frequently used phrase to describe the market and the market appears worthy of the

OVERHAULED PUMPING MOTORS AND OTHER PARTS OF SHIPS, GENERATORS, ANCHOR CABLE, TARPAULINS, IRON GRILLS AND OTHER COPPER AND STEEL MADE THINGS ARE READILY AVAILABLE IN THE MARKET. THE MARKET IS RENOWNED FOR AN INTERNATIONAL CUSTOMER BASE FROM COUNTRIES INCLUDING INDIA, IRAN AND AFGHANISTAN 44

claims that describe it.

Bhai Jan described the Shershah Junk Market as a small market comprising of a few shops at the time of inception of Pakistan. Around 1962, in Ayub Khan’s era, the junk collectors located in Rattan Talao, Akber Road, Lea Market and many other neighboring areas of the city were encouraged to relocate within the budding market.

There is a street full of vehicle engines for almost every model or make.

There are also sub markets of auto parts, electronics, plumbing, engineering where one can find imported spare parts of machines which are considered to be performing better than local new ones or parts of machines which have gone out of production.

Overhauled pumping motors and other parts of ships, generator, anchor cable, tarpaulins, iron grills and other copper and steel made things are readily available in the market. The market is renowned for an international customer base from countries including India, Iran and Afghanistan.

A salesman, Charaghuddin of ‘Saeed Punjabi Autoparts’ explained that they stock spare parts of cars manufactured in Japan, Korea, Europe and America or any other country. Moreover, spare parts of vehicles made in 1970s and 80s are also available as are parts of Mercedes, BMW and other popular brands.

Tyres, doors, glasses, dash boards,

Undocumented Economy Share (%age of whole economy)

petrol tanks and other parts of vehicles are easily available in the market so much so that so that a whole vehicle can be resurrected with scrap picked up from the market. People visit the market with their mechanics and renew their cars effectively.

Traders at Shershah Junk Market are one of the major buyers of Dubai scrap market. They also import parts in bulk from Singapore at low cost and sell locally earning lucrative profit margins despite the set price offered to subsequent purchasers being low in comparison to the price of

local parts. The services are not limited to products on display. If the item in demand is unavailable in the market, the trader will get the product delivered from the vendor abroad. This is normally done at a small booking fee and is applicable for luxury car spare parts.

Zishan at Mughal Electric said, “We provide an electricity breaker in Rs. 200 with a guarantee which will not be available for less than Rs. 800 in the market for new appliances.”

According to the General Secretary of Anjuman Welfare Kabarian (Association for Welfare of Junk Dealers), Shershah Muhammad Imran Qureshi, the market contains approximately 4,000 units along with 2,300 stalls.

Moreover, warehouses provide storage facilities to traders and there are about 10 large weighing scales. In addition to spare parts, there are plastic and glass warehouses as well.

Though the new markets across the city have affected the sale of Shershah market to some extent, businessmen here earn a decent amount.. The total monetary worth of the market is inestimable as the proceeds usually go undocumented, but an anonymous businessman earns Rs 200,000 per month whereas an average trader makes about Rs50,000 to Rs200,000 on a

AROUND 1962, IN AYUB KHAN’S ERA, THE JUNK COLLECTORS LOCATED IN RATTAN TALAO, AKBER ROAD, LEA MARKET AND MANY OTHER NEIGHBORING AREAS OF THE CITY WERE ENCOURAGED TO RELOCATE WITHIN THE BUDDING MARKET monthly basis.

Commoners also know the market as “Chor Bazar” (black market) as allegedly stolen vehicles are disassembled and sold here in the form of spare parts. Despite the claim, the vendors deny this saying that they import refurbished parts from Japan, Singapore, Dubai, Malaysia and other countries where people have higher purchasing power therefore discarding the vehicles after short use.

Chairman Anjuman Welfare Kabarian Shershah Malik Zahid Dehelvi suggests that the government should ban the disassembling of cars in various parts of the city except the junk market. This will facilitate the government in monitoring and regulating the scrap market. n

INSIGHT

interview

By: Abbas Naqvi

TECH

47

he advent of 3G and 4G spectrums has revolutionized online selling and buying in Pakistan. Bilal Bajwa, General Manager of OLX Pakistan talks to Profit about the achievements, future plans and business model of the horizontal portal in relation to Pakistan and its competitors, five years after it launched in the country.

T

Profit: When and why did OLX decide to commence business operations in Pakistan?

Bilal Bajwa: OLX was launched in Pakistan in 2011 and we started marketing on ATL (above the line) and digital channels from January 2012 onwards. Since its launch, OLX has grown tremendously and has become the largest online general classifieds portal in the country. We proudly claim to have over 90 per cent of the online general classifieds’ market share.

Pakistan had always presented a great opportunity for foreign companies looking to invest. As part of the Emerging Markets worldwide, and with the growth of the internet in the country, it made an especially attractive option for an online business such as OLX to come to Pakistan.

Profit: How do you weigh the pros and cons of vertical vs horizontal portals?

There are other tech firms that are focusing on niche areas – Zameen does real estate, Pakwheels does auto, Rozee does jobs – but you seem to be getting into all of these. What’s the game plan and why do you think your model is better?

BB: The biggest difference between horizontal and vertical classifieds is the nature of users. While vertical portals focus on particular niche categories like real estate or cars, the majority of their users tend to be B2C (Business to Consumer) who generate most of the listings. This leaves the average user with a less than optimal experience when it comes to selling or buying online.

OLX has been focused, since its inception, on creating a platform that can champion C2C (Consumer to Consumer) buying and selling by creating win-win exchanges within local communities. What matters the most in our business is that we have a critical mass of buyers and sellers and that can only happen when we focus on a variety of categories rather than just a small niche

48

through a vertical.

By providing a wide selection of categories to our users for buying and selling, OLX has become the number one choice for every Pakistani looking to buy used products like furniture and phones etc.

Profit: Please explain your business model to us. How many sources of revenue do you have and which one is most significant?

BB: All classifieds businesses rely on different revenue streams like online advertising, paid listings and premium services.

These are some of the avenues we may explore at a later stage. Currently, our priority

and focus is on building our user base by providing the best online classifieds experience.

At the moment, we are not earning any revenue from Pakistan. However, if you visit our website you will see Google ads.

That is because we wanted to test how much monetization can be done but we’re not earning revenue as of now.

Profit: What’s your take on the conventional classifieds industry (Dawn, Jang).

Do you believe online classifieds will take over the industry? If so, how long would it take for that to happen?

BB: Conventional classifieds or print classi-

fieds have always been a part of the print media industry and until the adoption of the internet, the only way to buy and sell. But there are a lot of problems with print classifieds such as limited description, payment to publish ad, no photo publishing option, and low reach and discoverability.

Online classifieds seem to be the first type of e-commerce website to become really big with the adoption of the internet in Emerging Markets, especially Pakistan. The fact that online classifieds are better, easier and a quicker way to buy and sell especially for an average consumer is the reason why they gained instant popularity.

Now, with the growth of internet, especially 3G and 4G connectivity in Pakistan, and smartphone penetration on the rise, the online classifieds are already surging ahead of the conventional classifieds.

According to a study published by Google in 2014, the number of internet users in Pakistan will reach 100 million by 2020.

Therefore it is safe to assume that with the increase in internet users in the country, print or conventional classifieds will lose more and more market share. Pakistani market has evolved so much that the big players in print classifieds like Jang and Dawn are looking at ways to innovate their classifieds offering in order to stay relevant in an increasingly digital future.

Profit: Have you faced a major backlash from these players – Dawn and Jang?

BB: We believe all players try to provide users with the best experience and in the end whoever does it best wins. They play in the print space while we are online so in some ways we don’t get impacted by them too heavily. They are moving online but their online presence as of now is negligible.

Profit: How do you adapt to the changing market conditions and aspirations of the users?

BB: We believe in focusing all our efforts

on providing our users with a superior buying and selling experience. This means that we have to continuously evolve our product and innovate in order to stay at the top of our game. As more and more users are experiencing the internet for the first time through their mobile devices and smartphones, we are working on providing a mobile-focused classifieds experience. This is just a small indication of how we adapt to the needs of our users and respond to their aspirations.

As the Pakistani market evolves we believe we are well poised to take a leading role in creating the best experience in online classifieds, making sure each OLX user is a happy ‘OLXer’.

Our new app, which was launched in June 2016 already has 1.5 million downloads.

Profit: How do you ensure the credibility of the ads posted on your website?

BB: We realised at an early stage the importance of content quality. When we launched, the ads were reviewed after they went live, but now every single ad is reviewed before it goes live. We do this through a very powerful moderation tool. We have also launched Customer Services operations in Pakistan so that we can ensure all ads posted on OLX are moderated properly.

We have strict rules on spam postings and we closely monitor if multiple ads are posted by the same user, the description, title and price of the product. We also take into account complaints by other users about spam ads.

We introduced phone verification through OTP (one-time password) to ensure all ads placed on OLX are from genuine sellers, verified through their mobile num-

OLX HAS BEEN FOCUSED, SINCE ITS INCEPTION, ON CREATING A PLATFORM THAT CAN CHAMPION C2C (CONSUMER TO CONSUMER) BUYING AND SELLING BY CREATING WIN-WIN EXCHANGES WITHIN LOCAL COMMUNITIES BY PROVIDING A WIDE SELECTION OF CATEGORIES TO OUR USERS FOR BUYING AND SELLING

ber. This has improved our content quality even further.

Profit: What’s your USP? Is it free ads?

Do you also offer feature ads or paid-for ads to allow the seller a greater coverage?

BB: Our USP is our promise “Yaha Sab Bikta Hai” AND “Yaha Sab Milta Hai”, meaning whatever it is you want to sell or buy, your best chance is OLX. Millions of happy ‘OLXers’ in Pakistan can testify to the fact that OLX is the best platform for their buying and selling needs. After conducting many independent 3rd party mystery shopping tests, we can categorically state that OLX is the easiest and the quickest way to buy and sell.

As far as featured listings are concerned, we do not offer featured ads or paid listings at this moment, but we may decide to launch this service at a later stage.

Profit: How much money have you invested so far in marketing and advertising and social media promotion?

BB: We cannot disclose our investment numbers as this is part of our confidential business data, but suffice it to say that OLX is the biggest advertiser on T.V. in the internet category. We are backed and owned by Naspers, which is a broad-based multinational internet and media group and one of the largest technology investors in the world. Being owned by such a company which operates in more than a hundred countries allows us financial clout which our competitors cannot match.

Take PakWheels, for example; according to a press release issued in 2014, Frontier Digital Ventures, a Malaysian venture capital fund, gave $3.5 million to the vertical portal in order to allow for exponential growth.

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Consequently, Pakwheels started its advertising campaign around September 2015.

Zameen also followed suit and commenced its advertising at the end of 2015, with $50 million allocated for the region of North Africa, Middle East, and South Asia.

Profit: What trend have you witnessed since you entered the market, what is the growth rate in terms of users?

BB: The success of so many online businesses in Pakistan is a testament to the fact that the digital revolution in Pakistan is taking root. Especially with the launch of 3G/4G there is a sudden boom in internet usage and smartphone adoption, which means more users demanding more services thus contributing to the growth. The start-up culture setting in Pakistan is another indication that the growth trend will stay for some time and the market will continue to expand each year.

According to market sources, and this is not my market intel, OLX is growing at a staggering rate of 40 per cent on a year-onyear basis.

Since OLX has entered the Pakistani market, we have grown from strength to strength. We quadrupled in size within the first 2 years of launch in Pakistan and still growing at a tremendous pace. We measure our success in terms of bringing in new users to OLX and making sure the existing users keep coming back.

Profit: What’s your strategy for getting a higher market share and is it in line with the overall international strategy of OLX? BB: As discussed earlier, we focus on our users’ needs and solving them. And we believe that the best way to do that is through a solid product experience on the platform that our users engage with on a daily basis.

Pakistan, in terms of global importance for OLX with regards to users and perform-

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“THE FACT THAT ONLINE CLASSIFIEDS ARE BETTER, EASIER AND A QUICKER WAY TO BUY AND SELL ESPECIALLY FOR AN AVERAGE CONSUMER IS THE REASON WHY THEY GAINED INSTANT POPULARITY” Bilal Bajwa, General Manager of OLX Pakistan

ance, comes in the top 5 countries.

The top management believes that the growth is dependent on the rising smartphone penetration in the country. In 2011, the ratio of desktop users and mobile users was 80:20. In 2016, this ratio is almost the complete opposite: 70 per cent users on mobile phones and 30 per cent on a desktop.

OLX is not currently listed with the Securities and Exchange Commission of Pakistan but we are working on that. Currently, we only have 5 employees in Pakistan and our tech team is based out of Dubai.

Even though such figures are confidential, I will give you a rough estimate of monthly listings. On a monthly basis, we have 600,000 new listings.

According to market experts, PakWheels has 500 daily listings while Zameen has 1000-1500 daily listings.

It is safe to say that OLX is almost 5 times bigger in terms of ad listings of automobiles when compared to Pakwheels and 4 times bigger than Zameen in real estate listings.

According to similarweb.com, OLX is ranked 10 and Pakwheels is ranked 35 in Pakistan, while alexa.com ranks them 22 and 52, respectively, in Pakistan. Each of them has 5.7 million and 2.8 million total visits, respectively.

Profit: Who’s your main competition in the country?

BB: As of now, we don’t face any serious competition since there is no other

horizontal (general classifieds) portal operating in the country. Conventional classifieds, as discussed earlier, don’t pose a serious threat to us, including the vertical portals. Back in 2014, in collaboration with Telenor, a Norwegian media group named Schibsted, owner of Ebay, launched asani.com in Pakistan.

Naspers struck a deal with Schibsted, whereby the latter (asani.com) would not launch its operations in Pakistan in return for Naspers (OLX) to pack up from Brazil.

The deal was successful and Naspers averted facing major competition in Pakistan.

However, right across the border in India, OLX faces stiff competition from big shots like Amazon and Quickr.

Profit: What new features are you planning to add to the portal?

BB: We believe a strong feature set and a superior classifieds experience is the key to success for our business. With this guiding principle in mind, we keep adding new features to the OLX platform.

Just recently, in June 2016, we launched a Pakistan specific app to provide an even better app first experience to our users. With other features like ‘Phone Verification”, “In-app Chat” and “Phone No. hiding feature” we are making buying and selling a more personalized, easy and secure process for all our users .Other recently launched features include “Push Notifications”, “Creating a wish list of favourite ads”, and “Saved Searches in the app” which provide a personalized buying and selling experience.

Also, we are constantly developing and testing new features that can add value to the OLX experience. n

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