Profit E-Magazine Issue 71 by Profit (by PT)

CONTENTS

12 How Hum Networks rose to become one of the biggest names in Pakistani entertainment 17 How real are the crores raised on Idea Croron Ka?

22 22 The meaning of culture. Asif Saad 24 Can the Islamic asset management industry get its act together? 30 How do consultants, donors and Pakistani ministries solve problems? Nadeemul Haque

32 32 As interest rates rise, Pakistan's auto industry expected to take a hit 35 Two new venture capital funds target Pakistani startups. Is there enough deal flow? 39 Where some see a massive water shortage, others see commercial opportunity

welcome

Shortsighted moves on trade There is absolutely no scenario in which Pakistan evolves from being the low-income country it is today to becoming a high-income or even a middle-income country without significantly more liberalized trade with India. So the news that the government of Pakistan has decided to suspend trade ties with India in response to New Delhi’s moves to eliminate the autonomy granted to Indian-administered Kashmir since the early 1950s. As a business magazine, we at Profit seek to refrain from commenting on political matters, and hence we will not make any recommendations to the government on matters of foreign policy. However, we do believe that the move to suspend trade ties with India is likely highly shortsighted and we would beg the government to reconsider its position and explore alternative means to registering its protest against India’s latest moves in Kashmir. For all of our history of antagonism, Pakistan and India share the ninth longest border in the world between any two countries, in addition to thousands of years of common history, culture, and language. All of those would predict a significantly larger volume of trade between the two countries than currently exists, a phenomenon that has been measured as one of the largest anomalies in global economics by some of the most renowned economists in the world, such as Jagdish Bhagwati of Columbia University in New York.

We do not wish to minimize the gravity of the events in Kashmir over the past few weeks. They are certainly serious and deserve attention. But the government of Pakistan’s first and foremost responsibility is to the 208 million people who are citizens of the Islamic Republic of Pakistan, not the 12.5 million people who live in the Indian-administered side of Kashmir. Any policy choices made by the government must carefully weigh the consequences on the people of Pakistan before those on any other part of the world. Trade with India will unquestionably result in significantly expanded economic opportunity for ordinary Pakistanis, and may well precipitate better relations between the two countries. That path to peace must remain open, and we would urge the government to re-open it as soon as possible.

Farooq Tirmizi Managing Editor

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Syeda Masooma l Muhammad Faran Bukhari l Taimoor Hassan l Abdullah Niazi l Ahmed Jamil Bilal Hussain l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulﬁqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: proﬁt@pakistantoday.com.pk

FROM THE MANAGING EDITOR

This chart is a somewhat unorthodox one, but nonetheless reflect an important set of numbers. Each point on the line represents the average 10-year rate of return on a portfolio invested in Pakistani stocks that mimicked the KSE-100 index. The top line represents the absolute rupee-denominated 10-year returns, the middle one the dollar-denominated 10-year returns, and the bottom one the rupee-denominated inflation-adjusted returns. The fact that the line has not veered into negative territory since 2004 suggests that stocks, in the long run, are a profitable enterprise, or at least not a money-losing one. Indeed, in the long run, they offer the best return on investment for most investors who remain patiently invested in the equity markets, and do not engage in panic-selling or euphoria-buying. That the dollar-denominated returns line has remained above 10% for nearly the entire period under observation suggests that Pakistani stocks are an attractive long-term investment option even for foreign investors worried about currency depreciation.

News IN NUMBERS

This is the most important chart for any individual considering their personal financial situation. It reflects the data that illustrates an important fact: over the long run, there is simply no asset class that outperforms stocks as an investment. Commodities such as gold, as well as real estate, are popular among most middle class Pakistanis as avenues of investment. A few, more sophisticated investors might consider government bonds as an investment class. But it is only stocks that offer not just protection against inflation, but actual, long term growth in oneâ&#x20AC;&#x2122;s capital. Over the long run, that gain can be quite substantial, nearly tripling the returns on gold and more than five times the returns on bonds. This may be hard to believe at a time when the stock market appears to be undergoing a bear market environment. But it is important to remember for investors who wish to adopt the most sophisticated of investment strategies.

News IN NUMBERS

By Farooq Tirmizi

or over a decade now, Hum TV has been one of the most watched entertainment television channels in Pakistan, consistently ranking at number one or number two in the ratings. It has produced iconic Pakistani television dramas such as Humsafar – the show that catapulted the careers of Mahira Khan and Fawad Khan to international stardom – and along the way reinvigorated the art of Pakistani television entertainment. And although earnings have sagged lately, along with those of the rest of the industry, its parent company Hum Networks is one of the largest, and most profitable, media companies in the country, earning consolidated revenues of Rs4.7 billion in the 12-month period ending March 31, 2019, the latest for which financial data is available, down 8.7% from a peak of Rs5.1 billion for the financial year ending June 30, 2019. The company commands a respectable 10% of the advertising revenue made available to television channels, according to estimates published in Aurora, the advertising magazine. That market share number puts it neck-andneck with its main rival, ARY Digital. It has consistently produced hit, including some of last year’s biggest shows Aangan, Alif Allah aur Isaan, and Dar si jati hai Sila. How did this television channel get there? How has Hum TV consistently produced some of the best television content in an industry that is inundated with competitors? And, while we are on the subject, how has the company’s television networks managed to survive the real-life drama that took place in the early part of this decade for the control of

Hum Networks? The story begins with a person who can rightfully be called the dean of Pakistani entertainment: Sultana Siddiqui.

The origins of Hum Networks

ultana Siddiqui is the sister of investment banker and financier Jahangir Siddiqui, and while having her elder brother be a billionaire certainly helped Sultana launch her network, she had become a credible force in the entertainment world in her own right through her long career at the state-owned Pakistan Television (PTV), which she joined as a producer in 1974. Prior to joining PTV, however, Sultana’s life had taken a tragic turn. She had gotten married in 1966 and had three children with her husband, but the marriage, for a variety of reasons, did not last and being a divorcee in 1960s Pakistan came with a fair number of hardships, even with the kind of support Sultana found in her brothers. The Siddiquis are a highly educated middle-class family, with a long history of government service. Sultana’s father was in the civil service in Sindh. They are also a closeknit family who particularly came through for Sultana during her separation from her husband and ultimately her divorce. Her elder brother Mazhar, in particular, was a father figure to her children, and Jahangir, the financier, helped ease her financial worries. The job at PTV was one she found out about through a college friend, and one that ended up becoming a significant portion of her life’s work. Sultana started off in Sindhi programming at PTV, before moving into Urdu

programming in 1981. She had a long career at the state-owned broadcaster, effectively the monopoly on entertainment in Pakistan until 1992, when the government began experimenting with allowing a private company permission to run a portion of the day’s programming on one of the state-owned channels (NTM, for those of you who remember it.) It was not until 2001 under the Musharraf Administration that the television industry in Pakistan was full liberalised (at least insofar as ownership was concerned) and it was around that time that Sultana began contemplating starting her own television network. By this time, Jahangir Siddiqui was one of the richest men in Pakistan, and certainly one of the richest self-made billionaires in the country. He was in a comfortable position of being able to help Sultana launch her television network, much as he had been able to help his nephews – Sultana’s sons – launch other businesses over the years. In 2004, Sultana was ready to pull the trigger. She launched her entertainment network with the name Eye Television (later renamed Hum Networks), and the company was listed on the Karachi Stock Exchange shortly thereafter. (Did we mention her brother was an investment banker?)

Pakistani television, and Hum’s business model

elevision is a difficult business because you have to keep producing shows that have audience appeal. Unlike shows in the US and UK, where good shows often run for multiple seasons, Pakistani shows are effectively all designed to be single-season shows of varying lengths, with

MEDIA

one story arc dominating the entire season and the show concluding when that arc ends. That means there is much higher turnover in shows, and therefore much less predictability in terms of whether or not a channel will be able to produce content that people will like. It also means more financial instability for the actors, producers, directors, scriptwriters, and other staff who are involved in the production of television shows. They do not know where their next paycheck will come from once the show they are working on ends. Hum Networks succeeded by attracting the best talent, which it did by solving the financial insecurity problem for people who work in the television business. In addition to the publicly listed Hum Networks, Sultana and her family also own Moomal Productions (now renamed MD Productions), a private production house that have an exclusive contract to produce content for Hum TV, the company’s main entertainment television channel. Because they have guaranteed uptake of their shows, Moomal has a habit of granting multi-show or multi-film contracts to actors, directors, writers and other talent. Thus, even though shows last for a single season, Moomal is able to hire people for longer, giving talent more predictability and Moomal (and by extension, Hum TV), the ability to attract some of the best talent in the industry. The dramas it has produced have generated an audience beyond Pakistan and the company syndicated the 2011 show Humsafar, its biggest hit drama and the biggest ever in Pakistani television history, to an Indian channel. Humsafar generated Rs200 million for the company in revenue on its first television run, the highest for any Pakistani television show until that time, and in the syndication deal, it earned even more. Hum TV is also a highly innovative company, having effectively invented the uniquely Pakistani style of drama, as opposed to cheap knockoffs of Indian shows that used to dom-

BIG HIT

NO LONGER LOCAL

Amount earned by Hum Networks in advertising revenue from Humsafar, one of its biggest hits, and one of the largest amounts earned by a single show at the time it finished airing in 2012

Proportion of Hum Networks controlled by foreign funds, including a 13% stake controlled by a Dutch shell company that appears to be hiding the true ownership of who owns those shares

inate the industry prior to its arrival. Sultana Siddiqui and Momina Duraid (CEO of Moomal Productions and Sultana's daughter-in-law) are gutsy women and they backed risky shows in the early years even when they were not able to get ads for them, including shows that address previously taboo topics. One of its earliest shows was a drama called Meray pass pass, in which a couple get into dispute over a pregnancy. The husband wants to abort, the wife does not, and so the husband leaves her. A neighbour, who is younger than the wife, starts becoming friendly with her and the two of them start having an affair, resulting in a divorce with her husband and marriage to the neighbor. Another was called Maanay na ye dil, a story of a white-collar worker falling in love with a high-priced call girl. These shows established Hum TV's brand and allowed it to command a premium over its competitors in the rates it charges its advertisers. Hum TV's primary revenue stream – advertising by consumer goods companies – is

a play on one of Pakistan's strongest macroeconomic themes of an expanding consumer middle class. And having its own production house does not mean that the channel is precluding working with talent not directly employed by Moomal. “There is a plethora of production houses and Hum still buys a lot of content from the market,” said the CEO of a rival media house who wished to remain anonymous. But Hum’s unique business model, coupled with the success it had in not just attracting talent, but then also being able to generate strong revenue and profit growth from that talent, resulted in several of its competitors seeking to emulate its business model. In April 2013, for instance, Geo Entertainment entered into an exclusivity agreement with A&B Productions, one of the most prolific television production studios in Pakistan and second only to Moomal. It produced popular shows such as Mein Abdul Qadir hoon, and Meri Saeen. A&B used to be a content provider that sold its shows to Geo, ARY, and Express

Rs200 million

51%

Entertainment before entering into the exclusivity agreement with Geo Entertainment.

Family drama and the battle for control

or a company that makes its money off of selling family dramas as its bread and butter, the battle for the control over Hum Networks has also been quite dramatic. And like most good Pakistani dramas, it involves family, unspoken norms about money, and a bit of betrayal. The following account is based on conversations with two sources familiar with the Siddiqui family’s dynamics, as well as an onthe-record interview with Aqeel Karim Dedhi, known colloquially by his initials AKD, Jahangir Siddiqui’s main rival in the battle for dominance over the Karachi Stock Exchange (now called PSX). As mentioned earlier, after Sultana’s divorce, her eldest brother Mazhar had served as a father figure for her children, and Jahangir had been a source of financial support for the family as a whole. Jahangir is easily the wealthiest of the siblings, since the Siddiquis were not previously a wealthy family. Jahangir’s support for his sister’s family went above and beyond simply ensuring that their basic financial needs were provided for. According to sources familiar with the matter, Jahangir’s support often entailed substantial support for Sultana’s sons’ business ventures, which had – over time – enabled them to become wealthy individuals themselves. This financial support lasted for decades, but after some time, particularly as Jahangir himself stepped back from his businesses and other managers, led by his sons, took over the companies that were the source of that financial support and slowly started tapering it down, particularly since Sultana's sons no longer really needed it, being themselves largest shareholders in at least two publicly listed companies – Hum

Networks and Al-Abbas Sugar Mills. Sources familiar with the matter say that this change in the financial dynamics of the family were not welcomed by Shunaid Qureshi, Sultana’s elder son, who had been a particular beneficiary of Jahangir’s support. (Shunaid was, at one point, the largest shareholder in both Hum Networks and Al-Abbas Sugar Mills.) Jahangir and his family, however, did not quite realise just how upset Shunaid was, or just how reliant he was on that support, until the early part of the Zardari Administration, when Jahangir Siddiqui got into a very well-publicised spat with thugs in Karachi allegedly acting at the behest of the former president, who tried to take control over a property owned by one of Jahangir’s brothers. Jahangir tried to intervene and ended up allegedly incurring the wrath of the former president, and for a time went into self-imposed exile in Dubai. He was able to return after his daughter married the son of Mir Shakilur Rahman, the owner of the largest news network (Geo News) and Urdu newspaper (Daily Jang) in Pakistan, as well as a rival entertainment channel, Geo Entertainment. Some observers believe that the marriage served to provide the backing of Pakistan’s largest news network as an insurance policy against political harassment by the government for Jahangir Siddiqui. Soon after the marriage, Jahangir appears to have had a falling out with his sister. That there was a dispute between Sultana and her brother is not disputed by either party. What is disputed is the cause. In the telling of sources familiar with Jahangir’s side of the story, when Jahangir returned to Pakistan, he found that Shunaid had been embezzling money from Al-Abbas Sugar Mills, in which Jahangir Siddiqui & Company was still a major shareholder. Jahangir quietly confronted his nephew about the matter and asked him to replace the money allegedly embezzled. Shunaid, in this telling of the story, already smarting from the earlier cut off of

financial support, far from replacing the money, went on the offensive, accusing Jahangir’s son Ali of embezzling money from Jahangir Siddiqui & Company, a publicly listed company. But while Jahangir Siddiqui & Company eventually filed a lawsuit in April 2013 against Shunaid and his alleged co-conspirators, it is unclear if Shunaid and his allies ever filed a counter-suit. The accusations against Ali Jahangir were publicized in a pamphleteering campaign at the headquarters of the Karachi Stock Exchange. The other telling of the story – more sympathetic to Sultana’s viewpoint – tells a completely different tale. As narrated by AKD, Jahangir was able to return to Pakistan because Mir Shakilur Rehman offered "protection" to his son's new father-in-law through the power of his news media empire, but in exchange demanded control over Hum TV, the only television network that consistently beats Geo in the ratings and in revenue. As AKD puts it, Jahangir tried to buy out his sisters shares in a bid to hand over control over Hum Networks to his daughter’s new inlaws. In AKD’s telling, Jahangir was practically forcing Sultana to sell her shares to him against her will, a move she was not willing to make. Dedhi claims that she then came to him to orchestrate a defense against a possible hostile takeover. There is one problem with this narrative, however: Jahangir Siddiqui & Company sold some of its shares in Hum Networks, reducing its shareholding from 18% to 14% in 2010 and does not appear to have made any attempts to increase its shares in Hum Networks since then. Shareholding patterns of publicly listed companies are a matter of public record. What is clear, however, is that Jahangir was absolutely miffed at the idea of his sister approaching his rival for takeover defence. This led to a series of escalating accusations by JS & Company and Shunaid against each other in the press, including one incident in which Shunaid

MEDIA

walked into a shareholder meeting of JS & Company and tried to incite a small boardroom riot. Television cameras present at the event actually recorded Shunaid ripping his own shirt to make it look like he was attacked.

The truce and foreign investors

fter that very public falling out, however, tempers appear to have finally calmed down enough for both sides to have ultimately arrived at what appears to be a truce: there are no more public accusations of wrongdoing against each other. And control of the company appears to have been passed on to neutral third parties: a group of foreign investors. According to the latest financial statements of Hum Networks, a group of 19 foreign investment funds together control 51% of the company’s shares. The largest of these is the London-based Kingsway Fund, which owns 16.3% of the company. A Dutch shell company owns another 13.2%. One change that has come about since the battle was over: Hum Networks is moving to formally acquire Moomal Productions to have the entirety of the business under a single holding company.

Sultana takes a back seat, but retains control

oomal Productions is run by Momina Duraid, Sultana’s daughterin-law. Both of them are capable women who have a clear sense of what direction to take the industry in and a demonstrated ability to turn that vision into a

financially profitable business. “Sultana Siddiqui used to be involved in running the day-to-day affairs of the company, but she has since taken a back seat. She is still involved in all the major decisions, of course. Like, for example, if they were to hire a senior manager, she would probably come in for that,” said one source familiar with the matter. “They have not really cut her out of the business. They can’t. She is very well respected in the industry because of her PTV [Pakistan Television] days. She has all the contacts they would need, including at PEMRA [Pakistan Electronic Media Regulatory Authority] and the like. She adds a lot of value. She may not be involved in the everyday running of the business anymore, but she still has a veto over key decision,” the source continued. “Momina ultimately has to answer to Sultana, because Sultana is still very much the creative head. It’s not about what Duraid [CEO of Hum Networks, and Sultana’s younger son] wants. It’s about what Sultana wants. So yes, Momina has creative control over Moomal Productions [since renamed to MD Productions] but she works closely with Sultana on that,” the source said.

The next phase of growth

um Network wants to move beyond just its commanding position in entertainment to becoming a bigger television company. In 2017, the company spent Rs1.3 billion in setting up a new channel – Hum News – to compete in the already highly competitive television news business. The timing, however, could not have

been worse: soon after the channel was set up, the Imran Khan Administration came into office and slashed the government’s advertising budget. The federal and provincial governments are the biggest source of advertising revenue for television news channels and the print media, accounting for up to a third of revenues for the industry before the recent cuts. Meanwhile, even though Hum TV remains a strong force in television entertainment, ARY has remained a tough competitor that continues to churn out strong content, including this year’s breakaway hit, Cheekh. On the digital front, Hum Networks appears to be following the route of many US television studios and leasing its content to paid streaming services such as Netflix as well as making them available on free streaming websites like YouTube. Digital advertising is continuing to grow, and over time the revenue from YouTube and Netflix may grow into a more meaningful portion of Hum’s business. Hum Networks’ revenue is down only 8.7% at a time when much of the rest of the industry has seen losses considerably greater than that, especially rival networks Geo and ARY, which were much more dependent on government advertising revenue for their news channels. Ultimately, even though the stock is currently in the doldrums right now, it is likely unwise to bet against Hum Networks. Any company that builds its business model on treating its employees well, and ensuring greater financial security in an industry known for lacking such security is likely to continue to attract high quality talent that is likely to offer its best work. And ultimately, that is likely to remain successful with the viewing audience. n

MEDIA

By Taimoor Hassan

n 2017, viewers of Neo TV were witness to the first season of a type of show that was new in Pakistan but had gained success in other countries around the world: a reality television show where the game involved entrepreneurs pitching their ideas to investors and raising venture capital for their startups. Idea Croron Ka (ICK) is Pakistan’s first business reality show, emulating British reality show Dragon’s Den and the more famous American business reality show Shark Tank. If you are a budding entrepreneur with a cool business idea, you might be able to source multi-million rupee investments on ICK from investors if you match their investment interests based on the industry you operate in. Three seasons of the show have been aired so far, with Rs420 million committed in investments to as many as 35 startups, while the

‘REALITY’ TELEVISION

fourth season is underway. The total number of startups that appeared on the show is 72, making the success rate of raising investment on the show nearly 50%. ICK looks like an amazing opportunity to raise capital, and if its numbers are correct, they are a significant source of seed funding for Pakistani startups. But how real is the money generated on the show? How many startups have actually been able to raise the money committed on camera and go on to become successful entrepreneurs? The answer to those questions is complicated, and certainly murkier than the dream of meritocratic successes portrayed on the show. In an interview with Profit, show host and content producer Nabeel Qadeer admitted that they have been able to verify only about 30% of the amounts raised on the show as having actually been invested in the startups who pitched their ideas. So why does Nabeel go around claiming a 70% success rate? Well, to understand that, you have to understand Nabeel Qadeer and what he thinks he is trying to create.

Nabeel Qadeer’s entrepreneurial journey

dea Croron Ka was born out of Nabeel’s passion to promote entrepreneurship in the country and educate people about how money works: how is it raised, where is it spent and how is it spent and the don’ts of it. Nabeel belongs to the cohort of Pakistani entrepreneurs who set up country’s first technology incubator – Plan9 – under the charismatic leadership of Umar Saif, the former chairman of the Punjab Information Technology Board (PITB). From 2012 when Nabeel joined Plan9 – where he rose to become its Director of Entrepreneurship – to the four seasons of Idea Croron Ka, Nabeel helped create PlanX, the Punjab government’s technology accelerator programme for mid-stage startups, Whizkids, an entrepreneurship programme for children, and Herself, an entrepreneurship programme for women. That is besides setting up the 40 E-Rozgar centers to teach freelancing all across Punjab and writing Punjab’s IT policy. Nabeel also serves as the CEO of InfinitLabs, a software and consultancy firm based out of Canada with offices in Lahore, Jeddah and the UK, and has been a visiting faculty member at FAST-NU and Information Technology University (ITU) where he has taught entrepreneurship, project management, business ethics and management information systems. Being an entrepreneur himself, Nabeel says that he understands the pains of entrepreneurs with regards to raising meaningful investments: the only factor adding realism into an entrepreneur’s desire of becoming the next Elon Musk. And there was no better way than bringing entrepreneurship on mainstream television and making startups look heroic. Nabeel’s idea for the business reality show was rejected by many television channels until Chaudhry Abdur Rehman of The Superior Group, whom he met completely by accident, chose to give Nabeel’s idea a chance on his channel Neo Tv.

How does it work?

ach year, ICK opens applications for entrepreneurs to submit their business ideas which are then shortlisted for auditions in three cities: Lahore, Islamabad and Karachi. The entrepreneurs shortlisted after auditions are then given a chance on the show to pitch their ideas in front of a panel of three investors to raise investment, mostly against equity. “We receive 600-700 applications. The applications are reviewed very rigorously. I have friends in the industry who are CEOs. We distribute applications among them and take their opinions for a yes or a no. Out of those

Each year, ICK opens applications for entrepreneurs to submit their business ideas which are then shortlisted for auditions in three cities: Lahore, Islamabad and Karachi. The entrepreneurs shortlisted after auditions are then given a chance on the show to pitch their ideas in front of a panel of three investors to raise investment, mostly against equity 600-700 applications, I have to show less than 30 in an entire season. So, we first bring it down to 100-150 and then call them for auditions. Entrepreneurs are asked to present their ideas in those auditions and we evaluate them there. The audition for a single startup can go on for upto 30 minutes,” says Nabeel, adding that during auditions, what he tries to see is the quantum of passion in an entrepreneur to achieve what he has aimed for. According to Nabeel, by virtue of being associated with the startup ecosystem and having worked with hundreds of startup cofounders, he is so apt at evaluating the startups that it only takes him a couple of minutes to find out if an entrepreneur is trying to create something that will be successful or not. “I can see if he will be able to raise money, is he a marketeer or a techie. What do I need to give him? Who do I need to match him with [among investors]? So all those things, I get a view of that in a couple of minutes and on the basis of that, on the basis of instinct, I tell him that okay I will give you a chance on the show,” Nabeel tells Profit. Over 24 investors have appeared on the show, but those contributing more actively are 5-7 people. To allow an investor onto the show, Nabeel says he considers mostly referrals. “The investors that I have worked with before, whose investments matured at least once, I have made a credibility of them based on a score. On the basis of their credibility, if they refer someone, I talk to them. I meet them and I ask them: 1. How much can they invest? 2. Are they willing to invest? If yes, 3. What is their area of interest? Based on their area of interest, from the ideas we have collected and the auditions we have done, I try and find out the 24 entrepreneurs whose ideas match with the kind of investors I have. The number is 24 because in 12 episodes of the show each season, I can only show 24 ideas,” he says. “At least five days before the show, the panel of investors is finalised and profiles of a few startups are provided to the investors. The profiles include their slide decks and excel sheets – the financials. The investor comes after

perusing these documents. He knows [about the startups pitching on the show] and has his questions ready. We just serve as a platform for entrepreneurs and investors to meet. If an investment is made, we announce that investment,” he says. Nabeel says that he is critiqued for making raising investments on television look magical. On an episode of the show with a runtime of less than an hour, at least two startups pitch their business ideas to investors, with the possibility of raising investments running into millions of rupees. But in reality, the negotiations can go on for hours. “I spend 1.5-2 hours recording a single pitch. There are exchanges, calculations, negotiations. Then a deal is made. On a few minutes of TV, how much can I show? We extract the best 10 minutes out of the long negotiations that we have recorded,” Nabeel told Profit.

Television magic versus reality

abeel claims that out of the Rs420 million committed in investments on Idea Croron Ka, they have validation for 30-40% of the deals made on the show that they have actually materialised and money has been invested. The legal disclaimer, obviously, is that Idea Croron Ka only serves as a platform to bridge the gap between investors and entrepreneurs and holds no responsibility, legal or otherwise, of the investments or startups. Nabeel, ever the consummate marketer, however, says that he still claims the success rate of the show to be 70% because of the mileage a startup gets when they are speaking on national television. He says that through his network and meeting people, he has come to know that 30-35% of the people have actually enjoyed the perk of coming on his show. “We invest in digital marketing just to throw your pitch to the rest of the world. It’s on the web, Facebook, WhatsApp. Imagine the kind of popularity you get, the mileage you get, the credibility you get when you come on the show. It’s not just about cash. Why I increase the success rate is because of the popularity

“I can see if he will be able to raise money, is he a marketeer or a techie. What do I need to give him? Who do I need to match him with [among investors]? So all those things, I get a view of that in a couple of minutes and on the basis of that, on the basis of instinct, I tell him that okay I will give you a chance on the show” Nabeel Qadeer, Idea Croron Ka host and content producer

factor. Because of marketing,” he says. “You install a billboard in Lahore, they will charge you Rs2.5 million a month for that. On the other hand, I take you to an audience of 1.3-1.4 million people, by repeating the show thrice for zero money. That is a contribution to your business and you should make the best of it. Regardless if the investment matured or not, what’s important is that you were on national television, thousands and thousands of people saw you, people have queries, now go sell,” he says, notwithstanding the fact that Neo Tv isn’t ranked among the top 10 news channels of Pakistan and to run a 10 minute documentary type ad on it with free non prime time repeats would not cost more than Rs25,000. That comes to just 1% of the cost of the said billboard. And if Neo Tv is now famous for something, it is probably Idea Croron Ka. DataSpine co-founder Anwaarul Haq told Profit that he raised an investment of Rs10 million on the second season of Idea Croron Ka, but the deal could not materialise, even though at one point the investor agreed to double the investment. But deals falling through is a normal thing that can happen at any stage of negotiation between a startup and an investor. Even the agreements made on Shark Tank are

non-binding handshake deals, and many of them never close. For comparison, Shark Tank investors have been reported to have pulled out of the agreement or changing the terms of the agreement to what would work for them. According to a 2016 report by Forbes that covered seven seasons of Shark Tank, deals completely fell apart for 43% of the startups that appeared on the show. The 57% of the deals that continued were split, with only 27% going through exactly as portrayed on television, and 30% with substantially changed deal terms. Entrepreneurs have also been known to back out of the deal at times and fudge some of their company’s financial figures or make false claims to secure a deal. But when investors carry out their due diligence and look under the hood of the companies they’ve agreed to invest in, they bust the lies and misinformation and back out. Deals not materialising at ICK are no different. Nabeel says that while startups complain of being duped by the investor after he backs out of the deal, there have been instances where entrepreneurs presented dodgy numbers in their financials to secure a deal, reflecting a lack of integrity on the part of entrepreneurs. “Yes, I have received bad testimonials.

The only mechanism I have is checks and balances, referrals, trying to inquire if an investor has duped someone before or if an investor committed but did not transfer money and why he did not do it. In all that, I have also come to know that at times entrepreneur was lying. So, when lawyers and accountants do their due diligence, they find lies and if it was a lie, why would an investor invest? So these are all real things that reality TV shows have. But I am only trying to matchmake the sort of investors with the right entrepreneurs. Like a marketplace,” he tells Profit. He, however, says that even though he is not bound and holds no responsibility towards the startups or investments, if approached, he tries to arrange meetups of the investors and entrepreneurs off-screen to see if matters can be sorted out. Interestingly, Anwaar revealed that though the deal was finalised on the show, he had already met the investor and the deal was already negotiated with him and only made official on the show because it would understandably gain publicity. Another instance of such deal was in 2017 during Season 1 of ICK when Yousaf Rizvi, the CEO of online travel company Checkin. pk, raised an investment of Rs10 million from

‘REALITY’ TELEVISION

SEED CAPITAL

Rs420 MILLION The amount claimed by Idea Croron Ka as having been raised by entrepreneurs on the show for their startups across the first three seasons

Monis Rahman - the CEO of Rozee.pk - on the show. In an old interview with Profit, Rizvi had disclosed that Monis had already taken notice of his business and was already in the process of investing. However, the partnership became official after Monis got Checkin.pk evaluated on ICK. Nabeel was very open to admitting that there had been instances where investors were already negotiating or in some cases had even finalised deals with entrepreneurs, but were still invited on the show. But that was all done with a good intention because he had to make the show work. “Yes there have been cases like that where investments had already been agreed upon. But that was in 2017, when nobody was

REALITY BITES

30%

The proportion of that Rs420 million that the producers of Idea Croron Ka can verify has actually been invested in startups that have appeared on the show

watching the show,” he tells Profit. Was it wrong? Nabeel does not really think so. “You have to understand that I am trying to show it to the grassroots. If you look at the impact of the work I do, I have given hope to a common man. That you can get money if you have a good idea. What am I valuing? A guy [or girl] with an idea. It’s understandable that he might have found an investor before [coming on my show]. But I brought them onboard and showed it to people. I don’t see anything wrong with this. What this has done is that it has increased the belief of a common man that you can receive money on this show and he now understands what can be done with that money. That’s educating and that is what my

TALL CLAIMS

70%

The success rate claimed by the producers of Idea Croron Ka for startups that appear on the show being able to successfully raise capital, even though only a small proportion of that number is verifiable

goal has been. So, if I did right or wrong in the beginning, I can’t say now,” he said, adding that he does not entertain such requests anymore. What merits mention here is that though the deals might have been negotiated or agreed upon before coming on the show, no other investor on the panel had been barred from making a better offer to the entrepreneur, presenting his idea on the show, for securing a deal for himself. Suneel Munj, co-founder of PakWheels, who was one of the investor evaluating Checkin.pk, told Profit that though he was aware of Monis’ interest in Checkin.pk, he was free to make an offer to Rizvi but did not do so of his own will. “It was not decided that only a certain investor would make investment. It was a level playing field for everybody and through a very fair process. In fact, I have never ever been barred from making an offer on the show,” he says, adding that the show is making a positive contribution to the entrepreneurial ecosystem. Nabeel further says that neither he, nor any of the members of the group he is associated with make investments on the show, adding that the show is strictly a matchmaking platform to connect investors with entrepreneurs. Moreover, the show does not make money and is run by sponsors through ads. Nabeel says that they approach sponsors and tell them about the show that is trying to elevate the youth. Since the show doesn’t generate any income, Nabeel’s own compensation for his efforts are also connected with the group as a whole and not the show. n

‘REALITY’ TELEVISION

OPINION

Asif Saad

The meaning of culture

‘youthful’ but the idea remains ambiguous. Perhaps culture is easier to experience than define and even if we did have a clear definition, the real question is not how you define it but how you build a culture that is admired. Is there a recipe which we can use to build a successful organization culture? And how successful are Pakistani organizations in building winning and sustainable cultures? What is the first thing you hear about any organization? Before Can developing admirable cultures be we hear about profit and loss or values or leadership, you hear the an opportunity for our organizations? story of the organization. You hear about its history, its evolution, how it started and the journey it undertook to be where it is now. The key with stories is not its length (new organizations cannot have came to see during my time at IBM that culture is long histories) but originality and ownership. Do people believe and not just one aspect of the game, it is the game. In own the story? Does it remain a one-person or one family story or the end, an organization is nothing more than the evolve into something much bigger which people can relate with? collective capacity of its people to create value.” Relatively new companies like Amazon, Apple and Microsoft These are strong words expressed by Louis are slowly moving away from that charismatic one-person story just Gerstner, the transformational CEO of IBM in the 1990s. We like the Ford Motor Company, Hewlett-Packard and Walt Disney commonly refer to culture as something which sets apart any did many decades ago. I wonder if we have any companies in our own organization, a business, a nonprofit, governments, communihomeland which have grown beyond the story of the entrepreneur or ties, and even political parties have unique cultures. But what the family. Perhaps it is too early for us but perhaps also this realizais culture anyway? What do we understand from the term? tion has not hit our entrepreneurs yet. If you google it, the textbook definition of ‘underlying, The typical hierarchical organization has evolved from military beliefs and values of an organization’ will undoubtedly surface. structures where command and control were the foremost considWe will admire a company for its culture and yet be at a loss erations. Militaries are required to be disciplined and organized as to define it. At the most, we use terms like ‘open’ or ‘fresh’ or a strict, controlled force whereas the primary need of a business or enterprise today is to innovate and think out of the box. How do companies achieve this remaining within a command type structure? To some extent, the information technology industry has challenged the old way of doing things and is developing flatter structures. Traditional enterprise needs to follow the technology sector if they are looking to maintain their pertinence in today’s world. Millennials are already finding Asif Saad them of lesser relevance and this trend is likely to increase in the coming generations. Do we see any is a strategy consultant innovative organization models in Pakistan? I am yet to see any evidence, at least not via publicly who has previously worked available information. at various C-level positions When people join an organization, they do so to make money and attend to their financial for national and needs. They could also be interested in how prestigious an organization is. But is that all? Do money multinational and prestige make one passionate about their work? Or could motivation beyond these, such as solvcorporations ing problems for society or providing customers with cutting edge solutions, be stronger drivers? When you disassociate people’s motivation from immediate financial goals chances are that they will stay and build businesses or whatever else their organization aspires to do. I looked up some well-known companies’ vision statements on their websites. Google wants to

“I

organize and share information, Apple wants to make great products, GE wants to usher in the next industrial era, Alibaba wants to make it easy to do business anywhere, and so on. I invite readers to look up vision and mission statements of Pakistani companies to decide for themselves how inspiring they find them. Diversity plays a key role in building cultures. But diversity is not only about employing more females and religious and ethnic minorities in the workforce. It is about having diverse thinking at all levels of the organization. When you see people in an organization conforming to a specific way of thinking and belief, take it as a warning sign. Sadly, Pakistani organizations are typically single-minded, and, in some organizations and professions, people even look the same as everyone else! As far as diversity with respect to women is concerned, it is good to see that the overall number of women entering the workforce has been rising. But most women working in management positions are usually found in areas such as human resources, information technology, and corporate communications. While these roles are important, they are not usually considered to be stepping-stones for succession into C-suite roles. This, in my view, is the low hanging fruit for Pakistani enterprise. We can change the conservative and laid-back culture of our

organizations by encouraging and appointing women to more central roles. In my opinion, women are more open and accessible and better people managers than men. I have seen how organizations change for the better when women assume mainstream roles. It is important for an organization to develop its own norms for humor and play. We get so carried away with the seriousness of our jobs that we forget to remain lighthearted through it all. Effective teams learn to balance the seriousness with a good sense of humor. In fact, the more difficult and stressful the task, the more lighthearted one needs to be. Notice how sports teams, airline crews, medical emergency teams and members of many similar high-stress professions have learned that humor and play are an essential source of being at ease with their work. How do Pakistani organizations perform in this area? From what I have observed, our hierarchical structures and restrained environment impede people from letting loose and being true to themselves. Due to top managementâ&#x20AC;&#x2122;s importance in influencing cultures, one of the key ingredients for appointments to these positions ought to be a well-developed sense of humor which encompasses the ability to laugh at their own selves quite often! Effective organizations will also develop

their own rituals and ceremonies. They will celebrate the smallest and the mundane together with the bigger achievements of the team. They will frequently try to find excuses to get together informally. Allow me to digress a bit and mention the ridiculous surge in large scale celebration of religious and national holidays within corporations in Pakistan. I find the concept of Independence Day and other national celebrations in company head offices and factories mere show and faĂ§ade. Truly engaging rituals are those which a team develops and takes ownership of. If employees feel strongly about hoisting flags the best thing would be to make the effort to visit historical places instead of doing so in their comfortable offices! I could go on with other attributes of admirable cultures. The ones I have listed here are by no means exhaustive but the most critical, in my opinion. Building organizations is not simply about finding good people and designing a structure around them. Particularly in recessionary times, when people are worried about losing jobs, it is important for the leadership to make them realize that the team exists for more than sales, profits, and budgets. It is about shared culture and becoming a community of believers in the deeper reasons for the organizationâ&#x20AC;&#x2122;s existence. Peak performance comes from this realization.

COMMENT

By Farooq Tirmizi

n July 2, 2019, Pakistan’s capital markets passed a little-heralded milestone: the 10th anniversary of the launch of the KSE Meezan Islamic (KMI) 30 index, a stock market index of the 30 largest, most liquid stocks listed on the Pakistan Stock Exchange that meet the criteria for Shariah-compliant investing. For the first time, investors now have an appropriate benchmark to measure the Islamic fund management industry’s performance over a 10-year period. Profit, in collaboration with Elphinstone, Inc., a US-based financial advisory firm focused on retail consumers in frontier markets, has undertaken an analysis of the performance

of all equity mutual funds in Pakistan with a track record longer than two years. This analysis is particularly focused on funds that have a track record of 10 years or more, meaning they have been in business managing money for their clients for at least that long. The news for the Islamic fund management industry is both good and bad: the good news is that a greater proportion of Islamic equity funds beat the benchmark KMI-30 index over a 10-year period ending June 30, 2019 than the proportion of conventional equity funds that beat their benchmark KSE-100 index over that same time period. The bad news is that there are still at least six conventional equity mutual funds that beat the best-performing Islamic funds. In other words, if one considers equity mutual funds as a whole in Pakistan, the best Islamic fund – the JS Islamic Fund – would be

middle of the pack. This, by the way, is despite the fact that, over the past 10 years, the KMI-30 index has slightly outperformed the KSE-100 index: the former has had an average annual return of 17.0% per year for the past decade, the latter a somewhat lower 16.8% per year during that same period. So, the problem is clearly not a lack of Islamic investing options, at least on the equity side. Why should any of this matter to you? Because equity mutual funds are the best way ordinary middle-class people can build up wealth over the long term, and knowing which funds are the best ones will go a long way towards helping you make decisions about your financial future. But first, a primer on personal finance and the fundamentals of investing.

A (very brief) introduction to personal finance

his article will not delve into the fundamentals of personal finance in any detail, but one rule is inescapable and worth mentioning: your financial life is a struggle against inflation. Any amount of money you are saving will have to contend with the fact that money loses value over time in every country and in almost every era. That means that cash, in inflation-adjusted terms, is a money-losing proposition. Saving without investing is effectively the same and destroying your own wealth. And any investments you make have to beat inflation over the time period that you are making the investment. This means that you need to have a good idea of what inflation is and what it is expected to be in the future. And for that, it helps to know what inflation has been in the past. Pakistan’s economic history has had periods of both high and low inflation. The average since January 1958 has been about 7.6% per year. However, one can reasonably make the case than the Pakistani economy has fundamentally evolved since 1958, and perhaps not all of those years provide relevant data points. A shorter period that still has a sufficiently long period of data might involve the time since the end of the Zia Administration in 1988. Since that time, inflation has averaged 8.3% per year. Which number is the more appropriate one to use as one’s personal estimate for expected inflation in the future? It might be simpler and easier to simply use 8% as one’s inflation expectation over the long run. In other words, any investment you make for a period of longer than 10 years has to beat an inflation rate of 8% per year. Given that fact, and given people’s needs

CAPITAL MARKETS

to save over long periods of time, which asset classes perform best when it comes to not just preserving your capital against inflation, but also growing your wealth over time. That question is best answered with some data. On January 1, 1999, if you had Rs10,000 in your pocket, and you invested that money in a variety of different investment options, here is where it would stand today. To purchase the same amount of goods and services as your could with Rs10,000 in 1999, you would need Rs43,176 today, meaning any investment that you made back then that did not result in you having at least that much money today lost you money. So here is how the investment options stack up: if you simply bought US dollars with that money, you would have Rs31,827 today. If you bought gold, you would have Rs157,254; if you had bought bonds, you would have Rs75,109. But if you had bought stocks, you would have had Rs355,956. There is, quite simply, no beating the stock market as a venue for investment for ordinary investors. Of course, this assumes you had the discipline to stay invested and not try to cash out your money in a panic during the stock market crash of 2008 and the many mini-crashes in the middle. Investing of any kind requires self-discipline. Before we get deeper into what this all means, it is important to address the scepticism that many people feel about the stock market, because they find it difficult to understand. The stock market represents shares in ownership of some of the largest companies in Pakistan. If you buy a stock, you own a part of the company whose stock you have bought. ‘So what?’ you might be tempted to say. Why should I invest in stocks? Because investing in stocks is the only way you can buy an ownership stake in companies that will form the backbone of the future growth of the Pakistani economy. Put another way: investing in stocks is a way to invest in the future of Pakistan.

Why mutual funds matter

he problem with that theoretical exercise is that it is just that: theoretical. You cannot simply invest in the stock market as a whole. If you want to invest in the stock market directly, you would have to open a brokerage account and invest in individual stocks, each of which has different risks and returns than the market as a whole. Your returns could be vastly different from the market average, which is what the benchmark index represents. The most common way for ordinary investors to put money away every month, then, is a mutual fund. A mutual fund is a pool of investment created by an asset management company to make it easier for investors to invest their money without having to do research for themselves or even having large sums of money. They then take the money from all their investors, conduct their own research, and then invest the money in a variety of different investments. Mutual funds are classified by which types of securities they invest in. A stock mutual fund, for example, is not allowed to invest in anything but stocks. A fixed income fund is not allowed to invest in stocks. A balanced fund is allowed to invest in both stocks and bonds, but cannot be invested in just one category of investment. For the overwhelming majority of investors, mutual funds are the most logical choice of investment. There are dozens of asset management companies in Pakistan and they offer a wide variety of mutual funds. For any savings needs (retirement, children’s education, etc.) for which you need to save for a period longer than 10 years, stock mutual funds are the best way to invest. For periods between five and 10 years, balanced funds are a better option. And for periods shorter than five years, fixed income funds or National Savings bonds are likely the best option.

The most common way for ordinary investors to put money away every month, then, is a mutual fund. A mutual fund is a pool of investment created by an asset management company to make it easier for investors to invest their money without having to do research for themselves or even having large sums of money. They then take the money from all their investors, conduct their own research, and then invest the money in a variety of different investments

The best equity mutual funds in Pakistan

aving laid out the context of why equity mutual funds matter, and why you should care about which ones are the best, we can now examine the data as to which funds have outperformed the market, which is also laid out in the chart in this story. The good news is that the Pakistani fund management industry as a whole has a very good track record of managing investors’ money, even after taking into account the fact that they generally tend to have substantial management fees (fees of upwards of 2% are the norm). Of the 38 equity mutual funds in Pakistan with a track record of longer than 10 years, 21 (the majority) beat the benchmark indices, and only 17 do not. Of these, 8 of the 13 Islamic funds beat the benchmark KMI-30 index, and 13 of the 25 conventional funds beat the benchmark KSE100 index even after taking into account their management fees. The data makes AKD Investment Management Ltd look really good compared to its rivals: both the number one and number two funds by rates of return are managed by AKD, the capital markets firm owned and run by Aqeel Karim Dedhi, the bold, brash Karachi-based stock-broker. Maheen Rahman, CEO of Alhfalah GHP Asset Management and long regarded as one of the best minds in Pakistan’s investing business, unfortunately has had a few bad years that have knocked down her performance. Her flagship Alfalah GHP Stock Fund still beats the market, but is lagging behind some of its competitors, ranking 16th overall among equity funds. And in what is likely to be seen as a disappointment for Meezan Bank’s brand as the best name in Islamic finance, the bank’s asset management subsidiary Al-Meezan Investment Management Ltd has a middling performance in the equity fund management business. Both its flagship funds – the Meezan Islamic Fund and the Al Meezan Mutual Fund – narrowly underperformed the benchmark KMI-30 index. The best Islamic fund turns out to be one managed by a company that is not even a dedicated Islamic finance company: JS Investments, an asset manager that operates both conventional and Islamic funds. JS Investments is owned by the financial conglomerate founded by veteran investment banker Jahangir Siddiqui. But what is likely to be an uncomfortable truth for the Islamic asset management industry as a whole is the fact that no Islamic fund made the top five funds in the rankings, and only three made the top 10. And this is despite the fact that the KMI-30 index slightly outperformed the KSE-100 index and has consistently

CAPITAL MARKETS

CONVENTIONAL OPTION

SHARIAH-COMPLIANT OPTION

Rs83,622

Rs57,540

The amount of money you would have today if you had invested Rs10,000 in the best-performing conventional equity mutual fund – Golden Arrow Selected Stock Fund – 10 years ago

The amount of money you would have today if you had invested Rs10,000 in the best-performing Islamic equity mutual fund – JS Islamic Fund – 10 years ago

done so for most of the past 10 years. It is not as though Islamic investment avenues do not exist, it just appears that the Islamic fund management industry is less wellequipped to capitalise on them. For investors in Pakistan who value Shariah-compliance as an attribute in their money managers, that will no doubt come as a disappointment. And lest anyone think that the numbers do not seem so far apart, let us consider the best Shariah-compliant fund’s performance versus the best conventional fund’s performance. If you had invested Rs10,000 in the JS Islamic Fund 10 years ago, you would have Rs57,540 today. Had you instead invested in the Golden Arrow Selected Stock Fund, you would have had Rs83,622 today. Yet if you look simply at the average annual rate of return, the numbers do not seem that far apart: Golden Arrow’s returns averaged 23.7% and JS Islamic Fund had a respectable 19.1% per year. That is the power of compounding: small differences can become hugely magnified over a long period of time. It is possible the Islamic fund management industry is doing what the Islamic banking industry does: realise that its client base does not view conventional financial solutions as a viable option and thus restrict themselves to Islamic

funds and Islamic banking products alone. And that strategy has certainly worked out for the Islamic finance industry, which has historically grown at between twice and three times as fast as the conventional industry. But at some point, the conventional industry is going to begin pressing the advantage it appears to have in talent and institutional infrastructure and go after customers who value Shariah-compliance. That is evident in the fact that, of the 13 Islamic mutual funds with 10-year track records, all of the top seven are managed by a company that has both conventional and Islamic investment options. And only one of the eight that beat the benchmark KMI index is managed by a purely Shariah-compliant asset management company. The conventional erosion of the Islamic finance industry’s dominance in its business has already begun in the banking sector, with MCB Bank launching its dedicated Islamic banking subsidiary and Bank Alfalah continuing to invest in its already robust Islamic banking branch network. The second largest bank in the Islamic banking space is not a pureplay Islamic bank, but Bank Alfalah’s Islamic banking division. As for consumers who value Shari-

Your financial life is a struggle against inflation. Any amount of money you are saving will have to contend with the fact that money loses value over time in every country and in almost every era. That means that cash, in inflation-adjusted terms, is a money-losing proposition. Saving without investing is effectively the same and destroying your own wealth 28

ah-compliance in their financial products, they would be better off sticking with financial institutions that value not just faith, but also technical competence and expertise, and invest in the infrastructure to offer the best possible solution to their clients. For now, at least, that is the conventional firms’ Islamic finance windows, not the dedicate Islamic financial institutions.

A note on index funds

efore concluding, we would like to address some of the so-called wisdom you might get from returning expats: that somehow index funds are the better option for investing over the long run. It is true that index funds have been a tremendously useful investing tool for investors in the United States that have consistently outperformed most actively managed mutual funds. (Index funds are those funds that simply buy and sell stock according to the constituent list of the index they track, rather than making decisions about which individual stocks to buy and sell. That latter kind of fund is called an actively managed fund.) The problem with that supposed conventional wisdom is that works only in the United States and almost nowhere else. That point, we think, will likely be proven by the fact that, of the 38 equity mutual funds in Pakistan with a track record of longer than 10 years, 21 (the majority) beat the benchmark indices, and only 17 do not. In the United States, only about one quarter of the actively managed funds beat the benchmark indices. It is important to test the data in the local context before blindly applying principles that may work well in other markets, but may not be attuned to local conditions. n

CAPITAL MARKETS

OPINION

Nadeemul Haque

How do consultants, donors and Pakistani ministries solve problems?

but only with a few donors to make tall claims in the international arena. Speeches were made in the United Nations (UN) that we had suffered a loss north of $40 billion. Immediately, the Friends of Pakistan (FOP) forum was activated. At the Planning Commission, there was no such estimate and our people told me the loss was much lower. Upon checking I found that the FOP was a figment of our imagination. The group had met when the Zardari government came in and there was a sympathy for the new democracy and the memory of former Prime Minister Benazir Bhutto was still fresh. Since then, the pledges never materialised and the group did not want to operate outside the multilateral framework. Upon talking to both the Foreign Ministry and Foreign Secretary, I leant that FOP was their economic baby and they were not ready to share it or even take our input on it. So, $40 billion (about 20% of the countryâ&#x20AC;&#x2122;s gross domestic product at the time) was the loss announced in the international arena. Unhappy and self-righteous donors charged into the he flood of 2010 showed me (I was Deputy Planning Commission. There were so many of them in meetChairman of the Planning Commision then) ings then that the Planning Commission staff could not even how dysfunctional policy was in Pakistan find a place to sit. That is also an outcome of the fact that we and yet how good our administration was at continue to use buildings built in the Ayub Khan Administrahandling crises. tion. No office upgradation takes place. I guess we must wait When the flood struck, our foreign office till all of Pakistan is paved for cars. It is also evidence of how did not consult the key economic ministries our hunger for aid has empowered donors beyond reason. Any way these donor meetings were reminiscent of the British comedy series Monty Python. They were emotional and sad about the disaster pretending greater empathy than the local people. They wanted the Foreign Officeâ&#x20AC;&#x2122;s announced estimate of $40 billion damage to be true so that the demand for their services would increase further. Our administration Nadeemul Haque closer to the situation was giving us feedback that the loss figures were not as large. is an economist and the The World Bank and the Asian Development Bank (ADB) proposed that they do an indepenformer Deputy Chairman of dent evaluation and we jumped at it. We also wanted a better estimate to clarify the hype. A huge the Planning Commission of team was assembled by these agencies â&#x20AC;&#x201C; some 50 people, including consultants, initiated work on Pakistan, and the former Vice damage assessment, but few left Islamabad. There were questionnaires and forms which our adminisChancellor of the Pakistan tration filled out. After all, the people in remote areas where relief and rescue were taking place were Institute of Development Pakistani officials including the army. Economics. He previously Anyway, a couple of months later, the donors had an estimate of the damage. The loss was worked for decades at the nowhere near the $40 billion dollar that the Foreign Office had put out. The direct loss (property, life International Monetary Fund. infrastructure) was not even $5 billion, more like $3 billion. Looking rather sheepish, they presented their report and put in a loss of more than $5 billion to show a round figure of $10 billion. It is another

A series of perverse incentives and lack of on-the-ground knowledge make such professionals ill-suited for the kind of policymaking the country really need

T 30

matter that we had a robust agricultural output growth that year as the flood helped enrich the soil. Now, of course, the donors knew better and they felt more for the poor than the policymakers in Pakistan. Their proposals were well-meaning (so try not to laugh) n Build back better was the slogan they coined. Let us design and build model villages with nice concrete houses, motor-able roads and all manner of social and civil amenities such as parks and schools. Of course, they were prepared to give Pakistan loans to do this. Should we do this? The villages we are talking about are in the flood plain and the designs were for towns rather than the villages that were affected. Bizarre! n Flood-proof houses: They wanted floodand earthquake-proof houses. What are these? Build 10-foot concrete platforms so poor villagers would put their mud huts on them. And of course, they would carry their animals and their kith and kin up the 10-foot platform every day because some consultant thought up this great idea. And when the floods came again, they would

wait on their platform for boats to rescue them. Bizarrer still! n Land in alternative locations: Then there was the proposal to give them alternative land so that they could stop living in the flood plain. So, if we do that, would this not set up an incentive for more and more people to park themselves in a flood plain, so that next time they can get land somewhere else? Perhaps the people who got this land would sell that land and come back to the flood plain hoping to collect once again when another flood hits? Even more bizarre. Since none of this makes sense, the Finance Minister of the time, Hafeez Shaikh, decided to give them cash compensation with advice to move out of the flood plain and possibly to a city. The donors reacted by saying that your cities are a mess with limited infrastructure. Do you want your cities to become slums? My answer was we need slums. Our cities are too manicured for the rich and their cars. Let the cars of the rich be little discomfited. Let the donor-consultant houses in Islamabadâ&#x20AC;&#x2122;s F-6 and F-7 sectors overlook slums so

they too see how the poor live. I pointed out that it was in the slums of London that the Pakistani immigrants produced several millionaires and numerous middle-class successes. After the Civil War in the United States, freed slaves converged to cities like Chicago and New York and lived in slums for decades. It was in the ghettoes that they developed musicians, writers, famous sportsmen, business leaders, and political leaders. Slums ferment with activity including crime, but most of all, they provide opportunity to all. In time, slums are cleaned out. The East End of London, New Yorkâ&#x20AC;&#x2122;s Bronx and Harlem, the Northeast of Washington DC, are all areas that are now cleaned out and gentrified. They may be very necessary to eradicate poverty and there is no reason to try to zone them out. Sadly, while our administration and army did manage to save lives and handle the flood well, policymakers were busy grandstanding and unable to coordinate among ministries. Nor were we able to handle a huge and growing donor sector â&#x20AC;&#x201D; that now thinks that it is ruling the country while taking no responsibility.

COMMENT

By Our correspondent

he automobile industry in Pakistan has seen four stellar years of growth in production and sales. Now, however, as interest rates rise, the government cracks down on tax evaders buying vehicles, and consumers tighten the belts expecting higher inflation, the industry has seen a decline in sales for the first time since 2014. Car sales in Pakistan decline by 4.2% in the fiscal year ending June 30, 2019, the first drop in five years, compared to growth of 16.7% in fiscal 2018. In the four years between 2014 and 2018, car sales in Pakistan grew at an average of 16.4% per year, rising to a record-breaking level of 217,000 cars sold in 2018. Following that stellar run, a slight drop in 2019 does not sound too bad. The problem, however, is that car sales are a highly cyclical business. Once the ingredients for slowdown start taking their effect, car sales continue to tumble, long after those causes themselves are gone. “There are multiple factors [that caused the de-

cline], mainly 1) restriction on non-tax filers to purchase new car, 2) significant hike in auto prices due to rupee devaluation and 3) economic slowdown,” said Hammad Akram, a research analyst at Topline Securities, a brokerage firm, in a note issued to clients on July 11. Car sales in Pakistan are driven in large part by increases in personal disposable income. While that does not necessarily always go down for a substantial part of upper middle-income households in Pakistan – the kind of people who can afford to buy a car – during an economic slowdown, a slowing of economic activity nonetheless does make people want to conserve their cash more, and hence be less inclined to make a large purchase like a new car. This year, that slowdown is being exacerbated by a new problem: the requirement imposed by the government that people be able to prove that they have filed their tax returns before they can buy a new car. Most people in Pakistan do not file their tax returns and fear doing so because they think – not without reason – that they will be harassed by the Federal Board of Revenue (FBR) if they disclose to the government how much money they make and what their source of income is.

Not all car companies are created equal

Auto financing

second major factor that drives new car production in Pakistan is the availability of car financing from commercial banks. It is not clear just what proportion of cars in Pakistan are bought on auto leasing, but it is clear that the volume of auto loans available to consumers is directly proportional to the number of new cars sold and produced in the country. The total amount of new loans to consumers has been steadily increasing over the past six years, though the pace of increase over the past 12 to 15 months has dropped considerably. The total volume of loans outstanding declined in June 2019. Banks are increasingly uncomfortable with the idea of loaning money to consumers at a time of rapidly rising interest rates. The State Bank of Pakistan has more than doubled the benchmark discount rate at which it lends to commercial banks. The discount rate was 6.0% as recently as January 2018. It has since risen to 13.25% in just over 18 months. Commercial banks are particularly afraid of a repeat of 2008, when they had been lending

to consumers at a rapid clip for about five years, and then suddenly saw a sharp rise in interest rates, which affected the ability of many of their borrowers to pay back their loans. As a result, defaults at commercial banks on their consumer lending portfolios rose sharply and they faced heavy losses on their balance sheets. The decline in auto lending is unlikely to be as sharp or as prolonged as the one that followed the 2008 financial crisis. For one thing, interest rates are unlikely to hit 20%, which is what happened in the aftermath of that recession. Most analysts believe that the State Bank of Pakistan is unlikely to raise interest rates any further than they already have. And secondly, banks appear to have been far more prudent in their lending practices during this boom cycle compared to the last one, which suggests that loan losses are unlikely to be as high as they were the last time, when over a quarter of all consumer loans went into default. That number is likely to be significantly lower this time around, which means that banks are unlikely to completely abandon consumer lending like they did in the aftermath of 2008.

Banks are increasingly uncomfortable with the idea of loaning money to consumers at a time of rapidly rising interest rates. The State Bank of Pakistan has more than doubled the benchmark discount rate at which it lends to commercial banks. The discount rate was 6.0% as recently as January 2018. It has since risen to 13.25% in just over 18 months

he decline in sales for cars has not hit all cars companies equally. The worst hit has been Honda Atlas Pakistan, which saw a 14% decline in sales in fiscal 2019 compared to the previous year. Pak Suzuki Motor Company was similarly hit with an 11% decline on volumetric sales. However, Toyota Pakistan saw an actual increase in sales of about 4% compared to the previous year. For Toyota, it was the Corolla that has been its saving grace. Pakistan’s most popular sedan saw its sales increase by 10% compared to the same period last year, the only model Toyota produces locally that saw an increase in sales. Sales of the Fortuner and the Hilux both saw double digit declines, with declines of 38% and 19% respectively. It was not all doom and gloom for Suzuki. The Wagon-R and the Cultus, popular models of hatchbacks, saw their volumetric sales increase by 12% and 11% respectively. The decline in sales was driven mainly by the Mehran, which Suzuki stopped producing in March 2019, and replaced with a 660-cubic centimeter engine version of the Alto. The new Alto has not yet been able to generate enough sales to make up for the loss of the Mehran. Honda, the unloved middle child of the Pakistani middle class’ car preferences, saw its sales decline across the board, with its flagship Civic and City models both declining in sales volume by 8% each. Sales of the BR-V declined by an even greater 42% compared to last year.

Declining motorcycle sales

he real canary in the coalmine for the fact that the auto industry is in real trouble is the fact that Atlas Honda – Pakistan’s largest manufacturer of motorcycles (not to be confused with Honda Atlas, which makes cars) – saw a decline in sales for the first time in over a decade. Motorcycles are the preferred mode of transportation of the lower middle and working class of Pakistan, since they are more affordable not just for purchase but also in terms of the total cost of ownership. If Pakistanis are having trouble affording motorcycles, then the automobile industry as a whole is staring at serious trouble in the near future. Motorcycle sales are also a proxy for the health of the rural economy in Pakistan, a fact most noticeable from the ad campaigns run by Atlas Honda, which tend to target farmers and other rural consumers. A decline in sales means farmers’ incomes are not rising, which in turn in likely to mean underinvestment in agricultural production for the next year or so. n

AUTOMOBILES

TWO NEW

VENTURE CAPITAL FUNDS TARGET PAKISTANI

STARTUPS. IS THERE ENOUGH DEAL FLOW?

There are now several venture capital firms dedicated to funding the local startup scene. But are there enough competent entrepreneurs to invest in

By Farooq Tirmizi

f you are an entrepreneur or startup investor in Pakistan, the odds are very high that you have met Kalsoom Lakhani. She is the founder and CEO of Invest2Innovate, a startup incubator based in Washington DC and Islamabad that seeks to help Pakistani startups achieve growth and scale, a job she has been doing since September 2011. So it was no surprised when, on August 6, she announced on a Medium post (communicated via Twitter)

INVESTMENT MANAGEMENT

that she had managed to raise a $15 million venture capital fund targeting Pakistani startups. In some ways, i2i Ventures – the new fund – is groundbreaking. It is the first female-led institutional venture capital fund in Pakistan, and the preceding incubator’s track record suggests that i2i will continue focusing on empowering female entrepreneurs in the country. The advantage i2i has over other investors is Kalsoom’s extensive experience working with entrepreneurs throughout the

country, forming relationships of trust and working with them to help improve their ideas through the i2i incubator. The new venture capital fund will be able to invest capital in the companies that Kalsoom and i2i had previously invested time in nurturing. The first investment the fund will make is in Mauqa Online, an app designed to help people find household staff and services, similar to the app Handy or TaskRabbit. The company was co-founded by Suniya Sadullah Khan and Muhammed Mustafa. Mauqa provides domestic workers in Pakistan with not just job opportunities but also benefits like health insurance. The seed investment from i2i, of as yet unannounced size and valuation, is geared to help this startup to grow from the Islamabad-Rawalpindi metropolitan area to other major cities this year. In materials circulated to high networth individuals ahead of the launch of the fund, i2i Ventures had indicated that it would be making investments of between $120,000 and $500,000 in the first stage of its fund before considering any larger investments. “While i2i Ventures will not solely invest in i2i Accelerator companies, I’m so proud that our first investment was from the i2i family, in a company that embodies our values and what we stand for. I am also proud that it’s an investment that showcases the kind of approach & strategy we plan to take as investors — as partners in this startup’s future, with a minority stake that will allow them to grow over time,” said Kalsoom on Medium. Among the limited partners for i2i Ventures is Dutch Good Growth Fund (which is associated with the Dutch Government and seeds fund of funds in frontier markets). While in some ways, i2i is unique in that it is both female led and has previously operated an incubator, in other ways, it may be entering a crowded market. In November 2018, Rabeel Warraich launched the first institutional venture capital fund in Pakistan with $30 million in committed capital. And Aatif Awan, a Pakistani tech executive in Silicon Valley who has previously worked at Microsoft and LinkedIn, is reportedly on the verge of announcing his own $10 million venture capital fund called Indus Valley Capital targeting Pakistani startups as well.

Indus Valley Capital

atif Awan has previously been active in startup investing in the United States as well as Pakistan. He is currently a board member of Atoms, the sneaker startup founded by Sidra

“The Careem acquisition, in particular, has galvanized the Pakistani startups as well as the diaspora. Many Pakistanis in the US are now considering investing in or advising startups and some have gone back already to start one themselves” Aatif Awan, founder of Indus Valley Capital

Qasim and Waqas Ali, the couple from Lahore who had previously created Markhor, the men’s former shoe startup. He is also a partner at First Round Capital, a San Francisco-based venture capital fund that has previously been an investor in companies like Uber and Blue Apron, in addition to 300 other startups. Before that, Aatif worked as a senior executive at LinkedIn for seven years. He studied at the University of Illinois on a scholarship funded by Sohaib Abbasi, a 62-yearold Pakistani executive who was the CEO of several large software companies in the United States and was a senior executive at Oracle. Aatif has taken a systematic approach to his attempts to raise a fund, seeking feedback from his potential investor base – high net-worth Pakistani individuals living outside the country – and may seek to tailor his investment strategy to suit those interests. “The Careem acquisition, in particular, has galvanized the Pakistani startups as well as the diaspora. Many Pakistanis in the US are now considering investing in or advising startups and some have gone back already to start one themselves,” wrote Aatif in a post on LinkedIn. “I know because I asked. I did a survey to find others who're also interested in Pakistani startups and got 300 responses!” He has also conducted events for his prospective investors in San Francisco, Dubai

and other places around the world to try to drum up interest. Aatif did not respond to a request for comment from Profit before our print deadline.

The central challenge

hat all of these three people have in common is elite education in Pakistan and the United States, coupled with an intense desire to help fuel economic growth in Pakistan, and to do it while ensuring a healthy return on capital. Rabeel graduated from Cadet College Hasanabdal and MIT, Kalsoom from the University of Virginia and George Washington University, and Aatif Awan from the GIKI and the University of Illinois at Urbana-Champaign. Between the three of them, they have approximately $55 million in committed capital and include some high profile institutional investors among their limited partners. They also all have one very big question to grapple with every day, and one that is likely to keep them up at night: are there enough opportunities for them to invest in? Because it is one thing to be a drawing room uncle and say “there is no shortage of talent in Pakistan” and it is another thing entirely to put your money where you mouth is and actually go find that talent and give them your – and your investors’ – money and hope they do well enough.

Venture capital is a risky business in any economy, but in a country that has grossly underinvested in education for the past 72 years, and has a culture where asking questions – let alone upending norms – is still a social taboo, there are very entrepreneurs who have the kind of skills and talent it takes to succeed. If ever there was natural talent in them, it has been beaten out by an inadequate education system and a stifling culture. What that means for venture capitalists is a much greater degree of involvement in the startups they invest in relative to their peers in the United States, especially in terms of advice on how to grow their business and how to deal with significant management challenges. “Honestly, if you want to succeed you’ll have to be the kind of venture capitalist that really, really pushes the entrepreneur and constantly advises them,” said one Dubai-based management consultant who has previously invested in Pakistani startups and has been approached to invest in the new venture capital funds. “You cannot be the kind that invests and let’s them do what they do.” Rabeel Warraich should know. The poor guy is serving as interim CEO of one of his first investments while running his own venture capital fund. If Pakistan were so chock-full of talent, why would it be so hard to find a CEO of a well-funded, early-stage startup? n

“While i2i Ventures will not solely invest in i2i Accelerator companies, I’m so proud that our first investment was from the i2i family, in a company that embodies our values and what we stand for. I am also proud that it’s an investment that showcases the kind of approach & strategy we plan to take as investors — as partners in this startup’s future, with a minority stake that will allow them to grow over time” Kalsoom Lakhani, founder of i2i Ventures

INVESTMENT MANAGEMENT

By Bilal Hussain

n an article published last year in Dawn, writer Khurram Husain had assessed that under the Supreme Court’s “Dam Fund” announced by then-Chief Justice of Pakistan Saqib Nisar, it would take 199 years to raise Rs1.45 trillion needed to build the Diamer-Bhasha and Mohmand Dams at the highly unlikely pace of Rs20 million per day. A year has passed and the project has fallen off the headlines, with Rs11 billion collected

WATER MANAGEMENT

so far. At this speed, the construction of these dams through crowdfunding appears impossible and the water crisis that prompted the Supreme Court and the Prime Minister’s Office to launch this scheme continues to grow larger and larger with each passing day. So, what can be an effective way to deal with this crisis or at least mitigate it? Proper water management and efficient use of water in agriculture are considered viable solutions, as are wastewater treatment and recycling that can help reclaim water. In industrial use of water, technology can make a real difference:

ozonizers (or ozonators) and the Molecular Distortion Technique can help conserve water by at least 70%, according to Aqua Water Technologies Managing Director Asif Ahmed. Another source with an interest in applying this technology told Profit that it could reduce water use by as much as 90%.

The ‘looming’ crisis

n 1951, the per capita availability of water in Pakistan was 5,653 cubic meters. By 2003, it had fallen to 1,200 cubic meters against the international standard of 1,500. Predictions

“Almost all industries in Pakistan do not treat their wastewater before dumping it due to limited resources. Wastewater treatment plants require a very large area and are very costly. SE Drop’s plants are small and about 40% to 50% more economical than conventional wastewater treatment plants, which are called Effluent Treatment Plants (ETPs)” Usama Javed Shaikh, cofounder of Save Every Drop suggest that by 2025, per capita availability in Pakistan will decrease to a shocking 800 cubic meters only. Moreover, competition for a basic resource like water is increasing with the steady rise in population, urbanization, and industrialization. According to a study conducted by researcher Salim Khoso, 23% of available water is used by industry, eight percent by domestic users, and whopping 69% goes to agriculture. Another research study shows only an upward trend in the use of water, in both domestic and industrial contexts, to an average of 15% of available water resources by 2025. In 2000, domestic and industrial use was just three percent of available resources. It shouldn’t be news to anyone reading this that Karachi, the country’s largest city and the economic hub, is facing an intense water crisis. It is almost old news, at this point. Sindh Local Bodies Minister Saeed Ghani says that the city is facing acute water shortage as it receives about 500 million gallons per day (MGD) but its demand is more than double that amount: 1,100MGD. This means that a majority of the city’s population could go a day or more with no or low water supply. Can ozonization solve this situation? It’s hard to say definitively, but it can certainly help alleviate the shortage. Here’s how. The city’s wastewater accumulates to 460MGD and 40% of

this water can easily be reclaimed for non-domestic use like horticulture or cooling/boiling agent in industry, says Dr. Noman Ahmed, chairperson of the Department of Architecture and Planning at Karachi’s NED University. At the moment, only a meagre 66MGD is treated and industry uses fresh water for cooling needs when recycled or grey water can just as easily do the job. (Grey water is what goes in the sink as compared to black water, that comes out of sewage.) The situation isn’t much better in Lahore, the second-largest city. “Only three big companies from the textile industry use more water than the amount used for domestic purposes in this city of about 12 million people,” says Mohammad Zaid, co-founder of Save Every Drop (SE Drop) – a startup working to make filtering and recycling of wastewater economically-feasible.

Industrialists vs. innovators

ut sources tell Profit that there is resistance among industry leaders to embrace ozonization. “The ‘seth’ mindset prevalent in the industry, especially in the textile industry, has been hindering the use of new technologies to recycle water,” says one employee, on condition of anonymity as they are not authorized to speak to the media. “Other governments actually bind manufacturing busi-

It is for certain that water is scarce, not just in Pakistan but throughout the world, and denial of that fact will only cause Pakistan to lag behind in adopting new technology for water reclamation. Some technologies available in the market don’t directly contribute to revenue streams, which is why government intervention might be required for industrialists to use those. However, advocates say that ozonization is both environmentally-friendly and cost-effective. 40

nesses to use wastewater treatment techniques to make sure that water is efficiently used and not wasted with pollutants. But here, the Seths tell us that they have enough water and they don’t need a new expense.” It is for certain that water is scarce, not just in Pakistan but throughout the world, and denial of that fact will only cause Pakistan to lag behind in adopting new technology for water reclamation. Some technologies available in the market don’t directly contribute to revenue streams, which is why government intervention might be required for industrialists to use those. However, advocates say that ozonization is both environmentally-friendly and cost-effective. “The technology is good for the environment as the residual of the process is oxygen. The return on investment is three years and it is a one-time investment. It is the conventional treatment of wastewater that is costly,” the employee said. It is important to note, however, that the environmental benefits of ozonization can only be realized if the process is properly handled for industrial use without human interaction. Compared to the gas we normally refer to as oxygen (O2), ozone (O3) is a reactive gas due to an extra atom of oxygen and therefore can have negative effects on living things. SE Drop, Zaid’s company, proposes a different water recycling method called ‘Molecular Distortion Technique’. Their equipment, they claim, can clean over 90% of pollutants in used water, making it viable to be re-used for industrial use. This means that adopting this technology could halve the use of water in industry. The equipment can also be tailored for domestic use and grey water can be recycled to be subsequently used for washing and gardening, but not for drinking. Currently, many factories and companies are simply disposing off their wastewater into the ground, and that eventually pollutes underground water which is then used by people living in close proximity for daily activities including drinking and cooking. In Karachi,

“Despite repeated identifications by researchers and media reports, water quality remains below the desired level. A sampling examination conducted to test water quality in different locations across Karachi revealed that 97% of the samples were unfit for drinking. All these samples required appropriate treatment” Dr. Noman Ahmed, chair of the Architecture and Planning Department at NED University

untreated water makes it to the ocean, polluting it and harming sea life. “If I live near an industrial complex and it is disposing off its water in the land, then the water coming from the bored well in my home will have a lot of chemicals that were released with the industrial wastewater and are unfit for human use. That is dangerous for health but unfortunately it has been happening,” Zaid says. According to a United Nations report, consumption of contaminated water which leads to several waterborne diseases contributes to 40% of the deaths in Pakistan every year. Another report by the Pakistan Council of Research in Water Resources (PCRWR), water scarcity and waterborne diseases are causing serious economic and health crises. After testing water samples from 25 major cities, they found that groundwater is increasingly becoming contaminated with bacteria and chemical pollutants. Mixing of untreated municipal and industrial effluents with surface and groundwater not only adversely affects aquatic life, but also freshwater resources, human health and agriculture. “Despite repeated identifications by researchers and media reports, water quality remains below the desired level. A sampling

DWINDLING SUPPLIES

800

cubic meters is the predicted per capita availability of water in Pakistan by 2025. In 1951, it was 5,653 while fell to 1,200 by 2003

examination conducted to test water quality in different locations across Karachi revealed that 97% of the samples were unfit for drinking. All these samples required appropriate treatment,” says Dr. Noman Ahmed. According to last year’s Pakistan National Water Policy document, less than one percent of total wastewater in the country is treated before disposal. This refusal to use recycled water by industry is not only wreaking havoc by polluting underground water, it is also indirectly disturbing the geosphere. Zahid Farooque, Joint Director of the Urban Resource Center (URC) in Karachi quoted a ten-year-old research that said that 50,000 tanker-trips take place in Karachi to supply water to industry every day. Apart from this, industry also gets line water. The research was conducted by Parween Rehman, a renowned social activist who was assassinated in 2013 for her intrepid criticism of mafias in Karachi and their political patrons. “Drawing so much water from the ground certainly hurts the natural underground structure. The underground water level is falling,” says Farooque. Dr. Noman corroborated Farooque’s assessment that drawing a lot of underground water weakens the ground and changes soil strata. It becomes difficult to raise buildings and increases construction expenses. SE Drop’s co-founder and Zaid’s partner Usama Javed Shaikh believes that their startup possesses a viable solution that will incentivize industry to reduce their use of fresh water. “Almost all industries in Pakistan do not treat their wastewater before dumping it due to limited resources. Wastewater treatment plants require a very large area and are very costly. SE Drop’s plants are small and about 40% to 50% more economical than conventional wastewater treatment plants, which are called Effluent Treatment Plants (ETPs),” he says. “We have developed a water-treatment plant that not only treats water that can be safely disposed off but can also recycle 70%

of it for reuse, thereby taking account of both water scarcity and water pollution,” Shaikh says. “Thus, we are providing a single solution for two of Pakistan’s gravest issues: water scarcity and pollution. The technology we are using is versatile, in the sense that it can recycle all kinds of wastewater, be it sewage waste from individual homes, buildings, housing societies or industrial waste of any category.” According to Dr. Noman, if industries start using recycled water, their demand for water would significantly reduce and the savings can be distributed among the areas that are most affected by water scarcity. But it all trickles down to the whether or not the technology needed to reclaim water for industrial use is cost-effective or not, a problem that companies like SE Drop are trying to optimize for. Pakistan’s export-based industry, especially textile, has largely been known as a low-cost industry, which means that it gets international business on the basis of its lowcost operations. Industry sources that if costs increase, then Pakistani exporters are expected to lose business. The government is always looking to boost exports, going to the length of offering tax rebates to export-based industries so that they can stay competitive. These industries earn important foreign exchange for the country, so they generally remain away from government scrutiny. But the subject of water needs to be taken seriously, both as a resource and public health issue. “When piped water gets mixed with contaminants due to all these various reasons, public health hazards instantly emerge, as was found in Karachi’s neighborhood Landhi some years ago where hundreds of people were affected by gastroenteritis after using impure water,” says Dr. Noman Ahmed of NED. “The middle-income and upper-income groups either use bottled water or resort to filtration, ultraviolet treatment devices or just boil water for domestic use. But the poor possess neither the awareness nor the means to make water safe for consumption.” n

WATER MANAGEMENT