Profit E-Magazine issue 24

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CLICKS BUT NOT WITHOUT BRICKS es, digital is the future in all sectors, including banking. Yes, Standard Chartered has a bit of a first movers advantage within the sector; theirs is still the most sleek digital banking experience for users despite others now getting in on the game. But, by putting too many eggs in the digital basket, are they setting themselves up for failure?

Despite the phenomenal growth in digital banking in the past five years, Pakistan is still a firmly cash-based economy. Closing down brick-and-mortar branches to invest in digital banking isn’t going to fly in our economic geography. Not yet at least.

Consider the retail sector, one of Pakistan’s most rapidly growing sectors - and the single largest growing retail sector in the world, according to a recent report Most of their receipts are in cash. At one, or several points in the day, an outlet has to deposit its cash in the nearest branch of their bank.

By closing down branches, a bank runs the risk of locating its brick-and-mortar presence away from a particular outlet, disincentivizing having an account there. Though they might pretend otherwise, retailers often make their decision of where to bank on the “whichever is closest” rule rather than some high falutin banking parametrics.

And there isn’t any need to restrict ourselves to the retail sector either. To give an example closer to home: Pakistan Today banks with Bank Alfalah. If tomorrow, Alfalah were to somehow close our branch, the magnificent and stately Shahdin Manzil on Charing Cross, my Accounts Department would be persistently asking me (I am also the COO of Pakistan Today) to switch banks. It would be way too much more work travelling all the way to wherever the now-nearest branch would be. They would even be ready to put up with a bank

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FROM THE MANAGING EDITOR

that doesn’t have as good a customer care culture as Alfalah. They might even be tempted to take their business to the bank-from-hell* whose branch is right below our office.

Truth be told, we still don’t know whether this decision of SCB to speed up digital is because of a conscious switch or because of the uncompetitive behaviour set up by the bank’s international overlords.

You see, the bank has taken a decision that all businesses, irrespective of their fundamentals and creditworthiness, won’t be given a credit rating more favourable than the country’s ratings. In Pakistan’s case, that means an attractive company like Packages, which is the Belle of the Ball for other banks, will be offered comparatively lousey rates by SCB. Then, there is the whole issue of the clunky workflow. To compare, all of MCB’s decisions are taken within the country, while in SCB, even the no-brainers are sent up to Dubai for approval.

In the face of this squeeze on the revenue side, the bank has no choice but to cut down on costs by closing down branches and throw in its lot in the digital world.

Perhaps a better approach would have been to shrink the size of its branches, not shut them down altogether.

That way, they would cut costs as well as retain their accounts.

But what do I know? I am not a banker, only a banking client. You know, the one we keep hearing is the king. *I won’t tell you which one. Between this issue and the one before the last, we at Profit are in enough trouble with the banks as it is.

Babar Nizami

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8 Weekly Roundup 12 Tetra Pak, a marvel of technology 16 Pakistan’s misplaced tax policy Jazib Nelson

18 18 The cluelessness of Standard Chartered’s Pakistan strategy 28 Pakistan looking into the sun KK Shahid 30 A bridge between restaurants and patrons

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34 The magnetic pull of Zainab 38 Inside Nixor’s virtual corporate world

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

CONTENTS

“Construction work on Peshawar’s Bus Rapid Transit Project would be inaugurated on October 20th” Khyber-Pakhtunkhwa Chief Minister Pervez Khattak

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“CPEC has entered a phase where its fruits and dividends are becoming visible” Federal Interior Minister Ahsan Iqbal

surge was recorded in the share of short-term public debt to touch Rs6.6b by the end of June 2017. Latest data released by State Bank of Pakistan reveal a major rise in total domestic debt to Rs14.9t, increasing 9pc compared to same period last year (SPLY). Also, this has resulted in the reduction of maturity period of total domestic debt, besides the rising re-financing and rollover possibilities facing Pakistan. By end of financial year 201617, short-term domestic debt rose by Rs1.6b or 31pc within a span of a year. During FY 2015-16, the figure of short-term debt had stood at 36.7pc or Rs5.1t. Data released for September 20th by SBP showed that banks were reluctant to invest in longterm papers, as the average three to ten-years PIB rose between 0.32-0.61pc in the latest auction. Long-term debt having a maturity period between one to ten years saw a reduction to Rs8.3t from Rs8.62t, resulting in a decrease of Rs326b at end of FY 2016-17. Total domestic debt share constituted a 55.6pc by end of FY 2016-17, compared to 63.6pc in SPLY.

44.2pc

could be contributed by the tourism sector over the course of next decade to Pakistan’s economy according to a report by World Travel and Tourism Council (WTTC). Improvements in Pakistan’s security conditions has resulted in increased tourist arrivals by more than three times since 2013 touching 1.75 million by end of 2016. Domestic travel has also contributed to this rising trend, increasing 30 percent to touch 38.3 million as per stateowned Pakistan Tourism Development Corporation (PTDC), said a Bloomberg report. Jovago.pk, the country’s premier hotel booking e-commerce website, released a report on the Pakistani tourism industry which said that tourism made up 7 percent of the country’s total GDP. And in good news for the hospitality industry, hotel occupancy rate had surged by 80 percent in 2016 from 35 percent during 2015.

Jovago’s report predicted that around 10 international chain of hotels are expected to start their operations in Pakistan over the next five years. Pakistan is considering expanding its visa on arrival service beyond sixteen countries, said Mukhatar Ali, a spokesman for the Pakistan tourism agency.

$36.1b

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2.36pc increase was recorded in tea imports for the first two months (July-August) of financial year 2017-18. Pakistan imported tea worth $ 96.419 million during July-August 2017-18 compared to the imports of $ 94.194 million in July-August 2016-17, according to trade data of Pakistan Bureau of Statistics (PBS).

However, in terms of quantity, the tea imports declined by 12.75 per cent during the period under review. As much as 34,126 metric tons of tea was imported during the first two months of the current year compared to the imports of 39,115 metric tons during last year. On a year-on-year basis, the tea imports into the country decreased by 3.07 per-cent by going down from $ 52.098 million in July 2016 to $ 50.500 million in July 2017. On a month-on-month basis, the tea imports however increased by 9.98 per-cent in July 2017 when compared to the imports of $ 45.919 million in July 2017, the data revealed.

BRIEFING

“Karachi Circular Railway and Keti Bandar industrial estate are top-priority projects for Pakistan” Sindh Chief Minister Murad Ali Shah

QUOTE

Rs2.12b

have been recovered successfully by the government from a Chinese firm on account of mobilization advance paid for a 525MW power plant which was supposed to be setup in Chichoki Mallian, Punjab.

The project faced numerous delays and failed due to bureaucratic hurdles, which was then cancelled in 2015 after seven years. The government paid mobilization advance equivalent to 10pc in August 2008. The project faced numerous delays and work wasn’t initiated till 2015, which forced the Pakistani government to cancel the project. After the cancellation, the government sought the recovery of the mobilization advance paid to SECL, which was received from the latter on 26th September.

growth rate has been predicted for Pakistan’s retail sector for 2016-2021 by Euromonitor International. It has also proclaimed Pakistan as the fastest growing retail market globally. Disposable income in Pakistan has more than doubled since 2010 and the size of the middle class is set to cross that of UK and Italy in the aforementioned period (2016-21). This growth has been attributed to a young population primarily wielded by the influence of millennials and rising incomes which has turned the country into the world’s fastest-growing retail market, said a Bloomberg article. Pakistan’s economy has grown at its fastest pace in the last 9 years crossing 5.4 percent in the last financial year 2016-17. A sizeable amount of the country’s 207.8 million population is under 30, according to Jinnah Institute, an Islamabad-based think tank. Euromonitor’s report also said that the country’s retail store expansion is expected to grow by 50 percent to 1 million outlets by 2021. Two shopping malls Emporium and Packages Mall have been opened in Lahore, the provincial capital of Punjab, in the last year or so.

8.2pc

trade surplus was recorded by Pakistan during July and August 2017. The balance of regional trade remains in Pakistan’s favour, due to an increase in exports in first two months of FY 2017-18. Besides growing antagonism between Pakistan and India, the share of the latter’s exports to Pakistan grew by 12pc to touch $216m in the first two months of FY 2017-18. Pakistan’s exports to India declined by 35.3pc to touch $58m, contributing to a rise in bilateral trade deficit of $158m. The country’s exports to Iran stood at $5m during first two months of FY 2017-18, registering a fall of 17.4pc year-onyear (YoY). Exports to Afghanistan increased 66pc to touch $213.5m during July-August and imports from them were a meagre $15m. This converted into a trade surplus of more than $198m. And exports to Bangladesh were recorded at $105m for June & August. Imports from Bangladesh in the same period touched $6.5m, registering a 60pc increase in same period.

$193m

$2b

increase in foreign currency deposits has been recorded at commercial banks in last four months. According to sector experts, the increase in demand of the US$ has been fueled by speculation of a probable devaluation of Pakistan Rupee (PKR), which has resulted in a sudden rise in forex reserves of commercial banks. The Summit Bank, Vice-Chairman, Husain Lawai said “Local currency deposits of banks have gone down. They fell Rs329b in the first two months of 2017-18. It shows where that money has gone.” He added that PKR would likely devalue in the range of 6-8 percent but could rise to 12 percent in case the government plans to approach International Monetary Fund (IMF) for another bailout. Ongoing court proceedings against Finance Minister Ishaq Dar for corruption has left currency dealers anxious because his declining influence has made a devaluation of PKR imminent.

stock listing is being seeked by TRG’s artificial intelligence company on the Nasdaq Composite Index in 2018. Founding partner of TRG Holdings, Zia Chishti has embarked on a journey of convincing renowned international entities and investors and clients that Pakistan is now open and safe for conducting business. In September, Chishti’s artificial intelligence company Afiniti inked a deal with Huawei which would help it expand to markets like Australia, Japan and China.

Among Afiniti clients are Sky Plc, T-Mobile US and Vodafone group which is said to employ three quarter of its 1,000 staff in Pakistan.

$1.2b

BRIEFING

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“Business-friendly initiatives of the govt could enable the export-oriented industry to |grow and increase its productivity” APBF President Ibrahim Qureshi

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£1m

short-term loan has been extended to Pakistan by Oracle Power to provide working capital while negotiations continue over funding for the Thar thermal power station in Pakistan. Major shareholder Brandon Hill is lending the money for a year on an unsecured basis. The coupon rate is 12%. Shahrukh Khan, Oracle’s chief executive, said the terms of the loan were attractive; it provides non-dilutive capital and reaffirms the potential offered by the Thar project. Oracle is establishing its role as a major solution provider for Pakistan’s critical shortage of electricity by bringing significant Chinese partners into the development of its mine and mine-mouth power plan.

was earned by Pakistan from mango exports during the course of last two years. Quoting figures compiled by the Pakistan Bureau of Statistics (PBS), they said that 129,423 tons of mangoes were exported to various countries in the last two years. Figures for the recently-concluded fiscal year were not discussed. During 2014-15, Pakistan exported 65,311 tons worth $45.672 million while in 2015-16,64,112 tons were exported valued at $48.387 million. Most importing countries require vapour heat treatment and irradiation before accepting exports, the officials said, adding that the government has taken steps to improve quality including establishing of standard operating procedures (SOPs) for growers for effective farming and cultivation. They said that 313 SOP-compliant mango orchards were registered for mango exports to the United States, Australia, Korea, European Union (EU) member countries and other markets after technical audit for quality.

$94.059m

$50m

Rs15b

Rs6b

soft loan will be granted by International Development Association (IDA) for to Khyber-Pakhtunkhwa government for development of tourist sites in Naran, Chitral and Galiyat. IDA, a subsidiary of the World Bank (WB) has been scrutinizing the project which could bolster institutional capacity, improve private sector participation and enhance destination infrastructure for tourism purposes in KP. This project is expected to be approved

by WB directors in February 2018, as reported by a local newspaper. Under this project, roads will be developed which would include Changla Gali-Makhniyal road and Havelian-Dhamtor bypass.

Once pilot sites for infrastructural upgrades are finalised, the resettlement policy will also be prepared for other parts of this project.

interest free loan will be provided by a Chinese firm to Gwadar Port Authority (GPA) for the construction of a road and railway track. This funding from CCCC will be used to construct a railway track and six-lane road from GPA to Coastal highway. Iqbal said the Gwadar port would be ready and will handle one of the biggest ships expected to arrive on 18th October. For cargo transportation, a rail service would also be established from the newly constructed deep-sea terminal to Pipri, he added. While presiding over the meeting convened to monitor the status of projects falling under the Ministry of Ports and Shipping, Iqbal said the performance of PNSC management had been very good and profitability also increased considering that shipment sector had faced global recession.

is being raised by Dawood Hercules Corporation Limited (DAWH) from Islamic (Sukuk) bond after approval by its Board of Directors. DAWH outlined its plans to raise Rs6 billion from Islamic Sukuk for a duration of five years and JS Bank has been awarded the mandate for this transaction and will also act as an advisor to this issue, read the notification. DAWH is an investment holding company with a range of business interests from food, fertilizer, chemical manufacturing and storage, energy and information technology sector. Its market capitalization according to Pakistan Stock Exchange is around Rs60.584m.

Profit had reported last month about Dawood Hercules in partnership was acquiring Jazz’s wireless tower business in Pakistan for $940 million.

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resently the Managing Director of Tetra Pak Pakistan, a position he took up in November 2015, Jorge Montero joined the Tetra Pak group about 24 years ago, way back in 1993 as the Finance Director in Germany. Three years later, he was posted to Lausanne, Switzerland, for a longish 11-year spell – looking after several regional finance functions, with the last three as Vice-President Finance for Global Market Operations. In 2007, Montero was named Managing Director

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of Tetra Pak Italy, and five years later in 2012 in a similar position in Mexico.

In this interview, Tetra Pak Pakistan Limited managing director Jorge Montero gives a lowdown not just on his company but how the country, already having the distinction of being the fourth largest milk producer in the world, can become a major global exporter of dairy products if its potential is appropriately harnessed, in the process becoming ‘white gold’ in terms of foreign exchange earnings.

Tetra Pak Pakistan, he divulges, pumped in US$100 million in 2011, in-

vesting in a state-of-the-art packaging manufacturing facility which is the most advanced globally, to cater not just to Pakistan’s present requirements but is also exporting material to a vast array of countries.

Here are some of the excerpts from the interview: Profit: How important is the Pakistan market for Tetra Pak? Jorge Montero: Pakistan is an important market for Tetra Pak not only in the region but also globally. Given its huge population base and the fact that Pakistan is the fourth largest milk producer in the world, the country represents a substantial growth opportunity. This is why with an investment exceeding US$100 million, in 2011 we established a brand new, state-ofthe-art aseptic packaging materials manufacturing facility in the Sunder Industrial Trading Estate, near Lahore. This is the largest Tetra Pak factory in South Asia/Middle East, and one of the most technologically advanced factories in the Tetra Pak system globally. It not just meets but exceeds all applicable local and international regulations and standards relating to best practices, safety and the environment.

The factory has the following certifications: ISO 9001: Quality Management System; ISO 14001: Environment Management System; OHSAS 18001: Occupational Health & Safety Management system; FSSC 22000: Food Safety Management System and ISO 50001: Energy Management System.

Profit: What is the production capacity of this factory and will it be sufficient to meet the needs of a fast-growing sector?

JM: This is Tetra Pak’s long-term investment, based on a positive outlook for the future growth of the dairy and juices industry in Pakistan. The factory has a capacity to

Jorge Montero, Tetra Pak Pakistan Limited Managing Director

produce eight billion packs annually, which is more than enough to meet Pakistan’s current demand of approximately six billion packs, while leaving enough capacity for exports and future growth in domestic demand.

Already packaging materials from the factory are being exported to several countries, including Iran, Afghanistan, South Africa, Australia & Indonesia just to name a few.

Additionally, the factory has the capacity of doubling its production to 16 billion packages in the future if it is required.

Profit: As a packaging solutions provider, how are you helping the food industry to grow in Pakistan?

JM: Tetra Pak is operating in over 180 countries and introducing modern technology and

‘ALREADY PACKAGING MATERIALS FROM THE FACTORY ARE BEING EXPORTED TO SEVERAL COUNTRIES, INCLUDING IRAN, AFGHANISTAN, SOUTH AFRICA, AUSTRALIA & INDONESIA JUST TO NAME A FEW. ADDITIONALLY, THE FACTORY HAS THE CAPACITY OF DOUBLING ITS PRODUCTION TO 16 BILLION PACKAGES IN THE FUTURE IF IT IS REQUIRED’

best practices of food processing and packaging is the essence of our business. One of our four core values is ‘customer focus and longterm view’, which emphasises establishing a system that focuses on the needs of our customers, creates opportunities for innovation and long term sustainability.

So in reply to your question I will say that our many business partners in Pakistan and across the world have benefited from our business, as we too have benefited from partnering with them. Our sharing of knowledge, experience and expertise in technology, good governance and best practices has been a regular practice with our customers, our vendors and suppliers and others in the supply chain, along with the trade, research institutions, academia, media, government, private sector entrepreneurs and businesses, and other stakeholders. In some cases, we go even beyond our immediate business contacts and have invested in the education and capacitybuilding of dairy farmers around the world at the grassroots level – where the dairy story starts and which is the foundation of future growth of the industry.

Profit: What is the potential of the dairy industry in Pakistan?

JM: Pakistan is currently the fourth largest

PACKAGING

milk producer in the world in terms of volume. But the yield per animal is among the lowest in the top milk producing countries and the infrastructure in terms of milk collection is under-developed. Milk production has the potential of manifold increase, if modern scientific methods of dairy farming, collection and milk processing are adopted.

The sector has the potential of becoming a major foreign exchange earner for Pakistan, through the export of packaged milk and value added dairy products like butter, cheese, creamers, milk powder and other dairy-based products. Ultimately, it can become white gold for the country.

Profit: As a member of the Pakistan Dairy Association (PDA), what in your view is being done to develop the dairy industry?

JM: Dairies with support from Tetra Pak and other stakeholders have already set the ball rolling for the modernization of the dairy industry. Extensive on-going dairy farmer education is improving both yields and the health of milk animals. The introduction of a cold chain direct from the farmer to the processing plants has meant much greater quality control, and a significant reduction in losses through spoiling and wastage. More and more modern dairy farms are being established and all stakeholders are collaborating well to continue the progress. Yet a lot more needs to be done and here I would say that the media too must play an important role in creating greater public awareness of food safety issues relating to milk consumption.

Profit: There was a lot of negative talk about packaged milk; how it did affect your business?

JM: Though initially the petition filed in the Supreme Court about the low quality of milk available in the market generated some negative conversation around packaged milk, we feel that eventually it validated our customers when the apex court declared on March 9, 2017 that all Long Life (UHT) milk brands are fit for human consumption based on the report filed by the Punjab Food Authority (PFA) after conducting quality testing.

Both the PDA and Tetra Pak jointly worked towards removing misperceptions wrongly associated with the milk in Tetra Pak packaging, by educating the public about how our milk processing and packaging technology is designed to keep milk safe without

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‘THE SECTOR HAS THE POTENTIAL OF BECOMING A MAJOR FOREIGN EXCHANGE EARNER FOR PAKISTAN, THROUGH THE EXPORT OF PACKAGED MILK AND VALUE ADDED DAIRY PRODUCTS LIKE BUTTER, CHEESE, CREAMERS, MILK POWDER AND OTHER DAIRY-BASED PRODUCTS. ULTIMATELY, IT CAN BECOME WHITE GOLD FOR THE COUNTRY’ the need for any preservatives to be added.

Tetra Pak packaging material is constituted by a paper base, laminated with ultra-thin layers of plastic and aluminum foil. These layers protect the product from the damaging effects of microorganisms, air and sunlight, which lead to food going bad and losing critical nutrients such as vitamins.

In this regard, the Tetra Pak carton is a marvel of technology which copies nature in the same way as a banana peel protects the fruit inside, the carton guarantees that there is no ingress of bacteria that cause food to go bad. Thus, the food product inside needs no preservatives to stay good for a long time, but will go bad once opened just like a banana once it’s peeled.

Profit: Do you think consumers trust in UHT milk brands?

JM: Consumers are smart enough to make the comparative analysis of the products available in the market and make healthy choices for themselves and their families. For the readers’ information, I would like to add that our customers, take great care to ensure the quality standards of their milk. They have modern labs with broad testing capabilities and experts to continuously check milk quality from the point of collection to the point of sale. Packaged milk is fully traceable and its quality can be verified at any time by regulatory authorities as is now being done by the PFA on a regular basis. In comparison, loose milk undergoes none or very few testing procedures and in most cases the milk cannot be traced back to the producer.

Profit: How can we be sure that Long Life (UHT) packaged milk is natural?

JM: For the last 50 years, Long Life Milk (UHT) has become a regular staple in families’ homes across the world and can be termed as the most innovative technology used in liquid food process. Today the majority of milk consumed in countries such as

France, Spain, Italy, Turkey, Brazil and China among others is Long Life (UHT) milk. In the UHT process, milk is heated to a high temperature for a few seconds and quickly cooled. This pasteurization kills all harmful microorganisms. As the process is very short in time, the nutrient value of the milk is maintained.

The process and the subsequent packaging completely prevent the milk from contact with bacteria and light thus providing it with a long shelf life without refrigeration. Similar to canned foods, once the carton is opened and the milk interacts with the bacteria present in the air, it needs to be refrigerated and consumed in a few days.

Many people are also not aware that when boiling milk over several minutes at home to kill the bacteria, most nutrients are destroyed which compromises the health benefits of milk. Since long life milk has already gone through a controlled boiling process, there is no need to do this, so this milk is very safe and most healthy.

Profit: The packaged milk is said to be not being as healthy as loose milk, as a consequence one cannot make yogurt or cream from packaged milk: JM: To ensure the same taste and nutritional value, a process called homogenization is used wherein all the fat, vitamins and minerals present in milk are combined to ensure the same fat and nutrient content throughout. This process makes every drop of milk equally nutritious. It is also the reason why on boiling packaged milk, cream does not emerge on the surface as it does in ‘loose’ milk – because cream has been blended with the liquid.

Yogurt and cheese both require a certain bacterium to ferment and packaged milk does not have any live bacteria before the package is opened. Once opened, you may need more yogurt or more time to allow for this fermentation with packaged milk. n

PACKAGING

OPINION

Jazib Nelson

Pakistan’s misplaced tax policy Tax indications do not convey a promising picture ne of the major features of tax policy under PML-N government has been its incessant focus on expanding Pakistan’s tax net. To achieve this target, the incumbent has relied on various tax amnesty schemes and filer/non-filer distinction. It was expected that both of these policy instruments would lure economic agents into tax net. However, Pakistan’s tax indicators do not convey a promising picture as tax-to-GDP remains sub-optimal at 12.9 percent. In reality both of these policies have drawn perverse responses from economic agents which can also be damaging to some sectors of the economy.

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‘IN STRICT MONETARY TERMS, TAX AMNESTY SCHEMES BRING PALTRY SUMS TO THE NATIONAL EXCHEQUER. WHEN ONE SUCH SCHEME WAS ANNOUNCED IN FEBRUARY 2016, ONLY 9,020 TRADERS AVAILED IT WHICH GENERATED JUST RS850 MILLION IN TAX COLLECTION’

their income tax returns are higher than those who do file income tax returns. Almost every type of direct tax for any sector in the country is consistent with this rule. The idea is simple. Economic agents will prefer to be filer in order to pay lower tax rates.

Reality, however, isn’t that simple. Let’s see an example of the real estate sector. The tax rates on real estate transaction are two percent for filers and four percent for non-filers. As per the prevalent practice, even non-filers are mostly paying two percent tax rate on property transactions. Here’s how this works.

Real estate agents, who service such transactions, exercise their clout with the Federal Bureau of Revenue (FBR) officials to come up with a temporary NaWe are all well aware now that tax rates for those who don’t file tional Tax Number (NTN) for their clients. The agents charge an extra fee from their clients and don’t require any documents – not even the CNIC number of the concerned individual. This all happens within minutes but in reality the procedure requires Jazib Nelson at least two days and a lot of information from the applicant. Once the two percent tax rate is a researcher and is paid on the transaction, the temporary NTN is removed from the system. works in the development The same procedure is repeated whenever a new transaction occurs. In some of the sector at Gilgit cases, the temporary NTN becomes a permanent part of the system and is just used to pay lower tax rates. No real economic activity can be traced against such an NTN. The fee which the agent has charged is divided between the agent himself and the FBR officials who are involved in this. The individual who is shown as a tax filer has saved himself from the high tax rate of four percent. All of the parties benefit out of this practice but at the expense of the state coffers.

Filer/non-filer distinction

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But the individual who pretends to be tax filer isn’t to be blamed here. A good tax policy can’t expect conformity out of the good heart of the people. Whenever a tax policy includes an option to pay low tax rate, it naturally becomes popular with potential tax evaders. Weak institutions, like FBR in this case, does the rest. I have even heard that FBR officials themselves give tips on how to tweak rules in order to escape high tax rates.

As the government boasts about the recent surge in the number of tax filers from 0.76 million in 2013 to 1.26 million now, I wonder how much of this is bogus.

Tax amnesty schemes During the present government of PML-N, using tax amnesty schemes to formalize informal economy by bringing them into the tax net reemerged. However, the performance of such schemes isn’t encouraging. In strict monetary terms, tax amnesty schemes bring paltry sums to the national exchequer.

When one such scheme was announced in February 2016, only 9,020 traders availed it which generated just Rs850 million in tax collection. Traders remain disinterested be-

cause they prefer to wait for an even more generous scheme in the future.

The real ineffectiveness of these schemes is not limited to their monetary failure only. The most popularly understood problem is that they allow whitening of black money and it promotes corruption through legal means.

Supporting speculative sectors They have the potential to turn the economic sectors vulnerable as well. A tax amnesty scheme was announced for the stock exchange in April 2012. As per the amnesty scheme, section 111 of the Income Tax Ordinance was suspended till June 2014. Section 111 of the ordinance allows officials to tax income, assets, and investment of a person whose nature and source are unexplained. Till the expiration of the scheme in June 2014, KSE100 posted returns of 4.55 percent per month. However, the benchmark index went down by six percent in the July 2014. Although the downward trend reversed the next month, the lesson is clear.

Holders of black money leave the mar-

‘AS THE GOVERNMENT BOASTS ABOUT THE RECENT SURGE IN THE NUMBER OF TAX FILERS FROM 0.76 MILLION IN 2013 TO 1.26 MILLION NOW, I WONDER HOW MUCH OF THIS IS BOGUS’ ket once they have whitened their money and with that the prices of securities plummet. The same can also true for other sectors like real estate, for which, we so often hear that an amnesty scheme is around the corner.

Furthermore, since these schemes are usually granted for the speculative sectors, which doesn’t create jobs or increase production, like stock exchange and real estate, they strengthen the speculative part of the economy rather than the real part.

Tax base will only improve in Pakistan if the tax system is simple and tax rates are low. Only then will it ensure voluntary compliance. n

ECONOMY

COVER STORY

Are Shazad Dada and his team victims of unrealistic expectations? More importantly is the largest foreign bank in Pakistan stumbling into becoming another Citibank: technically present in the market, but largely irrelevant?

By: Farooq Tirmizi & Farooq Baloch

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tand outside the branch of Standard Chartered Bank Pakistan on Karachi’s historic McLeod Road, and it is difficult to escape a sense of history. The weathered façade of the building – with its colonial architecture – practically screams out the fact that this bank has been doing business in this city since before the invention of the typewriter.

But walk inside (or download their app on your smartphone) and you will find the most sophisticated banking technology available in the country, allowing a customer to complete virtually all routine transactions without the need for human interaction.

By rights, that combination of a storied history and modern technological capabilities should make Standard Chartered one of the most important financial institutions in the country, and certainly one poised for robust growth in the coming decades. Standard Chartered’s leadership certainly likes promoting that image, with both CEO Bill Winters and Chairman José Viñals visiting Pakistan in 2017.

“Standard Chartered is optimistic and excited to actively participate in [Pakistan’s economic] turnaround,” said Bill Winters, in public remarks during his visit to Pakistan in March 2017.

“We are rooted in the real economy; so what is good for Pakistan is good for us,” said José Viñals, during his trip to the country in May 2017, shortly after being appointed the chairman of the bank’s board of directors.

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‘THE ULTIMATE OBJECTIVE IS TO GROW OUR BUSINESS HERE BUT YOU NEED TO HAVE AN OPTIMAL COMBINATION OF BRICKS AND MORTAR AND DIGITAL BANKING. WE STILL HAVE 75 PLUS BRANCHES IN PAKISTAN BUT 75% OF OUR TRANSACTIONS ARE DIGITAL, UP FROM 22% FIVE YEARS AGO’ José Viñals, Chairman, Standard Chartered Bank “Standard Chartered will do all things that are important for the economic and financial development of Pakistan,” he said.

But, barring a swift and dramatic shift in strategy, the bank’s Pakistani subsidiary is more likely to suffer the same fate as Citibank Pakistan: another once-dominant institution that faltered in its growth strategy in the last 2000s and then shriveled away until it was forced to sell off its retail presence entirely to Habib Bank in 2012, retaining only a rump of a corporate banking presence in the

‘BARRING A SWIFT AND DRAMATIC SHIFT IN STRATEGY, THE BANK’S PAKISTANI SUBSIDIARY IS MORE LIKELY TO SUFFER THE SAME FATE AS CITIBANK PAKISTAN: ANOTHER ONCE-DOMINANT INSTITUTION THAT FALTERED IN ITS GROWTH STRATEGY IN THE LAST 2000S AND THEN SHRIVELLED AWAY…, RETAINING ONLY A RUMP OF A CORPORATE BANKING PRESENCE IN THE COUNTRY’

country.

Were that to happen, it would be the end of a remarkable history: a bank that predates the country’s existence by decades and has long served as one of the region’s most important financial links to global capital markets. This is the story of how Standard Chartered came to occupy that role, and where it might be headed next.

An old emerging markets powerhouse ike many of the world’s most interesting stories about financial institutions, Standard Chartered is the brainchild of a Scottish entrepre-

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James Wilson was the son of a wealthy textile mill owner in Scotland but had no interest in working with his father’s business. In 1824, at age 19, he moved to London to start his own business, engaging mostly in international trade. In response to British protectionist trade policies of the era, in 1843, Wilson

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launched The Economist, a newspaper dedicated to promoting free trade and economic liberalism.

In 1853, he sought – and received – a royal charter to create his own bank, which he named the Chartered Bank of India, Australia and China. The bank began operations in 1858, opening branches in Shanghai, Bombay, and Calcutta that year. The next year, it opened branches in Hong Kong and Singapore.

And in 1863, it opened a branch in Karachi, making Standard Chartered (its successor entity) the oldest financial institution in the country.

The bank got its current name after the 1969 merger with the Standard Bank of British South Africa, a bank founded by another Scotsman, John Paterson.

While both banks were founded in London, both did not have any retail presence in the United Kingdom, focusing their businesses almost exclusively on financing trade in the British Empire and its broader sphere of economic influence.

Even today, the bank derives more than 90% of its profits from Asia, Africa, and the Middle East.

In more than a century and a half of its presence in what is now Pakistan, the bank has grown both organically and through acquisitions. In 2000, it acquired the India and Pakistan operations of ANZ Grindlays Bank, which was then the second oldest financial institution in Pakistan, having established its first branch in Karachi in 1883. (Grindlays opened a branch in Lahore in 1924 and Peshawar in

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‘STANDARD CHARTERED IS OPTIMISTIC AND EXCITED TO ACTIVELY PARTICIPATE IN [PAKISTAN’S ECONOMIC] TURNAROUND’ Bill Winters,CEO, Standard Chartered Bank 1926).

The big acquisition – and one that truly transformed Standard Chartered from being a foreign bank to the country’s only “local foreign” bank – came in August 2006, when it bought Union Bank for a transaction ultimately worth $511 million, still the largest acquisition of a bank in Pakistani history.

Union Bank had been founded in 1991 and its largest shareholder was the Saudi national Abdullah Mohammad Abdullah Basodan, a director and shareholder of Al Murjan Holdings. Al Murjan is the family business of the Khalid Bin Mahfouz, the Saudi financier who was one of the founders of Bank of Credit and Commerce International (BCCI).

At the time of the acquisition, Standard Chartered had 43 branches in Pakistan and Union Bank had 65 branches.

The combined entity became the sixth largest bank in the country and gave Standard Chartered the ability to say that it was truly a global bank with a nationwide local branch network.

The (brief) expansion drive he logic behind the acquisition was sound: buy a local bank and bring it up to global standards, becoming the only global brand with a local branch network in the process.

HSBC may brag about being “the world’s local bank” in its advertising slogans, but Standard Chartered actually put its money where its mouth is, at least as far as the Pakistani market is concerned.

The Union Bank acquisition was not StanChart buying the local operations of another foreign bank. Union Bank was as local as local banks get in Pakistan. Its CEO at the time of the acquisition was Shaukat Tarin (who then owned 5% of the bank), the legendary head of Citibank Pakistan in its heyday in the early 1990s when Citibank practically invented consumer banking as it is known today in the country. Tarin later served as federal finance minister.

It would have been tempting to simply buy Union Bank’s branch network and declare victory. But that is not what Standard Chartered’s management did.

Badar Kazmi, its CEO at the time, decided to use the platform offered by the

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acquisition to further expand the bank’s presence in Pakistan. Standard Chartered went from 108 branches at the time of the transaction in August 2006 to 174 branches by June 2008. In retrospect, the timing may not have been ideal.

The expansion, needless to say, did not come cheap. Even after consolidating the impact of the merger, Standard Chartered’s operating costs jumped by almost 137% to Rs12.2 billion in 2007, causing the combined entity to suffer a 50% drop in profit margins that year. Then came the financial crisis of 2008, and with it an attendant sharp rise in non-performing loans, causing net income to plummet by nearly 75% in 2008. Profits were now down to just Rs723 million ($10.3 million), a far cry from just two years earlier when, in 2006, profits had hit a thenrecord amount of Rs5,698 million ($94.6 million).

That sharp decline in profits was enough to scare off Standard Chartered’s management, and the bank began almost immediately scaling back its expansion.

The bank closed 12 branches in 2009, 19 in 2011, 13 in 2012. It has kept closing branches almost every year since 2008 (except 2010 and 2014) and, as of June 30, 2017, is now down to just 97 branches. That is fewer branches than it had after it bought Union Bank.

‘WE WERE INVOLVED WITH PAKISTAN RAILWAYS AND DID THE LOCOMOTIVES PURCHASE PROJECT RECENTLY. WE HAVE DONE SOME OTHER [CPEC] PROJECTS AS WELL.’ Shazad Dada, CEO, Standard Chartered Bank Pakistan ven though 2008 was a bad year for Standard Chartered Pakistan, it was actually one of the best years for the bank globally. Think about where the world stood in late 2007 and 2008: the global bond market had begun melting down in August 2007, and global stock markets followed suit shortly thereafter. The year 2008 was a horrendously bad one for virtually every major financial institution in the world.

Except one.

Even as its peer institutions bled money and were bailed out by their governments, in some cases nationalized by the British government, Standard Chartered did the unthinkable: it posted record revenue and profit numbers. In the year ending December 31, 2008, Standard Chartered revenues grew by 26.2% to $14 billion and profits by 20% to $3.4 billion. (Even though it is a UK-listed entity, Standard Chartered publishes its

financial statements in US dollars.)

Those numbers would be astounding even in the middle of an economic boom.

That this growth took place in the middle of the worst global financial crisis in nearly a century makes it positively miraculous.

At that moment, the bank became the darling of virtually every investor who dared invest in bank stocks. For the next four years, StanChart continued to grow both revenues and profits. Analysts cheered the bank’s business model of focusing exclusively on the high growth emerging and frontier economies of Asia, Africa, and the Middle East. Until 2012, it seemed like Standard Chartered could do no wrong.

Needless to say, that never lasts.

IN A FINANCIAL MARKET WHERE CASH IS STILL THE DOMINANT MEDIUM OF EXCHANGE AND A PHYSICAL BRANCH NETWORK IS STILL IMPORTANT, CLOSING BRANCHES TO REDUCE COSTS IS A BIT LIKE STOPPING THE HEART TO SLOW DOWN THE BLEEDING FROM A WOUND

tandard Chartered took its goal of being the “local” foreign bank in every market it served very seriously. Prior to 2013, the bank did not simply serve Western multinationals in their emerging and frontier market operations. It actively sought to compete against local banks to become the bank of choice for local industrial and commercial con-

In search of a strategy, in both Pakistan and globally

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The pain and the retrenchment

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glomerates, most notably India’s Essar Group and Indonesian businessman Samin Tan, who became some of the bank’s biggest clients worldwide.

While its principal markets of India, China, and Southeast Asia were largely unscathed by the 2008 crisis, these economies did face a slowdown in 2013, and that began to have an impact on Standard Chartered’s financial health. Revenues slid 1.5% that year, but profits dropped by a dramatic 16.3%, wiping out almost all of the previous four years’ gains.

By 2015, the bank’s management could not continue to ignore the losses.

The CEO was ousted in February and Bill Winters, a British-American banker who for years ran JPMorgan’s London operations and had once been talked about as a possible successor to Jamie Dimon at the helm of the world’s largest bank, was brought in as the new CEO. Winters immediately showed himself to be a Dimon protégé: ruthlessly cutting

‘IN THE MORE THAN A CENTURY AND A HALF OF ITS PRESENCE IN WHAT IS NOW PAKISTAN, THE BANK HAS GROWN BOTH ORGANICALLY AND THROUGH ACQUISITIONS’ costs and overheads wherever possible, and building what Dimon often describes as a “fortress balance sheet”. To do that, Winters announced in November 2015 that the bank would be laying off about 15,000 employees (or about 18% of its global workforce) over the next three years.

And he began a restructuring of the bank’s asset book, focusing away from lending to its 100 top clients and towards diversifying its corporate and institutional lending relationships across a wider array of businesses. In particular, Winters tried

to move Standard Chartered away from lending to businesses with strong exposure to global commodity markets like oil.

While this approach helped reduce both operating costs and losses from bad loans, it did so at the expense of revenues, which have continued to decline faster than the drop in costs, resulting in the bank swinging to a net loss of $2,194 million in 2015 and a smaller loss of $247 million in 2016.

It is not yet clear, however, just how well Winters has learnt from Dimon’s style. Jamie Dimon is the CEO of JPMorgan, the largest bank in the world by assets, and widely regarded as quite simply the best bank CEO in the world. It is true that Dimon is extremely meticulous about managing his bank’s costs and believes in a relatively conservative management style for his balance sheet. But he also does not let cost-cutting get in the way of letting long-term assets grow.

As we will examine from the case study of Pakistan, as well as globally, it is not clear whether Standard Chartered’s management is quite as adept at that strategy.

The “local” foreign bank goes back to being global he central problem with Standard Chartered’s approach is that even as it markets itself as the “local” global bank in the markets it serves in, it appears to have shied away from developing a truly localized institutional infrastructure that would allow it to capitalize on the idiosyncrasies of each individual country or region in which it operates.

In Pakistan, this is most sharply visible through what can only be described as the “Dubai problem”. Here is how it works. Instead of allowing each individual country division to do their own risk management, Standard Chartered adheres to a single global set of risk management

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rules that – by definition – rely on a macroscopic view of the world that, too often, does not allow much room for discretion.

For instance, no company that Standard Chartered deals within a country – no matter how financially solvent, nor how long standing a client of the bank – can be viewed as more creditworthy than the government whose jurisdiction it falls under. That means that even the healthiest of Pakistani companies cannot be rated above the government of Pakistan’s credit rating. Standard and Poor’s rates Pakistan at B and Moody’s rates Pakistan at B3.

Both of these ratings mean that Government of Pakistan bonds falls under the “junk” category.

What this means in practice is that, beyond relatively small loans, no loan can be automatically approved by the un-

LOCAL BANKS PRICE LOANS MUCH MORE AGGRESSIVELY THAN STANDARD CHARTERED CAN, OWING TO PRESSURE ON THE LOCAL BANKERS TO KEEP RETURN RATES HIGH derwriters present in Pakistan and must go to the company’s regional headquarters in Dubai for approval. The process is both long and cumbersome and renders Standard Chartered at a disadvantage compared to its local competitors.

The bank’s Pakistan staff finds it so frustrating that none of the current and former Standard Chartered employees was able to speak to us about this without resorting to a surprisingly eloquent stream of expletives. While we have removed the profanity from our sources’ quotes, the frequency of its occurrence in our conversations with them compelled us to state that it was present in most of the direct quotes that follow.

“Virtually none of our clients can be qualified automatically for loans,” said one recently departed corporate banker from Standard Chartered, who wished to remain anonymous in order to speak candidly about his experiences. “That means that for every loan, especially those about Rs1 billion in size, we need approvals

from the Country Risk Officer, the Head of Corporate Banking in Pakistan, and frequently, the CEO of Standard Chartered Pakistan.”

The process, said sources inside the bank, can take much longer than most local banks, and even then, there is no guarantee of success. It also does not help that local banks price loans much more aggressively than Standard Chartered can, owing to pressure on the local bankers to keep return rates high.

“For a typical, strong corporate client, we can lend at KIBOR (Karachi Interbank Offered Rate) plus 2% and it will take up to three weeks to get approvals,” said one Standard Chartered banker. “And there is no guarantee that the risk officer in Dubai will approve the loan. Meanwhile, a local bank like Habib Bank will lend at KIBOR plus 0.75% and can give an almost instant verbal assurance and can complete their paperwork for the loan within one week.” The longer lead times and higher rates unto themselves would be manageable problems, were it not for the fact that the regional headquarters team in Dubai is often unfamiliar with local market dynamics and denies loan applications, even in circumstances where a client is putting up cash as collateral.

“The bank is getting so risk-averse.

I had a client who deposited Rs150 million in cash. Can you believe this, a client actually wanted to borrow against cash, and the risk management department [based in Dubai] came back and said no,” said another corporate banker who wished to remain anonymous.

“We have huge bureaucracy issues,” said one recently departed banker. “I’ve had situations, where I have given a com-

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mitment to a client based on my knowledge of our policies and some idiot in Dubai, comes back and says no.”

And then there is the question of the shrinking branch base.

“We used to have 174 branches and now we are down to less than 100,” said one banker. The official line is that we are shifting towards digital banking. But when we go to pitch business to a corporate client, we claim that we are a foreign bank with a local branch network, but that’s not the case anymore. It does not matter if you cover a client in 90 out of the 100 locations where they need coverage. If you don’t cover the other 10, you’re not going to get their business.”

So why is the bank really reducing its branch network? It is true that Standard Chartered is a leader in digital banking transactions in Pakistan. Digital transactions now account for 75% of all of its transactions, up from 22% just five years ago, according to the bank’s senior management.

But another part of the story is simply costs: Standard Chartered has a more expensive branch network than its rivals.

The local management was given a mandate by its global leadership to cut operating costs by 20%, which the Pakistan leadership is trying to do by cutting branches. But in a financial market where cash is still the dominant medium of exchange and a physical branch network is still important, closing branches to reduce costs is a bit like stopping the heart to slow down the bleeding from a wound.

Missing the boat on CPEC or a bank that has been in both China and what is now Pakistan for over 150 years, Standard Chartered should have dominated the expected boom in lending activity that is coming to Pakistan’s financial services sector as a result of the $50 billion China-Pakistan Economic Corridor (CPEC), part of Beijing’s

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One Belt One Road (OBOR) infrastructure investment initiative.

But when asked to share details about what their involvement is in CPEC, Standard Chartered Bank Pakistan CEO Shazad Dada was circumspect and gave few con-

crete examples. “We were involved with Pakistan Railways and did the locomotives purchase project recently. We have done some other projects as well, but can’t share the details at the moment.” But current and former employees say this is because the

bank has done hardly any business at all for CPEC, and certainly less than its potential.

“The whole Leviathan of a bank is so slow, it takes forever to get anything done,” said one corporate banker at Standard Chartered. “We cannot even turn around as fast as Citibank or Deutsche Bank. In the time it took for us to get all of our approvals in order, the local banks had already won the mandates to finance all the [China-Pakistan] joint ventures under CPEC. Now we’re left scraping the bottom of the barrel.”

What’s next? o where does the bank go from here? On a global level, despite the rhetoric from the senior management, it is not clear just how important Pakistan is to Standard Chartered. In 2016, Pakistan accounted for just 1.8% of the bank’s global revenues and has never accounted for more than 3.4% of the bank’s revenues, even in its very best years.

Bill Winters wants to maintain at least the appearance that Pakistan is and will remain important to Standard Chartered in the future. On his trip to the country in March, he announced a target of seeking to double profits to more than $200 million over the next few years. But insiders within the bank remain sceptical as to how that will happen when the bank’s management is also constantly asking for more cost cuts while not allowing them to invest in growth.

“That is extremely unrealistic when you can't-do fast-moving lending, you have

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no differentiation in deposits, and you are constantly obsessed with cost-cutting,” said one corporate banker.

And the bank’s strategy for the years ahead does not appear to be one that is likely to rely much on a large branch network in Pakistan. Simon Cooper, the global head of the corporate and investment banking division, has made it his priority to seek more business from companies headquartered in the United States, seeking to finance their global operations. It is not immediately clear how exactly the bank plans to distinguish itself in this business from Citibank, which has a larger balance sheet, a larger global presence, and a much better brand recognition both globally and among US companies.

From the Pakistani perspective, however, a greater focus on US multinationals – the vast majority of which are not particularly interested in doing business in Pakistan – will likely mean even less significance of Pakistan to the global Standard Chartered business in the future.

‘FROM THE PAKISTANI PERSPECTIVE, HOWEVER, A GREATER FOCUS ON US MULTINATIONALS – THE VAST MAJORITY OF WHICH ARE NOT PARTICULARLY INTERESTED IN DOING BUSINESS IN PAKISTAN – WILL LIKELY MEAN EVEN LESS SIGNIFICANCE OF PAKISTAN TO THE GLOBAL STANDARD CHARTERED BUSINESS IN THE FUTURE’

‘IT IS UNLIKELY THAT STANDARD CHARTERED WILL ACTUALLY EVER QUIT PAKISTAN, HAVING BEEN HERE FOR NEARLY TWICE AS LONG AS THE NEXT OLDEST BANK STILL IN EXISTENCE. BUT WHAT LEVEL OF INVESTMENT THEY WILL MAINTAIN IS AN OPEN QUESTION’ Heading towards the Citibank model t is unlikely that Standard Chartered will actually ever quit Pakistan, having been here for nearly twice as long as the next oldest bank still in existence. But what level of investment they will maintain is an open question.

Several bankers who spoke to Profit under the condition of anonymity stated their belief that Standard Chartered is stumbling towards the Citibank model in Pakistan: a small corporate banking presence with no retail or consumer presence at all. They describe this not as a deliberate strategy, but rather the inevitable result of a branch network being allowed to atrophy to the point of irrelevance. n

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OPINION

Shahbaz Lalani

Onecoin: Cryptocurrency for the gullible Stifled with poverty, we would turn to anything that would give us a ray of hope even if it means throwing common sense out the window

‘IT’S UNDERSTANDABLE; NOBODY CAN REALLY PINPOINT WHAT DRIVES THE VALUE OF VIRTUAL ASSETS SUCH AS BITCOIN. ALL WE CAN REALLY DEDUCE ARE THE HIGH PRICE FLUCTUATIONS AND APPRECIATION OF THIS ASSET CLASS’

lousness of the entire affair. Rather uneventfully, Waqar failed to provide controlled demonstrations of his water-kit and eventually faded into obscurity. Mr Engineer got his fifteen minutes of fame and we all carried on with our lives.

Though this isn’t related to what I’ll talk about, ur society seems to be fascinated with credulity and selfthe ordeal brilliantly demonstrates the psyche of Pakdelusion. I first noticed this back in 2013, when “Engineer” istan as a nation.

Stifled with poverty, we would turn Agha Waqar came up with a no-cost transportation solution to anything that would give us a ray of hope even if it way before the Toyota Aqua was introduced in the Pakistani means throwing common sense out the window. On market. The water-kit was supposed to be the revolution we the flipside, we would be quick to coin something as a had all been waiting for; a car solely powered by water! Best scam if we don’t fully understand it, hence the eyeof all, it was invented by a virtually unknown engineer in the small village brow-raising against cryptocurrency in general. It’s of Khairpur, further adding spice to the rags-to-riches story. understandable; nobody can really pinpoint what Though the very premise of the water-kit contradicted a fundamental drives the value of virtual assets such as Bitcoin.

All law of Thermodynamics, Waqar managed to garner national attention withwe can really deduce are the high price fluctuations out so much as explaining how his invention really worked. Some of the and appreciation of this asset class. biggest names in the Pakistani scientific community, including Dr Abdul The story of Bitcoin is one in a million. The sixQadeer Khan, defended the engineer when critics pointed out the ridicudigit percentage increase in less than a decade is unheard of in the entire history of finance. This meteoric rise managed to catch the attention of the average Pakistani, who wanted to cash in his Honda 125 for a BMW. The only problem? He Shahbaz Lalani didn’t know where to start. If only there was a localized version of Bitcoin that is a former crypto-asset could multiply his returns. Enter Onecoin. trader and fin-tech Onecoin was founded by a Bulgarian lady known by the name of Ruja Ignaenthusiast currently tova. Not much is known about this woman. What is known is that the parent orpursuing a CFA charter ganization, Onelife, has been banned from multitudes of countries for operating a Ponzi scheme. This includes Italy, Germany, Belize, India and most recently Pakistan. Oh, and one of the people involved in their day to day operations has also worked for Unaico. That’s the same company investigated for fraud by the Securities and Exchange Commission of Pakistan.

Therein lies the first problem for Onecoin. Let’s hypothetically (and I am

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using the term very loosely) suppose that Onecoin is the real deal. That it’s actually backed by a solid business model and will eventually be the one world currency we have all been waiting for. Since it has received such bad press, it becomes much harder to convince people to buy into the currency and support the network. Because of the low computing power and capital for the organization, they are unable to sustain day to day operations. It becomes a cyclical self-fulfilling prophecy and the network crumbles under its own weight since miners are now less willing to purchase Onelife’s mining packages.

Mining Packages?

Yes, you heard that right. To mine the currency, you must purchase certain mining packages from the organization. These range from Pak Rs35,000 for the beginner

package all the way to millions of rupees.

And what do you get for this investment? A bunch of tutorials on how to “directly sell” to clients along with tokens for the currency. To increase your initial investment, you refer other people to buy the currency and get a certain commission on the amount they invest. When they find someone to invest in the currency, you get a commission out of that too and the cycle goes on in a “triangular” fashion, with the ones at the top receiving commissions from each sale made at the bottom. Sound familiar?

Here’s the real kicker; the coins that you initially purchase via the organization directly hold no value at all. As in, the small number of Onelife sponsored merchants that accept Onecoin don’t accept the tokens that you initially receive. You can buy goods through the commission tokens you earned by selling to other people down the pyramid.

‘WHAT IS KNOWN IS THAT THE PARENT ORGANIZATION, ONELIFE, HAS BEEN BANNED FROM MULTITUDES OF COUNTRIES FOR OPERATING A PONZI SCHEME. THIS INCLUDES ITALY, GERMANY, BELIZE, INDIA AND MOST RECENTLY PAKISTAN’ So, a universally negative sentiment along with a Ponzi business model. If you are still not convinced about the illegitimacy of the currency, just watch the borderline comical promotional videos they post on Youtube. I’ve gone through perhaps six of their pitches – not one of them clearly explains what the currency’s USP is or what it does. All they talk about are the huge gains the currency will receive within the next few months using big words that don’t mean anything. In a bold move, they also brought on cricketer Yasir Hameed to

trolling it, unlike Onecoin. It serves a different purpose entirely and cannot be controlled by any single entity. Yet, the two things are used interchangeably by most novices in Pakistan.

This is my grudge with such scams in a developing country like Pakistan. While most people would like to put the blame on greedy investors that were willing to supersede common-sense with the promise of riches, the real problem lies in misinformation fostered with a culture of herd mentality. For example, during the recent PM

endorse their “financial revolution”, as if he is the Warren Buffet of Pakistan.

There also seems to be a common belief among Onecoin investors that it’s the same thing as Bitcoin. In fact, one of their promotional videos goes to great lengths to reason how Onecoin will be worth about 14 times its value today. Why? Because a price chart displayed the meteoric rise of Bitcoin that would now be bestowed upon Onecoin through the powers of Bulgarian voodoo.

First, let’s clear a few things out. Bitcoin and Onecoin are two completely different things. Bitcoin is not a closed platform – no one controls it. There is an active community of miners that support the currency, thus giving it value. It serves a purpose: to act as a currency, an asset and even a commodity. It runs on the blockchain, which in simple terms is a transparent online ledger recording each and every transaction taking place on the network. There is no one organization con-

disqualification debacle, the KSE index fell more than 4000 points. Did the disqualification really have as big of an effect on the fundamentals of the companies? Similarly, people are mistrusting of the global consensus on schemes such as Onecoin. Why? Because they have been referred to by a friend or someone they know. In fact, this is one of the biggest arguments people give for investing in the currency.

The implications for the financial markets, once the scheme goes bust, are unfortunately going to be much worse than a couple of people losing money. Already Pakistanis look at banking and other financial industries with a sceptical eye. While the rest of the world enjoys conveniences such as mobile wallets and automated payment systems, more than 80% of our population doesn’t even have a bank account.

This will be yet another devastating blow to the already frail Fintech industry in Pakistan.

FINANCE

OPINION

KK Shahid Crude AwAkening

Pakistan looking into the sun The country is estimated to have a solar energy potential of as much as 2.9 million MW akistan entered the realms of solar power generation as late as in the year 2012, a very delayed development for a country in which cities lying on planes, such as Lahore, experience an average of approximately 3,000 hours of sunshine annually, which by no means is its highest. Certain areas in the country – especially the arid province of Balochistan – receive more than 2,200 kWh/m2 of Global Horizontal Irradiance (GHI), the total shortwave radiation received by a piece of horizontal surface of the earth through which the capacity of a region to produce energy by solar means is determined.

It is no wonder, then, that Pakistan is estimated, by some, to have a solar energy potential of as much as 2.9 million MW, which can be produced at the cost of Rs6-8 per unit, compared to the Rs18 per unit expended on each unit of electricity produced through crude oil.

However, despite, the obvious potential, decision-makers in the country continue to rely heavily on non-renewable resources to produce electricity. As of 2012, the country’s Ministry of Finance reported to produce 29% of its electricity using natural gas, 35% using oil, 0.1% using

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KK Shahid is Energy Correspondent, Profit

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‘WITH THREE-QUARTERS OF 2017 GONE, THE PARK STILL STANDS AT 100 MW CAPACITY, WITH NO FURTHER DEVELOPMENT IN SIGHT. IT HAS ALSO BEEN SPECULATED THAT THE SOLAR POWER PARK IS PRODUCING ONLY 18 MW OF ELECTRICITY AT THE MOMENT’

coal, and 35.7% using hydel, nuclear, or other means, in which hydel power is likely to have the lion’s share.

Power generation through solar means has, unfortunately, taken a back seat for the longest time in the country.

The first project of solar energy production on the state level in the country was set up in 2012, and was called “Introduction of Clean Energy by Solar Electricity Generation System”, developed in collaboration with Japan International Cooperation Agency (JICA).

The project installed two photovoltaic (PV) systems – one each on the buildings of Planning Commission and Pakistan Engineering Council in the federal capital, Islamabad – with a capacity of 178.08 KW, each. The project, although a minor one keeping in view its production capacity, has its importance given that it put solar power generation on the electricity production map of Pakistan. It was, perhaps, the stepping stone on the basis of which later projects – although unrelated – were initiated.

The second, and to date most important, solar power generation project initiated in the country on the state level is the Quaid-e-Azam Solar Power Park. The Solar Power Park is a photovoltaic power station whose construction began in the year 2014 in the desert city of Bahawalpur. The Park, estimated to have a capacity of 1,000 MW upon completion, and established in collaboration with Chinese companies Zonergy and Tebian Electric Apparatus, is considered to be a part of the megaproject, China-Pakistan Economic Corridor. The Pakistani half of the project is held up by Quaid-e-Azam Solar Power (Pvt.) Limited, which claims to be “a public-sector, for-profit company established by the Government of the Punjab […] for the setting up of renewable energy projects in general and Solar En-

ergy Projects in particular.” The company responsible for the project was initially run by the government, but was later officially privatized by the decision of the Chief Minister of Punjab in June, 2017.

Upon its commission in 2014, Quaide-Azam Solar Power Park was hailed by the mainstream media as the largest solar park in the world, and a beacon of light for the country. It’s completion date was set initially, at the latest, by 2016, which was later moved to 2017. However, with three-quarters of 2017 gone, the park still stands at 100 MW capacity, with no further development in sight. It has also been speculated that the Solar Power Park is producing only 18 MW of electricity at the moment – much less than its capacity – due to the unsuitability of Bahawalpur’s conditions, where temperatures regularly rise about 45 degrees Celsius in the summer, something that hinders optimal power generation. This is believed to be one of the reasons behind its sale and privatization as well as the delays in its development.

It is worth mentioning that, even in the event of the Solar Power Park’s failure, Pakistan’s capacity for solar power genera-

‘WITH PAKISTAN’S POPULATION EXPECTED TO HIT 274 MILLION BY THE YEAR 2030, THE COUNTRY’S DECISION-MAKERS WOULD SOONER OR LATER COME TO REALIZE THAT MEETING THE ELECTRICITY DEMANDS OF THE COUNTRY THROUGH NON-RENEWABLE RESOURCES IS NOT ONLY MORE EXPENSIVE, IT IS ALSO DAMAGING TO THE ENVIRONMENT AND ULTIMATELY IMPRACTICAL’ tion cannot be discounted. The blame for the prospective failure of the Solar Power Park should be laid on the shoulders of either the incompatibility of the technical experts involved in planning for and setting up the park – who chose the wrong location for the project, or set up faulty hardware – or on the incompatibility of the government of Pakistan, which, despite the availability of resources, could not execute a plan of efficient energy production.

It is because of its solar potential that solar firms across the globe have recently been reported to have increased their interest in investing in the solar energy sector in Pakistan. Such firms seem to understand that Pakistan is an increasingly significant

economy given its rather uncontrollable rise in population, and that this booming population would inevitably record increases in electricity demand with every passing year.

With Pakistan’s population expected to hit 274 million by the year 2030, the country’s decision-makers would sooner or later come to realize that meeting the electricity demands of the country through non-renewable resources is not only more expensive, it is also damaging to the environment and ultimately impractical. Therefore, sooner or later, the country would have to turn to renewable resources, of which solar energy seems to be a very likely choice – something that companies like SkyElectric look to capitalize on.

ENERGY

And connecting the two has turned Eatoye and foodpanda portals into a huge success By: Aisha Arshad ith the app, it takes just 30 to 40 seconds to place an order,’’ said Nauman Sikandar Mirza, CEO EatOye and Foodpanda, while placing an order on the recently amalgamated

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foodpanda app. ‘’It knows all my previous orders, my address, my ordering preferences. Instead of calling them [restaurant], telling everything every time this is in 25 seconds,’’ he closed the app just as he demonstrated how to place an order on the leading food portal while talking to Profit correspondent.

The convenience is arguably a major factor behind the app’s immense popularity – enabling the largest food portal to tot up around Rs2 billion a year.

An alumnus of Lancaster University, UK, Mirza can be considered one of the most successful entrepreneurs of his time.

After leaving a job in hotel industry in the UK, Mirza turned to Pakistan to pro-

vide a worthwhile restaurant experience to the people. In a matter of just four years, he became a part of the first-ever and the largest acquisition of IT industry between his brainchild EatOye and the Germany based Rocket Internet’s foodpanda in 2015.

However, unlike most ‘exits’ – meaning businesses acquired from those who had launched it, Mirza managed to not only retain the position as the CEO of EatOye but also became the chief of foodpanda, his former competition.

Today, he runs the largest online food portal, the combined business of EatOye and Foodpanda and plans to achieve more in the future.

In tete-a-tete with Profit, the restaurateur entrepreneur Mirza shares his thoughts on his business and what it stands for.

Food Connection Pakistan: Starting with a failure atOye did not become a success overnight. The former CEO of Akash Hospitality Group – one of the UK’s largest chain of Indian restaurants – had his initiation with a venture slightly different than EatOye. In 2011, he had stepped in to cater to the country’s $1 billion strong food market, and Food Connection Pakistan was his first introduction to it. ‘’I saw that Pakistan has a huge market in terms of food,’’ Mirza confidently talked about the local food market which is as big as $1 billion (2012) and every month as many as 50 restaurants open up increasing the market size.

While working at Akash, Mirza conceived the much-needed food portal that was missing on Pakistani horizon at the time.

“There were thousands of restaurants and millions of customers, yet there was nothing which connected these two,’’ the restaurateur was intrigued by the possibility of becoming a bridge between the two, thus initiating Food Connection Pakistan.

Food Connection Pakistan, aka FC Pakistan, was an online restaurant guide that showcased restaurants’ information, reviews, and pictures in order to inform and attract potential customers for the restaurant. Mirza took this initiative with his then partner Rai

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“THIS IS A DIFFICULT JOURNEY. ONE SHOULD ALWAYS KNOW ONE’S ROOTS AND BE AWARE OF ONE’S REALITY, REGARDLESS OF WHO ONE IS OR WHERE ONE HAS COME FROM. IF ONE IS DEDICATED AND PASSIONATE, ONE WILL ACHIEVE ONE’S OBJECTIVE Nauman Sikandar Mirza, CEO EatOye and Foodpanda Umair – a technology specialist who now works for Arpatech, FC Pakistan’s investor.

“We’re a nation who talks about lunch when we are having breakfast, and we talk about dinner when we are having lunch; we are always talking about food,’’ he smiled when talking about the motivation behind FC Pakistan endeavour.

Despite being a successful venture with an annual turnover of Rs10 million in revenue and 150,000 visitors per month, FC Pakistan did not click the way it should have. Mirza thinks it was mainly because of the lack of direct access to the restaurants which led restaurateurs to believe that the partnership with FC Pakistan was unfruitful.

“The restaurants weren’t eager to renew the service because people were just looking at the information, and when they were going to the restaurant or ordering delivery, nobody was telling them that I saw your information on Food Connections Pakistan.’’ The restaurants who made big dough from the platform were not able to appreciate the background service – that explains their diminishing interest in the partnership.

Another major reason was that customers themselves were not able to directly make an order and thus FC Pakistan could not track the transactions that were taking place through its channel. This was a flaw that Mirza and Umair identified soon after foodpanda came to Pakistan in 2012.

“Foodpanda had entered the market

and they were providing one additional service to restaurants; people could review the information and they could also place an order,’’ said Mirza, admitting he had missed on the opportunity of becoming pioneer of such a model – a major regrets of his entrepreneurial career.

Pivoting the model to EatOye n order to save the market share of the company – with at least 3,000 restaurants on board – and create a value for their stalling startup, Mirza and Umair understood the need of pivoting the model and headed out to find investment for their improved idea – EatOye. The company then received a funding of $300,000 from Arpatech for the purpose in order to create Pakistan’s first local online food delivery portal. This time it was ensured to cater to the all-round needs of the patrons.

The platform required to directly engage customers, it had to channelize transactions in order to satisfy the partner restaurants and it had to have a name that their target audience could not only understand but also retain – EatOye met both requirements.

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Success story n order to help restaurants with marketing – an oft-neglected part – Mirza’s EatOye came up with the solution to solve that need but also to

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provide day-to-day business, with restaurants paying a specified commission if they got business from the platform.

“We have two types of services. The first type, only brings new orders and restaurants do the delivery on their own, paying EatOye 15 to 20 percent commission.

The second is where along with bringing the order we provide end-to-end delivery service as well, for 25 to 30 percent of the take,’’ said Mirza.

Mirza was able to convince restaurants to come onboard even before EatOye commenced operations.

Another part of the plan was to attract new customers and retain old ones.

Mirza thus made it his policy as well as the company’s to listen to what the customers had to say.

“Hundreds of customers kept saying that they wanted discount. EatOye soon introduced discounts and ran promotions – still a continuous feature of the combined app.

Within a year, EatOye rose to the success Mirza had dreamt of. It was recognized on various platforms and was awarded with two major entrepreneurial awards.

In August 2014, EatOye bagged gold award (1st position) at the P@sha ICT awards – one of Pakistan’s most prestigious IT awards – in its particular category. In October that year, EatOye – based on its victory at P@sha ICT – participated in APICTA competition and secured silver medal in Indonesia.

“We tried to build excellence in whatever we’re doing. Our mission was that customers should rate us a a local company with international standards,’’ said he.

Winning against the odds hen we started, the first month we did not even have enough to pay the salaries; there

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EatOye and foodpanda have over 500,000 downloads which generate over 75 percent of the total orders the portal receives.

Karachi leads the sales chart for EatOye and foodpanda.

Lahore, Islamabad, Rawalpindi are the next top most revenue generators for the online food delivery portals.

According to Nauman Mirza, on the basis of delivery portals’ sales records being the most ordered food, “pizza is Pakistan’s national dish.’’ The next in line are Pakistani, Barbecue and Chinese as top ordered food items.

Out of all transactions in e-commerce industry, 97 percent operate on cash on delivery system.

EatOye and foodpanda pay a GST on every sale imposed on IT companies providing services to local consumers of Pakistan. They also pay a 30 percent income tax which is imposed on IT businesses that are profitable.

were days when I did not have money to take my children to hospital. And then we reached a point where another company recognized the value [we were] building and acquired [us],’’ said Mirza.

“We were fortunate that foodpanda was operating in Pakistan and [they] saw that EatOye has a potential. We had been growing really fast and acquiring would add a lot of value to the overall business in Pakistan,’’ said Mirza on the merger that took place after six months of diligent due process in 2015.

After working separately for two years, right now, foodpanda and EatOye have started to operate as a single website under the name of foodpanda.

Today, EatOye and foodpanda – with a daily run rate (average orders per day) of 5,000 orders, 10,000 daily visitors, and 1,000 restaurants on board – hold a major share of Pakistan’s $250 million food delivery market. It is now Mirza’s challenge to secure in the next five years almost one-fourth of this market – which is itself growing at a rate of 10 to 15 percent every year.

Mirza’s goal is still the same: to make his product an amazing experience for the users and provide a better platform to the restaurants that partner with EatOye and foodpanda.

Customer satisfaction, however, remains the top-most priority and recently

‘IN ORDER TO HELP RESTAURANTS WITH MARKETING – AN OFT-NEGLECTED PART – MIRZA’S EATOYE CAME UP WITH THE SOLUTION TO SOLVE THAT NEED BUT ALSO TO PROVIDE DAY-TO-DAY BUSINESS’ 32

the food delivery portals have dropped 1,000 restaurants from the platform that were not able to meet the quality standard EatOye and foodpanda have promised to their customers.

Regardless the two portals combined now receive a quarter million orders per month.

After acquiring a significant share of the market and aiming for a still bigger slice of it, EatOye and foodpanda are unthreatened by the presence of various new food delivery portals. The reason according to Mirza is the 1000 percent difference in the daily orders these portals receive as compared to the merged online delivery giants.

However, direct telephonic orders are still a hitch Mirza wants to tackle in order to achieve his goal of acquiring 25 percent of the market by 2020.

An entrepreneur keen on mentoring aking great pride in calling himself an entrepreneur, Nauman Mirza is always intent on keeping on improving his product until it is the best of the best. That said, he has also involved himself whenever he gets an opportunity to mentor the new generation of entrepreneurs.

“This is a difficult journey. One should always know one’s roots and be aware of one’s reality, regardless of who one is or where one has come from. If one is dedicated and passionate, one will achieve one’s objective,’’ with a broad smile he shared the secret behind his success. n

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The charm of Zainab is availability of high quality in abundance on the cheap, and this is likely to sustain By: Usman Hanif fter attending his classes at the Karachi University, Adnan Khan occasionally navigates towards Zainab Market, ignoring several glitzier shopping malls along the way. On offer at Zainab’s is quality clothing, of exportable class, at prices that are only a fraction of trendier markets.

Though hipper shopping malls are quite the rage in this metropolis, still Zainab not only has retained its dedicated patrons, it has probably increased its clientele owing to its unique selling point – export quality garments with highly competitive price tags.

The stuff is good, and the prices are downscale because the Market thrives on having on its shelves clothing that is either leftover stock or rejects with minor or negligible flaws.

Set up in the 1970s, the neighbourhood is known as Zainab Market, but there is actually more to it. The area has expanded to 10 sprawling shopping malls and arcades – Madina, Victoria, International, Atrium Mall, Madina City, Rex and Panorama – with as

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‘RETAILERS FROM IRAN, NIGERIA AND DUBAI COME HERE FOR BULK BUYING, WITH THE IRANIAN BUYERS FURTHER EXPORTING THE GARMENTS PROCURED HERE TO RUSSIA’ 34

‘THE STUFF IS GOOD, AND THE PRICES ARE DOWNSCALE BECAUSE THE MARKET THRIVES ON PUTTING ON ITS SHELVES CLOTHING THAT IS EITHER LEFTOVER STOCK OR REJECTS WITH MINOR OR NEGLIGIBLE FLAWS’

many as 6,000 shops and vendors in all, employing upwards of 10,000 salespeople.

“With regard to offering export quality garments in an affordable price range from the upper middle to the lower income strata, Zainab is one of the largest in Asia,” says Abdul Samad Khan, senior vice-president of the Sadder Alliance of Market Associations.

Popular with retailers from abroad too ot just the locals, but retailers from Iran, Nigeria and Dubai come here for bulk buying, with the Iranian buyers further exporting the garments procured here to Russia.

People from every part of the city, particularly Nazimabad, North Karachi, Korangi, Gulshan-e-Iqbal, come here to shop.

There is more to it than garments alone.

For the foreigners, the place has handicrafts and other knick-knacks on offer, like Sindhi embroidery, marble pieces and other handmade stuff, for taking back home as souvenirs.

The university student who frequents the Market, Adnan, maintains that clothing is export-reject quality, with minor flaws. The shop owners, however, maintain that it is not always the case, but leftover stock as well, “since companies produce in excess to the actual order to meet unanticipated shortfall or to make up in case there are too many rejects.”

Since the foreign importers are some of the biggest brands in business – like Mango, H&M, Old Navy, Next or Zara, to name a few – they are quite fastidious in inspecting the stuff because even a little mark or stitching flaw could do harm their image. So, the producer has to stay prepared to replace that flawed piece. And such flaws do happen once too often. The clothing manufacturers do not make any profit on the excess stock; they just offload the stockpile to free space for the next order, says Mateen Ahmed, for last the 20 years a wholesaler of the leftover export quality garments.

Hence, the availability of slightlybelow-perfect brand-quality clothing at throwaway prices. Selling the surplus at such prices, the manufacturers still don’t lose anything, for the cost is already incorporated in the original order.

Mateen and others in the retail rag trade have contacts in the factories, and once they

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have stock they would call these vendors over to pick it up. “The leftover for double or triple extra large sizes is a headache for manufacturers because such clothing doesn’t fit Pakistanis.”

In the USA, the size range goes up from XL1 to XL7, with supermarkets like Walmart having dedicated space, or even separate stores stocking only clothes and accessories for the tall and heavy, says Mateen. The European sizes are more compatible to ours, though.

Not exclusive to middle class ainab also attracts the affluent as for both genders it has on its shelves well-designed, in-vogue western stuff – jeans, shirts and Tshirts, leather jackets, sleepwear, skirts etc. – that high-income strata crave for.

“The brand-conscious make a beeline towards Zainab, for they are more aware of the quality and what it would actually cost; they dish out the price without much reluctance,” says a retailer, Mehmood Lakhani.

Mostly through internet browsing, Adnan remains updated with new fashion and brands. Yet he does not inquire about any specific brand, but looks for clothing

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‘WITH REGARD TO OFFERING EXPORT QUALITY GARMENTS IN AN AFFORDABLE PRICE RANGE FROM THE UPPER MIDDLE TO THE LOWER INCOME STRATA, ZAINAB IS ONE OF THE LARGEST IN ASIA’ Abdul Samad Khan, senior vice-president of the Sadder Alliance of Market Associations that he wants. “When you name a brand, the price goes up instantly. So, when I find what I’m looking for, I bargain as if I’m buying just another piece of clothing.”

The Pakistani denim and fleece are quite in demand abroad. But amongst the Pakistanis, awareness about the availability of export-quality clothing has come about in the last 10 years or thereabouts, says Abdul Samad.

Local businessmen also import leftover garment from Bangladesh and China.

‘ZAINAB ALSO ATTRACTS THE AFFLUENT TOO, AS FOR BOTH GENDERS IT HAS ON ITS SHELVES WELL-DESIGNED, IN-VOGUE WESTERN STUFF – JEANS, SHIRTS AND T-SHIRTS, LEATHER JACKETS, SLEEPWEAR, SKIRTS ETC. – THAT HIGH-INCOME STRATA CRAVE FOR’ 36

Bangladesh’s kids’ clothing is in demand in Pakistan, says Abdul Samad.

Media has played a major role in this regard; a decade and a half ago the Pakistanis would not know about western fashion trends in real time – the time lag being 3 to 5 years then.

Now through media and because of internet people know about new clothing styles and they head towards Zainab in search of that, says Samad.

Big brands – Nike, Outfitters, Zara, Levi’s and others have also opened outlets at Atrium Mall; so the brand lovers know not just the products but the difference in prices.

“I go to outlets at Atrium Mall as I always find some sale discounts there,” says Ahmer Javed, a frequent visitor of Zainab.

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By: Muzhira Amin s one crosses through the gate after wading through two security checks, there is this inyour-face red shark painted across the huge wall of the main building stares. The Nixor College’s message is loud and clear: it is intent on preparing its young guns in the manner of a shark, fit enough to not just survive but thrive in the dog-eat-dog business world outside.

Apart from the shark, as intimidating as the building seemed from the outside, the interior was quite the opposite. In one corner there was a Wall of Kindness (Deeware-Meherbani), adjacent to a basketball court

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followed by various offices of the executive student body. The staircase on the right leads to ‘sky boxes’ – the cafeteria where one finds students engaging in chit chat as well browsing through books, notebooks and digital apparatus.

Welcome to the virtual corporate world of Nixor College, where you can find an 18-year old CEO of Nixor Financial Services dressed up like a hotshot, conversing with people elder to him by two or three times with the kind of aplomb that you probably wouldn’t find in postgrad student.

Ditto for the CFO, similarly a teenager, hosting an event with such ease and polish that even a graduate student for once might feel intimidated. And where regular students are busy in ensuring that all arrangements

for the big-do are executed as planned. This is the kind of exposure most people never think of gaining in their college life.

According to many students, on the day of the event the college was more crowded than it usually is. Freshmen were rushing towards the auditorium, tightly gripping their laptops. One followed them to the auditorium. The occasion was ‘Summit 2.0’ – a three day entrepreneurial competition hosted by the Nixor Financial Services.

Doing it on their own nitiated in 2011, the Nixor Financial Services (NFS) is run by the Nixor students. “The aim of NFS is to promote the idea of doing things on

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‘THE NIXOR COLLEGE’S MESSAGE IS LOUD AND CLEAR: IT IS INTENT ON PREPARING ITS YOUNG GUNS IN THE MANNER OF A SHARK, FIT ENOUGH TO NOT JUST SURVIVE BUT THRIVE IN THE DOG-EAT-DOG BUSINESS WORLD OUTSIDE’

your own, and to educate our students on how to manage finances,” said Huzaifa Usman, the 18-year old NFS CEO. Brainchild of Ex-CEO, Shehryar Bachani, the entity was initially known as Nixor Bank.

“Aspiring to be an investment banker, Shehryar realized that Nixor had all types of entities, ranging from welfare and community service to photography.

But there was none related to finance or banking,” said Huzaifa.

Small in scale at the time of its commencement, NFS had its tough days, demanding sweat and toil from its team

to lift it from its bootstraps.

“Much of the credit goes to our seniors who never gave up. Unlike other entities, it was very hard for us to get sponsorships. We are not a social service body, so it’s not easy to raise finances for sponsors are not easy to come by,” said Manahil Qadir, the CFO.

Summit 2.0: Simulated corporate environment ummit 2.0’ is the second version of the NFS Summit, introduced last year. The Summit is a business competition for aspiring entrepreneurs, its objective being development of participants’ entrepreneurial knowledge through an experiential environment. It comprises of various rounds modeled around the corporate world.

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Amar Lal, the NFS COO said, “The Summit is all about taking risks and adapting according to the situation.”

Spread over three days, with all the freshmen competing in teams, with the core element being coming up with a complete business concept, including marketing and corporate social responsibility strategies and operational and financial plans.

Atif Amin, he winner, with finance and banking being the subjects, said: “The Summit 2.0 was like a crash course for me.”

All activities were simulated from the real corporate world, such as virtual stock market and virtual currency.

As each round ends, the participants are rewarded with points based on their performance. On the third day, the event comes to an end with the judges (financial experts and Nixor alumnus) pronouncing the winning outfit, which bags Rs15,000 prize.

“The simulated environment is created to instill a sense of financial responsibility and hone investment techniques among participants, and prepare them for the real financial market,” said CFO Manahil Qadir.

Previously called as Nixor Bank, NFS initially planned to operate as a bank with its own credit card – as their flagship product. The idea was dropped due to the obligatory legal procedures. To replace it, NFS came with a Student Utility Interface Terminal (SUIT) – designed to facilitate the students facilitate the students in the manner of a credit card.

This too had various technicalities attached it, so NFS is in collaboration with Digital Pass – one of the most renowned third party digital payments ecosystems in Pakistan – to handles the entire technological aspect of the SUIT card. Each month reports and bills are generated to keep everyone updated about the usage by the customers.

‘WELCOME TO THE VIRTUAL CORPORATE WORLD OF NIXOR COLLEGE, WHERE YOU CAN FIND AN 18-YEAR Flagship product hen a student wants to get a OLD CEO OF NIXOR FINANCIAL SERVICES DRESSED SUIT card, they have to deUP LIKE A HOTSHOT, CONVERSING WITH PEOPLE posit a security deposit of Rs5,000 – the spending limit ELDER TO HIM BY TWO OR THREE TIMES WITH THE being Rs1,000 a day. Similar to a credit KIND OF APLOMB THAT YOU PROBABLY WOULDN’T card, it can be used at outlets under an FIND IN POSTGRAD STUDENT’ agreement with NFS, like BellaVita and

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Subway. Since the area is popular amongst students at Nixor for outings, usually the outlets selected are located in Shahbaz Commercial.

“The outlets send transactions under the SUIT to NFS through email. At the end of the month,” Manahil said.

The major reason behind the alliance between NFS and Digital Pass is discounts – by 14-15%.

“For instance if we are getting a discount of 15%, we pass on 13% to students – the rest being the service charge, or the margin,” said Manahil.

At its initiation in 2012, SUIT was an instant hit amongst the students, eventually pushing NFS towards an increased pace of growth and popularity. The NFS executive student body dubs SUIT as their flagship product or service.

In 2014, one council member of the society, Muhammad Aziz introduced the concept of NFS Capital, including NFS Mutual Funds and NFS Bonds. The Nixor family took time to absorb it, but last year it was revived by Faizan Athar, its former COO.

NFS Mutual Funds reviously a mock setup, today NFS Mutual Funds is a real phenomenon – with 17-18 year olds deciding which stocks to invest in. The service though is restricted to the administration and teachers of Nixor College, who provide a certain amount of cash for investing in the bourses.

Investing is not haphazard. Two financial analysts and a portfolio manager thoroughly trained by the previous council are equipped to take real-time decisions. These analysts and managers are indulged in research, thus are aware of the market.

“Since my interest lies here, I personally look into the mutual funds very care-

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‘THE AIM OF NFS IS TO PROMOTE THE IDEA OF DOING THINGS ON YOUR OWN, AND TO EDUCATE OUR STUDENTS ON HOW TO MANAGE FINANCES’ Huzaifa Usman, the 18-year old NFS CEO fully,” said Huzaifa. “I’m more inclined towards short term investments, whereas my portfolio manager, Yasub supports long term investments. Thus, most of our money lies in the blue chip stocks – a safer option, although every now and then we do take risks.”

Run by students independently, one mutual fund clause states clearly that it would not be responsible for the losses incurred in the stock market. “Our investors do not expects large profits. The motive is experience, and not profit”, said Huzaifa

Future horizons o expand their horizons for the future, Nixor Financial Services has come up with yet another idea: NFS Bonds, extending the concept of mutual funds beyond the administration and teachers, enabling various college societies to invest their money in stocks.

“We would be Asia’s only mutual fund run by students,” said Huzaifa.

Recently, NFS launched its own internship program for students who are halfway through their A-levels. “A-level is advanced learning, so students are required to work beyond their capacity. This factor does not allow most students to go internship,” said Amar Lal, NFS COO.

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‘PREVIOUSLY A MOCK SETUP, TODAY NFS MUTUAL FUNDS IS A REAL PHENOMENON – WITH 17-18 YEAR OLDS DECIDING WHICH STOCKS TO INVEST IN. THE SERVICE THOUGH IS RESTRICTED TO THE ADMINISTRATION AND TEACHERS OF NIXOR COLLEGE, WHO PROVIDE A CERTAIN AMOUNT OF CASH FOR INVESTING IN THE BOURSES’ 40

To fill this void, Nixor collaborated with several insurance companies and banks like Allied Bank, Al-Baraka Bank, the EFU and Falcon Trackers. “Last year we launched a pilot project where five to six of our students did internship with several financial institutions and banks. At the project’s success, this year we sent around 8-10 students, among them was our portfolio manager Yasub, interning at Karachi Port Trust,” said Huzaifa.

Alongside its many ventures, Nixor strongly believes in the concept of financial knowledge and training – which is why it regularly takes its students on trips to the Pakistan Stock Exchange and several other financial institutions.

All the revenue that the student body earns is deposited in an account. “It is very important for us to have a specific amount in the bank account at all times. In case it depletes, the management holds us accountable. And if the body is unable to replenish it within the given period, the account would be closed down,” informed Huzaifa.

The NFS is not a completely independent entity. In the Nixor Corporate World, there are certain board members above each society who play the role of intermediaries. “For instance, if an event is to be organised, we would need to submit a comprehensive plan to the board member, and if found feasible, it would go to the administration for a final verdict”, said Huzaifa.

For NFS the board member is Asad Abbas Bilani, who is called “very supportive”. Huzaifa talks about the structure of administration at Nixor, “Everyone is very supportive in terms of our project plans. Although the structure is bureaucratic, it comes with a lot of exposure as well.”

To summarize the future endeavours

“MUCH OF THE CREDIT GOES TO OUR SENIORS WHO NEVER GAVE UP. UNLIKE OTHER ENTITIES, IT WAS VERY HARD FOR US TO GET SPONSORSHIPS. WE ARE NOT A SOCIAL SERVICE BODY, SO IT’S NOT EASY TO RAISE FINANCES FOR SPONSORS ARE NOT EASY TO COME BY’ Manahil Qadir, the CFO of the entity and describe their present stance, Huzaifa said, “Profit is not the purpose; continuing the legacy is the objective.

We want to follow the legacy of the people before us, as well as add on to it for those who follow us.”

As one attended the Summit, one witnessed the contestants’ urge to win, the predicament of the judges over making the right decision, writ large on the face of the eventual victor were emotions of pride and achievement. But most interesting of all, it were the organizers – displaying passion and dedication rare to find among students so young. n

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