Profit E-Magazine Issue 64

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14 Can this career bureaucrat change Pakistan Post’s career bureaucrats?

18 The state-owned enterprise conundrum Asif Saad

22 22 How Iqbal Z Ahmed became the Gas King of Pakistan 30 Is Bykea the first (next?) Pakistani unicorn in the making?

34 Imran Khan: Build governance, discontinue Raja Rule Nadeemul Haque

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39 Will Askari Bank’s new CEO succeed in his desire to shake the bank out of its stupor?

44 Why is Pakistan unable to develop a competitive-export focused industrial sector?

CONTENTS

welcome

A tale of two entrepreneurs This week, Profit chronicles the tale of two men who are in some ways a study in contrasts: one who is at the pinnacle of his career as the “Gas King of Pakistan” and the other beginning to gain traction for his technology startup. Both men went to elite educational institutions and both have had considerable success in their professional lives. But one got there in no small part through political connections and the other has relied entirely on talent and the merit of his ideas.

These two stories appear in a single issue together entirely by coincidence: the profile of Iqbal Z Ahmed and the Associated Group was completed the same week that Muneeb Maayr of Bykea announced that they had raised $5.7 million in the largest Series A round in Pakistani venture capital’s short history.

But we find the contrast striking for a variety of reasons.

It is not coincidence, for instance, that the Associated Group operates in an old-fashioned industry of drilling for and distributing natural gas whereas Bykea seeks to use technology to transform transportation and the way business is conducted in Pakistan. One industry is a relic of the past, the other heralds the future. One founder had a reciprocal favours relationship with friends of his who are politicians and generals, the other pitched his ideas to investors and negotiated with venture capital funds based on the merit of his own talent and ideas.

If the contrast between these two men is a metaphor for what the future has in store for the Pakistani

economy, then we have significant room for optimism. Businesses like the Associated Group have their place in Pakistan’s economy, and the political connections-dependent business practices of men like Iqbal Z Ahmed are unlikely to become unprofitable any time soon, but the fact that men like Muneeb Maayr are able to create highly disruptive companies – and excite institutional investors in doing so – reflects a positive change for the country and its society.

If Pakistan can become a country where it does not matter who you were born to, or who your friends are, but whether you work hard, have a good brain, and good ideas, then we will all be better off, including, ultimately, even those who currently benefit from the system as it currently stands. And that is something to be cheerful for.

Farooq Tirmizi Managing Editor

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Arshad Hussain l Muhammad Faran Bukhari l Taimoor Hassan l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Haniya Javed 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 Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

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FROM THE MANAGING EDITOR

CAN THIS CAREER BUREAUCRAT CHANGE

PAKISTAN POST’S CAREER BUREAUCRATS? After years of falling revenues, the national courier company is on the rise once again, but Dr. Naseer Ahmed Khan might have to go against his fellow service mates if he wants to beat the private sector.

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By Muhammad Faran Bukhari and Syeda Masooma

D

uring their early rule in the subcontinent, the Mughals employed runners who would take daak (letters and parcels) from one point to another and hand it over to the next runner. Before the daak reached its destination, it could at times switch hands between almost two to three dozen runners making the process tedious and time-consuming. In the 19th century, the British replaced the runners with horses and camels and by the end of the century, these runners were subsequently replaced by the railway, making postal service much quicker and more effective.

In the aftermath of the subcontinent’s partition in August 1947, Pakistan Post was established as Pakistan’s state-owned postal service and has since served people all over the country. So exactly how large is Pakistan Post?

Pakistan Post vs. private courier companies

T

he company has around 13,000 post offices throughout Pakistan, compared to its largest private sector competitor – TCS – that operates with only 900 retail outlets across the country.

More interestingly, almost 67% of Pakistan Post’s offices are located in rural areas where most of its private competitors remain absent.

However, Pakistan Post’s presence in these rural areas, at least for the time being, contributes little to its profitability. “Of these 67% of our branches, 87% are incurring losses,” Pakistan Post’s new Director General Dr. Naseer Ahmed Khan, a civil servant associated with Pakistan Post since the early 90’s, told Profit.

For any private sector company, it would have been a much easier call to close shop in these loss-making rural locations. But things are a bit more complicated for state-owned enterprises.

“Pakistan Post is a service providing entity so we can’t really scale down our operations.

If we do that, there will be a massive public outcry,” says a senior official on condition of anonymity because he’s not authorized to speak to the media. “However, from our perspective, if we could do that, it would be a win-win situation since a lot of Pakistan Post’s rural presence is not profitable. But we are here to facilitate people.”

On the other hand, compared to private courier companies, the state-owned enterprise performs a much broader function. In most cases, post offices perform about seven different functions ranging from a savings bank, postal life insurance, collecting utility bills, receiving international remittances, selling savings certificates,

and working on behalf of the Ministry of Finance and the federal and provincial governments.

“We did not reinvent the company with the passage of time so the biggest gap between private companies and us is a lack of technology,” says Naseer. “Private companies have a technological edge over us. Their infrastructure, like motor and trucking fleet, motorcycles and the other mechanisms needed for delivery, are much larger in number compared to ours.”

These companies are able to afford such infrastructure as they are what can be called specialised courier companies. “(For private companies) being a courier company is their only role. But in case of Pakistan Post, we are doing so many other things as well. Even a small post office is functioning and performing several different functions,” he says.

For the year 2017-2018, Pakistan Post recorded a deficit of Rs10.5 billion. But for the state-owned enterprise, its financial standing was not always this bad. In the year 2008-2009, it actually reported a financial surplus of Rs0.4 billion. Naseer blames the deficit on increased salaries for government employees and a decrease in the commission rate charged by Pakistan Post’s savings bank. “A couple of things happened in the year 2009-2010. Salaries of government employees were increased by 50%, and the savings bank’s commission, which was fixed at 1.5% in 1995, was reduced to 0.5%. Because of these two decisions, we experienced a major setback,” he says.

In addition, the company is required to pay out pensions that rise, along with salaries, every year. “We have 31,000 regular salaried employees and 17,000 part-time salaried employees in

rural areas. In addition, we have another 25,000 pensioners,” Dr. Naseer says.

However, since the Pakistan Tehreek-e-Insaf (PTI) government has come to power, things have begun to improve for Pakistan Post following a successful rebranding campaign and the launch of new services under Murad Saeed, the new Federal Minister for Communications and Postal Services, that aim to shorten delivery times and increase international and domestic coverage. In April, the federal minister announced the financial turnaround by claiming that the national courier service had earned Rs12 billion till March 2019 which was much more than what it had earned in the same period of the previous fiscal year.

As for changes on the ground, the DG said, “We have introduced a smartphone app, through which customers can track your articles, check tariffs and do a number of other things. We also introduced same-day delivery in 27 cities and pick up from home service in 11 cities across Pakistan.”

“In addition, more than 550 companies have registered on the web portal for Pakistan Post’s e commerce initiative called Pak Post Shop. We have also launched EMS plus, which is an international parcel service through which we can deliver internationally in 72 hours with a tracking facility,” he says.

And local entrepreneurs and customers have responded to improvements in Pakistan Post. Ahmed Nabi owns a small e-commerce business in Lahore that sells clothing products throughout Pakistan. Like many other entrepreneurs involved in e-commerce in Pakistan, he started off by using the services of private courier companies to get orders delivered to customers.

LOGISTICS

“Private companies have a technological edge over us. Their infrastructure, like motor and trucking fleet, motorcycles and the other mechanisms needed for delivery, are much larger in number compared to ours” Dr. Naseer Ahmed Khan, Pakistan Post’s Director General

However, due to their higher delivery charges and narrower coverage, he switched to using the services of Pakistan Post.

Another factor that drove him towards Pakistan Post was private companies’ longer Cash on Delivery (COD) payback cycles. In previous Profit coverage, sources familiar with the matter said that TCS and some other private companies had been using the COD payments to finance their own working capital and holding payments from vendors for up to three months at a time.

For small startups and e-commerce business owners like Nabi, such long payback cycles can cause serious cash flow problems and many of them are increasingly opting for Pakistan Post, which offers lower rates, wider coverage and a usual payback cycle of around 10 days on average.

Similarly, the former German ambassador to Pakistan, Martin Kobler in January this year tweeted that he was able to send a parcel to his family in Berlin for a mere Rs200. That parcel reached his family in just seven days.

Is the competition worried? Well, Saira Awan, The Vice-Chairperson of TCS Holdings, thinks that the recent resurgence of Pakistan Post can be a good sign for the industry as a whole. “The private sector is the one that has borne the infrastructure and the investment cost in this industry for the last 35 years,” she says.

“We want them (Pakistan Post) to come.

We have been doing their work for so long, they should do it now so that we can move up the value chain to bigger things,” she added.

RURAL COVERAGE

67%

of Pakistan Post’s branches are based in rural areas, where they also serves as savings banks for farmers and housewives

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But things are far from fixed at the national postal operator as Eleazar Bhatti, another e-commerce entrepreneur based in Lahore points out, “Pakistan Post, despite being a cheaper option, is generally unreliable. Their pace is usually slow. If you need to open an account with them, you have to go through a number of people. Such bureaucratic hurdles are frustrating,”.

A senior Pakistan Post employee responds, on condition of anonymity: “If we are handling 40,000 articles in one office and if 0.1% of them get misplaced, that is understandable because it is such a huge volume. It happens to other courier companies as well.” However, the employee concedes that there is an inherent attitude problem among people working in government organisations that needs to be corrected. “People in state organisations are generally less accommodating but we are trying to make sure that our people are trained in customer service as well.” Weather Dr. Naseer Ahmed Khan and Murad Saeed succeed in doing away with this bureaucratic culture is yet to be seen.

A step towards financial inclusion

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ccording to data from the State Bank of Pakistan (SBP), the total number of bank branches in the country, as of June 2017, stood at 13,039 – about as many as Pakistan Post’s network of branches.

Having such a large presence, with a partic-

EXPANSIVE REACH

13,000 is the number of Pakistan Post branches nationwide, compared to the largest private company TCS’ 900

ular advantage in rural areas, and an already established savings bank, makes Pakistan Post a perfect tool for increasing financial inclusion in the country.

In the SBP’s National Financial Inclusion Strategy, “digitization of Pakistan Post for provision of financial services on a fast-track basis to leverage its rural distribution network” has been listed as one of the actions to achieve the target of 65 million active digital transaction accounts by 2023. Currently, Pakistan Post has over three million account holders that it serves through its savings bank.

“Pakistan’s savings rate is among the lowest in the region. The State Bank’s National Financial Inclusion Strategy has an ambitious target of ensuring that 50% of adult population is brought into the network by 2020. Pakistan Post is playing a major part in it,” says Dr. Khan.

“Postal saving is among the few sources of small savings opportunities available in rural areas.

Farmers, and particularly housewives, who live in these areas deposit their money with Pakistan Post.” Of the 65 million accounts that the SBP has set its target for, 20 million will be owned by women.

Other functions of the savings bank include collecting utility bill payments, receiving international remittances and making pension payments to pensioners of the armed forces and other organisations. According to Pakistan Post’s website, the organisation currently pays out pensions to approximately 1.14 million pensioners of the armed forces including from the Pakistan Army, Pakistan Air Force, Pakistan Navy, and the Frontier Constabulary.

Dr. Khan, however, is optimistic that Pakistan Post’s postal savings service will not only increase financial inclusion in the country but can also play a vital part in making Pakistan Post profitable again. “We are aiming to fill the gap between our expenditure and revenue by the end of this financial year. We will be working very hard to achieve that target and want to make Pakistan Post an earning department despite everything.” n

LOGISTICS

OPINION

Asif Saad

The state-owned enterprise conundrum

was actually efficient.

This was certainly news to me, so I did some research over the next few days to see the numbers for myself. While I could not obtain the latest financial reports for this SOE, I did find a couple of old ones and compared these to industry numbers in the corresponding period. The picture turned out to be a little bit different, in that the average Pakistani SOE figure was about 20%, but my friend’s point remained valid – if the cost is equivalent to SOEs across the world, what is all the fuss about?

One of the main criticisms that comes up in discussion about SOEs is that a majority of them have bloated manpower The problem is not as simple as laying off the numbers, which is a large cause of their inefficient operations. In “excess” workforce at state-owned Pakistani state-owned enterprises much like their counterparts in other countries with China being the biggest example, there companies; a real solution will require is a general impression that the principle of good management – a multi-layered approach having just enough employees – has not been followed and SOEs have been packed with more people than they require.

The argument goes that this is done by politicians and n a recent conversation with a friend who used to work governments who use SOEs to provide jobs as handouts to their for a very large state-owned enterprise (SOE), I asked voters and strengthen their base. In China, however, there is no him an obvious question: how many redundant people elected government and yet SOEs have traditionally been major does this company have and will the state let go of them employment generators. In any case, irrespective of the reason, to improve the organisation? Much to my surprise, SOEs are deemed to have higher than the required number of his response was that the total employee cost is about people and this is the biggest ongoing issue when policymakers 16% of revenues, which is substantially lower than the try to find ways to stop leakages and improve an organisation’s industry standard of almost 30%! My friend’s point was performance. that when compared to the global industry, this particular SOE Theoretically, as any student of business will vouch for, it really should not matter if the SOE has greater or fewer people as long as its revenues and costs are within industry benchmarks. So, in my friend’s example above, this particular SOE could look at ways to enhance revenues – something that may be vital to do.

Asif Saad The other important thing this example illustrates is that, in a low-income economy like is a strategy consultant who has Pakistan, a large number of employees does not necessarily translate into higher costs. This previously worked at various may be due to the fact that the extra manpower that SOEs hire is actually at the very lowest C-level positions for national and levels of the organisation. Remember we are living in an age where a senior manager may cost multinational corporations more than 100 times the wages of a worker. (For clarity, my definition of a worker includes the unionised staff, as well as lower management cadres, both of whom are most vulnerable to layoffs which usually accompanies corporate restructuring).

While I am certainly not suggesting that SOEs should go on a hiring spree since the cost is not much, what I am saying is that perhaps this is not as big an issue as it is made out to be and maybe there are better ways to deal with the issue.

When private sector managers suggest layoffs or golden handshakes as simplistic solutions to the issue of excess manpower, they may not realise that the cost reduction that comes

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with laying off these workers may not result in a significant financial benefit for the organisation. Even if there is some immediate financial benefit from layoffs, questions remain around its sustainability. Many companies which have implemented golden handshake schemes to lay off workers later found that costs were back to the same levels in a few years as contract workers replaced full-time employees gradually.

Additionally, the quality of work suffered as contract employees have little reason to be loyal to the organisation the way full-time employees tend to feel. Numerous other issues pertaining to management of a contract-based workforce also surface as companies try to implement this model. The laid-off worker is also hardly ever better off after accepting a golden handshake. Here once again, we must be able to put things in the Pakistani context instead of comparing our country to the developed world, where countries have strong social protection systems that take care of the unemployed.

So then how do we deal with the efficiency issues faced by SOEs. Better managed companies have dealt with this the only way it ought to be done: taking a longer-term view and ensuring that all stakeholders are in agreement with the path forward. They have engaged workers and their representatives as equal stakeholders. Although difficult to do, and rarely practised in Pakistan, top management must connect consistently with workers, share the organisation’s situation in a transparent way, and discuss ways to collectively address the issues. This can be done in several ways: First, cross-train employees. The best way to enhance productivity for an organisation is to make its employees multi-skilled. If there is an excess of people in one function, they can be trained to work in other areas. Sometimes, it is only a case of responsibilities being enhanced as the basic skill set remains the same. At other times, there might be similar roles they could perform by adding relatively few additional skills.

Secondly, upgrade the skills of your workforce. In today’s world, a lot of workers feel – and are – threatened by the prospect of automation and digitalisation of their roles.

Although many of these fears are misplaced, there is a definite opportunity to enhance the skills of workers to enable them to become more efficient in their current roles by becoming more tech-savvy and comfortable with the change brought about by increased automation.

And finally, provide real opportunities for career growth. If the organisation can provide the first two, then the only next logical step is career growth for workers who learn and show potential for growth. The sad truth in Pakistan is that we have very few workers who have been provided with the opportunity to grow from the lowest to the highest levels. In one of

my management roles at a multinational firm, my supervisor was someone who had joined that organisation as a regular plant worker and grew to become the CEO of that business. Such stories are rarely heard in our society.

The elephant in the room remains the unions in Pakistan which have been discouraged since the days of General Ziaul Haq, who ruled Pakistan in the 1980s. Where unions do exist, they are either reputed to be a front for the management, corrupt, or associated with one or the other political party. Sadly, we have entirely missed the value which can be created by trade unions.

It is quite strange for both management and workers to live in suspicion of each other and yet continue to claim that they are both working for the benefit of the organisation!

In the West, a great example of a functional union-management relationship is seen in Germany where they have a concept called “codetermination”. This codetermination allows workers to vote for board seats and hence they can elect people from their own ranks to company boards. As a result, most German companies have representatives from the worker’s unions on their boards and thus participate in all key decisions.

While this example may be too extreme for Pakistan, organisations here must start the engagement process sooner rather than at a later stage. Pakistani managers, whether from the private sector or state bureaucracy, have unfortunately grown up in an environment where most live in perpetual fear of trade unions. Some of this fear may be real given the history of union activism but will need to be alleviated if things are to be different.

Management teams should understand that their own long-term success is tied to all stakeholders, including the workforce. SOEs have a large impact on society and should therefore not be answerable exclusively to shareholders and be subservient to profit and loss accounts only. Some of their biggest stakeholders are their employees and their consumers, and this realisation must reflect in the management’s thinking.

As far as unions are concerned, if they are to resurrect themselves in our society and play an important role, they must engage with management for constructive purposes and for the benefit of the organisation. They must learn to give up demands which suit union office-bearers alone and make the relationship with management an ongoing tussle.

Quite obviously, the state has an important role to play here by creating a legal system which allows unions to exist albeit peacefully and ensures both management and workers partner with each other for the organisation’s benefit.

The SOE issue in Pakistan is not a simple one to understand and has many complexities beyond the cost-benefit numbers and the usual good governance logic. Yet, the manpower problem remains at the heart of finding solutions to the overall issue and we must be prepared to deal with this via longer-term solutions which sustain SOEs without hurting employees and the society. We must reframe our thinking instead of looking for alternates which are accompanied by large corporate restructuring schemes. It may well be more arduous, but it is the only wise road to take if the objective is to enhance collective good. n

COMMENT

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By Taimoor Hassan

earch for Iqbal Z Ahmed on the internet and you will find stories of how one man has hijacked the energy sector of the country, particularly natural gas, and find tales of corruption surrounding his name. Meet the man and you will find story of a person who persisted through obstacles and went on to become one of the top businessmen of the country from modest beginnings. Which picture of the man is the truth is somewhat hard to discern, though it probably contains elements of both versions of his story.

His company Associated Group (AG) has business interests in the natural gas and power sectors of the country, media, and architecture and design. The Group also plans to move into aviation now.

It has been a bumpy ride for Iqbal Z Ahmed with many trials and tribulations but he persevered because, in his own words, he is a risk taker who likes challenges. Often called the Gas King of Pakistan, Iqbal Z Ahmed is also a king of

controversies. His brainchild, the Jamshoro Joint Venture Ltd (JJVL), an LPG production plant in Sindh and the flagship company of AG, earned him his fortunes and his notoriety through the famous quota scandal.

But unlike other businessmen, he does not shun these controversies and cogently refutes criticism directed at him for his actions. He regrets that his critics talk about him – in his view – without knowing relevant facts, but is open to providing all sorts of clarifications, including providing immediate proof of his assertions, almost on-demand.

For instance, during the interview Iqbal Z Ahmed, CEO of AG, was asked as to whether Jamal Akbar Ansari, the CEO of Akbar Associates, an engineering firm with interests in the oil and gas sector of the country, was a partner in JJVL. The question came up because Ansari issued a press release, which was published in Pakistan Today, in which Ansari dissociated himself from Iqbal Z Ahmed and his businesses, including JJVL. Ahmed, however, confirmed that Ansari was a partner and for further clarification made a call immediately to Ansari to confirm his partnership in JJVL.

In the call, which Profit can confirm since we were participants in it, Ansari, who was a rival of Ahmed in the race for securing a government contract for building the second liquefied natural gas (LNG) import terminal of the country but was disqualified for submitting a fake bank guarantee certificate, now confirmed that he was in fact a partner in JJVL. “I have 10% shares in JJVL from the inception of the company,” Jamal told Profit.

On a question asked by this scribe why he denied it earlier, Ansari said: “You guys [news media] questioned once if Akbar Associates was a partner in JJVL? These are two separate things. I have my personal shares in JJVL.” “I like to clarify things. If somebody wants to confirm something, they can come talk to me directly. I will tell them what the facts are,” Ahmed said while disconnecting the call.

Humble Beginnings

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qbal Zafaruddin Ahmed, or Iqbal Z Ahmed as he prefers to be called, was born in 1946 to an officer in the Police Service of Pakistan. After graduating from Aitchi-

ENERGY

“I am criticised for giving gas allocations to my friends who happen to be generals and politicians.

My answer is very simple: why don’t you ask the same question from a Toyota manufacturer or a cement or ghee manufacturer? It is my product!

Where was the condition that I could give to A [and] not to B, give to C not to D. The only qualification that was required was that any allocation made by us was subject to an OGRA license. If I violated that, please hang me” Iqbal Z Ahmed, CEO of Associated Group

son College, he completed a Masters degree in economics from Government College in Lahore.

From there onwards, he delved into business and never looked back.

From the time he was studying in Aitchison College, Ahmed did not want to do anything else except have his own business because he believed that it would enable him to make contributions to the society and the economy and he claims to have eventually dedicated his whole life to it.

“I had options to go abroad but I opted to stay with my parents and work here,” Ahmed told Profit.

But it has been a difficult journey, according to Ahmed, because in Pakistan, new ideas are frowned upon. “There is no support to a new idea and it creates enmity. But that’s life, I suppose. It happens everywhere, except that Pakistan might be a little more pronounced,” he says.

The foundations of the Associated Group were laid by Ahmed’s father, Zafar Ziauddin Ahmed (Z. Z. Ahmed) when he retired from the Police service in 1958 and started dabbling with business. For the passion of business, Ahmed joined him while he was studying and offered his father all the help he could until he graduated from Government College in 1968 and joined his father’s business full-time.

The family’s first stint into business was an agency for selling scooters after Wajid Ali Shah of Ali Autos gave them an agency contract for selling Italian made Lambretta scooters in Lahore.

“We started off with a small shop. Lambretta was in competition with Vespa scooters at that time. We got their agency for Lahore and we did well on that,” he said as he delved into history of his family’s business.

A little further into time and the family entered into the business of televisions when

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the Wazir Ali Group went into the business of making televisions under licence from the NEC Corporation of Japan.

“The Wazir Ali Group made us an agent.

We did very well by God’s grace. So well that NEC Corporation ended up making us an agent for Pakistan rather than the Wazir Ali Group.

The business did very well till until we had to shut down because NEC halted its television production and went into the business of computers and communications,” said Ahmed.

At that point, through an introduction from acquaintances, the family also started importing Yugoslavian tractors from a Serbian company called Industry for Machines and Tractors (IMT), which had a license from Massey Ferguson, the then-British-Canadian farm equipment giant which is now based in the United States.

The business went well until the government of Zulfiqar Ali Bhutto nationalised the tractor import business, leaving all the liabilities with the company but the import was now with the government. The setback put the business into hibernation until 1980 when Ahmed again went into the tractor business but this time in local manufacturing.

“Millat Tractors at that time was already in business and so was Ghazi. We were the third plant which was inaugurated by General Ziaul Haq, who was the president at that time.

Till our plant, the general nature of tractor industry here was that of assembly plants. I would like to take the credit of introducing the vendor development system, which others have related to and which has led to far greater indigenization of local components in the production of tractors. I think it was a good start and it is a contribution that I am happy that I was able to make,” he says.

After a failed attempt to get into the manufacturing of automobiles and bring the

British-made car Morris into Pakistan, Iqbal Z Ahmed entered into gas business in 1989 and set up Lub Gas -- a liquified petroleum gas (LPG) marketing company responsible for sales and distribution of LPG, followed by another marketing company called Mehran LPG in 1997. Since then, the company has reinforced its presence in the LPG sector by setting up LPG production plant in 2005 under the name of Jamshoro Joint Venture Ltd (JJVL) in Badin gas field near Hyderabad.

The decision to go into the gas sector as explained by Ahmed was motivated by the fact that the tractor business was faltering because they were getting their tractors from Serbia.

“Serbia and Muslims were not getting along.

Serbia became subject to a lot of sanctions. We had to get involved in something. That is when we decided to bid adieu to engineering sector and try our luck somewhere else. At that point, we got an opportunity in introducing LPG.” The watershed moment for the company was when in 2000, the state-owned Sui Southern Gas Company Ltd (SSGC) advertised for setting up an LPG extraction plant after a gas field was discovered in 1988 in Badin near Hyderabad.

“Between 1988 and 2000, seven attempts were made to setup the LPG extraction plant but none materialised. They did not materialise because it carried high risks as there was no guarantee of the life of the reservoir. The owners of the gas field at that time – Union Texas – refused to set up the plant. [The stateowned] Oil and Gas Development Corporation (OGDC) was asked to setup the plant, and they refused. SSGC was asked to setup the plant, they refused. When the bids came for first time, they were cancelled for whatever reason.

Then it happened the second time and the third time. The last time the bid came, nine parties qualified but the bid was received only from us,”

“The agreement to set up the LPG plant, as noted by the Supreme Court, was amended for the benefit of JJVL in the Musharraf era. The PPP was also doing nothing about it. We just made an attempt to stop the plunder at some point. If we could not undo what had been done before, we could at least stop it at a certain point. In the same spirit, I filed a petition against Rental Power Plants (RPPs) and we were successful in stopping them” Khawaja Muhammad Asif, former Federal Minister for Water and Power he disclosed.

In his words, the venture was so risky that people such as Razzak Dawood, one of the people who qualified for the bid, backed out saying that the project was too complicated and too risky.

But Ahmed still took the risk and started setting up the plant even though established businesses warned him that the project was too risky and that they will not accept allocations from him because these companies would have to invest in metal to buy cylinders to give to consumers, but would not do so because they thought the project would fail.

“They told us that they thought the plant will fail because of three reasons: a) because we did not know the business b) because there was a huge risk on gas reservoirs and that the production will drop very rapidly and c) they believed that the government policies were such that they were not pro-investment in this sector as could be seen because nobody else had come into this sector. If it had been pro-investment, somebody would have made a move into this sector,” he said.

Compared to the risk, the opportunity Ahmed saw at that time was of tens of million people in an energy starved country that had little emphasis on infrastructure and development.

Ahmed already had a sales and distribution network in place through marketing companies Lub and Mehran.

“There was a great opportunity to bring energy to people at their doorsteps. We took the risk and setup the production plant (JJVL) and also set up almost 30 new marketing companies with people, friends and associates who had faith in me,” he said.

The way the business was structured, JJVL would extract the LPG from the gas field and allocate quotas to marketing companies for sale and distribution to consumers where piped gas was not available. Through the marketing companies belonging to his friends and the two

that he setup himself, Ahmed had wide network of sales and distribution of LPG. Though the business was a hit, it came under a lot of criticism for giving allocations to army generals, politicians and bureaucrats, mostly friends of Ahmed. And it was not just for who got the marketing quotas that Ahmed received criticism. There were allegations that Ahmed ran a cartel that kept LPG prices artificially high for consumers.

In 2009, those allegations were substantiated when the Competition Commission of Pakistan (CCP) fined JJVL Rs278 million for keeping LPG prices artificially high in collusion with the LPG Association of Pakistan, then run

by Ahmed and his son Fasih.

For his part, Ahmed denies wrongdoing even now. “I am criticised for giving gas allocations to my friends who happen to be generals and politicians. My answer is very simple: why don’t you ask the same question from a Toyota manufacturer or a cement or ghee manufacturer?,” he said. “It is my product! Where was the condition that I could give to A [and] not to B, give to C not to D. The only qualification that was required was that any allocation made by us was subject to an OGRA license. If I violated that, please hang me.”

Ahmed claims that he made those allocations only to retired generals who were his friends, and who had spent a lifetime together with him and who were looking for opportunities. “I brought women into this business, I brought young men into this business. As a result of JJVL and the investment that has been mobilised and as a result of policies of the government at that time, over $1 billion was invested in the LPG sector,” he said.

“As far as the Competition Commission is concerned, they fined everybody at that time.

I have no hesitation in saying that CCP at that time was completely mad. They fined banking council, the banking association, the cement association, the ghee association, the LPG associ-

ation. And because it was all fake, nobody paid anything. Everybody got a stay and nothing has happened since. I am not the only one, everybody and their uncle was fined,” he said, “The LPG Association of Pakistan consists of about 100 companies, who have daggers drawn at each other, so collusion between them to control the price was not even possible.”

The era he is talking about is 2006 through 2010, when the CCP was headed by Khalid Mirza, the legendary civil servant and former World Bank executive who turned around the Securities and Exchanges Commission of Pakistan in the early 2000s and then created the Competition Commission of Pakistan (initially called the Monopoly Control Authority). Mirza fearlessly took on oligopolies in virtually every industry before ultimately being ousted from his job in 2010 by President Asif Ali Zardari after arousing the ire of virtually every powerful business lobby in the country.

And since then, the CCP has not been able to pursue significant anti-trust enforcement action against any major companies, and has found its cases mired in the courts for years.

“No judge has been able to pass anything on that. On three different occasions, the cases were argued and concluded but every time the decision was to be made, the judge became judge of the Supreme Court. If the CCP is so concerned, why don’t they go to the court and ask for a quick decision? Or submit an application in the court that the case is pending from some time please give a decision on this. Public interest litigation. Let us decide it once and for all,” he questioned.

The troubles for the Associated Group, however, did not end there. In 2013, the Supreme Court struck down the project after it found out that the agreement between SSGC and JJVL to set up the plant was rigged in favour of JJVL for calculating royalty payments to SSGC, causing a loss of Rs22 billion to the state-owned company.

ENERGY

The court documents say that the royalty paid by JJVL to SSGC for extracting LPG was to be calculated according to the import price of the LPG. However, JJVL paid the royalty using local LPG prices as the benchmark, causing a loss of approximately Rs22 billion to SSGC. According to court documents, JJVL contended that it never agreed to the formula of using import prices of LPG as the basis for calculating royalty payments. In fact, the JJVL contended in the court that using import price of LPG, which was higher than the local price, as benchmark for calculating royalty payments, would have made them un-competitive in the market.

“My argument is that you are making a Pakistani product and you are selling it in Pakistan. The LPG price was linked to the highest price in Pakistan. The government agencies were setting the price. The biggest producers at that time were the OGDC and PARCO. These were the people who set the prices. We just followed them. If I was getting a discount on that, then it would have been wrong. How can I sell my product at a higher price among people who have a similar product to offer, in the same market. It will make me uncompetitive. But nobody goes into these details,” Ahmed Z Ahmed said.

“It would have been wrong if I was the only one getting benefit. But it was for the whole industry. It was the policy,” he added.

The petition, filed in the Supreme Court

by Khawaja Asif, a Pakistan Muslim LeagueNawaz (PML-N) Member of the National Assembly who would later go on to become the Minister for Water and Power under the Nawaz Administration, also contended that the bidding process through which JJVL acquired the contract for setting up the LPG extraction plant was defective as the bid bond worth $100,000 which was required to submitted along with the bid, was submitted after the deadline had expired.

“We submitted the bid without a bid bond but the bid bond was issued on that date.

We had attached the photocopy. The actual bond, because of PIA’s flights being stuck, was delivered the next day. As per powers available with the board of SSGC, a proper meeting was held and they could have cancelled the bid, which they had done on three previous occasions and they could have gone on forever or they could proceed,” he explained.

Ahmed explained that the fallout of cancelling the bid would have been that the right to setup the LPG plant would have gone from SSGC to British Petroleum. According to an agreement, SSGC had up till 2003 to award the extraction project before the rights to do so reverted to British Petroleum. In that case, said Ahmed, all the royalty which SSGC made, the Rs49 billion of it, would have become zero.

26

FINED

INVESTMENT

Rs278 million The amount the Competition Commission of Pakistan levied as a fine on the Associated Group for what it deemed were anticompetitive practices that sought to artificially inflate the prices of natural gas in Pakistan

“Nobody talks about these facts. I mean these are the things which are very good to talk on TV shows but please let’s get into the facts.

Come and sit down with me on a piece of paper and let me walk you through each document.

Let’s determine what was the benefit and what was not the benefit, and let an expert decide,” he said.

“Over the life of the project, we have saved a billion dollars in foreign exchange and we have created 5,000 jobs directly and indirectly,” he said.

Why Khawaja Asif moved in court against Iqbal Z Ahmed, and that too after almost a decade, is not known to Ahmed. But he says that he has no grudge against Khawaja Asif. “It was his conscience. I never had any bad blood with him. He was a friend. I don’t know why he did it. I never asked and he never informed.”

Talking to Profit, Khawaja Asif said that the case was never filed on a personal basis against Iqbal Z Ahmed.

On a question why it took him almost 8 years to file the case as the agreement between JJVL and SSGC was signed in 2003 while the petition with the SC was filed in 2011, Asif said that from a legal point of view, he didn’t have a locus standi to go to the court directly and instead, the matter was raised in the National Assembly repeatedly and was referred to a standing committee of the lower house.

“Once I had the findings of the standing committee, that became the basis of my petition. I went to the court with these findings, told them that these are the findings of the committee but the government [then of Pakistan People’s Party (PPP)] was reluctant to imple-

$ 15 million

The amount the Associated Group plans to invest in setting up an all-business-class commercial airline in Pakistan

ment these recommendations,” he said.

Asif, however, again reiterated that in these cases, he was not seeking anything against anybody specifically. “The agreement to set up the LPG plant, as noted by the Supreme Court, was amended for the benefit of JJVL in the Musharraf era. The PPP was also doing nothing about it. We just made an attempt to stop the plunder at some point. If we could not undo what had been done before, we could at least stop it at a certain point. In the same spirit, I filed a petition against Rental Power Plants (RPPs) and we were successful in stopping them,” he added.

The Rental Power Plants

I

n 2006, then President Pervez Musharraf’s government, to overcome rampant power shortages in the country, floated the idea of granting small power plants contracts of between three and five years to produce power, add it to the national grid and earn profits by selling the electricity to consumers.

These power plants would come to be known as the rental power plants (RPPs). The government would meanwhile work on longer-term projects like hydroelectric power for a long term solution.

One of the company that invested in setting up the RPPs was Pakistan Power Resources (PPR), a company owned by Iqbal Z Ahmed.

In March 2012, Supreme Court, on a petition filed again by Khawaja Asif, declared the RPPs illegal in a verdict that observed that the contracts to establish the power plants, signed between 2006 and 2008, were awarded in a non-transparent manner and therefore ordered

that these be rescinded.

Ahmed alleges that the project was politicised because it was introduced by Musharraf, a known friend of Ahmed at that time. “It was politicised because Musharraf initiated it and [Pakistan] Peoples Party wanted to push it hard. But then PML-N took it on.

And because PML-N took it on, the whole deal was cancelled at that time.”

“When the court decided the case, it was decided mainly by [then-Chief Justice] Iftikhar Muhammad Chaudhry in his own whimsical way. But show me an iota of corruption. Show me a corruption chain, that the concept was wrong. Show me that so and so received so much money from so and so,” he added.

“It was a damn good concept. Bangladesh followed it, India emulated it. Many countries in Africa emulated it,” Ahmed said.

He, however, admitted that the plants were less efficient and because of being less efficient, they consumed more fuel, making them more costly than combined cycle thermal power plants. But the choice at that time was between slightly less power or no power and 1% of additional power was worth about a $1 billion for the economy, he claimed.

“Nobody went into these facts. I invested a lot of money. The deal was cancelled by the Supreme Court and we were made to pay all the advance that we had. We paid with 12% interest in dollar terms at that time. The amount ran in tens of millions of dollars. We paid something like Rs5-6 billion,” he said.

“So it’s been a challenge. Life goes on but these challenges have to be faced head on.

And I have no complaints or bitterness about anything,” he said.

Undeterred by the misgivings of the JJVL project and RPPs, Ahmed moved onto the LNG import business and set up a floating LNG import terminal to meet energy demands of the country. Together with equity partner Trafigura Holdings Ltd, a multi-billion dollar international energy trader, Ahmed’s Pakistan GasPort Ltd (PGPL), through its wholly owned subsidiary Pakistan GasPort Consortium Ltd (PGPC) owns and operates an LNG import terminal at Port Qasim in Karachi.

The LNG terminal project represents a combined investment of half a billion dollars

among PGPL, Fauji Foundation’s Fauji Oil Terminal & Distribution Company Ltd (FOTCO) which operates the terminal and Norway’s BW Group which operates the ship.

While most of its operations are concentrated in the energy sector, the Associated Group is involved in architecture design, engineering and obviously media.

His Group publishes the Pakistan edition of Newsweek and his aspirations to start a news channel of his own are well known, In fact in 2012 the group was in negotiations to partner with American news media giant Cable News Network (CNN). For Iqbal Z. Ahmed this was a perfect industry to invest in as it is common for Pakistani businessmen, especially those who get into trouble with the state authorities, to try and expand their influence through media, particularly the news media. It not only hedges them against smearing campaigns by domestic media houses sometimes owned by rivals in business or politics, but presence in news media also serves as an insurance against perceived excesses of the state and helps businessmen propagate their agenda. .

In the case of JJVL, the Ahmed family has the majority shareholding, with Iqbal Z Ahmed holding 52% of the shares himself and a percentage held by two of his sons individually.

Other partners include Jamal Akbar Ansari of Akbar Associates, who holds 10% shareholding.

In the LNG business, JJVL has shareholding in Pakistan GasPort Ltd which in turn owns Pakistan Gasport Consortium Ltd. Together with individual shareholdings and the shareholdings of JJVL, the Ahmed family has 52% ownership of the LNG terminal as well.

Other notable investors in the LNG project include Mian Amir Mahmood and Syed Yawar Ali of the Babar Ali family.

Lub Gas and Mehran LPG are majority owned by the family with small external shareholdings.

The Group also operates a philanthropic arm by the name of Zohra and ZZ Ahmed Foundation that supports education, health, and community development projects and the arts. One of Ahmed’s sons, Razi Ahmed, is the founder of Lahore Literary Festival, a cultural

JJVL contended that it never agreed to the formula of using import prices of LPG as the basis for calculating royalty payments. In fact, the JJVL contended in the court that using import price of LPG, which was higher than the local price, as benchmark for calculating royalty payments, would have made them un-competitive in the market

festival that aims to bring together, discuss, and celebrate the diverse and pluralistic literary traditions of Lahore.

Plans Ahead

T

ogether with its equity partner Trafigura, the Group is setting up another LNG terminal, 100% externally financed, for the private sector, without any dealings with the government under a new entity called Pakistan Gas Solutions Ltd. “Our contractor has given to the government a timeline of 10 months, Trafigura has given a timeline of 12 months. We are ready, we have the vessel, we have the contractor, we have the finances. There is a small thing pending with the [Port Qasim Authority] PQA that is regarding orientation of the jetty. Once that is done, we are ready to go,” says Ahmed.

For the project, Ahmed says they will not borrow anything in Pakistan and everything will come through equity or borrowing outside Pakistan. The plan also includes bringing their own LNG, selling it to private buyers, without any involvement of the government in importing the LNG or selling it.

“We will also develop our own systems of gas delivery. We are delivering what is called a virtual pipeline. Because the problem for any LNG terminal, we or the new ones, will be the transmission of gas from Karachi to the North.

The third pipeline is yet to be made. The present capacity is fully utilized. How is the gas to be brought here is the question. The government pipeline will come in due course of time but the government being government takes time. So we want to develop a virtual pipeline system of delivery directly from the port to the consumer,” he said.

Virtual pipelines are scheduled shipments in containers by rail or road. Virtual gas pipeline operations supply markets that are either too small for normal LNG large-scale carriers or too geographically challenging to justify an investment in pipeline construction.

Among other plans, the Group wants to launch a commercial airline service that will target businessmen, executives and bankers as their niche market. It will be an all business class airline operating within Pakistan. The group is looking to make an investment of $15 million for this project, which is in the advanced stages of implementation.

“We have identified Embraer E-190 as potential aircraft for the service. It’s a 80-passenger aircraft. All business class seats. We are targeting to start our commercial operations from January 1, 2020,” Ahmed said.

“I love aviation. It is my passion. I love reading about it. And I want to show the difference between the present flying and what a good airline can do,” he added. n

ENERGY

The ride-hailing app just raised its Series A round, the largest in Pakistan to date, and appears to be focused on hypercharging its growth, but can it emulate the success of Indonesia’s Go-Jek? 30

E

By Ahmed Jamil

ver since Rabeel Warraich announced that he had raised the funds to create one of Pakistan’s first institutionalized venture capital funds, the country’s startup ecosystem had been buzzing with a single question: so what will Sarmayacar invest in next, now that they have significant funds to create a serious funding round for a startup? On Tuesday, April 30, we got an answer: Bykea, the Karachi-based ride-hailing and logistics startup focused on motorcycles Sarmayacar, along with two other venture capital investors, will be investing $5.7 million into Bykea, at an undisclosed post-money valuation. It is the largest Series A investment to date by institutional venture capital investors in the short history of Pakistan’s startup ecosystem, and represents a milestone in terms of the ability of local startups to point to examples of successful fundraising.

“We are pleased to join Bykea on its journey of building affordable technology

solutions that will create income generating opportunities for tens of thousands in Pakistan, while addressing rampant challenges in the transportation, logistics and payments sectors of the country,” said Rabeel Warraich, managing partner at Sarmayacar.

The transaction brings together Sarmayacar with two other venture capital investors – Middle East Venture Partners, a $250 million fund based out of Dubai, and Tharros, a Singapore-based company – to fund a high-growth Pakistani startup that in some ways seeks to challenge the incumbent positions of Uber and Careem, though in other ways offers a differentiated product.

Bykea appears to be modeled after Go-Jek, the Indonesian startup that earlier this year raised a $2 billion funding round that valued the company at $9.5 billion. Those high valuations were no doubt on the minds of the investors who have backed Bykea.

“Bykea and its team are in a great position to play a leading role not only in advancing the nascent startup sector but can also become a local champion within the overall economy, similar to GoJek’s tremendous success in Indonesia,” said Singapore-based Jonas Eichhorst, an executive at Tharros, who will join the company’s board as part of the transaction.

The announcement for Bykea may have generated a lot of buzz, but this is not the first time Muneeb Maayr, the company’s founder and CEO has been an entrepreneur. The serial entrepreneur has been an early employee at several startups, including Rocket Internet’s Daraz.pk, which was acquired by Alibaba last year. The story of Bykea, in some ways, starts with the journey of its founder, Maayr, who has been building companies for nearly two decades now.

From banking to building companies

M

uneeb Maayr grew up in Pakistan but graduated from the elite University of Virginia in the United States in 2001 and entered that most soul-crushing of professions: investment banking. He started working at Bear Stearns, the esteemed Wall Street firm that was one of the first dominos to fall in the collapse that eventually became the global financial crisis.

But that would be several years later, and long after Maayr left the company. In 2002, he was a lowly analyst at the bank that was undergoing the usual market retrenchment and found himself on the wrong side of layoffs and in need of another job that would sponsor him for a work visa. By chance, he went back to visit his college town – Charlottesville, Virginia – and met with executives at a relatively new company headquartered there: SNL Financial, which sought to create financial databases and simplify the jobs of financial analysts like Maayr himself.

Maayr had the idea of persuading the company to set up back-office operations in Pakistan, and was apparently persuasive enough to not only gain permission to lead the effort to

$5.7 MILLION

do so, but gained equity in the company in the process.

He moved back to Pakistan, to Islamabad, and began setting up operations for SNL Financial to provide data analysis services to financial institutions in the United States and around the world. Thanks in no small part to Maayr’s efforts, SNL’s operations in both Pakistan and worldwide began to grow rapidly. The Pakistan operation, which Maayr started practically alone in January 2003, grew to over 600 people by the time he left in June 2012.

By that time, SNL had been acquired by the US private equity firm New Mountain Capital, and Maayr was already thinking of his next move. In a video of him giving a speech to SNL employees at an event in Islamabad’s Serena Hotel, Maayr is seen alluding to the transformation that is about to hit Pakistan’s technology industry with the advent of 3G and 4G mobile internet.

Maayr wanted to create his own e-commerce startup around the same time that he learnt of Rocket Internet’s desire to do so. He entered into conversations with them to fund his startup, but the conversation soon turned into being about hiring him to run Rocket Internet’s Daraz.pk, which started off mostly in the fashion

FUNDING ROUND The amount of money raised by Bykea in its Series A funding round from three institutional venture capital investors, the largest such round in Pakistan to date

TECHNOLOGY

“There are 200 million people in the country.

And until and unless we’re able to tap into this 200 million population and are able to acquire them and sell them something, we’re fighting in the same set of customer base. And that customer base is savvy in English, smartphone ready, like any audience in any country in the world” Muneeb Maayr, CEO of Bykea

space but ended up becoming Pakistan’s largest e-commerce player.

It was during his time at Daraz that Maayr had to think a lot about last-mile logistics, or solving for the problem of inefficiencies in Pakistan’s logistics sector, or conversely, the opportunities.

By December 2016, as conversations had already begun to sell off Rocket Internet’s stake in Daraz.pk to Alibaba, Maayr left the company and raised capital from a small Karachi-based private investment company called Ithaca Capital to start Bykea, which would not only get into the ride-hailing business but would also seek to solve the last mile problem by offering same-day delivery services.

Bykea’s platform

I

n less than two and a half years, Bykea has grown to become one of the largest platforms in Pakistan, connecting 200,000 motorcycle riders to its 2 million users, according to the company’s data. So far, the company only operates in Karachi, Lahore, Rawalpindi, and Islamabad.

Bykea was launched on three basic principles, according to CEO Maayr. “We wanted to take the existing technology and make it relevant to a major portion of our population.

We wanted to convert the existing possessions of people i.e. motorbikes and smartphones into income generating assets and we wanted to solve transport problem in the three major cities

of Pakistan — Karachi, Lahore and Rawalpindi/ Islamabad.”

Maayr saw a market potential that others were late to realise. “There are 200 million people in the country. And until and unless we’re able to tap into this 200 million population and are able to acquire them and sell them something, we’re fighting in the same set of customer base. And that customer base is savvy in English, smartphone ready, like any audience in any country in the world.”

Maayr wanted his product to be different and so he built a service that caters not only to the tech savvy, English-speaking population, but to the other, much larger chunk of the market as well. And that’s why, he says, the mobile application itself is also in Urdu.

Maayr said he’s thankful for the trust investors have put in Bykea, and at the same time debunked the myth that it’s easy to raise investments for a local startup. “It’s been very, very hard to raise money for Pakistan, contrary to what you hear that everyone in the world is ready to plug money into Pakistan. That's not true and it's actually quite prohibitive. Pakistan has such a regimental control on bringing money in and taking it out that no one wants to invest.”

He went on to say that it’s a different thing when multinationals invest money in Pakistan as they do it because they know it would drive consumption and sales. “Everyone is interested in Pakistan from a consumption oriented point of view. These are not businesses that are ultimately generating economic activity

“Bykea and its team are in a great position to play a leading role not only in advancing the nascent startup sector but can also become a local champion within the overall economy, similar to GoJek’s tremendous success in Indonesia” Jonas Eichhorst, Founder and Director at Tharros

32

out of the country. Why are we (Bykea) in this business? We are in the business of essentially creating an offering for the local population and trying to drive economic efficiency and utility out of people’s daily actions,” said Maayr.

The investment will be used for marketing Bykea’s core product offerings — ride-hailing and logistics, and raise the profile of the company and allow it to accelerate its user growth.

Ride-hailing and deliveries are the two most popular services offered by Bykea, accounting for more than 80% of the company’s revenue.

In addition, Bykea wants to try something that has not yet been done: it is going to launch a ride-hailing service for people who do not have a smartphone. “The thing is that the market is very large and no one has been really able to penetrate a significant portion of it. There are around 50 million smartphones but there are 100 million people that use feature phones. If you bifurcate Karachi, Lahore, and Rawalpindi/Islamabad, even in these cities, there should be around 20-21 million people with feature phones. So the potential market is huge,” said Maayr.

Ever since Bykea’s inception, the core mission for Maayr has been to create businesses that solve significant problems. “The problems we want to solve include a huge market. The question is how you will reach this market in a

“We are pleased to join Bykea on its journey of building affordable technology solutions that will create income generating opportunities for tens of thousands in Pakistan, while addressing rampant challenges in the transportation, logistics and payments sectors of the country” Rabeel Warraich, Managing Partner at Sarmayacar. cost-efficient manner and if your product is even relevant for that market or not for them to use it. It's quite possible I may have reached you as a potential customer, but you may not use my product. I think these are very costly endeavours, and I don't think people realise that. The sheer amount of money that is required to drive behavior changes is quite a lot.”

But Maayr is optimistic about the future.

While many would’ve seen global powerhouses such as Uber and Careem operating in the same business as existential threats, Maayr sees an opportunity there too and credits them for helping develop the ecosystem. “As Careem and Uber advertise their bike category, awareness will increase because the whole ecosystem is growing.

Actually, when Careem entered the motorcycle space, we grew as opposed to shrinking. And that's because they had marketed bikes as an option.”

It is most likely that after Uber’s acquisition of Careem is complete, their marketing and operational costs would significantly reduce, according to Maayr. But he still sees Bykea’s future primarily in ride-hailing service. “I don't believe Careem and Uber have been able to explore the market despite putting in the millions that they have. Karachi alone has 3 million bikes.

They will say the problem is of awareness, but the fundamental problem is of the product and its ability to be comprehended and used by the larger demographic. Because the larger demographic in Pakistan is not savvy in technology

and English.” And that’s the market Bykea is hoping to capture to grow its business.

And to grow the business, Maayr says Bykea is working on making it easier for customers to book rides and giving its riders the liberty to work whenever they want. “We have to match both sides. Well start advertising that you can call a Bykea through a missed call. We have a number. 0307-1234567. It’s a super simple number. You dial it and someone is going to call you and patch you up to a Bykea rider. Our goal is to basically make this product accessible to the millions of Pakistanis in Karachi, Rawalpindi and Lahore who do not have access to a smartphone or who do not know how to use an app.”

For Maayr, it is extremely important to keep the supply side in check too. “We don’t want to bring people to the platform by giving out huge amount of incentives; that you should quit your jobs and come drive for us. What we’re doing is telling people who have a bike to come to our platform when they’re free. Our strategy is very different from other ride-hailing companies. It is how do we make assets that the middle class, lower middle-class have and make them income generating assets.”

But to gain something, it’ll have to lose part of it too. Maayr says the company is planning on pulling the plug on some of its offerings in the app. “Our focus currently is to explode the core offerings that are ride-hailing and delivery, as the percentage of addressed market is still

Left to Right: Rafiq Malik, Abdul Mannan, Jonas Eichhorst, Muneeb Maayr, Rabeel Warraich, Ishaq Kothawala and Haider Ali Hilaly

very small. I can say that I’ll launch six new things, but I can’t bring those six things into hypergrowth. I can bring one or two things into hypergrowth. We’ll narrow down our focus and expand our current offerings to make them a lot better.”

Though one new thing, aside from the missed call option, that Bykea plans to launch is a logistics solution for small businesses. “We’re going to be rolling out the ability for our riders to pick up goods from a location and deliver those to multiple areas. That is a new technology which no one else has right now,” said Maayr.

He also clarified that although courier companies provide that service already, Bykea’s service will be different because the deliveries will be made on the same day.

As Bykea invests the recent round of funding into developing new features and offerings, Maayr isn’t worried about the profitability of the product just yet. “You’re trying to construct this thing go higher and higher, so obviously there’s a capital expenditure going in. You don’t see a tangible building in front of you but every day our engineers and our marketing guys work to grow the brand. Do we today extract enough profit out of it? No we don’t. That’s why we need investors. We need investors to ultimately get into a stage where we start paying back the investors.”

With Uber’s acquisition of Careem fresh on everyone’s mind, Maayr says the company is open for acquisition as long as the acquiring company lets Bykea grow on the principles it is being run on right now. “We’re open to an acquisition only by a company that helps us grow as Bykea and helps us expand what we’re doing.

Even if we today are taking money from VCs were giving a part of the company in lieu of it.

Absolutely we’ll entertain anyone that is willing to invest money to help us grow the ecosystem.”

Maayr believes Bykea’s success lies with building the right product for the right market.

“I believe, ultimately, it is our nimbleness to solve and make it easier for people to use our product which will allow us to persevere. We've persevered without money. What prohibits us to persevere with money.” n

TECHNOLOGY

OPINION

Nadeemul Haque

Imran Khan: Build governance, discontinue Raja Rule

have spent. Due process will begin with a working cabinet and parliament.

Past governments have used both as inconveniences that are occasionally woken up only for show.

In the coming government, the cabinet must meet every week with proper well-prepared agendas and supported documents that are according to rules submitted at least two weeks before the meeting. They will use a feeling of crisis to present hasty last-minute stuff to cabinet for a quick decision.

That should be resisted at all costs. Nothing is so hasty that it should spoil governance. or too long we have had arbitrary government run by All cabinet documents must be well prepared and commented on by the elected rajas who personalized governance without required ministries. Nothing should come to cabinet without comments from due process, record-keeping or transparency. One lastother ministries. That discipline ensures that thought and debate has gone into ing legacy Imran Khan can leave is to establish modern the document before it comes to cabinet. I saw too many badly prepared hasty norms of government banishing kitchen cabinets, proposals come to cabinet without comments at the last-minute leading to sycophants and hasty un-investigated decisions. extremely poor decision-making.

I have argued in my book Looking Back: How Pakistan All economic proposals must be in conformity with the budget. The became an Asian Tiger in 2050 that perhaps the single biggest step budget is a law and it must be respected. If there is a spend proposal such as towards good governance could be to build up due process. Both buying fertilizer or sugar, it should be shown where is will be funded from. because of laziness and lack of work experience, politicians do not Will it break a budget ceiling? Will it require a reallocation? In either case the want to build due process. Besides, they dislike due process as it matter must go to parliament. If this is done, agencies will plan and budget limits freedom of action and leaves a paper trail. more carefully.

The civil service, which was the keeper of due process, has By the way, discontinue the ECC. It does not coordinate but merely been beaten into submission (through a harsh regime of transfers destroys the budget by constantly spending outside the budget law. Let it all and an incentive mechanism of invisible perks) to ignore due procome to the cabinet. cess. No longer are meetings properly conducted, nor are minutes Each cabinet there should be a few standard items. First there should fully kept and the technical requirements especially for financial be a presentation on the economy made in rotation (only one in each meeting) flows are often ignored. by three ministries, Finance, Planning and Commerce and the SBP. You need With due process, many of our expensive projects may not differing views and they must all emphasize their perspectives and vantage have taken place and saved us billions. We might have devised alpoints. They should all choose their own themes — fiscal, monetary, inflation, ternatives to the expensive metros. Technical considerations would growth, energy, water, sectoral growth and development and more — and their have ruled out Nandipur and the solar park. A balanced and well own issues for discussion. investigated policy through research and debate would have allowed Second, a roster should be set for each ministry to make a presentation us to build better education and energy with far less money than we at least once a quarter to report on the state of its sector. The report should tell you the goals for the sector they are managing, plans for meeting those goals, policies and most importantly reforms that are in play or considered. This progress report in each sector must come to cabinet for each ministry or agency once every quarter. The Planning Commission which is the PM secretariat Nadeemul Haque must omment on these presentations and must be in constant consutlation with ministries to be able to monitor is an economist and the progress. Reform must be the key focus for the coming period and each minsitry must show you how dextrous and former Deputy Chairman of keen they are to change and build service delivery. the Planning Commission of Third, key public sector enterprises should also be made to present their reports on their work goals and efforts Pakistan, and the former Vice to achieve profitability, provide public service and build the economy.

Chancellor of the Pakistan Fourth, for open government, following cabinet review substantial versions of these reports should be made Institute of Development public.

There should even be a maximum lag after which cabinet minutes should be published. For too long too much Economics. He previously has been kept secret. worked for decades at the Finally, a rolling agenda for cabinet should be maintained and published every six months so that concerned International Monetary Fund. staff have adequate time to research and prepare and the people know how their government is working.

These are elementary rules of management that we used to follow. Sadly, we have forgotten these. Do this and governance will improve and corruption remain in check.

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COMMENT

The military-owned bank has struggled with revenue growth and profitability in recent years, and is burdened by a sluggish company culture; the new CEO’s drive to change that has ruffled some feathers

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By Syeda Masooma

bid Sattar took over as the CEO of Askari Bank in August 2018. Somebody forgot to tell his LinkedIn profile, which still lists him as the head of international banking for Asia and Africa at Habib Bank. Should we read something into the fact that the CEO of the bank does not seem particularly keen to state publicly on his own social media profiles that he is the CEO? Sattar has 37 years of banking experience, and has worked at some of the marquee brand names of global finance. He started his career in 1982 at ANZ Grindlays Bank, moving to Chase Manhattan (back when it had a Pakistan presence in the mid-to-late1980s) before moving on to have extended stints at Citigroup and Standard Chartered. He then went on to run large divisions at Habib Bank, the largest bank in Pakistan.

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Askari Bank, by contrast, is a much smaller financial institution, and perhaps unlike any other that Sattar has worked at. Maybe he is simply too busy fixing the bank to worry about his own social media profiles. We certainly hope so, because there is a lot that needs fixing at Askari Bank.

“It’s been about seven, eight months that I am the chief executive. The initial few months were to understand how the bank is structured, and what sort of gaps and structural reforms need to be made,” said Sattar, in an interview with Profit, “Now I am pretty comfortable in terms of understanding what are the issues and agenda items for the next two three years.”

He certainly has his work cut out for him.

Askari Bank was, until recently, among the ten largest banks in the country, though it has since slipped to number eleven. And 2016 and 2017 saw sluggish growth in revenues of 3.2% and 0.9% respectively, with profits growing by just 5.7% in 2016 and actually declining by 2.0% in 2017.

And 2018 has not been much better either.

While revenue grew somewhat faster at 8.6% compared to the previous year, profits actually went down by 13.5%, marking the second year in a row of declining profits.

“There have been some market realities, stock market investments have not been doing well for so many years, PIB returns have reduced, so those types of provisions we have to make and that is something most banks have had to face,” said Sattar. “Continued slackness in stock market and investment portfolios have reduced our bottom line.”

He added: “The net profit after tax has reduced by 15-16%. But the core earnings of the bank have increased, in terms of advances we are making, deposits which we are getting, foreign income and foreign exchange we are getting is increasing. And we have pretty good plans of 2019 that we need to increase some of our

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product penetration, and our profitability will also improve.”

Abid Sattar says he is determined to take Askari Bank higher to become “at least among the lower five banks in the top ten” banks of Pakistan. He plans to start with making the bank more profitable and then achieving other targets, while repositioning Askari Bank as a competitor not only to the traditional banks but also to microfinance banks, the financial services arms of telecom companies, and FinTech startups.

The strange case of Askari Bank

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skari Bank is a somewhat unusual entity in the Pakistani banking system in that it is owned by a military-owned foundation called the Army Welfare Trust (AWT). That means that the bank is at least theoretically state-owned, and thus not entirely like a privately owned commercial bank.

However, AWT is not like other government entities in that it does not carry with it a specific public policy agenda for the companies it owns. In principal, it owns Askari Bank for the same reason it owns any other asset, or any investor owns any asset, for that matter: because it believes it will be a profitable investment. There are no explicit employment mandates, though the bank does employ some former military officers and soldiers.

Nonetheless, the bank’s management is surprisingly cagey about the role of its majority shareholder in its day-to-day management.

When asked by Profit as to whether the military has any influence on the bank’s operations or governance, Sattar said: “I don’t think there is, but even if there was, I would not tell you.”

The bank sees its brand as being affiliated with that of the military, which typically carries positive connotations for a large swathe of Paki-

stani society. And Abid Sattar sees that “brand strength” as something he can capitalize on to help grow the bank.

And the affiliation with the military helps in more tangible ways as well. “We are pushing the armed forces to transfer the salaries and pensions of non-commissioned officers’ through us,” said Sattar. The bank already handles the salaries of officers of the Pakistan Army and the pensions of the officers of all branches of the Pakistan’s Armed Forces.

As the single largest employer in the country, the Pakistan Army would be the largest salary contract that the bank could possibly get.

It would then lend credence to management’s efforts to offer a similar product to its corporate clients. “And that is the first point, we intend to offer the same services to other customer sectors as well,” said the CEO. The other major way its affiliation with the military helps Askari Bank is that some of its biggest corporate clients are also companies owned by the military through one of its charitable foundations. The largest and most profitable ones of these are the Fauji Fertilizer Company and its subsidiary, Fauji Fertilizer Bin Qasim.

Serving these companies not only helps the bank increase its corporate deposit and lending base, but also helps the bank in other ways.

“We are working with our affiliated companies, like Fauji Fertilizers. They already have a network of rural supply system and we can align with them, and that way we can make our agricultural banking reach more people,” said Sattar.

The struggling culture of the bank

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hile Askari Bank is not as bad as National Bank in terms of inefficiency, it nonetheless does appear to operate differently

“The financial sector has always been very competitive but lately because of FinTechs, telcos and microfinance coming in the payment and e-commerce areas where banks traditionally had their captive market, banks are now being pushed.

So now banks are also opening up, either developing alliances or developing their own capabilities” Abid Sattar, CEO of Askari Bank from the private sector banks.

“As a commercial organization we need to have a performance culture which rewards the good performance and weeds out non-performance,” said Sattar. “Over time, Askari Bank has developed a culture where people were not rewarded according to their performance, the goals were not set in that direction, and neither the awards. Everyone got the same type of increment and same type of bonus, and more or less a fixed bonus.”

And then there is the fact that the bank seems to perennially lack the right talent for the right jobs, as a result of which it is constantly needing to hire people from outside the bank, a situation Sattar hopes to remedy during his time as CEO. “We need to continue the pipeline and inductions, so people can be trained and promoted. Over the long run we should be relying on our in-house staff instead of having to hire at the middle management level,” he said.

Then there is the fact that, Sattar believes, the bank often does not have the right people for the job at all, and does not appear to have invested enough in training them for their jobs. Part of his approach as CEO has been to try to fix that situation.

“We need to revamp the training centers, and we are already doing that in three locations, Karachi, Lahore and Islamabad,” said Sattar. “At the same time we are working on e-learning models where people can learn about the products and processes which are universal e.g anti-money laundering, know-your-customer, and information security types of training that is across the board and every staff member needs to go through it.” And the bank appears to lack diversity on its staff. Sattar said that it is not just the skills and professionalism that Askari Bank needs, but considering the fact that it is operating all over the country, there also needs to be a more equal representation of the people from different areas.

He also feels that the female employees of the bank have not had equal opportunities to of career progression and perform as their male colleagues because as of now most of them are appointed at junior positions. Rectifying this is also

on his cards. “We have set a target that at least 30% of our staff should be female,” he said.

As a result of all these human capital-related deficiencies, Sattar feels the bank is simply not where it needs to be in terms of service quality.

“I firmly believe that for a bank of this size, we need to be number one service quality bank in this market. We feel that the service quality of the banks is not what the consumers expect. There are pockets of excellence, good quality service in various branches, areas or product lines, but generally the service quality is not consistent across the board all branches and all business lines.”

Forging the path forward

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o address these challenges, Sattar is setting off on an aggressive strategy to revamp the organizational structure of Askari Bank, institute performance management systems, and reorient the bank to become more competitive in terms of the product suite it offers its corporate clients and retail customers, with a special focus on the bank’s technology infrastructure.

These moves have ruffled some feathers, and most noticeably, has also resulted in a substantial number of layoffs from the bank, along with new hiring, and an outcry on social media by current and former employees of the bank, who now fear job insecurity.

The first move was a reshuffle in the senior management. “Initially there were some gaps in the senior management, which I tried to fill in by getting some people with relevant experience.

We have new treasurer, new risk manager, new head of HR. Some positions were vacant, some were not senior enough to perform those jobs. So we had to make some organizational changes, to align ourselves with the needs of the market and to align with our objectives that we are setting for ourselves for the future.”

Abid Sattar is not only concerned with hiring new people that he deems fit for the bank, but he is also changing the performance measurement systems within the bank making even

current employees earn their value. Brushing off the possible backlash or loss of motivation in the bank’s employees due to the new performance review system, he said that the new system is in fact a motivating tool for those who want career growth.

“That is a fundamental thing we are addressing. We want to encourage people who want to perform better, and we want to reward them better too. It’s a very time-tested performance management scale, that in any organization you will have 10-15% in the top category, 20-25% in the next category, and the bulk of your organization is comprised of core performers.

That’s the backbone of the organization. Even in bureaucracy, armed forces, even academic classes, there is always a distinction. There are always some top performers. Then there will be a small percentage of people who are not performing, and they either need to be retrained and given another opportunity to reperform, or perhaps given the choice of making another career option. This is how things work, and this is not something that is my own idea, it is how every organization works on a bell curve.”

On the product side, his strategies to enhance bank’s market penetration started with becoming more active in advertising in print and electronic media for soliciting more deposits.

He also wants the bank to concentrate more on credit cards and housing loans, which is in line with the government’s low-cost housing policy as well. “We are one of the few banks who are actively encouraging that product development. Askari Bank is one of the five banks that are being given that facility from the central bank for low cost housing, in cooperation with the World Bank.”

Askari Bank has also started transactional banking facilities for corporate banking customers, to “capture their collections and payments” through their system. A new division called ‘institutional seer’ has also been created for corporate and other organizations with whom the bank has large loans or large deposit relationships with, which is focused on providing them employee

BANKING

banking services like credit cards, personal loans and housing finances. “We have also gotten the digital banking policy approved by the board and we are entering that too so we can compete with the industry in terms of more products which connects customers to us like mobile banking and internet transactions,” Abid Sattar said.

Nonetheless, Sattar conceded that the financial services arms of telecommunications companies – such as JazzCash and EasyPaisa – have left Pakistani banks far behind in the race for mobile payments, and banks are only now realising that they need to catch up to stay relevant and profitable. He also believes that microfinance banks and FinTech startups have made an already highly competitive industry even more competitive.

“The financial sector has always been very competitive but lately because of FinTechs, telcos and microfinance coming in the payment and e-commerce areas where banks traditionally had their captive market, banks are now being

42

pushed. So now banks are also opening up, either developing alliances or developing their own capabilities.”

He also believes that the sluggish progress of purely banking products like Asaan Mobile Wallet is not because of any pressure from the telcos, rather it is the inherent weakness and the delay that banks took in capitalizing on the opportunity of financial inclusion through digital means. “The challenge in Pakistan is financial inclusion. The banked population is still 20%, and there is a huge population that needs to be banked. And if banks don’t do it, someone else will.” he said.

“I think the canvas of the banking sector is changing, and the more efficient, innovative and quicker you are you should be getting it going.

Telcos have had the headstart and have obviously developed their capabilities. Banks were in their comfort zone and are realizing that now. Telcos revolution in Pakistan has been much more aggressive and faster than most of our traditional

sectors. They were very innovative, and reached out to customers much faster. Without any previous records they introduced the prepaid segment which was very successful. Telco sector has penetrated almost 80% of the population, while banking is still 20-25%.”

Adding to the financial inclusion targets, particularly in relation to Askari Bank’s objectives, Abid Sattar said, “Our sponsors have a very clear bias towards lower income customers and those related to agriculture and rural areas. In that respect we are working on agricultural banking and rural banking and we are also working with our affiliated companies for that. We are trying to have much more robust digital capabilities because we also need to reach out to people in areas where we may not have the branches. We also need faster processing for money transfers, pensions and so on. In that respect we are also developing our own processes in line with that, and also looking for alliances with telcos, microfinance banks and fintechs.” n

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WHY IS PAKISTAN UNABLE TO DEVELOP A

COMPETITIVE-EXPORT

FOCUSED INDUSTRIAL SECTOR?

Export-based industry could cure Pakistan’s chronic economic woes. But is the opportunity cost of giving up on domestic-focused business lines too high for individual companies?

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By Bilal Hussain

akistan can come out of its intermittent economic crisis by embarking on export-based industry that would help improve the country’s current account balances, experts believe. But getting there would involve individual businesses to decide to pursue export-oriented businesses over their domestic-focused companies, which is easier said than done.

According to the latest Pakistan Bureau of Statistics (PBS) data, Pakistan’s trade deficit stands at $21.5 billion in the first eight months of the current fiscal year. Exports have amounted to $15.1 billion while imports stood at $36.6 billion from July-February period. Workers’ remittances of $14.35 billion has squeezed current account deficit to $8.84 billion.

Simple math would suggest that if Pakistan can increase its exports by $9 billion, it could eliminate the current account deficit, which would go a long way towards stabilizing the Pakistani macroeconomy. In the best-case scenario, the country’s export receipts would surpass Pakistan’s massive import bills, or at least doing it after incorporating our economically important remittances, which is highly unlikely to happen in near future. But it is easier said than done.

The fact that improvement in export-based industry, and subsequently higher exports, is important for the country’s economy is well understood. The government has been trying to incentivize export-based industry one

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way or another for decades.

However, the government cannot do much when it comes to doing business and exports to international markets. It can help in increasing ‘ease of doing business’ and reduce to some extent the ‘cost of doing business’.

But the government cannot do business operations for the businesspersons like marketing their products in international markets.

The government of Pakistan cannot hire a shelf at Walmart for Pakistan’s rice products for instance. It is the rice exporter who has to establish their brand of rice in international markets.

Business leaders have to take their own business decisions as they are the ones who would directly be making gains and, in some cases, losses.

But the question is why would a Pakistani business leader invest in developing an export-oriented product? It is back to basics: he or she will conduct a cost and benefit analysis and assess the strength, weaknesses, opportunities, and threats. Unfortunately for the government, once a business leader is done with that basic analysis, they will likely end up determining that setting up an export-oriented product is simply not worth the cost of capital.

More specifically, the opportunity cost of tying up capital in an export-oriented company is too high. International markets tend to be highly competitive, which means there is significant pricing pressure for companies that

operate in the traditional sectors that Pakistan operates products in, which tend to be highly commoditized products such as textiles and agricultural commodities.

Meanwhile, those same product lines have significantly more profitable avenues of commercial growth in the local market. Any businessperson who assess whether to go for the export-oriented business or the domestic consumer-oriented business will immediately come to one conclusion: they would be better off investing in the domestic consumer-oriented business line.

In words of some business pundits, Pakistan is the last ‘hidden jewel’ for investors in the world because Pakistan has immense potential for consumption. Investors would want to invest here to cater local consumption.

Former Overseas Investors Chamber of Commerce and Industry (OICCI) President Irfan Wahab Khan, who is now CEO of Telenor Pakistan, in an interview with a group of journalists, said that the rising demand pulled

by Pakistan’s huge consumption potential and the country’s strategic and geographic location makes it ‘last hidden jewel’ for investors.

Take the case of the auto industry. Pakistan’s motorization rate – how many people have a car for every 1,000 persons – is only 18.

Many countries have a motorization rate well over 500, meaning over half the population owns a car in those economies. That makes Pakistan – a nation of over 200 million people

– a huge potential market for cars, assuming that Pakistan’s motorization rate will eventually converge towards that of more developed economies.

That factor alone helps explain why over half a dozen global car companies – including giants such as Japan’s Nissan, France’s Renault, Germany’s Volkswagen, and South Korea’s Kia – have all signed up to enter the Pakistani market. The country’s per capita income alone would not predict that there would be so much interest in manufacturing cars in Pakistan.

What is interesting is that many of the foreign companies are coming into the Pakistani market with Pakistani joint venture partners who currently own both export-oriented and domestic consumer-focused companies. Yet their partnerships with these foreign companies suggests that they will be deploying the capital generated from their profits not towards export-oriented projects, but domestic consumer-focused companies instead.

For instance, Kia is partnering with the Yunus Brothers Group, which owns the export-focused Lucky Cement as well as the more domestic industrial ICI Pakistan. Nissan is partnering with the Bibojee Group, which owns several textile companies in addition to an insurance company and construction company. Renault is partnering with the UAE-based Al-Futtaim Group, which operates a telecom equipment company in Pakistan in

MACROECONOMICS

“According to our assessment, sometimes our labor is even more expensive when compared to some of our European counterparts – notwithstanding the fact that the minimum wage is higher there. The reason is their labor is more efficient.

(According to our understanding) the labor struggles in their day to day life here in Pakistan due to unavailability of basic necessities of life like water and electricity. So, when they come to the factory, they are unable to put their personal best at work” Jawed Bilwani, owner of JB Industries addition to owning a majority shareholding in Al-Ghazi Tractors, which sells tractors to Pakistani farmers.

In each of these cases, the groups in question had the choice of either setting up a plant to serve the domestic consumer market of Pakistan or setting up an export-oriented company. And in each case, they chose the former over the latter.

This is not confined to the automobile sector alone. Most other industries in Pakistan also face similar misalignment of incentives between what is best for an individual business versus what is best for the economy as a whole.

Even businesses that are currently engaged in exports and not setting up new businesses will often end up using their profits from their export businesses to invest in real estate. Some exporters allegedly use the rebates paid to them by the government as incentive to remain in export-oriented businesses to buy domestic real estate. The government’s recent crackdown has reduced the incentive to do that, but it remains a relatively attractive investment option for many business owners to buy real estate.

So, it begs the question: why would a businessperson in Pakistan want to come out of their comfort zone to embark on an export-oriented business when they could easily unload their loads of products here within Pakistan, with little quality checks, and earn even more than in the export market?

There are certainly areas where exporting is favorable. The textiles industry comes on top of that chart. But the international competition is giving Pakistan textile players tough time. The industry is unique in the sense that Pakistan has two important inputs for the industry – raw material (cotton) and labor – in abundant supply.

“Export is a tough challenge where you have to compete with the rest of the world on two fronts – quality and cost. In Pakistan, the cost is the most difficult part as every input is expensive – water, energy and even labor,” said Jawed Bilwani, owner of the Karachi-based JB Industries, a hosiery manufacturer, and chairman of the Pakistan Apparel Forum, in an interview with Profit.

“According to our assessment, sometimes our labor is even more expensive when com-

“Pakistan’s IT industry has great potential.

Although the scale is low at the moment but the improvement of 19% is big. The industry is labor intensive as there’s no automation. Pakistan comes third or fourth in the biggest free-lancers in IT industry. I believe it should be encouraged in the country to diversify in the export-based industry from traditional industries like textile,” he said.

Pervez Iftikhar, information technology expert

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pared to some of our European counterparts – notwithstanding the fact that the minimum wage is higher there. The reason is their labor is more efficient. (According to our understanding) the labor struggles in their day to day life here in Pakistan due to unavailability of basic necessities of life like water and electricity. So, when they come to the factory, they are unable to put their personal best at work,” he explained.

Bilwani belongs to textiles industry, which roughly generate 60% of the total export revenue for the country. The government has been encouraging textile industry in its own bureaucratic manner. However, there are now other industries, who also needs attention.

Information technology (IT) expert Parvez Iftikhar says Pakistan’s IT exports has great potential as the recent exports surged 19% as compared to the previous year.

“Pakistan’s IT industry has great potential. Although the scale is low at the moment but the improvement of 19% is big. The industry is labor intensive as there’s no automation.

Pakistan comes third or fourth in the biggest

“The biggest beneficiary of subsidizing export-based industries is the foreign consumer who eventually buys the product… The government’s present love-affair with exports was analogous with medieval mercantilism – where governments wanted to increase exports in order to increase their gold reserves. It triggered the infamous French Revolution where the government wanted to increase exports while people were dying with hunger” Nadeemul Haque, economist free-lancers in IT industry. I believe it should be encouraged in the country to diversify in the export-based industry from traditional industries like textile,” he said.

He further said that Pakistan’s IT industry is the new ‘cottage industry’ where there are several small players present - the free-lancers. It also needs little investment but the labor is not conventional as they need to be little educated.

Iftikhar added that the government must encourage and support the industry.

He said that the government could help the industry by making quality broadband internet ubiquitous at an affordable price.

Moreover, the government should also remove duties on IT equipment like wireless routers, PCs etc.

He further said that the payment system is also very cumbersome due to the lack of global electronic payment platforms like PayPal in the country. Receiving payments through banking channels is difficult while the State Bank of Pakistan’s (SBP) regulations are stringent, in part due to increased scrutiny of the country’s banking system from the global Financial Action Task Force (FATF).

Iftikhar suggested that SBP may get liberal regarding micropayments like $1,000 or $1,500 in order to help small-scale freelancers flourish. He added that bank dollar rates are also lower compared to when a freelancer receives payments through Hawala or Hundi, the informal payment systems that the government is trying to crack down on.

“The government should incentivize receipts of freelance work by giving them proper prevalent market rates of dollar than reduced bank rates,” he said.

He added that work has been done on vocational training for the sector but more needs to be done so that this sector also con-

tributes to the country.

Zaki Industries Corporation owner Abdullah Zaki, whose line of business ranges from yarn to toiletries, all sold to local B2B customers, said that his company wants to keep its scope to local market because exports are “a big-time headache” for Pakistani business leaders.

The perennial depreciation of the Pakistani rupee against the US dollar keeps export-based industries on tenterhooks and volatile government policies add to the exporters misery.

Zaki, who is also a vendor to textile companies like Gul Ahmed and Sana Safinaz, added that government never keeps on board direct stakeholders – the business persons – when drafting policies and therefore policies are one-sided.

The inconsistent policies also play their role in keeping business persons away from export-based industry.

“Politics and decisions related to economy need to be kept apart. Economic decisions shouldn’t change with the change in governments. Stability in government policies will also entice businesses to take interest in export based industry,” he said.

There are those, however, who disagree with an export-oriented approach. One of Pakistan’s renowned economists, Nadeemul Haque, says there should not be any favorite industry for the government. There should be a uniform policy and domestic consumption – that is consumption people of the country – must also be at least equally treated.

When government gives subsidies to any industry – in Pakistan’s case export-based industry – it is doing an injustice to Pakistani consumers, Haque believes. The biggest beneficiary of subsidizing export-based industries is the foreign consumer who eventually buys the

product. Haque, a former International Monetary Fund (IMF) economist, says that exports are only good when brands are sold outside Pakistan, specifically citing the example of the textile company Khaadi, which sells its own brand of products both within and outside Pakistan and does not behave as a contract manufacturer for any other brand, foreign or domestic.

However, with just a few exceptions, what Pakistan’s textile industry is mostly doing is exporting commodities like cotton yarn while importing branded finished textiles from companies like Marks and Spencer.

He said the government’s present love-affair with exports was analogous with medieval mercantilism – where governments wanted to increase exports in order to increase their gold reserves.

“It triggered the infamous French Revolution where the government wanted to increase exports while people were dying with hunger,” said Haque, also a former head of the Planning Commission of Pakistan.

Haque has also previously written a research paper on the subject – Awake the sleeper within: Releasing the energy of stifled domestic commerce.

The paper stresses that the government should adopt a holistic policy, with no favourites and allows all sectors to grow, which would lead to better long-term economic results. A vibrant domestic commerce sector is the core of the economy facilitating intermediation between supply and demand, entrepreneurial development, risk-taking, innovation and competitive markets.

According to Haque, such an economy moves beyond commodity exports to brand name, process, and capital exports, all of which command a higher rate of return. Pakistan could therefore achieve a higher and a more sustainable growth rate by adopting a more balanced growth strategy. n

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