Profit issue 02 by Pakistan today

WelCome

LEAP OF FAITH ohnny and Jugnu, a local burger joint has of late taken Lahore by storm. As tempting as it sounds, that, however, is not the reason we decided to profile them in this issue of Profit. The fashion in which they have achieved this popularity - having defied almost every conventional business strategy, that too, in slightly over a year, is what caught our attention the most. And it is precisely this that made us curious to explore their peculiar (yes, peculiar) style of business. In the retail industry, we are told, the three most important factors for success are location, location and location. If this is believed to be true, Johnny and Jugnu could not have made any worse a choice on that count. But despite the open rebellion to business norms, their burgers sell like hot cakes. Business strategy and all those fancy principles can go right out the window. So what exactly is fuelling their fame? Going by local market pricing, their product is neither cheap nor expensive. And if one were to make something of the luxury cars parked outside their outlets, low price is probably not the primary drive attracting customers. Service then? Johnny and Jugnu is a self-service eatery; and with it being a takeaway only, the ambience score doesn’t really matter either with people eating in their cars or queued outside waiting for their

orders. So the traditional factors affecting businesses aren’t really applicable here. As for marketing, well, there are no billboards or magazine adverts, and certainly no big marketing budgets. It really must be the burgers then, no? Well, the burgers are fairly decent, no doubt about that. But any burger-lover would vouch that beef burgers are the real deal; in fact, the only deal. However, they only have chicken burgers. And yet, lo and behold, they are flooded with customers. Is there a method to this madness? This, we explore from page 14. If you are serious about your money then you just can’t afford not to read our cover story on the cement sector. You will probably not find a more comprehensive report on why you should or should not invest in this sector which has had an unprecedented run on the bourse for the last half a decade. Can the sector continue to make its shareholders rich, we examine in this story. And how can our issue be complete without a story following the madness surrounding Black Friday? Discover more from page 42. Happy reading!

Babar Nizami

Publishing Editor: Arif Nizami l Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Asst. Business Editor: Aroosa Shaukat Editor Reporting: Farooq Baloch l Reporters Karachi: Aisha Arshad l Nida Jaffery l Arshad Hussain and Usman Hanif Reporters Lahore: Masooma Raza 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: Syed Shahzaib Ali l Photographers: Murtaza Ali & Imran Gillani Contact: profit@pakistantoday.com.pk

FROM THE MANAGING EDITOR

8 Weekly Roundup 11 Did Bollywood revive Lollywood? Farooq Tirmizi 14 Busting business myths one bite at a time 17 The lives of others Khalid Mir

18 18 Why go to Double Shahs? 26 Tuning in: RadioScore gauging radio audience 29 Our unsavoury grocery trip Sadyia Babar 30 Who wants to be a lacpati?

33 Honda vs Toyota 34 Out with the old, in with the new 42 Discount, thy name is Black Friday 46 Talking Heads

48 48 Modi’s “Surgical Strike” On Indian Currency Mir Mohammad Ali Khan 49 Market Review

CONTENTS

BRIEFING

QUOTE

“Investors should avoid leveraged speculation in stocks based on rumours as it will likely result in large losses”

“Branchless banking carries significant advantages in the acceleration of financial service penetration. In Pakistan there are an estimated 115 million mobile phone users. Salim Raza, former Governor of the State Bank of Pakistan

SECP Chairman Zafar Hijazi

62.82%

is the increase in the production of buses while 59.95 for trucks during the first two months of the ongoing fiscal year 2016-17 compared to corresponding months of last year according to Pakistan Bureau of Statistics (PBS).

Rs 15,780 crores

MFN Status

Minister for Commerce Khurram Dastgir Khan has said that Pakistan being member of WTO has extended the status of Most Favoured Nation (MFN) to all WTO countries except for India and Israel. During a question hour in the National Assembly last week, Khan said that the extension of WTO is a reciprocal measure therefore the other 163 WTO members have extended MFN status to Pakistan.

Top exports America remained the top export destination of the Pakistani products during the fiscal year 2015 while China was the top import destination. According to data by the Pakistan Business Council (PBC), out of $22.09 billion exports, Pakistani exports to America stood at $3.66 billion during FY2015 followed by China wherein Pakistani products worth $1.93 billion were sent during the year.

was contributed by the telecom sector during 2015-2016 compared to Rs 12,630 crores registered during previous year according to Pakistan Telecommunication Authority (PTA)'s annual report. Meanwhile, an amount of Rs 1,49,200 crores was transacted through mobile banking during 2015-16.

Demonetization Minister for Finance Senator Ishaq Dar has dismissed rumours about the demonetization of Rs 5000 currency notes and withdrawal of Rs 40,000 prize bonds. Dar has said that no such proposal is even under consideration by the government adding that the rumours were completely false.

BRIEFING

Rs 15,000

is the per ton increase in market price of steel bars used in construction industry following the suspension of commercial activities at the Gaddani ship breaking yard after the recent fire incident that left dozens killed and injured.

QUOTE

“The bilateral dialogue between the two countries has always been brotherly, special and sincere”

Rs 81.67 crores has been released by the government for various projects of Petroleum and Natural Resources Division under Public Sector Development Programme (PSDP) for the fiscal year 2016-17 as per data released by the Ministry of Planning, development and Reform. While the government has allocated Rs 91.97 crores for various ongoing and new projects of the Petroleum and Natural Resource Division in the PSDP of current year, an amount of Rs 33.22 crores has been released for the provision of Sui Gas to three localities including Oghi, Parthana and Sher Garh of district Mansehara.

Ukraine’s Ambassador to Pakistan Volodymyr Lakomov

WhatsApp scam

“Turkey is an emerging economy. We need economic and trade link for benefiting the business community of both brotherly countries." President of Federation of Pakistan Chamber of Commerce and Industry (FPCCI) Abdul Rauf Alam

Ministry of Information Technology and Telecommunications issued a user advisory last week to inform WhatsApp users about the scam which could risk exposure of their personal and call data to malicious elements. In reaction to the malicious messages relating to invitations for activating video calling feature on the popular messaging app, the Ministry alerted about the method employed to invite the Whatsapp users for activating the feature through a spoofed website.

Multiple visa to Saudi Arabia Pakistani businessmen recommended by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) will now be granted a two-year multiple visa to Saudi Arabia. The decision was made during a meeting between Saudi Ambassador to Pakistan Abdullah Marzouk AlZahrani and President of the FPCCI Abdul Rauf Alam. The Saudi Ambassador said: "We want to enhance cooperation with Pakistan in various fields including trade, commerce and culture," he added. "We are moving Saudi Arabia's economy beyond oil which is also a great opportunity for Pakistani investors."

BRIEFING

0.59%

growth in textile exports was witnessed during the month of October 2016 compared to the same month last year. The commodities that contributed in the positive growth of textile sector included knitwear, bed-wear and towels. According to data by the Pakistan Bureau of Statistics, textile exports during October 2016 were recorded at $1.053 billion compared to exports of $1.047 billion during October 2015.

QUOTE

PSX data

“Pakistan is emerging on world horizon with a new identity. CPEC is making Pakistan centre of Geo-economics in the region. Pakistan is rising.”

Bloomberg has linked complete data of Pakistan Stock Exchange (PSX) with international channels, investors, brokers and banks. In a move made last week, the equity investors across the world can now easily monitor data of PSX, including profile of companies and shares’ value through Bloomberg’s terminal.

Ahsan Iqbal, Minister for Planning, Development and Reform

Rs 10,000 crores

Rs 500 crores

have been allocated for producing hydro energy to overcome power shortage in Gilgit Baltistan. Last week GilgitBaltistan’s Minister for Planning and Development, Iqbal Hassan said that the Federal Government had allocated the sum under public sector development program adding that the government was spending three billion rupees in energy sector to overcome the energy shortage in the region.

Kisan Package would inject tangible financial input into the agriculture sector according to the Provincial Minister for Cooperatives Malik Muhammad Iqbal Channar. Lauding the Punjab government’s massive package, he said the budget would revolutionize the rural based agroeconomy.

196,177 un-served individuals in Balochistan would be provided modern broadband facilities by the Ministry of Information Technology and Telecommunications (MoIT) The Universal Service Fund (USF), a subsidiary of MoIT, has accorded approval to a Rs 230 crores Awaran-Lasbela broadband project. New lines at a cost of Rs 243 crores will be laid in Balochistan, Kharaan, Washuk, Dera Bugti, Kohistan and Waziristan in the current financial year.

Trade with Belgium Visa policy for businessmen of Pakistan and Belgium should be eased to allow business trips between the two countries. This was expressed by Belgian Ambassador Frederic Verheyden during a meeting with Lahore Chamber of Commerce and Industry (LCCI) President Abdul Basit. He said Belgian companies had expressed keen interest in Pakistani market and urged Pakistani businessmen to start joint ventures with their Belgian counterparts.

BRIEFING

TRADE

Farooq Tirmizi

But before we dig into those statistics, it is helpful to lay the groundwork for what exactly happened. In 2006, the Musharraf administration decided to unilaterally liberalise trade in entertainment between India and Pakistan, by which we mean that they allowed Indian movies into the country on something other than the pirated DVDs that were then the mainstay of Pakistani households starved of their daily dose of Bollywood. The advent of Bollywood to Pakistani screens It may seem surprising now, considering how lucrative the business has become, but it took the Pakistani movie industry several years to understand the potential of what precisely had happened. It did not help, of course, that the action that legalized the import of Indian films was a deliberately obscurely worded Statutory Regulatory Order (SRO) which did not allow the direct import of Bollywood movies ithout Dabang, producing Manto but required the creation of foreign subsidiaries of Indian would have been impossible. It is by film distribution companies before they could sell to the now cliché among Pakistan’s artistic Pakistani market. community to suggest that the revival The first Indian movie to be screened on Pakistani cinemas of Pakistani cinema owes a great deal was Goal, a film starring John Abraham that barely made a to Bollywood, specifically to the govmark when it first came out in November 2007. Over the ernment’s 2006 decision to allow the next year or so, 16 Indian movies were released in Pakistan, legal import of Bollywood movies and the local industry began to notice. Syed Noor, the crusty into Pakistan for release on Pakistani relic of the old-fashioned movies that were the hallmark of cinema screens. But how exactly did it happen? And does anyone have Pakistani cinema in the 1990s and early 2000s joined the the numbers to prove that assertion? protectionist chorus, coming out against Indian movies (Ordinarily, it would be tempting to blame the general incompetence of being aired in Pakistan in January 2009, labelling Indian Pakistani journalists for not being able to dig up the numbers, but this movies a ‘conspiracy’ against local film producers. time it is not their fault. The Pakistan Bureau of Statistics publishes data This was just two short months after the 2008 Mumbai aton cinema in the country in a completely unhelpfully named publication tacks and tensions were high on both sides of the Wagah. called the Compendium of Environment Statistics of Pakistan. Would There had also been a change in government, with the you have guessed that was where to find those numbers?) Zardari administration now in office. A change in policy would most certainly not have been surprising. Yet, miraculously, the government decided to leave the policy in place. Farooq Tirmizi The turning point, however, came in December 2009, when the Bollywood blockbuster 3 Idiots was released in Pakistan at almost the same time as its Indian release, going on to generate $1 is an investment analyst based in New York million in revenue in Pakistan alone, then a record for a Bollywood movie (since then shattered by BajrangiBhaijan, which grossed approximately $3.5 million in Pakistan). Since then, Bollywood movies have become the main offering of Pakistani cinema screens, accounting for the bulk of box office receipts in the country, by most anecdotal evidence (there are no publicly listed cinema companies, so audited financials are not publicly available). The revival of Pakistani cinema

THE CONNECTION BETWEEN DABANG & MANTO

Did Bollywood revive Lollywood?

The entertainment trade between the two South Asian countries appears to be a classic example of Ricardian gains from trade

MEDIA AND ENTERTAINMENT

So what exactly is the evidence that Lollywood was revived because Bollywood made a comeback on Pakistani cinema screens? The numbers certainly appear to tell a compelling story. The year 2010, which is when 3 Idiots took in most of its revenues, was arguably

one of the worst in Pakistani cinema history, effectively the nadir that marked the end of several decades of almost consistent decline in virtually every metric of health for Pakistani cinema. According to data from the Pakistan Bureau of Statistics, the number of films

released in any language across the country fell to 18, the lowest recorded number for at least the last three decades. The number of cinema screens nearly halved that year, from 203 to 107, and would continue to fall to its all-time low of 80 through 2012. And the seating capacity of Pakistani cinemas fell to a multi-decade low of 37,650. But once Indian moves began to make money for Pakistani cinema owners, the number of screens, the number of seats, and therefore the number of movies began to grow. And, unlike past film booms, this time, the revenue earned by movies began to skyrocket as well. The number of movies produced in Pakistan has more than doubled to 42 in 2014. The number of cinemas has risen 36% from its low of 80 in 2012 to 109 in 2014, the latest year for which statistics are available, and has likely continued to rise even more over the last two years. And the number of cinema seats has risen 27% from its 2010 low to 47,850 in 2014. More to the point, Pakistani cinema-

goers are clearly willing to spend a lot more money than in the past on cinema tickets, as disposable income in Pakistan’s rising middle class continues to grow. Eleven of the 13 movies in Pakistani cinema history that have made more than $1 million in box office revenues have been released since 2010. While these numbers are not adjusted for inflation, given the fact that most of the highest grossing movies of the 1990s rarely earned more than $0.5 million – when there were upwards of 400 cinemas in the country – it is unlikely that films in prior eras earned more revenue. That higher revenue per film for the highest grossing movies has meant that production houses can afford to invest in significantly better equipment, have larger staffs, and generally raise the production value of Pakistani movies. This is not to suggest that all is well with Pakistani cinema, of course. We are nowhere near the 100-movies a year mark that was achieved in decades past. And the number of screens and seats is still about 75-80% below its peak levels. But there is no question that the turnaround began around the same time Bollywood movies proved that Pakistanis still like going to the cinema. But correlation, of course, does not imply causation. It can be argued, of course, that it was really Shoaib Mansoor’s Khuda Kay Liye in 2007 that marked the revival of Pakistani cinema, the first high production value Pakistani film that became the first movie in over a decade to

earn more than $2 million at the box office. There is no question that Khuda Kay Liye helped lay the groundwork for the progression of Pakistani cinema into the modern era. But I would argue that it was the sold-out cinemas for 3 Idiots that proved that Khuda Kay Liye was not a one-time fluke, and that movies really were a viable business in Pakistan. Bollywood’s bigger budgets persuaded Pakistani audiences to spend time at the cinema, creating the space for Pakistani artists and their financial backers to take the kind of risks that would produce a movie like Waar, which cost $1.7 million to make and would have been inconceivable in an earlier era. The film went on to make $3.3 million at the box office. And it is the growing appetite of cinemagoers that allows filmmakers to experiment with films that might have more of a

SYED NOOR, THE CRUSTY RELIC OF THE OLD-FASHIONED MOVIES THAT WERE THE HALLMARK OF PAKISTANI CINEMA IN THE 1990S AND EARLY 2000S JOINED THE PROTECTIONIST CHORUS, COMING OUT AGAINST INDIAN MOVIES BEING AIRED IN PAKISTAN IN JANUARY 2009, LABELLING INDIAN MOVIES A ‘CONSPIRACY’ AGAINST LOCAL FILM PRODUCERS niche appeal, like Manto, arguably the first biopic in Pakistani history. In short, Syed Noor was wrong and people like Nadeem Mandviwalla, the owner of one of the largest chains of cinemas in Pakistan, were right. “Lollywood’s relationship to Bollywood will be that of the British film industry’s relationship to Hollywood,” said Mandviwalla at the Karachi Literature Festival in 2013. “We will probably never make a movie like Dabang but we may make something like a Shakespeare in Love.”

MEDIA AND ENTERTAINMENT

JOURNEY

Busting business myths one bite at a time QUALITY AND AFFORDABLE PRICES ARE THE INGREDIENTS JOHNNY & JUGNU ARE USING TO SWEEP CUSTOMERS OFF THEIR FEET By Abbas Naqvi and Syeda Masooma

n 2014, a LUMS graduate along with his two friends decided to experiment with a business idea without following all the textbook commandments for a startup. Wthout any market research, business plan or feasibility study they bought a fryer, a hotplate, a signboard and a counter and launched a burget joint. “We’re trying to sell burgers in a ‘Pakistani way’.” These are the exact words Gohar Iqbal, cofounder of a local burger joint - Johnny & Jugnu, utters as he describes the eatery that has wooed burger-lovers across Lahore. Launched in 2015, Johnny & Jugnu, is the brainchild of Gohar Iqbal and Syed Umair Hasan - graduates of the Lahore University of Management and Sciences (LUMS). Also on board the project is Dr. Adnan Zahid, an assistant professor at the alma mater of Gohar and Umair. The idea of a burger joint was born a week before Gohar and his partners actually started working on it back in 2014, right after graduation. Gohar and his team launched its first outlet in October last year in a locality called Krishan Nagar. The decision to start out small was intentional as Gohar says he wanted to keep his ‘laboratory of business’ away from central Lahore, home to the city’s big hawks. “Kris-

“WE LOSE APPROXIMATELY A THOUSAND CUSTOMERS EACH MONTH FOR NOT SERVING BEEF BURGERS”

han Nagar was a place where young boys played soccer in cricket grounds and burgers were more in demand than chicken tikkas,” he says sharing the obvious irony. “The idea was to learn, to try and experiment in a locality which was cheaper than the rest of the city and also hosted a population we thought was fond of burgers.” To top it off, Gohar says they only started with a capital of Rs 300,000. That outlet, however, was shut down in 2016 and moved to Defence Housing Authority – an upscale locality in Lahore, to cater to a growing demand of their product, followed by another branch in Johar Town. This Lahori burger joint is much like those that have sprung up over the past decade

in Karachi - the economic hub of the country. Like JJ, Burger Shack and Burger Inc. also don’t offer a sitting area for their customers. This, according to Gohar, is to make sure that their costs remain low and allow them to sell good quality burgers at affordable prices. And that does not seem to affect their popularity among customers, who not just celebrate their birthdays standing outside the outlet but also pack away some saucy goodness for eager friends as far off as Dubai. But this meticulous focus on brand image, while trying to strike a balance between high quality and low prices, has not left the business very profitable. Claiming to have one of the lowest profit margins in the burger

joint industry, Gohar says Johnny & Jugnu makes a meagre amount of profit. However, he says this is not a problem. For now Gohar is content with earning a low profit. Their primary focus remains on building a brand image instead of maximizing profits. Gohar says that Pakistan’s image has been tainted globally in the recent past with the international media labelling the country as oppressed, violent and extremist. The owners of JJ wish to set that straight and use their food brand as a means to highlight the positive side of their country. Offering five products: Fillet Burger, Zinger Burger, Patty Burger, Shami Burger and Tortilla Wrap, JJ’s cheapest burger would cost you Rs260 and can go up to Rs330. And with a deal that includes fries and drink, it can cost you slightly above Rs500. But what’s truly special to the outlet is their range of homemade sauces that the outlet takes great pride in. The sauces are advertised by the team as the ‘top six contenders for the greatest sauce ever’ on their Facebook page, which currently has over 25, 000 likes. The recipe for each of the sauces offered by Johnny & Jugnu is closely guarded but not without the realization that the secret will not remain forever. Initially all JJ recipes were hand-prepared by the owners themselves but now, some members of the workforce have been let in on the secret. JJ has introduced sauces as their specialty and Gohar recalls instances when their employees were offered money for their recipes. “If recipes of leading food chains can get leaked and replicated, so can ours,” Gohar concedes. “That is the reason why we promote the brand and not the product, for the brand is Pakistani while the product has been synonymous with Western culture for very long. But the hardest decision for JJ was to launch their Shami Burger –a popular roadside snack, instead of a beef burger - the ultimate want of burger enthusiasts. “We lose approximately a thousand customers each month for not serving beef burgers,” says

STRATEGY

“THE ONLY COMPETITION I’M WORRIED ABOUT IS THE MENTALITY THAT PAKISTANIS CANNOT PRODUCE QUALITY FOOD LIKE INTERNATIONAL BRANDS” Gohar. Defending the decision, he insists that the launch of Shami Burger was the right move and in the long run will help build the brand image that the owners are looking for. This approach was also reflected in its recent advertisement on social media publicizing its shaami burger. The ad which is also featured on their Facebook page was produced by an ad agency that caters to a ‘purely local’ market, exactly what Gohar and his partners wanted. Majority of the supplies are locally produced or homemade, with the exception of French fries which are imported from South East Asia or Netherlands. The payable turnover ratio each month is four times, making it a weekly payment which is upfront and which keeps the suppliers happy. What is strikingly different about this particular eatery is its human resource management, something which initially posed challenges to the founders. This, Gohar recalls was due to underestimation on their part of the investment and the training required for maintaining quality. At JJ, human resource management is entirely decentralized, although there is a chain of command and specific job descriptions when it comes to performing tasks. The hiring or firing of an employee is the prerogative of the council of employees. Every employee is a part of the council and has a voting right – one vote for each person, including Gohar himself. Every month a meeting is convened, wherein the performance of all the employees is gauged. Rewards are given out to high performers while a hearing is initiated against those who underperform allowing them to defend their case. “We have very high quality standards when it comes to making the product, hence we cannot afford any lapse on part of our employees,” says Gohar. “I have delegated the hiring and firing, performance evaluation to

my employees simply because I cannot do everything everywhere.” Gohar explains the rationale saying that it motivates his employees knowing that they are part of a family, and in command of their own future at the organization. While the food they offer is not Pakistani per se, but the image of the

brand, from its name to one of its most popular shaami burgers is. As for competition, Gohar is clear about who and what he is competing against. “The only competition I’m worried about is the mentality that Pakistanis cannot produce quality food like international brands.” All three partners have one dream – to alter this very mindset and make Johnny & Jugnu a global brand name which every Pakistani can be proud of.

STRATEGY

OPINION

Khalid Mir

‘human capital’ can lead to poverty (low incomes). If we take a snapshot of just the rural poor in Pakistan we get an idea of how difficult it is for them to break out of the poverty cycle and the scale of the challenges any development strategy must address. Only about 10 per cent have access to tap water and about half to electricity. The poor spend about 70 per cent of their income on food, leaving little for anything else. Only 30 per cent of the poor own any land (of varying size and quality) and few have any assets otherwise. Very few have access to loans from the fort the heart of any development strategy of governmal sector with roughly 40 per cent of their loans, mostly ments or institutions like the World Bank is the for personal consumption, coming from friends. Nearly reduction in levels of poverty. But underlying one third of the girls between the ages of seven and 12 such attempts is the need to think carefully about were at school but this figure drops drastically to nine per what the constituents of poverty are and what its cent for 13-18 year-olds. causes are. It is not obvious that these are always Summarising, the picture that emerges of the lives of poor the same thing. For instance, it makes sense to is typically one of short-term migrations, low skill-accuthink that happiness or freedoms are important dimulation, low levels of assets, little job specialisation and mensions of how well any society is doing. A limited credit and savings opportunities. It is easy to undercountry in which the lives of the majority of the people are unhappy or stand these patterns of behavior as a response to economic unfree must in some sense be “impoverished”. And it’s probably a good vulnerability but they are also, perhaps, a result of weak inidea to draw up a list of other values we think are worth pursuing, even stitutions. To take just one example of this last point. It if they’re hard to measure. We might then be able to score how well inseems that one the most glaring failures is that our institudividuals are doing in all these dimensions and then aggregate across tions (markets and the state) are not doing a good job in alindividuals to get an overall picture of how well society is doing. The locating talent and skills. Instead, it seems that Human Development Index is one such overall measure. opportunities to be adequately rewarded for our skills and On the other hand, though, there’s the idea that what we need to look at efforts and the possibility to develop them, is limited to a are variables like the lack of income, savings, low levels of physical few. and human assets because these are the causes of poverty. Of course, One of the questions to emerge from this, then, is that if complications arise precisely because some things are both determigood institutions like good government usually lead to nants and constituents, means and ends. Take education, health or politgrowth and the reduction of poverty why haven’t we had ical and civil liberties, for example. It is quite reasonable to say that we good governments in Pakistan, especially when everyone value education, say, as an ‘end’ in itself but also because low levels of can potentially benefit? Recent evidence from analysis over 150 countries suggests that cultural factors such as a poor work ethic and the lack of trust and tolerance may play a role. But it seems equally likely that countries which have a weak democracy, low levKhalid Mir els of political rights, and high levels of ethno-linguistic diversity tend to have poorer quality is a professor of of government with corrupt bureaucracies, a poor level of public goods provision, and weak economics at Lahore enforcement of property rights. University of The flipside to the idea that means and ends, and different ends themselves, are interconnected Management Sciences is that an effective strategy might produce a “virtuous cycle” of development. Simply improving health and educational outcomes can have all sorts of positive ramifications for both current and future generations.

The lives of others

improving health and educational outcomes can have all sorts of positive ramifications for both current and future generations

ECONOMY

COVER STORY

FOR THE LAST 5 YEARS, SHARES OF THE CEMENT SECTOR HAVE BEEN DOUBLING MONEY EVERY FEW MONTHS. HAS THE CEMENT BULL RUN HIT ITS PEAK OR CAN SAYEED SAIGOL AND HIS APCMA CONTINUE TO DELIVER? By Farooq Baloch and Nida Jaffery Additional reporting by: Babar Nizami, Masooma Raza and Yousaf Nizami

MARKETS

Almost a decade ago a conman by the name of Sibtul Hasan Shah ran an infamous Ponzi scheme offering people to double their money, all in a matter of 70 days. Once a schoolteacher, Shah earned notoriety for his fraudulent scheme only to be jailed almost two years later leaving his investors in a complete state of emotional and financial distress. However, what if there was a way to actually double your investment and that too multiple times in a year without being scammed? Well, ever heard of cement stocks? It so appears that cement stocks, in their entirety, remained the most robust among all investable sectors on the bourse during the past six years. Explained simply, had you invested Rs 10 lacs in the stocks of Kohat Cement only six years ago, by now you would have made Rs 4 crores, earning almost Rs 6 lacs every month during the period. That translates into an extraordinary return on investment (ROI) of 60% per month. Yes, you read that right: 60% per month! In other words, the original Rs 10

“CEMENT STOCKS ARE A TELL-TALE OF WHY PAKISTAN IS ASIA'S TOP PERFORMER” Pakistan Stock Exchange (PSX)'s Managing Director Nadeem Naqvi

lacs would have purchased you 153,846 shares of Kohat Cement at Rs 6.5 per share, its price on 1st January, 2011, which has appreciated by a whopping 3,854% to Rs 257 per share at the end of September this year. On top of this staggering price appreciation, you would have earned another Rs 29 lacs as dividend income, taking the combined return for the period to over Rs 4 crores! Kohat, perhaps, is a good example from the cement sector, but it is certainly not the only one that explains why Pakistan's stock market has been outperforming its regional counterparts for the past

Source: Insight Securities

few years. “Cement stocks are a telltale of why Pakistan is Asia's top performer,” Pakistan Stock Exchange (PSX)'s Managing Director Nadeem Naqvi told Profit in a recent interview -- and he had a reason to say this. The 21 cement companies, including allied businesses, listed on the PSX staged a sector-wide gain of almost 1,000%, or 936% to be precise, since December 30, 2010, according to the data compiled on September 19, 2016 by Insight Securities, our research partner for this report. Surprisingly, the cement stocks, for the period under review, offered a better yield than the real estate sector, which is usually the number one choice for investors. Cement sector’s return for the period is 600% higher than the highest return offered by a property located in a middle-range neighborhood of Lahore – the real estate price increases were taken from data compiled by Zameen.com, Pakistan’s largest real estate portal. Cement stocks also outperformed the KSE-100 Share Index, a benchmark to gauge the market's overall performance, by 689% and contributed approximately one-fifth to the market’s overall growth during the same period – the market has appreciated 250% since January 2011. “Pakistan’s stock market has given an average 20% return in the last 10 years,” Naqvi said. Even this year, the KSE-100 Index has rallied more than 25% and regained the status of the ‘Asian Tiger’ after becoming the best performing market in Asia and the fifth-best performing market globally in 2016. The market continues to break record after record with major boost coming from news of its reclassification to

Morgan Stanley Capital International (MSCI)’s Emerging Market Index. The reclassification, which will come into effect in July 2017, will see 27 Pakistani stocks join the international index. The development, according to experts, will result in up to $500 million (Rs 525,000 crores) in foreign portfolio investments by mid-2017.

The companies that gave highest return

breakdown of statistics shows that eight cement companies have given a higher return than the sector’s average return (936%). Among the top three, Kohat Cement provided a total return (rate of return on an investment including interest, capital gains, dividends and distributions realized) of 5,454% followed by Maple Leaf Cement and Cherat Cement.

Real estate boom behind the growth

nalysts at Insight Securities attribute the gains in cement sector to the real estate boom, which started in early 2011 on the back of economic recovery and even helped some cement stocks post their highestever earnings in recent years. A large number of residential, commercial and public sector projects were completed in the last five years while many others are currently under construction: DHA City, Bahria Town, Naya Nazimbad, Ocean Towers, Bahria Town Tower and Bahria Icon Tower, Crescent Bay, Centaurus Mall, Emporium Mall, Orange Line and Metro Bus to name but a few. “Favorable government policies provided further support to the sector,” Insight Securities’ Director Research Zeeshan Afzal said. Explaining, he said cement prices in the country remained higher than that of international market hence local cement makers were able to earn better margins inside Pakistan. On the other hand, higher duties on cement imports protected and benefited the local manufacturers against dumping of cheap cement into the country. “Everything that is locally manufactured in Pakistan has certain government

“GROWTH IN VOLUMES HAS BEEN GOOD IN THE PAST COUPLE OF YEARS. THIS YEAR WE ARE LOOKING AT UPWARDS OF 15% GROWTH. ALSO THE UTILIZATION LEVELS OF THE INDUSTRY HAVE BEEN GOING UP, WHICH OBVIOUSLY MEANS THAT THE PROFIT MARGINS OF THE INDUSTRY WILL GO UP AS WELL AND AS A RESULT THE RETURNS TO SHAREHOLDERS AND MARKETS WILL CONTINUE TO GO UP, AT LEAST FOR THE NEXT TWO YEARS” Sayeed Tariq Saigol, Chairman All Pakistan Cement Manufacturers Association (APCMA)

protection, whether it is cement, pipes or furniture. But I think that Pakistani cement industry is still quite competitive.” says Sayeed Tariq Saigol, CEO Maple Leaf Cement and Chairman All Pakistan Cement Manufacturers Association (APCMA). Moreover, a decrease in international coal prices in the last five years also brought down cost of production – coal accounts for up to 40% of the total production cost of cement. As the world started embracing alternate power means, the prices of coal reduced from the peak of $130/ton in 2010 to $74/ton in 2016, hitting a fiveyear low of $52/ton earlier in April. On the other hand, the cost of logis-

tics also decreased as the industry’s focus shifted to the local market. This is one of the reasons why the cement, which used to be exported to India, Afghanistan and South Africa is now sold within the country, and that, too, at higher margins.

MARKETS

Will cement stocks continue their northbound rally?

he cement stocks have given stellar performance between 2010 and 2016 (to date), but this leads to an obvious question: will cement stocks continue their bull run in years to come? Saigol seems to think so: “Growth in volumes has been good in the past couple of years. This year we are looking at upwards of 15% growth. Also the utilization levels of the industry have been going up, which obviously means that the profit margins of the industry will go up as well and as a result the returns to shareholders and markets will continue to go up, at least for the next two years.” However going forward things don't seem to be as simple. The Association of Builders and Developers of Pakistan (ABAD) has threatened the federal government to halt all construction activities for an indefinite period if the newly imposed immoveable property valuation is not deferred. By contrast, market experts believe there’s not much the union can do to achieve its objectives. “Nothing substantial can be done to revert the said bill. The union will eventually have to get over it,” an analyst said requesting not to be quoted.

“HIGHER DUTIES ON CEMENT IMPORTS PROTECTED AND BENEFITED THE LOCAL MANUFACTURERS AGAINST DUMPING OF CHEAP CEMENT INTO THE COUNTRY” Zeeshan Afzal, Director Research Insight Securities

ABAD’s call for construction cease is, perhaps, the smallest of all the challenges the sector might face going forward. According to reports published in the local newspapers, the sector is facing problems on the external front in all of its major export destinations: Afghanistan, South Africa, India and UAE. Iran is dumping its cheap cement in Afghanistan while the ongoing political tension between Islamabad and New Delhi has raised concerns about future of exports to India. On the other hand, UAE and South Africa have enhanced their own production, and no longer depend on Pakistani cement – in fact, South Africa has imposed an anti-dumping duty on the latter.

Source: Insight Securities

As a result, Pakistan’s cement exports have shrunk in the last six years. The country’s cement exports reduced to a mere 5% of its total production capacity at the end of May 2015, down from 26% of 2008, Aurora said in a report. Even the latest fiscal year portrays a dismal picture in cement exports. According to data provided by Lucky Cement Limited, the industry’s exports registered a decline of 18.4% to 5.87 million tons during fiscal year 2016 compared to 7.19 million tons of the previous year. In the long term exports are very essential for a better, more stable outlook, according to analysts. Saigol however seems undeterred : “There has been a reduction in exports which is largely driven by the fact that the areas where we were exporting as a country have new cement plants coming up. Cement manufacturing globally is a localized business. Anywhere in the world where exports and imports take place, they are temporary, only to fill a gap.” Pakistan has a per capita cement consumption of 140 kg, the lowest in the region and faces a shortage of nine million low-income housing units. This implies that the cement sector has an eminent growth prospect at the local front. The State Bank of Pakistan has projected a GDP growth rate of 5% to 6% for the current fiscal year, much of which will come at the backdrop of CPEC. The $51.5 billion strategic project is likely to result in multiple infrastructure projects. “CPEC is not just a long road,” said Tahir Abbas, who is Assistant Vice President Investment Research at Arif Habib Limited. “It brings with itself related projects like housing colonies, petrol pumps

and markets.” These related projects will create jobs and drive growth in all sectors of the economy: construction (cement and real estate), fast moving consumer goods (FMCGs), and automobile, to name a few. Cement will be one of the major benefactors in the process as the commodity’s direct consumption is involved for the completion of such projects. In other words, local market will continue to be the main consumer of the country’s cement production in near future. “The industry’s focus will shift back to exports only by 2019, after local demand gets saturated. The surplus will then be casted off in exports,” Abbas, the analyst, said. Explaining, the analyst said five major cement players have announced to expand their production capacity, which will take the sector’s total capacity to 68 million tons from the current 45 million tons. When the target is achieved, excess capacity will need to be exported, he said but it will take a couple of years to reach that point. “As expansions are completed, surplus (excess supply) will lead to reduced prices, hence, it will lower the margins,” said retired Brig. Asmatullah Khan Niazi, Executive Director Fateh Jang Plant, Fauji Cement Limited. “Until then [for the next three years], demand will remain at par with supply.” Saigol agrees but adds, “There is a big difference between announcing plans and the ground work actually starting. There are a lot of land availability issues, lease issues, financing issues and things

“AS EXPANSIONS ARE COMPLETED, SURPLUS (EXCESS SUPPLY) WILL LEAD TO REDUCED PRICES, HENCE, IT WILL LOWER THE MARGINS” Brig. Asmatullah Khan Niazi, Executive Director Fateh Jang Plant, Fauji Cement Limited

like that. Therefore not all plans to install new plants will be executed. Secondly, there's a high potential for the local demand to continue increasing which should be able to absorb the new capacity.” The cement makers are betting on the local market, but some reports also suggest a large Chinese player may enter Pakistan and create disruption by dumping all of its excess capacity (about 40 to 50 million tons) in the local market. Large cement companies from China, known to play by ‘economies of scale’, are now heard of gearing up their sails to Pakistan. This is followed by an estimable success of the same in the Indonesian market where local margins fell as international giants took over. One of the largest Chinese cement manufacturers, Anhui Conch disrupted the pricing mechanism in the Indonesian ce-

ment market by establishing three cement plants in three provinces in Kalimantan and another one in West Papua province. Can Chinese cement makers cause the same disruption in the Pakistani market? The dynamics of the cement market in Pakistan are very similar to that of the Indonesian market. Hence, the entry of a deep-pocketed Chinese player can prove to be an agonizing dent on the margins of the cement players, Afzal of Insight Securities said – as a result, the current margins (over 42%) of cement makers could go down by 10 to 15% in the next few years. Afzal further says the Chinese can bring their idle capacity and deploy it in Pakistan, which will first create competition for the local players and later on kill it to triumph into becoming the leading monopoly with the largest market share. There is nothing official regarding Anhui Conch’s interest in the Pakistani market so far. On the other hand, some analysts polled by Profit suggest this scenario is unlikely, at least in the immediate future, because it will require one to two years before a Chinese player can actually pose any threat to the local competition. “Even if a Chinese cement company comes, the CPEC project will buy from whatever cement plant is closest to them along the route. Freight cost is a very big element in this picture. So if they acquire Dewan’s plant in the South for example, which is ‘Saadi Cement’, instead of the

MARKETS

‘Pakland plant’ in Karachi then Saadi cannot supply goods to a project that is taking place in Balochistan. Those goods will have to come from a plant that is closer to them - they just won’t be competitive.” says Saigol. Opening up a cement plant in Pakistan requires a Mine Concession -prospecting licence required for undertaking mega mineral projects -- and acquiring one is a tedious procedure. This can be one major reason the Chinese cement giant may acquire Dewan Cement, a relatively smaller player with existence in both southern and northern regions of the country, and increase its production capacity by bringing in investment and resources. Abbas, the research analyst at Arif Habib Limited, believes that installation of such an aggressive capacity is highly unlikely. Yet, if it happens, it may take no less than one-and-a-half years for the process to complete. Another barrier to entry for a new player could be the alleged existence of a ‘cement cartel’ that protects existing cement manufacturers interests. Saigol, while talking to ‘Profit’, said that he could not comment on any ‘cartel’ but provided facts such as price variations between different cement manufacturers and that some plants may be operating at 60% capacity while others are operating at 102%. Therefore this notion of a “cement cartel”, he said, is a judgement call more than anything else. Not ruling out this possibility, major cement manufacturers, namely Lucky, Kohat, Pioneer, Cherat and DG Khan, have already announced their expansion plans to battle with the anticipated pressure from Chinese players.

“CPEC IS NOT JUST A LONG ROAD, IT BRINGS WITH ITSELF RELATED PROJECTS LIKE HOUSING COLONIES, PETROL PUMPS AND MARKETS” Tahir Abbas, Assistant Vice President Investment Research at Arif Habib Limited

Smaller players are also expected to follow suit in 2016-17. This fresh wave of expansion is expected to take the industry’s annual production capacity to 68.1 million tons, up from the current 45.6 million tons, say experts. In either scenario, the margins are

likely to be under pressure going forward because of increasing capacity. “Cement industry usually has a 10year production cycle. Presently, the industry has reached a stage where capacity utilization is close to 90%, i.e. the market consumes almost all cement produced in the country. This has resulted in high profit margins for the whole sector. This could go down to around 70% after the announced capacity enhancements become operational. This means supply will exceed demand, and put pressure on margins and eventually bring them down.” explains Arif Habib, Chairman Arif Habib Group, one of the country’s largest business conglomerates and parent company of Power Cement. “Due to larger volumes, the overall profitability [of cement sector] should not be affected,” says Habib. There seems to be a consensus that profitability of the cement sector will be

high at least in the medium term. Will this translate into similar levels of share price appreciation as seen in the past? Asnanul-Haq, Director Al-Haq Securities thinks it will not. “Those were extraordinary times. Based on increasing profitability the share prices may increase by another 10 to 15% and the dividend yield should also be good. However expecting similar returns is out of the question now,” he says. Habib adds: “Even at ‘these [price] levels’, the Pakistani stock market in general is undervalued and should expect to see a further increase in share prices in the future.” “Pakistani market is operating at a price to earnings multiple of around 9 while internationally markets are operating at multiples of 16 to 18. I feel our market will reach an average multiple of around 12 in the medium term,” Habib says – a price to earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. The market reached 42,000 points level on November 7, as opposed to December, 2016 as predicted by analysts. It even breached 43,000 points level in the same month before shedding a few hundred points. Most analysts attribute this bullish sentiment to the market’s reclassification to MSCI EM Index next year and predict it will reach 45,000 level by June, 2017, if not earlier. With four out of 21 cement stocks – namely Lucky Cement, Kohat Cement, Maple Leaf Cement, and Fauji Cement – among the candidates under consideration to join MSCI’s Emerging Market Index, the entire sector is likely to receive more investment, say analysts.

“SHARE PRICES MAY INCREASE BY ANOTHER 10 TO 15% AND THE DIVIDEND YIELD SHOULD ALSO BE GOOD. HOWEVER EXPECTING SIMILAR RETURNS IS OUT OF THE QUESTION NOW” Asnan-ul-Haq, Director Al-Haq Securities

Source: Lucky Cement Limited

Cement sector generally grows in a ratio of two-and-a-half times the GDP growth, said Niazi of Fauji Cement. For

“DUE TO LARGER VOLUMES, THE OVERALL PROFITABILITY [OF CEMENT SECTOR] SHOULD NOT BE AFFECTED” Arif Habib, Chairman Arif Habib Group

example, if the GDP grows at 4%, the cement sector will grow at 10% during the same period, he added. “The cement sector will see maximum returns in the near future,” the retired brigadier said. “The next three years will exhibit gains similar to what we have seen in the last three years.” Most stock market experts and cement manufacturers agree that the prospects for the cement sector are very bright for at least two to three years. A bulk of this growth will come on the back of large funds that the government is likely to allot for Public Sector Development Projects (PSDP) in the last budget before general elections of 2018.

MARKETS

TECH-STARTUP

Pakistan’s only Radio Audience Measurement company strives to provide a comprehensive radio rating research

By Abbas Naqvi hen Raza Rehman Khan started his career at Nestle back in 2007, he was unaware that during his stint there he would stumble upon the idea of providing radio rating research, something pretty much unknown in Pakistan at the time. While his plan was to work for three years, Khan ended up spending six years working with the multinational giant, first as Brand Manager and then as Communication and Research Manager. “It was a good learning experience for me. And it was there that I got the idea to establish my own business,” says Khan.Being thoroughly connected with the media and research circles in Pakistan, Khan’s focus was brought towards radio advertisement and the lack of data pertaining to it. With radio adver-

tising costing a lot less than television advertising the choice was tempting, but there was little to go by with. The relevant media group working for Nestle at the time said that no research was available in the market, and that companies generally used the platform of big channels operating across the country to advertise their products.

A new start up n August 2014, soon after Khan quit his job, he launched RadioScore as the only Radio Audience Measurement company in Pakistan striving to provide a comprehensive radio rating research to its clients. “There is no competition in terms of radio ratings,” Khan says. “Our sample size sufficiently represents the population even if it seems like a small sample to someone who does not understand the dynamics of sampling. Compare it with the number of meters used for the largest advertisement medium, the television,” he says while responding to a question on how they sample their panel people with the radio tracking device. According to him across Pakistan, approximately only 900 metres are used by Medialogic to keep track of television channel ratings.

Panel size and sampling method t the moment, RadioScore’s panel consists of 300 members, majority of whom are tracked through mobile phones and the rest through cars. Khan reaches out to these people individually and incentivizes them every six months or so in the form of token gifts for using the tracking device provided by the company. The recruitment process for these panel members is very stringent and the system used by Khan raises red flags at the slightest change in the radio-listening behaviour of these members. This is done to avoid a fiasco similar to that faced by Medialogic a year ago, whereby allegations of rigged data through collusion of employees and clients were proven to be true. According to Khan, radio penetration in Pakistan’s urban population is 25%. The term radio penetration refers to the number of people listening to radio on a regular basis. Sampling on this 25% is done through giving weightage to different socio-economic

ACCORDING TO KHAN, RADIO PENETRATION IN PAKISTAN’S URBAN POPULATION IS 25%

that the panel size is equal to the one claimed by RadioScore. “I can proudly say that the panel size is such and such and the client is welcome to see if it’s true by auditing our system,” says Khan. However, he also adds that they are unable to provide contact details of their panel members to clients for legal reasons.

Expansion Strategy classes. While 85% of the 300 panel members are tracked through smart phones given to them by RadioScore, 8% are tracked through cars and the rest through other devices such as tape recorders. A client can also audit in order to be sure

urrently, RadioScore is covering four major cities in the country, including Karachi, Lahore, Islamabad and Faisalabad. They are about to launch in Peshawar very soon, which will increase their panel size from 300 to 350. These new mem-

MEDIA & MARKETING

bers will be tracked through mobile phones. “We wish to increase the sample size so that our data becomes an even better representation of the population but it costs a lot. Therefore, the expansion is taking place slowly but efficiently,” he claims. The mobile phones are tailor-made with an inbuilt application that monitors the listening behaviour of users and directly uploads the data on RadioScore’s servers. The mobile phones are a property of RadioScore and a proper agreement is signed between the company and the user to return the phone once the contract ends.

Business Model adioScore earns its revenue through different radio channels that pay for research in order to gauge their own efficiency and to compare themselves with their competitors. The four major radio channels that have subscribed to RadioScore’s service are Hum FM 106.2, Samaa FM 107.4, CityFM 89 and Radio 1 FM91. Media buying houses like Group M also buy this research from RadioScore and then analyse the data on behalf of their clients for decision-making purposes. This research provides them with consumer behaviours, competitive intelligence and marketing effectiveness. “Our pricing model is to charge approximately 2% to 2.5% of the media spend from our clients. It is usually divided between the radio channels and media agencies, with radio channels paying a higher chunk of the said percentage,” explains Khan. He also claims that almost 25% of the total media spend in the radio industry in Pakistan uses RadioScore’s data to gauge and improve the effectiveness of their media campaigns. The major expense heads for RadioScore are panel management, software development, salaries and expansion. The number of employees at RadioScore is 12 but will increase as expansion takes place. Khan says that he directly markets the product to his clients, including media buying houses and radio stations, by convincing them of the usefulness of their data.

Future Plans han is completely aware of the shift in dynamics taking place in the advertisement world, from television and radio to online media marketing (digital marketing). He believes that the need to adapt to

RADIOSCORE EARNS ITS REVENUE THROUGH DIFFERENT RADIO CHANNELS THAT PAY FOR RESEARCH IN ORDER TO GAUGE THEIR OWN EFFICIENCY AND TO COMPARE THEMSELVES WITH COMPETITORS these changes will grow as technology progresses, but RadioScore would remain in business as long as it adapts to changing dynamics. “Instead of listening to radio on air, peo-

ple will shift to streaming radio channels online through their phones and other devices. Besides, radio penetration in the USA is 90% and our country usually follows their trend,” Khan says while citing a research done by Nielson, the radio rating company. Khan remains positive that the change will be very gradual and would thus, allow RadioScore to adapt to it accordingly. But he concedes to the fact that in Pakistan, radio was losing its share of spend in the advertisement world. “It is true that the share of spend on radio is not increasing proportionately with the increase in the share of spend for television. This, however, does not mean that radio advertisement would be wiped out completely. It will always remain a viable and effective means for advertisement for many clients, depending on their target audience and advertisement budget,” Khan says with a tinge of optimism.

MEDIA & MARKETING

OPINION

Sadyia Babar

Before checkout, my husband and I started our guessing game, putting a number to the monetary smash-up we had brought upon ourselves. The high bid was Rs 15,000. As fate would have it, the actual total turned out to be around Rs 23,000 - a huge amount, more than we used to spend on groceries for a week. Now, there is no doubt that my husband’s greediness was a major contributor to the total, but after scrutinizing the bill we found out that we were also victims of higher food prices - what economists like to call ‘inflation’. Despite the official inflation not exceeding single-digit figures in recent years, the price of gram flour (basin) increased from Rs 40 per kg in 2008 to Rs 200 per kg today. The price of sugar suffered the same fate increasing from Rs 22 to Rs 75 during the same period. remember my mother used to say, “Eat a good meal first Life for common man is becoming increasingly diffiand then go to the grocery store.” I learnt the sagacity of cult owing to the overall price hike across the country. this the hard way last weekend when my husband esPrices of fruits and vegetables have also increased corted me to Hyperstar in mid-afternoon, right after havdrastically. ing only a bowl of soup. Normally a passive partaker in Food inflation on the whole has a subtle influence on our hypermarket spree, his main role is limited to pushpersonal finances because it is so easy not to notice. ing the grocery cart. But that day being hungry was the But I strongly feel that these days one must not ignore worst thing that happened to our grocery excursion. the impact of food-price inflation, because of which Every aisle just seemed to be jumping out at us, trying to many of us will aggressively look for local produce, wiggle out every penny in our pocket. He put everything into the indulge in bulk buying and settle for discount brands. trolley that looked partly tasty; different brands of potato crisps, Shopping at hypermarkets will be encouraging because chocolate bars, two jars of cheese spreads, a large bag of hash they often offer extremely competitive pricing, which browns, a pack of muffins, a big loaf of garlic bread, and lots of is especially helpful for people with a tight household fruits and vegetables. budget. Another money saving technique is avoiding We wanted to eat everything we laid our eyes on. impulse buying, especially when shopping for groceries in the supermarket; we should have a list of things we wish to buy, and once done, head straight to the checkout. Reasons for food inflation are many and varied. Prices for rice, sugar, milk, fruits, and vegetables all have risen notably in the last seven years, putting pressure on overall consumer prices. Another aspect of the price hike is that of essential servSadyia Babar ices such as health, education and transport for which people are paying way beis a part time business yond their capacity. executive and a full I must admit that since our trip to the store, I have yet to indulge in one of my time homemaker. costly jars of cheese spread. There’s a lesson here for all of us: “Eat a good meal first and then go to the grocery store” – especially in times like these.

Our unsavoury grocery trip Food inflation on the whole has a subtle influence on personal finances because it is so easy not to notice

PERSONAL FINANCE

CAREERS

By Nida Jaﬀery crolling through his smartphone, Sabir Shah, a young Twitterati, chuckles quietly as he goes through his Twitter feed, all the while mindlessly tapping on the ground his feet donned in denim boots – a souvenir he received recently from his clients. Before keeping his phone down to take some time out for lunch, he takes a picture of his appetizingly garnished noodles and uploads it on Instagram.

This is how the 21-year-old spends his days, posting content on social media not to kill time, but to earn money. Real money. Shah is part of a pool of young people who earn up to Rs 50,000 on average each month through different social media platforms, especially Twitter. His job? To promote certain brands in the cyber world. These self-employed Twitter enthusiasts do not exist in the country’s national employment data nor do their services count towards Pakistan’s gross domestic product. And yet they earn more than

many bankers. Their average monthly income is 24% higher than Rs 38,000 – the 2015 average monthly salary of those working in the banking and financial sector. People like Shah make money by working as Key Opinion Leaders (KOLs), individuals who collaborate with agencies to lend them a hand in promoting a certain marquee through their social media accounts. These KOLs work for different brands and assist them in marketing their products through attending their events and trending hashtags on Twitter. In the last few years, social media platforms – particularly Facebook and Twitter – have surfaced as contemporary and attentiongrabbing source for marketing in Pakistan. Facebook, which has 25 million users in Pakistan, takes the lion’s share in generating revenue through landing page conversions and ads. Twitter, on the hand, stands as the uncontested leader in digital promotions and branding market - a largely undocumented online market where individuals use their personal social media accounts to promote brands. “Younger generations do not read newspapers anymore. They have moved on to digital media. Consequently, brands had to do the same,” says Shah. This transition from conventional to digital has opened doors for many young individuals. Now, with the introduction of more organized form of digital promotions, they are earning enough to provide for an average household in Pakistan, that too, without any requirement of a formal degree or working at a nine-to-five job.

How does Shah do it?

irst, they grow their number of followers on both Twitter and Instagram by using different techniques ranging from humorous tweets to intriguing display pictures. Next, they tweet promotional content for brands in exchange of compensation. “We currently have a database of more than 200 active individuals who work as KOLs for us,” says Sara Muzammil, one of the four Co-Founders of Digital Factory – a digital marketing firm that does business with these enthusiasts. These Twitter enthusiasts are divided using different metrics that include Klout Score (influence on other Twitter users), en-

gagement rate, number of followers and quality of content produced, she explains. “KOLs are approached for campaigns on the basis of their suitability for each brand, keeping in consideration the given characteristics.” The structured division of the tiers allotted to the KOLs elucidates the organization of the industry, which works with a three-tier payment structure. Beginners, who fall in the first tier, earn less somewhere around Rs 15,000 and are trained by agency professionals. The second tier of transitional level bloggers, like Shah, are compensated with money going up to Rs 35, 000 and other benefits, such as the denim boots. The third tier is of experts whose benefits magnify with their popularity and expertise, and their compensation can amount to as high as Rs 65,000 a month. “Established individuals in the field can negotiate rates as per services. There are some who get more than Rs 10,000 for one blog and a few tweets,” Shah says of the promoters that fall in the third tier. “If they win five to six campaigns on average each month, they can earn a good amount.” An additional benefit for young KOLs is that they get to meet a lot of people and perk up their personal references. “There’s no harm

in increasing your PR while you are still at school. This might help us earn jobs once we graduate,” says Maham Siddiqui, another Twitter enthusiast. Students like Siddiqui might see promoting brands as a part-time opportunity, but Shah sees his future in this field and intends on indulging further in these promotions. “I have always had my issues with conventional degrees. I’m glad what I’m doing does not demand any degree,” adds Shah. The PR he earned while doing these marketing campaigns on Twitter finally helped him secure a full-time job at The Digital Factory, the same company he had been working for as a freelancer until May this year. Shah’s plans to make a career out of this niche may not be far-fetched because the brands, which were reluctant in the beginning, have now started acquiescing to the idea of promotions through digital podium, something widely accepted in the West in the last few years. “Twitter is the best means of increasing your brand value by promotions,” Florida Today’s Executive Editor Bob Gabordi said during a seminar at the Center of Excellence in Journalism earlier in May. “Facebook, on the other hand, earns traffic conversions,”

MEDIA & MARKETING

elaborated Gabordi, a social media marketing major from Northeastern University. However, some professionals think there is still a long way to go before brands fully accept the notion of this kind of marketing in Pakistan. “Brands definitely see digital outreach as something worth investing in. Sadly, they do not truly understand the potential of this tool because they are not being educated properly by agencies,” says Muzammil. The further growth of the digital promotion industry will also depend on how Pakistan fares in terms of internet and social media penetration, say experts. At present only 30 million or 15% of Pakistan’s total population (200 million) has access to the internet. Of the total internet users in the country, only 3.3 million have Twitter accounts. Although Pakistan’s internet penetration has increased notably during the last couple of years, State Bank of Pakistan recently put the country among other South Asian and Sub-Saharan African nations that have the lowest internet adoption rate falling between 0 and 19%. The numbers may be small, but IT-based businesses are getting the most out of these campaigns as their target audience is people who use the internet. “Brands like Careem, Patari, and EatOye get immense benefit from Twitter promotions as their presence is mainly online,” Shah explains. Despite the increasing popularity, the takeover of digital over conventional marketing may still be a distant dream. “Digital cannot take over conventional, simply because the numbers are poles apart. It is like comparing apples and oranges,” explains Muzammil.

Pakistan’s digital ad market is still in its infancy. According to a study by Gallup Pakistan - the largest media buying house in the country, it is worth half a billion rupees which is less than 1 per cent of the total ad market as per documented information. However, this data doesn’t include more than half of the freelance promotion campaigns carried out by KOLs so far. The future of this form of marketing cannot be determined just yet. Another reason is the reluctance portrayed by viewers on digital platforms. In other words, if one doesn’t play smart he can lose his followers and ultimately, the opportunity to monetize their personal social media accounts. For example, Shah can lose a number of his followers if he works on several promotions at a time. Muzammil explains the phenomenon by saying that a constant barrage actually with-

“BRANDS DEFINITELY SEE DIGITAL OUTREACH AS SOMETHING WORTH INVESTING IN. SADLY, THEY DO NOT TRULY UNDERSTAND THE POTENTIAL OF THIS TOOL” Sara Muzammil, Co-Founder of Digital Factory

draws viewers. “When you take my radio, my billboards, my newspapers and my television and fill it with advertisements, I'm already fed up of watching your paid content taking over my life. Now, when I see real people who I love and respect endlessly harp on about a brand, I am not going to be very happy with those people or that brand.” “However, experts are responsible to design the campaigns in such a manner as to not assault the audience on their social media platforms, instead should be subtle and respectful,” Muzammil elaborates further. “Agencies need to explore and experiment further to open doors for expansion in the field,” says Ahsan Saeed, Founder of Twittistaan and the Urdu Localization Manager for Twitter and WhatsApp. “One of the major reasons being the edge digital media gives to brands in communicating with consumers directly and vice versa.”

MEDIA & MARKETING

By Yousaf Nizami

PERSONAL FINANCE

JOURNEY

OUT WITH

the old, the new IN WITH

FORUM AND PARK TOWERS LOSING BUSINESS TO NEW MALLS By Aisha Arshad t was New Year’s Eve of 1999 when the first ever high-end mall of the country – Park Towers – opened its doors in Karachi to an overwhelming crowd, as it stood witnessing the dawn of a new millennium. Little did those present then know that they would soon be part of the beginning of ‘mall culture’ in Pakistan introduced by Park Towers, with its sky-depicting ceiling and glitzy interiors. Forward some 16 years, and you can hardly recognize the place. A walk in the same Park Towers, on Chand Raat – usually a peak shopping season – and it would be hard to believe that this mall was once the most happening place for customers and retailers. Empty entrance and parking areas, deserted elevators and an evident dearth of customers in the few shops, that now remain, describe the ironic picture of the place that once was the undisputed king of malls for well over a decade in Karachi. And this is the same place, which as per its own advertisement claim back in 2012, hosted as many as 20,000 visitors per day on weekends and during holiday season.

So what went wrong? n 2008, we were looking for a shop in Park Towers as we knew that the place will give us more business than anywhere else,” an official from one of the country’s top retail brands re-

“I calls.

“However, due to the demand of the mall, we were told that there was a waiting time of five years and shops

STRATEGY

were unavailable. It was in 2012 when we finally opened our outlet in Park Towers only to close it down in two years due to the decrease in footfall and poor business conditions”. Round about the same time Dolmen City Mall Clifton had emerged and many other brands were also leaving Park Towers. Today, only a handful of brands namely Khaadi and Junaid Jamshed remain in the mall. But industry sources attribute this limited presence to the fact that these brands have ownership of their shops. After an elapse of almost two decades since the inception of Park Towers, the city hosts many world-class shopping malls that offer everything under one roof; a promise once only Park Towers made. Built along the coastline of the city, Dolmen City Mall in Clifton is currently the city’s most sought after mall. Inaugurated almost five years ago, located merely one kilometer from Park Towers, Dolmen City is a successor of the renowned Dolmen Malls at Hyderi and Tariq Road, and is said to be the biggest reason for the downfall of Park Towers. The average rents of other high-end malls, such as The Place, Ocean Mall, and Dolmen Tariq Road currently range between Rs 300 to Rs 500 per square feet while Dolmen City Clifton’s average rent starts from Rs 500 per square feet, making it a top-tier mall. While Dolmen City (Clifton) has already done the damage, the bigger threat facing Park Towers is the under-construction Bahria Icon Tower, which is right across the road to Park Towers. Industry sources say that Bahria Icon Tower – during its construction – has already dented whatever little was left of Park Towers in the recent years. And perhaps, now it’s only a matter of time for it to succumb to this threat. On this the retail brand’s official elab-

WHILE DOLMEN CITY (CLIFTON) HAS ALREADY DONE THE DAMAGE, THE BIGGER THREAT FACING PARK TOWERS IS THE UNDER-CONSTRUCTION BAHRIA ICON TOWER, WHICH IS RIGHT ACROSS THE ROAD TO PARK TOWERS orates: “During Icon Tower’s construction, when all the roads were dug up, Park Towers became impossible to access. This was the time when the remaining visitors of the mall also diverted to Dolmen City Mall”. This, he says, resulted in a complete collapse in the footfall of Park Towers. Two independent sources have also told Profit that Bahria Town group is considering acquiring Park Towers to convert it into office space for the management of the newly constructed Bahria Icon Tower that stands right across the road. However, Bahria Town group did not reply to the query

seeking confirmation in this regard. Though it has suffered the most because of the influx of new malls, Park Towers is not the only such project where brands aren’t getting much business. The Forum – another high-end shopping mall in Clifton – is facing similar circumstances where with each passing day the number of visitors is declining and the number of brands leaving the mall is increasing. Although the administration of both the malls did not respond to repeated requests for comments, industry sources had various reasons to explain the decline in footfall that have led these malls to the current dilemma. According to Omer Arshad, Manager Operations QnH, a high street apparel brand, “Malls have a life cycle of five to seven years and no matter what after a certain time its footfall decreases, businesses shut down and people turn away to newer malls.” Reduction of businesses in these malls rides on the back of this life cycle. A mobile phone accessories vendor at The Forum has a very clear explanation to the phenomenon. “Let’s assume there were only two malls (Park Towers and Forum) and a total of 100 visitors daily who were divided among the two. Now imagine there are 10 malls and the same number of 100 visitors daily, add to that the fact that some malls have been able to grab share of others as well decreasing footfall in other malls.” This vendor runs his stall on first floor of The Forum at the same location where

Outfitters – a retail brand for street-smart fashion, previously ran its outlet. In fact, many leading outlets have closed their shops on the same floor, a testament of which are the signboards atop abandoned shops. Just about a kilometer away from The Forum, Ocean Mall was inaugurated about three years ago. The mall’s building was constructed for an international hotel project Sofitel. However, due to the law and order situation, the plan was cancelled and the building was then restyled to open a mall. Although Ocean Mall isn’t the most favorite for mall-goers, and hasn’t attracted as much traffic as was expected, it is still preferred over The Forum due to the presence of all famous brands. Add to that the up-to-date ambiance and you have a fairly decent recipe for success. Though it also houses a cinema, industry experts say that hardly boosts retail businesses for cinema lovers don’t necessarily shop at the same place.

A look into success stories ut it’s not all doom and gloom. Arshad, who has been in retail business for a few years now and deals frequently with malls, believes

“MALLS HAVE A LIFE CYCLE OF FIVE TO SEVEN YEARS AND NO MATTER WHAT AFTER A CERTAIN TIME ITS FOOTFALL DECREASES, BUSINESSES SHUT DOWN AND PEOPLE TURN AWAY TO NEWER MALLS” Omer Arshad, Manager Operations QnH

there are a few reasons that drive the success of a mall. “Dolmen City Mall knows its customers, its brand value, and the characteristics a mall should have. It’s probably because they had a practice pitch in Hyderi and Tariq Road and now they very well know how to run a mall,” he explains regarding the Dolmen Malls, which are still successful even after a typical lifecycle of five years – Dolmen Mall Tariq Road is one such example. Other than the exceptional team behind Dolmen Malls as quoted by Arshad,

the malls at Tariq Road and Hyderi cater to a different market, which mostly belongs to north zone of the city, such as Nazimabad and Gulshan e Iqbal, and has access to only these two malls, thus making them a lucrative spot for retailers. In other words, these malls cater mostly to the growing middle class segment of the metropolis. Atrium Mall is another project that has survived threats of new malls but reasons for its success are different. Located in the heart of downtown Saddar, Atrium is the only top-notch mall in the vicinity with factory outlets of all leading brands. This makes it a favorite for the middle class, from both nearby areas and as far as Malir, Shah Faisal Colony, Landhi and Korangi, who prefer to shop at factory outlets that always sell below the price of their regular outlets.

What does the future hold? ccording to retail experts, Forum still has a little edge over Park Towers and that is partly because of its prime location, which still brings customers from its nearby areas. “For a very long time, our footfall has neither increased nor decreased, it’s stagnant and that works fine for our brand. We have our loyal customers at this outlet,” shares the branch manager of Liberty Books at Forum. Another brand’s representative has a positive opinion saying that if the team at Forum tried, they could still make it work. “They have big shops, a great location, and only two floors. Retailers prefer malls with fewer floors due to the prospect of decreasing footfall with every subsequent floor. It’s just a matter of them realizing the value of this mall.” As for Park Towers, industry experts claim now there’s no going back and the mall has lived its life. Once operational, Bahria Icon Tower will put the last nail in the coffin for the city’s first highend mall, they say. But while there is a lot that Park Towers will have to battle out at various fronts, only time will decide its ultimate fate.

STRATEGY

EVENT

Aisha Malik of the Friedrich Naumann Foundation for Freedom

Ali Salman, Executive Director Policy Research Institute of Market Economy,

Third National Debt Conference by Policy Research Institute of Market Economy on November 12 at Marriott Islamabad

Dr Ashfaque Hassan Dean NUST School of Social Sciences and Humanities.

M Ali Kemal, distinguished Research Economist at the Pakistan Institute of Development Economics

Executive Director of the Institute of Social and Economic Justice Syed Abdul Khaliq

MNA Asad Umar

Raja Amer Iqbal, President of the Rawalpindi Chambers of Commerce and Industries

Pakistan's National Debt Conference

Sakib Sherani, CEO Macro Economic Insights

President, Policy Research Institute of Market Economy, Dr Manzoor Ahmad

Syed Ali Ehsan, Head of Communication PRIME

Vice President of Arif Habib Limited Mr Nasim Beg

Zafar Masud, Director General of the Central Directorate of National Savings, Government of Pakistan

EVENT

Captive audience

Cracking E-Commerce 2.0 by Karandaaz Pakistan and Planet N held in Karachi on November 18

Danyal Manzar from UrduBit representing the working group on international payments and exports

Nadeem Hussain, Founder and Coach at Planet N elaborating on the goals of the workshop

Qasif Shahid, Founder of FinSurgents presenting key solutions regarding issues on Domestic Payments

Huma Gillani, consultant, taking notes

Nadeem Hussain and Karandaaz Pakistan team finalizing the working groups for the workshop Working group on international payments and exports

Badar Khushnood Country Consultant Twitter

Participants from Ministry of Commerce discussing key challenges faced in the e-commerce industry

Group photo of the participants

THOUSANDS OF PEOPLE BENEFIT FROM THE GIGANTIC SALE BLACK FRIDAY HAS BECOME IN PAKISTAN, ALL IN A SPAN OF TWO YEARS 42

By nida Jaﬀery wenty two-year-old bride-to-be and a student of management sciences, Samra Ejaz bought a cellphone, a microwave and an LED TV from the year’s biggest online sale on Black Friday that fell on November 26. Her order total was Rs 83,000 and she paid Rs 68,000 after discount. She participated in the sale last year as well buying a cellphone and cosmetics worth Rs 17,000 while earning a discount of more than Rs 3,000. “Black Friday sale is my day of the year,” said Ejaz. “I waited the entire year to buy discounted appliances for my wedding.” Ejaz is not the only one who waits for this sale. Hundreds and thousands of people benefit from the gigantic sale Black Friday has become in Pakistan only within a span of two years, finally catching up with the global trend.

We have received more than 50,000 orders in less than 24 hours” Adam Dawood, Head of Yayvo.com

“We have received more than 50,000 orders in less than 24 hours,” said Adam Dawood, Head of Yayvo.com - a famous online marketplace by TCS, the largest delivery and logistics company in Pakistan. This resulted in more than Rs 200 million in sales for the day, he added. With two more days to go, the sale is expected to surpass all numbers from the previous year thanks to the 1.2 million new mobile broadband users added in the last one year, which has increased the buyerbase and the entry of deep pocketed online player Yayvo in the scene.

Last year, Daraz - the largest online shopping store in Pakistan, received 36,000 orders alone. It offered Rs 132 million in discounts during Black Friday sales when 1.5 million people visited its website. It catered to 55% more orders during each day of Black Friday than it normally does during a regular business day. Similarly, Homeshopping, a relatively smaller player, sold two iPhones every 3 minutes till the stock lasted. Much smaller, even Facebook stores witnessed an overwhelming traffic during the Black Friday sales last year. Former CEO of Daraz, Muneeb Maayr summed up last year’s event saying they made history during Black Friday. There were projections that this time around, the sales will be a ‘much bigger mad-rush’. “This year the sale will be much larger. We expect three times more transactions than the last year,” said Omer Moeen Malik, Head of Strategy at EasyPay – one of the largest payment gateways in Pakistan and payment partner of Daraz. As Profit starts receiving sales figures from different players, it turns out this year’s sales were certainly bigger. EasyPay revealed to Profit that it received double the orders it did last year in the first 18 hours of the sale. More astonishing so, not only people from metro cities are a zealous part of the sale but those from tier two cities are participating with as much vigor. Out of the 50,000 orders that Yayvo.com received, 16% are from Multan, Faisalabad, Gujranwala, Hyderabad, Peshawar and Sialkot and 23% from tier 3 cities.

glitches greet shoppers

owever, no matter how big the sale, one cannot ignore the gaffes online merchants made during the sale.

The website of Homeshopping went down as the clock struck midnight. The iOS app of Daraz also crashed during the first few hours of the sale. In many cases, the websites took ages to load due to immense traffic as the buyers tried to get their hands on

marketing

“BLACK FRIDAY SEEMED MORE LIKE A CLEARANCE SALE THAN AN ACTUAL DISCOUNT FESTIVAL” – TechJuice

discounts are a cherry on the cake. Likewise, the changing trend of e-transactions cannot be ruled out either. Pakistan is a cash-based economy, and hence its e-commerce industry structurally differs from developed countries. “97 percent of our economic transactions are cashon-delivery,” says Mirza of EatOye, an online food ordering portal operating out of Karachi. However, with payment solutions like JazzCash and EasyPay gaining popularity, more people are embracing etransactions. EasyPay handled almost one third or 12,000 of the Black Friday transactions of Daraz last year and this year it crossed its expectations of doubling the number in less than the first 24 hours of the sale. JazzCash, on the other hand, handled up to 45% of the total transactions on Yayvo.com during the first day of the sale. “JazzCash is using its economic muscle to provide discounts to its customers,” said Syed Jaffer Abbas Shirazi, Manager Corporate Payments Mobile

the best possible deals. Moreover, very few products had discounts up to 50%, as marketed by the platforms. Other discounts ranged between 10% to 20%, even on low priced products. Sought after brands like Apple, Samsung, HP etc. were available on lower discounts. On the flip side, larger discounts were provided on cheaper brands like Infinix, Danny etc. “Black Friday seemed more like a clearance sale than an actual discount festival,” said TechJuice in its recent article. Furthermore, users have complained that many platforms have inflated prices to portray greater discounts. For example, the price of a certain top was increased for the buyer to see and then brought back to the original price using discounts. But despite the glitches, Black Friday, hands down is the largest Syed Jaffer Abbas Shirazi, Manager Corporate Payments Mobilink (JazzCash). sale of the year. This is enough proof that the dynamics of the Pakistani market are Financial Services at Mobilink (JazzCash). “We’re changing. The ecommerce market of Pakistan is ever- doing this to create awareness among people. Ecomevolving and so is the knowledge base of people. With merce in Pakistan can be made much stronger if e-paynew players jumping into the business and existing ment solutions are common among people.” players expanding, the ecommerce scene in Pakistan Currently, Pakistan’s ecommerce market stands is growing each day. at $600 million, according to numbers revealed by Not only that, ecommerce giants are playing sig- Yayvo and Eatoye. However, some experts believe that nificant role in creating more awareness among the the worth of the market is $300 million - staggering masses by marketing heavily, both offline and online. growth from last year’s estimates of $100 million. FurWhether it is through social media posts or Google thermore, market gurus have hopes for a brighter fuads, or even hoardings, they’ve remembered to reach ture, as they predict the market to surpass $1 billion out to the audience in all possible ways. The massive by 2020.

“ECOMMERCE IN PAKISTAN CAN BE MADE MUCH STRONGER IF E-PAYMENT SOLUTIONS ARE COMMON AMONG PEOPLE”

MARKETING

TALKING HEADS

“People now have a clear choice, whether they want access to conventional banking or Shariah compliant banking. Since its launch, Islamic banking has grown and has made excellent progress”. Tawfiq Hussain CEO/Secretary General, Pakistan Banks' Association (PBA)

“There is nothing worse than working in an organization that has a bad culture. When you work in a toxic environment, you still come home tensed and stressed at the end of each day and that is not worth it.” Sowaba Shehzad CEO, ALNO GLC Pakistan & SAAS Synergie GmbH-Potsdam Germany

“CPEC is a divine intervention. The kind of money that is coming in Pakistan is unprecedented. The trick is how effectively and efficiently we use this money. The good part is that a lot of it will be channelled through the private sector.” Khalid S. Subhani President, Engro Corporation Limited

“Most of the current technology is designed primarily for the one billion people living in the developed world and not for the 5 billion people of the developing-world. Affordable smartphones, if used skillfully may become a powerful tool for solving problems.” Dr. Umar Saif Chairman Punjab IT Board

“Events like Black Friday offer an opportunity to make a lot of good noise in the market. Pakistan is a very price sensitive market and it allows us to reach out to customers who we have never seen before.” – Hamaad Ravda CMO, Daraz.pk

“The last thing any person at leadership level wants is to be isolated. If people feel they cannot communicate with you, it will hurt your progress and business.”

Maheen Rahman CEO, Alfalah GHP Investment Management Ltd.

TALKING HEADS

OPINION

Mir Mohammad Ali Khan

is nothing but a policy of irrationality. Women in India have been affected the most because they are the cornerstone of India’s cash economy. And to top it all, only 32% of Indian women have an account at a bank either because of illiteracy or mistrust in financial institutions, so they earn in small bills and keep their savings in cash at home. Out of a 501 million workforce, and women being the backbone of cash economy for small transactions, it is nothing but a paralyzing moment for them to travel hundreds of miles to banks that are refusing to entertain them. To add insult to injury, the winter wedding season in India which thrives on cash and smaller transactions has also arrived right when Modi’s economic ‘surgical strike’ has dissected the poor from their daily activities. ew weeks ago, right after the November 8th Modi's decision of wiping out 23 billion notes of Rs announcement by Indian Prime Minister that 500 and Rs 1000 (yes, 23 billion of them!), reminds Rs 500 and Rs 1000 notes had been deemed me of a similar move by another dictator back in useless, I penned down an article, based on 2009 in North Korea. Within weeks it wiped out the my foresight of economy, that India will face private sector investment of its capital, resulted in a a monetary crisis. Well, ladies and gentle30-fold increase in food prices followed by widemen, I did not think that it would happen this spread hunger. India seems to have everything on quickly but apparently, it has. India has come track to face such a crisis. In 1987 in Burma, where to an economic crisis. And a paralyzing one. the denomination of their currency – Kyat was PM Modi and his ad hoc policies stem from a mindset which changed, a similar crisis took place from which they only thinks in an irrational, authoritative and imposing manner, have not been able to recover from despite the paswhere it leaves me thinking about Hitler and his policies of rulsage of three decades. The crisis had wiped out the ing over millions with the I-am-always-right mentality. entire private sector savings into oblivion. Poverty Deeming 86% of the cash notes in circulation useless overnight rose to an unprecedented level. Food prices were not affordable even for the middle class and widespread riots broke out. In a country of 1.3 billion people and just 400 million bank accounts, with many being multiple accounts of the same family, and in Mir Mohammad Ali Khan many cases several accounts of the same business entity; and in a country where is an investment banker, the value of transactions of Rs 500 and Rs 1000 equals to 12% of the GDP, the acentrepreneur and capital tual economic growth has to slow down starting immediately, to say the least. On markets advisor. the worst side, I see this crisis continuing and gaining pace where a common Indian would not be able to even afford basic food items. This should never happen to any nation. Animosity aside, the common people of any country should not suffer because of the decisions of their maniacal leader; and maniacal Modi has proven to be, surgically and otherwise.

Modi’s “Surgical Strike” On Indian Currency Deeming 86% of the cash notes in circulation useless overnight is nothing but a policy of irrationality

ECONOMY

WEEKLY REVIEW

closiNg positive

Bourse reaches New high THE NORTHBOUND RALLY CAME MAINLY DUE TO REKINDLED INTEREST OF INVESTORS IN OIL AND CEMENT By Nida JaďŹ&#x20AC;ery espite threats from various fronts, the benchmark KSE-100 share index displayed a buoyant trend during the outgoing week. The bourse touched new heights and crossed the 43,000 mark again on the back of strong liquidity position of local investors. The rally came mainly due to rekindled interest of investors in oil and cement. The Organization of Petroleum Exporting Companies (OPEC) is likely to discuss prospective production cuts in its next meeting. The news fuelled volatility in the international crude oil prices, leading investors into taking fresh bets in the sector. Moreover, the index enjoyed northbound movement due to positive sentiment in the cement sector supported by receding coal prices. Resultantly, the KSE-100 share index gained 675 points or 1.6% to close at its alltime closing high of 43,000 points. The week started off with looming threats of rising strain between India and Pak-

markets

istan amidst sporadic episodes of confrontation across the LoC. Concerns pertaining to the outcome of Supreme Courtâ&#x20AC;&#x2122;s investigation of the Prime Minister and his family in the Panama leaks case further added to the tension. The first two days on the bourse were volatile but closed in green with substantial gains in all major sectors. The local market displayed notable rally

on the third day of the week underpinned by expected multiple rerating due to MSCI upgrade. The last two days of the week closed almost flat with range-bound trading witnessed during the day. The index meandered between green and red as speculations regarding reduction in gas prices and the lower locks in Sui twins created rife on the bourse. Overall, the benchmark KSE-100 share

index remained in green for all five days. According to the estimates provided by analysts, after the MSCI upgrade of the local bourse, the index was likely to breach the 42,000 mark by the end of this year. However, it not only surpassed the expectation by projecting 43,000 points but also, it did so one month before the given time. “We see potential re-rating of the index on account of CPEC [China Pakistan Economic Corridor] and MSCI Emerging Market theme,” said Tahir Abbas, Assistant Vice President Investment Research at Arif Habib Limited. He added that currently the index is trading at 2017 price to earnings ratio of 9.0x, which is 34% discounted to regional peers. “Going forward we foresee market multiple to re-rate and this discount shall narrow down,” Abbas said. China remained the equity leader with best performance during the week. It gained 2.16% followed by Thailand and Pakistan with 1.8% and 1.5%, respectively. The Indian, Vietnamese and Malaysian markets also closed in green with 0.6%, 0.3% and 0.2% gains, respectively. However, the equity markets of Indonesia and Sri Lanka traded in red. Top three gainers over the outgoing week were Cements, Oil and Gas Exploration Companies and Food and Personal Care, up 4.7%, 3.7% and 3.5%, respectively. However, top three losers were Automobile Assemblers, Banks and Technology and Communication declining 1.1%, 0.9% and 0.6% respectively. Leaders during the outgoing week included Nishat Chunain Limited (+18.88%), Nishat Mills Limited (+1226%), Hascol Petroleum Limited (+7.66%), Amreli Steels Limited (+7.39%) and Engro Polymers and Chemicals Limited (+6.46%). Laggards included Sui Southern Gas Company Limited (‐6.00%), Meezan Bank Limited (‐3.43%), Indus Motor Company Limited (‐2.12%), Askari Bank Limited (‐1.96%) and Habib Bank Limited (‐1.89%). Average daily volumes for the outgoing week posted an increase of 4% week-onweek to 475 million shares while average daily value increased 10% week-on-week to Rs 15 billion or $147 million during the outgoing week. Volume rankings continued to be occupied by second tier scripts namely Pace Pakistan Limited (173 million), Bank of Punjab (145 million), Pakistan International Airlines

(139 million), Summit Bank Limited (132 million) and Azgard Nine Limited (77 million). According to AKD Securities, the market is expected to remain volatile during the upcoming week taking direction from the Supreme Court’s hearing on Panamagate case, and OPEC meeting to finalize output

deal on oil prices. Additionally, the recent trend of rising coal prices may keep cements under pressure with textiles expected to remain in limelight upon expected announcement of the export incentive package. The Pakistan Stock Exchange’s market capitalization stood at Rs 8.7 trillion ($83.5 billion) at the end of the week.

MARKETS

Ads_Layout 1 11/26/2016 12:59 AM Page 3