Profit E-Magazine Issue 68

08

26

08 Meet the entrepreneurs with the ticket to a multi-million dollar industry 14 “No, I don’t see myself in your seat in 5 years time.” Asif Saad

16 16 The pesky wrinkles in the fabric of Pakistan’s textile industry 20 Can this and other co-working spaces find their space in Pakistan?

24 The strange tale of a Sindhi folk song and CPEC Dr Arif Rana

26

20

16

26 How to get away with ripping off your workers 32 The future of cars is electric, and Imran Khan wants to keep up 40 “Boycotting imported products will elevate rupee and make Pakistan better off,” BS or not?

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

CONTENTS

By Taimoor Hassan

I

n 2013, Faizan Aslam was visiting Lahore from his hometown of Sahiwal, when he and his wife decided they would make use of the trip and go out for a show. It was a classic dinner-and-a-movie plan, simple enough that you wouldn’t count on any hitches - except that when they got to the cinema, the couple couldn’t find a ticket.

Disappointed, they decided to try their luck another weekend, travelling all the way from Sahiwal to Lahore just to watch a movie, but to no avail - they still couldn’t get their hands on tickets.

That was where the seeds of Bookme.pk were first sown. Fed up with the hit and miss nature of getting tickets for movies in Pakistan, Faizan Aslam thought there should be a convenient way to book tickets. Instead of travelling for two hours to only be met with disappointment, there should be an online mechanism for reservation - as it existed all around the world.

8

“We decided that first and foremost we needed to give the customer trust in our brand. In Pakistan, people are not comfortable doing these sorts of transactions online - they naturally, and perhaps wisely - suspicious of such things. So we understood it was going to take some time before they ventured into this” Faizan Aslam, CEO & Founder, Bookme.pk

Bookme.pk is now a major player in the e-ticketing industry. Long gone are the days of getting to cinemas hours in advance and anxiously waiting in lines with fingers crossed that tickets still remain for a particular show.

Now, a reservation is a click of a button or a tap of a finger away, and if you still can’t get one because the movie is hot on the market, at least you don’t have to be told so after making a two hour trip from Sahiwal just to catch the latest rom-com.

But Bookme.pk does not stand alone in Pakistan’s e-ticketing ring. In the other corner, lean, mean and giving it stiff competition is Easytickets.pk, the most recent pet project of seasoned entrepreneur Monis Rahman.

Ticketing isn’t a particularly talked about industry. It isn’t exactly the most exciting thing in the world. But even in the world of ticketing, there are fascinating lessons in entrepreneurship.

This piece tells the story of two new-age players disrupting the traditional status-quo of a seemingly boring industry. Both these individuals come from very different backgrounds, yet are operating in the same city, in the same market and along the same technological lines.

For the reason of this rather colourful contrast, this piece has confined itself to the profiles of these two players, and the statistics provided by them, in order to gauge their progress in an industry which has traditionally been resistant to technological advancements.

Who are they?

F

aizan Aslam is a graduate of the International Islamic University, Islamabad (IIUI). His entrepreneurial journey began in 2008 with a software firm he launched by the name of MacroPak while he was still studying software engineering at IIUI. MacroPak provided software solutions to clients abroad, and at its peak, employed as many as 50 people and had operations at two locations: an office in Islamabad, and another in Sahiwal. The software firm remained operation-

al until 2013 when one of it’s major clients went bankrupt and the company was forced to shut down.

Despite his company going bust, Faizan’s natural knack for entrepreneurship would not let him rest easy, and he was constantly on the hunt for industries he could crack open. The same year that his first venture went down the drain, two fateful weekends in Lahore led him to finding his new calling.

Monis Rahman, on the other hand, has had a lot more convincing entrepreneurial achievements prior to forming Easytickets.pk -- the online ticketing portal competing with Bookme. A Silicon Valley trained tech-entrepreneur, Monis received his education in engineering and computer science from the University of Wisconsin, followed by graduate level coursework at Stanford and a stint at computer giant Intel as a computer engineer. It was here, Monis says, that he learned his true abilities, designing the branch prediction unit of Intel’s titanium computer processing chip. Later, he started his own computer chip company in Silicon Valley.

He did not settle, however, quickly moving on to start an online business, quick to grasp that the online economy was the future.

Monis was among the crop of Pakistani entrepreneurs who witnessed first hand the internet boom in the early ‘90s in the US, which stimulated multi-billion-dollar investments in the Silicon Valley and gave birth to Google, Yahoo and the likes. He is also among the early entrants in Pakistan’s tech-enabled startup ecosystem, starting his first online business, a social networking site called Naseeb.com, in 2003. In 2006, he started Rozee.pk, which was originally meant as a hiring tool for his original startup, Naseeb.com.

Since then Rozee.pk, has become a household name. While he doesn’t really have a scientific method behind the number, Monis estimates that Rozee.pk has helped place around 1 million people in different jobs all over Pakistan since 2006.

The secret to his success? Monis says

Rozee.pk was only possible because of the large scale opportunity presented by expanding internet coverage and users, which later gave him another opportunity - a mobile wallet service called SimSim, which is a competitor to JazzCash and EasyPaisa. Monis claims that SimSim is the first mobile that would let a user create a bank account in under 2 minutes without even having to visit a branch. After these feats, Easytickets.pk is the third and latest feather is Monis’ cap.

The making of Bookme and Easytickets

W

hen Faizan began developing his online portal to book tickets in 2013, the cinema industry was expanding in Lahore and other metropolitans like Karachi.

People were flocking to cinemas in droves to watch their favourite movies, despite a considerable dearth of cinemas to cater to the growing demand. This led to an increase in such incidents as the one Faizan faced on his trips to Lahore - queuing up in long lines only to be told that the show has sold out by the time you get to the counter. In this environment, the arrival of an online platform offering cinema tickets was a God-send, eliminating the need to stand in queues muttering silent prayers to let the guy behind you be the one to be disappointed on that day.

While their product was still under the early phases of development, Faizan and his cohorts got the nod for incubation at the Punjab government’s Plan9. His team immediately moved from Sahiwal to Lahore, and for the next six months, they were living out of suitcases, sleeping and eating in their workspace at the Arfa Tower before they were eventually ready to launch their product.

But cinemas were not the only place that had the weight of manual ticketing dragging them down. Even as Easytickets.pk proved to be a success and exactly what cinema goers wanted, Faizan had his eyes set on another industry

ENTREPRENEURSHIP

“The risk of a larger player entering is constantly looming. But if the larger player enters with huge investment, the most logical thing to do would be to let them acquire you and grow with them together. That makes a lot more sense than for them to start from scratch” Monis Rahman, Founder and Investor, EasyTickets

that could use his e-ticketing service: buses.

But it wasn’t an easy run for Faizan because while offering his service to bus transportation companies and cinemas, he found the conventional business mindset averse to trying innovative solutions, and their customers reluctant to adopt these solutions -- a problem later faced by Monis as well when he launched Easytickets.

“The cinemas and bus transportation companies gave tickets on papers. I offered them a free software to bring them online, because without them being online, we can’t know which seat of which bus is vacant or to which city which bus is going and when.”

But that wasn’t going to phase Faizan.

With companies reluctant to integrate and expose their real-time data online, he started delivering tickets to customers through call-center based operations. The formula was simple, although not as simple as online would be. Customers would call in to place an order for a ticket with Bookme, which would then send a rider to deliver the ticket to the customer’s home, where he would then take cash on delivery.

“We had decided from day one that we would not impose our solution on customers - we might benefit from the

10

online system, but we would not push it until the market was completely ready.”

This was the first step for Bookme.pk when companies showed a reluctance to have their data available online, something that was integral to the very concept of their start-up, instead of despairing, they decided to pull their socks up, note down timings manually and go deliver tickets to customer’s homes themselves.

“We decided that first and foremost we needed to give the customer trust in our brand.

In Pakistan, people are not comfortable doing these sorts of transactions online - they naturally, and perhaps wisely - suspicious of such things.

So we un-

derstood it was going to take some time before they ventured into this” Faizan tells Profit.

Over time, Faizan’s product started getting acceptance. It was accepted more readily on the transportation side, with cinemas approaching it more apprehensive. In 2015, two years after it began operations, Bookme finally kicke off its online payment facility, keeping the cash-on-delivery system in place on the side.

Once people became comfortable with the new online system, Faizan took the decision to stop their cash-on-delivery services, shifting to a purely digital-transaction based platform.

But even as Faizan was labouring and laying the foundation of trust in online ticketing from 2013-15, he was already facing competition. In 2015, Monis also laid his claim to a slice of this new pie, stepping in with two co-founders, his former employees, to launch Easytickets.pk, the only threat to the budding scene of Bookme.pk. And with the base laid by Bookme.pk’s services, Monis’ company

was able to begin operation on a purely digital payment option to buy tickets through its portal - not having to go through grunt work such as cash-on-delivery to establish trust.

Monis was prompted to join the industry thanks to an experience similar to Faizan’s. He had been observing the need for e-ticketing for some time, but it was actually going through not getting tickets that edged him on to actually do something about his idea. But it wasn’t an easy industry to break into, set in its ways as it was thanks to resistance from ‘seths’ who wouldn’t allow integrations, something that was going to help them, simply because they didn’t have the vision to see that it was what they needed.

“We had to ask them to allow us to do sales for them online. At first, they didn’t even allow us to do this, even though their occupancy in the theatres used to be low at certain times.”

One of the major problems of the cinema industry is occupancy. They often have to run the air conditioning and lighting for cinema rooms with 200+ capacity even when there are only a handful of people present. Pre-booking online would optimize this system, something cinema bosses just couldn’t seem to wrap their head around - making exorbitant demands to simply give our e-ticketers a chance.

“When we somehow convinced them, they we would have to pay the fees for the integration. Once that was done, they then made us prepay them for all the movie tickets we were selling. This is how the industry was being treated - with great mistrust. Now they have come to realise just how much we are contributing, and how we have been solving one of their biggest issues - occupancy” Monis explained.

“These companies did not have IT teams at that time. We sent our own IT team to their offices. We contacted their software providers and asked them for their online APIs. We configured their software to expose it online.”

Ali Chaudhry, the COO of Cinestar Cinemas, one of the country’s leading Lahore-based cinema entertainment providers, attested to the contributions made by online tickets platforms, saying that they see value in it and almost 40% of their tickets volume now comes

from Bookme.pk and Easytickets.pk. “I see this number growing in the times to come.”

Sheriar Hassan, general manager for marketing and media sales at the famous transportation company Daewoo Express, also said that online tickets offer value to the customers, but disclosed that online tickets from these platforms are under 10% percent of their overall ticketing volume.

A component of the strategy of both competitors to pull customers towards digital modes of payments to buy tickets online are variable fairs or discount offers.

“In variable fairs, every passenger seat in buses will be sold, like airlines, on variable prices. But in the case of airlines, that price can shoot up to beyond the original price of the ticket. In our case for the buses, we made sure that the price did not go beyond the actual price of the bus terminal [offering those prices]. So for a bus ticket that cost Rs1200, we have sold it at Rs800 but not at Rs1300,” Faizan explained to Profit.

The pie

“T

he market is huge. It’s large enough to accommodate even 3 competitors, but nobody has really made a bid to make this really interesting. It is all about which company makes itself available at how many places. It’s about the number of integrations a firm is able to do,” Faizan told Profit.

Market research shared by both startups with Profit estimates the bus transportation segment to be the largest in this market, even though it amounts for lesser percentage of sales than it does in cinemas, and is well over $1 billion dollars on its own. Combined with the market of cinema goers, which runs in a couple of hundred million dollars, the total size of opportunity in this space goes safely beyond the $2 billion dollar mark for the bus transportation and cinema companies running these businesses.

For Bookme and Easytickets, the opportunity is the percentage these platforms charge on each ticket sold. The current revenue stream for Bookme and Easytickets is based on a commis-

“Ticketing isn’t a particularly talked about industry. It isn’t exactly the most exciting thing in the world. But even in the world of ticketing, there are fascinating lessons in entrepreneurship. This piece tells the story of two new-age players disrupting the traditional status-quo of a seemingly boring industry”

sion earned on every ticket sold on their online platforms. For Bookme, it is a varying commission rate while Easytickets disclosed that they earn a flat 5% on every ticket they sell, with a higher margin on event tickets.

“Its flat for everything. We basically get a fee for every ticket we sell. If it is an event, the fee is higher and we get a profit on that. So the way we make our money is a commission on every sale we make. Right now we are selling 2,500-3,000 e-tickets a day and it’s adding up, it’s growing really fast. When that number runs in hundreds of thousands of e-tickets, that is the real meat,” Monis said.

Besides bus and cinema tickets, both platforms offer event tickets but that does not form a large component of their overall revenues. “Events is not our core focus and we don’t pursue it aggressively either. Because of our user base, events approach us for ticketing,” Faizan disclosed. Monis says that the margins are actually higher in the events segment of their services but the volumes of event tickets are low.

The number of tickets sold also goes up and down, Monis says. For example, if there is a movie like Avengers, it spikes and likewise, if there are Eid holidays, it will spike up. “If there is a dead period in which they have block all the Bollywood movies and there are also no Hollywood movies, and it is that time of the year when no one is going, the numbers go down. It is very event based,” he adds.

Faizan said that their yearly revenues are currently just over a million dollars, with bus transportation making a bulk of the revenue and cinemas contributing only 5% to it. However, he refused to divulge the exact revenue figures, only revealing that their growth has been phenomenally consistent at 18% month-on-month.

The revenue for Easytickets, as told to Profit, comes equally from both cinemas and bus transportation segments and a small amount also comes from events. Monis also refused to give the exact revenue figures but said that their growth has also been extraordinary.

Assuming Easytickets’ average daily tickets sale to be 2,500, as Monis claims, half bus and half cinema tickets and excluding event tickets, as Monis said that cinema and bus tickets contribute equally to Easytickets’ revenue, based on the reasonable assumption that a bus ticket would on average cost Rs700, at 5% commission rate, Easytickets’ revenue from the bus segment would be Rs15.9 million approximately for the year. And assuming that a cinema ticket costs an approximate Rs700, at the rate of 5%, the revenue from cinema tickets would be roughly Rs11.4 million for the year. The total yearly revenue would be Rs27.3 million for the year, which translates into $173,730 calculated at the dollar rate of Rs157. At this rate, with all

ENTREPRENEURSHIP

the overheads and costs, the profit margins are visibly going to be thin: a fact Monis acknowledges because the online players are in acquisition mode.

“They have thin margins. It is extremely difficult to make it very profitable in the near future because we are fighting to acquire users.

This business is different because our company is trying to change your behaviour. You go to an adda (bus terminal) to buy a ticket for a bus. I am telling you don’t go to that adda, buy a ticket on Easytickets instead. I am changing your behaviour. But at some point you’ll say I don’t know how to use it, and will just go to the bus terminal. You go there, you’ll take an Uber or Careem, you’ll spend money to go to the terminal to buy the ticket and get back home. So as we change behaviours, we have to incentivise users. We have to keep the margins low, which means we have to spend the money. This is the same game for any online user, this is the same game that Uber had to play, Careem had to play. Your food startups had to play, Daraz had to play. We are subsidising users, at a very low cost, in order to convince them to try this for the first time. Once they use it, they never go away, and that is when our time comes” Monis explained.

“Our retention of repeat users is the bread and butter of easytickets. I know if you come once, I have got a 90pc chance that you are going to stay with me forever. Because the experience is fantastic. So my game is to bring you there for the first time to try this.”

But Faizan says that instead of competing with each other, the focus should be on making things easy for the customers. “Rather than reinventing the wheel, it is better that we all should collaborate and we all help the actual passengers and cinema goers. That he should be facilitated at the day end. That is a win-win for everyone,” he says.

He, however, without divulging specific details, lamented that the approach in the market is wrong and accused the competitors of foul play.

“It shouldn’t be unethical. Everybody should be given space and then it should be seen who does better. I am telling you generally that the market is not ethical. Business is

“But cinemas were not the only place that had the weight of manual ticketing dragging them down.

Even as Easytickets.pk proved to be a success and exactly what cinema goers wanted, Faizan had his eyes set on another industry that could use his e-ticketing service: buses” sadly not ethical in Pakistan,” he says. “We are willing to collaborate. We have integrations with all the buses. Take bus APIs from us and offer tickets on your platform and if we don’t have something, give that to us, give us the APIs and we will offer that on our platform,” he adds.

Both the entrepreneurs are hopeful that with better adoption of technology, as it improves and which has been the trend so far, things will work more favourably for them.

The risk on the other hand would be if the market moves more slowly than anticipated. Because massive volumes are needed to make these businesses viable, more investments would be needed and the risk therefore, is not being able to raise such meaningful investment at times when it is needed.

So far, Bookme has raised a pre-seed funding round, which it did in Turkey in 2015 with an Angel investor. Faizan, without disclosing the amount raised, says that they have been able to buy back those shares, which is a testament to the company’s profitability even though it was in its inception phase. This year, Bookme raised an undisclosed amount from Lakson Venture Capital Fund against equity, but Faizan says he is still the majority owner and has the lion’s share in the business even after this round of funding.

Though Easytickets hasn’t raised any investment yet, Monis says that they will be announcing something very soon.

Exit or not?

S

tartups are vulnerable and by being vulnerable, they dread the thought of competing with a larger player.

Bookme and Easyticket are no dif-

“The ticket market is easily worth a billion dollars.

For Bookme and Easytickets, the opportunity is the percentage these platforms charge on each ticket sold. For Bookme, it is a varying commission rate while Easytickets disclosed that they earn a flat 5% on every ticket they sell, with a higher margin on event tickets” 12

ferent. Being in the early stages of their existence, the danger is real for both these startups, and the possibility of a larger player entering the market is also very real, especially after the acquisition of Daraaz by Alibaba and acquisition of Easypaisa by Alipay.

“The risk of a larger player entering is constantly looming. But if the larger player enters with huge investment, the most logical thing to do would be to let them acquire you and grow with them together. That makes a lot more sense than for them to start from scratch,” Monis admits quite candidly, with very little sentiment regarding his own company - ever evolving entrepreneur that he is.

Faizan says that right now, it is all about the number of transactions a company is processing on a daily basis. “It is like that all around the world. In China, the war between Wepay and Alipay is over the number of transactions. Which company has the most number of transactions on a daily basis? To capture this daily transaction flow, these Chinese giants or American giants will jump into Pakistan very soon. They are already here.

Alibaba is here in Easypaisa. Ultimately, at a point where we’d be processing 30-50,000 transactions per day, obviously we’d be interesting to them. There is an exit that exists,” he said.

Though, Monis says he has received an acquisition offer, without disclosing from whom, he is not ready to go that way yet, and in-fact wants to double down and put more efforts to scale Easytickets and increase his footprint in the industry before giving in to such possibilities. A similar sentiment was echoed by Faizan, who said that their core focus is towards expanding their footprint because of the massive potential they see in this space.

And as they expand their footprint, both Bookme and Easypaisa are ready to diversify into the aviation sector, where they will start offering airline tickets on their platforms and compete head-on with an existing player such as Sastaticket -- an online airline tickets consolidator backed by Quality Aviation Group. Whether they are just setting the field for bigger players or turning themselves into something bigger, is yet to be seen. But it is definitely something to keep an eye out for. n

ENTREPRENEURSHIP

OPINION

Asif Saad

“No, I don’t see myself in your seat in 5 years time.”

Why the lustre of corporate life has waned and is it a good thing?

G

rowing up in the 70s, whenever we were asked what we would like to do as an adult, the very obvious response would be to become an engineer or doctor or the more academically challenged ones like me would limit our aspirations to working for a bank or a company. But one would hardly ever hear anyone say they want to be an entrepreneur! In fact, I don’t recall the word from my school days. Perhaps we heard of businessmen- men, always men mind you, who would own some factory or the other. But in today’s parlance, the word is as common as bread!

You hear it all the time. If people are not entrepreneurs, they are

Asif Saad is a strategy consultant who has previously worked at various C-level positions for national and multinational corporations

14

always dreaming about becoming one. I can guarantee that employed people in large or medium-sized firms have seriously toyed with at least one or two business ideas during their careers. Although all levels, age groups and females, as well as males, indulge in this fantasy, it is the younger employees who believe in shaping their own destinies and are increasingly being lured to create something for themselves. Why has this shift taken place and how do we deal with this?

On the surface, this seems to be an economic issue when industry is not creating enough jobs and those which exist are unable to cater to employees’ financial needs. If you join an organisation after graduation from college, within a few years you should be able to afford an independent living. That is how it used to be. However, it is unlikely today with the cost of living the way it is. Even working for the best companies, you would find it difficult to live on rent and support a small family. In addition, the real estate cost escalation in the last decade or so has practically eliminated prospects of home ownership even for middle management.

But in my view, this is not the whole story. There are changes in our culture which are causing this shift away from jobs. These are important to understand.

It all starts with the individual. There are people who are happy to work for others and there are people who dislike the thought of being confined. While this has always been true, there has never been more information and exposure than now. Information brings possibilities and helps create dreams. People follow success stories. When I was growing up, role models would be limited to a few individuals- parents or their friends, perhaps a politician or a sportsman. There were hardly any wellknown businesspeople who we could look up to. That is not true today with Gates, Ma, Jobs, Bezos, all commonly known and constantly referred to. In addition, the plethora of self-help literature is constantly showing the way to become the next Gates! Perhaps unrealistically so, but you

cannot stop people from aspiring.

Our families have become more accepting about the calling for entrepreneurship which our children receive now and then. Our own parents were mostly migrants who had lost plenty in the process of partition and were always conscious of the financial struggles of the family. Perhaps, as parents, we wish to make up for what we could not dream of. It is a different mindset today when many children of even middle-class backgrounds have the security of their homes to cushion them against failure. Pushing our children into jobs which do not mean much to them is a difficult sell nowadays.

The gig economy in which people work part-time from home is now an acceptable way to live. In the least, it provides income support for those not yet ready to switch to full-time entrepreneurship. Technology provides many opportunities to work from home or with limited capital. There are more options today for low-cost startups which did not exist in the past. Home delivery foods, ride-hailing cabs, coding, graphic design, blogging, photography, physical training and many more income generating activities are possible

which were unimaginable in the past.

What about inside organisations? Employees these days are looking for flatter structures, access to top management and having a voice in strategic as well as operational decisions. They want to remain free and largely self-governed while pursuing these goals. Although they put up with it, they do not care much for the 9 to 5 routines especially when information and mobile technology enables management to call upon them any time in the day or night. The more talented ones are concerned about much more than their paycheques. They seek answers to many questions such as; Does the organisation treat people fairly? Is it transparent? How are people rewarded? Is there is a fair process for valuing work and capability? Are there role models to be emulated? If so, what sort of role modelling?

Does the organisation practice what it preaches?

Do senior managers and owners have personal

credibility? From my experience, it is the lack of positive response to many such questions which make people look at alternatives to full-time employment.

For all these reasons and probably more, the lustre of corporate life has waned considerably. In one of the organisations where I worked, there used to be something called a “long service award”. This would be given to employees who complete a number of years in the organisation-starting with, if I remember correctly, 10 years and moving to 15, 20 and then 25 years.

The award would be a token gift whose value would escalate every time you hit a milestone. If I am not mistaken they still continue with this practice! I am not sure how young employees feel about this award today. Even pension schemes which are supposed to reward you at the end of your work life have gone out of fashion and would not be a great incentive for those starting

their careers.

Entrepreneurship is wonderful, exciting and rewarding. Perhaps my generation missed out on this and never visualised what could be built from scratch. But now, we need to accept the potential good that can come out of new ventures, no matter how small they are. As Warren Buffet is known to say “Someone’s sitting in the shade today because someone planted a tree a long time ago”.

The desire of working for yourself is not just associated with the material rewards of making it big. It has a lot to do with addressing the missing elements in your life. Working for yourself, your motivation is at its peak, you have faith in your own capabilities and can easily trust the small number of people around you. In the words of Rumi, “come, seek, for search is the foundation of fortune; every success depends upon focusing the heart”. n

COMMENT

By Muhammad Faran Bukhari

I

n 1989, a young man from Karachi by the name of Shahzad Saleem found himself far away from his home city of Karachi, graduating from a strange new MBA programme somewhere in Lahore. A member of only the second batch of MBAs to graduate from the Lahore University of Management Sciences (LUMS) MBA programme, Shahzad Saleem left his education in Lahore with his name on the new university’s Dean’s Honour List, and a burning desire to break out into the world of Pakistani business.

In 1990, Saleem laid the foundation of Nishat Chunian Limited as a spinning factory. The company was listed on the stock exchange in the same year. From this humble beginning of a single factory, Nishat Chunian worked its way up to composite textile empire with one of the largest slices of Pakistan’s textile sector. Today, Shahzad Saleem serves as the chief executive of two publicly listed companies.

16

“NAB has asked questions from many IPPs including us and we are cooperating with them. I have heard that around 50 IPPs have been asked some questions by NAB. However, I cannot say with certainty how many IPPs have been asked for information. Certain media houses are spreading rumors about Nishat Chunian Power and we are evaluating our legal options against them” Shahzad Saleem, Founder Nishat Chunian Limited The first of these is Nishat Chunian Limited (NCL), his flagship textile company operating in the home textile, spinning and weaving businesses, which is the 3rd largest textile company in Pakistan by sales revenue. The other is Nishat Chunian Power Limited (NCPL), a 200MW Independent Power Producer (IPP) selling electricity to the national grid.

A Karachi boy born and raised, Saleem got all of his early education from Karachi institutes such as the PAF Model School and the D.J. Science College before graduating with a B.Com degree from the City’s Government Commerce College in 1987. It was only after this that he packed his bags and took the long road to Lahore, joining the second batch of the LUMS MBA, completing the qualification at the age of 22.

“For the longest time I had the record for being the youngest LUMS graduate for a long time. Youngest MBA graduate from LUMS that is,” Shahzad tells Profit, a shy sense of pride still gleaning through all these years and achievements later.

But there was little time to relax or take advantage of this early graduation. Right of the bat Shahzad was on the move, entering the textile business in 1990 by setting up a spinning mill, following this up with a weaving factory set less than a decade later in 1998, and eventually another spinning mill in 2000. “In 2005, we entered home textiles business. During this entire period, we kept on increasing our spinning and weaving capacity as well.”

But why textiles? According to Shahzad, the decision was a no-brainer for him, and he was duty bound to follow in the footsteps of his famous uncle Mian Muhammad Mansha.

“When you’re 22 years old, you don’t think strategy. You choose what you get, and textiles was a family business, my uncle was involved in it and he became instrumental in helping me.”

It would only be in 2010 that Saleem would move away from textiles, establishing an IPP under the banner of Nishat Chunian Power.

“We primarily have three businesses in textiles, and our fourth venture is the power company.”

And while navigating Pakistan’s power sector has been its own journey with its own twists and lessons, the more familiar textile business has had its fair share of troubles.

Peculiar Challenges

O

nce a prized industry, Shahzad takes us back more than a decade to mark where the downward spiral for textiles in Pakistan began. After the 2008 bombings that rocked Islamabad’s five-star Marriott, foreign companies became reluctant coming to Pakistan. Within the next decade, even as the terror situation worsened and then eventually improved, Pakistan became a no-go are. Foreign companies they had been doing business with for years were no longer ready to come to Pakistan.

“Foreigners are reluctant to come into Pakistan. The reluctance has decreased a little now but there was a time, from 2008 when there was Marriott bombing for almost 7 years, no foreign buyers were coming to Pakistan.

Even companies we had regular business with were reluctant to come here. The results were that we had to go everywhere, but Pakistanis don’t get visas easily,” he said, as he delved into the challenges faced by Pakistan’s textile industry.

“Secondly, our policies are not consistent for increasing exports. There are issues of exchange rates, labour policies and government refunds. For the industry to grow it is important that there is some consistency in policy and businesses are treated fairly,” says Shahzad.

Another misnomer, Shahzad decoded, is that the Pakistani textile industry is less competitive than other textile exporting giants in the region such as India and Bangladesh. He rationalized his assertion by explaining that Bangladesh is a converter of imports into exports and pointed out that to look at Bangladesh’s

exports, it is important to look at their imports, which are quite large. “There is a huge import of raw materials to Bangladesh which they convert and export. However, in Pakistan, whatever we are exporting, from yarn to the end product, roughly 90 per cent is made here in Pakistan. So it is like comparing apples with oranges.”

“Secondly they had a huge advantage that they got duty free access to Europe long before we did and they were able to build customers much before us,” he says.

Compared to Bangladesh or even India, a disadvantage that the Pakistani textile industry has is the lack of government support and inconsistent policies. Shahzad feels that businesses suffer from an image issue in Pakistan, that the general perception is that businesses do not pay their taxes. “The reputation of businesses here is so bad, that even when businesses have legitimate concerns, it is looked upon by the government with doubt. In India if a businessman is successful, he would be considered a hero. But in Pakistan, first you have to prove that you are not a thief. This just raises the risk of business and hence it demands a higher return. If we want to grow the industrial base of this country, we need to go back to the drawing and rethink the entire policy of dealing with businesses. It’s not about this government or the previous, it goes back much longer.”

He says that though Pakistani textile industry is highly competitive, it is discouraged by an unfavourable cost structure, unlike in India or Bangladesh.

This, however, is contrary to the prevailing sentiment in the country that the textile industry is highly subsidized, but inefficient.

Successive governments have tried to accommodate the textile industry by providing them subsidies, sometimes even at the cost of other industries, because of their exports contribution to the Pakistani economy.

Shahzad, however, believes that the concept of textiles receiving subsidies is an alternate reality and the cost structures are very high in Pakistan. “Textile Industry as a

CONGLOMERATE

whole cannot be discussed as one industry as dynamics of each sector are different. There is a spinning business, there is a weaving business, there is home textile business and there is apparel business in this industry. If we talk about the spinning business, the government says that we need to support local cotton industry which does not grow enough for the requirement of the industry. Yet import is always discourages through different means which effectively means a tax on spinning even before you make any money. Apart from that, the government does not offer any rebate to the spinning industry. Recently, they reduced the cost of energy, that too the cost is half in Sindh compared to Punjab. While a majority of the industry is in Punjab. So if you are going to keep gas prices at half in Sindh and double in Punjab, how is Punjab’s industry going to be competitive?”

“Secondly, there is a large amount of money in the form of sales and income tax refunds that are also being funded by the companies. So this concept of subsidy is a misnomer” he says.

In his opinion, Pakistan’s textile industry does not have efficiency issues. “There are efficient and inefficient industrial units in the textile sector, just like any other industry. But to grow the industry, we need other things as well. You cannot just rely on good efficiency,” he says.

Shahzad argues that the recent increase in minimum wage by the government is also going to increase the cost of production and will hurt the labour class more in the long run because companies will start thinking of automation, which has increased recently. “We should let market forces work so that wage determines its place on its own. It is better that people get ‘x’ salary then get no salary. We need to take steps to increase the size of our economy so that wages go up because of demand supply mechanisms and not government policy,” he argues.

Rupee depreciation and exports

N

ishat Chunian Limited is counted among the top textile companies in the country and reported revenue of Rs35.56 billion for the year 2018 and reported profit after taxation of Rs2.36 billion for the same year. In contrast, the revenue for

the year 2017 was reported to be Rs29.81 billion and profit after taxation of Rs1.63 billion for the same year.

For the nine months ended on March 31, 2019, the company has reported revenue of Rs29.25 billion against Rs25.74 billion reported for the nine months of 2018 -- an increase of 13.64% in the current year.

Majority of Nishat Chunian Limited’s produce is exported, and as Shahzad Saleem tells us, direct exports are roughly 55% of the company’s total sales, and including the indirect exports through other exporters, the total exports form about 80% of the total production.

Since the rupee has been constantly losing its value against the dollar, the de-facto currency used in trade, ever since the new government took office, for export-oriented businesses such as Nishat Chunian Limited this is a blessing in disguise in tough economic conditions, and swells the receivables in rupee terms and gives these companies windfall profits.

Shahzad, however, says that rupee depreciation can give only temporary gains but in the long run, it does not have a long-term advantage because cost increases and some customers also renegotiate.

Rupee devaluation has other cost pressures as well in the form of increased labour costs, increased cost of locally sourced material and high fuel prices also increase. So the temporary gains might possibly get fizzled out in the

“Compared to Bangladesh or even India, a disadvantage that the Pakistani textile industry has is the lack of government support and inconsistent policies.

Shahzad feels that businesses suffer from an image issue in Pakistan, that the general perception is that businesses do not pay their taxes” 18

long run.

Shahzad says that the right level of currency needs to be there and the mechanism defining it is very simple. “It is the 101 of Finance. The difference of interest rate in Pakistan and the dollar should be the minimum depreciation in our currency. So if the interest rate in US dollars is 2.5% and our KIBOR is at 12%, this 9.5% per cent differential has to come from devaluation. Historically, the differential has stayed at 7-8% and that is what devaluation has been. When we don’t devalue for 4-5 years, then we see big devaluations when they are done.”

“If our results are a little better this year, it is because our marketing was a little better, our product was better. Then we have strategic relations with our customers abroad.

The impact of these things is more this year.

This has a momentum of its own. Especially of export-related industries. Government policy hasn’t changed much. If you talk about Nishat Chunian Limited, we don’t even take electricity from the govt, we have our internal coal-based generation so we don’t benefit from a decrease in gas rates either. In fact we have a large amount of money receivable from the government in sales tax and income tax refund, so the cost of that has actually added up. And it is becoming prohibitive because interest rates have increased so much that its opportunity cost has increased,” Shahzad says.

High-risk, high-returns

I

n contrast to the textile business, Nishat Chunian Power Limited, the 200MW furnace oil based IPP which started operations in 2010 and sells electricity to the national grid, earns more profits than Nishat Chunian Limited.

For 2018, NCPL reported revenue of Rs16.59 billion against Rs35.56 billion reported for NCL for the same year. The IPP report-

ed profit after tax of Rs3.4 billion for 2018, compared to profit after tax of Rs2.36 billion reported by NCL in the same year. “IPP profits are not comparable to normal companies. For example the principal repayments are made to IPPs in the first 10 years and are treated as revenue of those 10 years while depreciation is spread over 25 years which obviously results in an overstatement of profits in the first 10 years of all IPP’s. Similarly all costs given to IPP’s are the same over the 25 years while actual costs are less in the earlier years. This also results in an overstatement of profits in the earlier years,” claims Shahzad.

Currently, Nishat Chunian Power Limited among other IPPs is nominated in a NAB inquiry for selling electricity to Central Power Purchasing Authority (CPPA) at exorbitant rates in connivance with National Electric Power Regulatory Authority (NEPRA), which was being paid for by the consumers.

Shahzad says that NAB has only asked for certain information from them and they will provide more information they ask for. He, however, refused to comment specifically about the case due to its sensitive nature, but regretted that only NCPL was being highlighted by the media while there were other IPPs as well that NAB approached for information.

“NAB has asked questions from many IPPs including us and we are cooperating with them. I have heard that around 50 IPPs have been asked some questions by NAB. However I cannot say with certainty how many IPPs have been asked for information. Certain media houses are spreading rumors about Nishat Chunian Power and we are evaluating our legal options against them,” he says.

Shahzad says that operating in the power sector is difficult because this sector has a bad reputation, and due to the problems faced by companies in the power sector, the risks are higher and, therefore, nobody wants to invest unless they can get a higher return.

“What is really important to realize is that when you increase the risk in any sector, you have to give greater rewards as well. The investors of 1994 in this sector did not come back

in 2002. The investors of the 2002 policy did not come back in this round. Because this sector has a bad reputation. Successive governments do not realize this. Today, the return we are giving to the Chinese on power plants, we did not give that to Pakistanis or others. Earlier, people were keen, now they are afraid. Chinese think that there is state protection so they are more willing to invest,” he says.

Shahzad says that the problem in our country is that we are unable to decide how should we make this country prosperous.

“There can be 2-3 ways of being prosperous. If you allege that private sector makes a lot of money and they are not good people, then you can set up textiles and power plants in the public sector and nobody will have a problem.

But when we have tried these things in the public sector, the results were very bad. You can compare the results of government run power plants and the private sector. So if we are unable to run these things in the public sector and we eventually have to go to the private sector, it should be understandable that they will earn profits,” he says.

“Look at what happened to Nandipur project. If Nandipur IPP had been set up in the private sector, it would have paid penalty on

“Today, Shahzad Saleem serves as the chief executive of two publicly listed companies. The first of these is Nishat Chunian Limited (NCL), his flagship textile company operating in the home textile, spinning and weaving businesses and is the 3rd largest textile company by sales revenue. The other is Nishat Chunian Power Limited (NCPL), a 200MW Independent Power Producer (IPP) selling electricity to the national grid”

each day it got late. The government delayed it for years and caused losses of billions. At the end of the day, the public is going to pay for it,” he says.

Shahzad argues that the government needs to decrease risk for the people. “If you are able to get sales-tax refund, income tax refund online, you don’t have to get involved with a government institution, it will save your time and you’ll set up more factories because you will consider it a good business now. But if there are so many problems, it will become difficult and you will ask for greater returns. So it is a simple risk-reward mechanism,” he says.

The simple way for the economy to prosper, says Shahzad, is by decreasing the risk in the economy. “If the risk is going to decrease, reward is going to decrease as well and the cost for the people will also come down. Today, we have increased the risk so much, the reward on it has also increased but who is paying for it?

The Pakistani population. Perception is greater than reality. With good intention, you need to have good perception also. That is when the risk will come down in the economy.”

Plans Ahead

T

he Group plans on reinforcing its presence in the textile sector ahead and move towards value-added segments of the business.

“We like textiles. We want to move towards value added business. We are considering modernisation, improvements, small investments in the textiles sector,” he disclosed.

“We are also planning on going into the real-estate, we are planning to construct a very high-end office building in the Gulberg area. For large investment, we will wait for some clarity in the economic situation. We will make our strategy on that basis,” he added. n

CONGLOMERATE

20

By Muhammad Faran Bukhari

W

here do you go to work when you’re working on your own? If you are, say, an independent contractor with reports to write or a freelancer with 4000 words and a deadline looming above your head, what is your work space? Home, as much as it is a haven, is often stifling for productivity, and there’s only so many libraries and cafes you can float around for. More even than this, imagine if you are a new start-up with a few bright young minds trying to break into some fresh new industry.

Where can you go and knock your heads together until you finally beat out your latest ideas and work in a productivity friendly environment? As inspiring as built-from-mom’s-garrage stories are, the realities behind them are always chaotic and frustrating. Think even bigger, what if you are a large company looking for an office space in a country like Pakistan without the fuss of setting things up? In Pakistan, as in the rest of the world, one of the solutions to this problem lies in co-working spaces, in which independent work is done by many people in a single place, with the goal of stimulating a cohesive work environment.

In large metropolitan cities, small startups and freelancers that are often cash strapped, are switching away from conventional workspaces towards more economical co-working spaces which are fast becoming hubs of new ideas and centers for professional networking.

At the ninth floor of Tricon Corporate Center on Jail Road in Lahore stands Regus, an international co-working space company that has a second such space in the city near the Thokar Niaz Baig area.

And more recently, at Lahore’s Gurumangat Road, an old building spanning almost 30,000 square feet, which was once the oldest towel manufacturing factory in the area, has also given in to this new trend and has opened its doors to start-ups, freelancers, and even large enterprises. They claim to be the largest collaborative workspace in the country. The board at the top of the building reads, ‘Colabs’, suggesting collaboration and exchange of ideas among the people working inside it. Profit looks at the reality behind this rosy picture of many great ideas working in tandem creating great waves of productive energy.

Collaboration across the spectrum

“C

o-working spaces are coming up but are mainly only focused towards freelancers or small start-ups. They are unable to

service the enterprise. They don't have the infrastructure or the backend to support a large company, says Omar Shah, co-founder and Chief Executive Officer (CEO) at COLABS, in an interview with Profit.

“With Colabs the whole idea was to serve the full spectrum which includes the startups, freelancers, the small-medium enterprises (SME), large enterprises and the corporations and have them all in one space,” he says.

The facility houses around 40 offices ranging from small sized offices for 4 people to large sized offices that can cater up to 50 people, around 150 seats for co-working and 10 different meeting rooms and conference rooms.

Currently, the cost per seat at Colabs stands at Rs18,000 that includes facilities like access to wi-fi, access to lounging area, conference rooms and meeting rooms, mail-handling, video-conferencing and IT support. Cost of a small office for 4 people at Colabs starts at Rs60,000 and move upwards depending on the size. A large office at the facility that caters to 15 to 20 people costs around Rs280,000.

“The price per seat we are charging is close to Rs15,000 to 18,000, which is about 10 per cent above market price. Otherwise our smaller offices are priced equally with our competitors such as Daftarkhwan,” says Omar Shah.

However, Omar says that the pricing at COLABS is competitive, compared to other international companies operating in the market, case in hand being Regus, the international co-working space that has offices in Lahore.

In comparison, a seat at Regus’s office at Tricon Corporate Tower cost around Rs19,000 while a small office that can cater to 3 to 4 people can cost around Rs65,000 to 90,000 depending on size and the length of the contract.

However, contrary to Omar Shah’s claims, Regus also offers its services to corporates and enterprises. Profit discovered that Regus’s office at Tricon Tower houses PepsiCo International, the German brand Nivea and and an office for DuPont Paints.

At the same time, however, costs for shared office spaces are comparatively lower at Daftarkhawan, a competitor of Colabs in the shared office space market, with a single seat costing around Rs15,000 to Rs17,000 per month, the latter one having the benefit of access to meeting and conference rooms. Small offices that cater to a team of 4 people cost around Rs60,000 per month at the facility, while those that cater to a team of 6 people come with a price tag of Rs90,000 per month. However, unlike Colabs and Regus, Daftarkhwan does not offer larger offices for larger teams and enterprises.

“Our space is purpose built where offices have all the add-on facilities including highspeed internet, IP Telephony, access control,

OFFICE SPACE

“If you have a start-up, or even a medium sized company, working out of Colabs and for example if you want to get tax advice, we will ensure there is a tax guy sitting here in our space. There will be digital marketing and social media marketing companies sitting here as well. The aim is to turn this into a melting pot with all kinds of people sitting together, getting things done inside out very own ecosystem,” Omar Shah, Co-Founder and CEO, COLABS

Ali and Omar Shah, founders of COLABS pose at their recently opened facility in Lahore 24/7 backup and air-conditioning with multiple common areas. I think that justifies the 10 per cent we are charging above market price ,” says Omar.

Colabs is currently trying to create a good mix of professionals by attracting people and organisations from different fields and encouraging collaboration between them. “We are targeting all sorts of audiences. We want to have creative people, people from finance, investment and media in one space together so we become a hub of innovation and growth.” says Omar Shah.

“If you have a start-up, or even a medium sized company, working out of Colabs and for example if you want to get tax advice, we will ensure there is a tax guy sitting here in our space. There will be digital marketing and social media marketing companies sitting here as well. The aim is to turn this into a melting pot with all kinds of people sitting together, getting things done inside out very own ecosystem,” he says.

“By having a large corporate, a small start-

22

up and a freelancer working out of the same building, we are able to foster networking just by them interacting at the coffee stand. They will not have that interaction anywhere else.

We are facilitating these interactions.”

Since its soft launch in April 2019, the company has rented out around 10 office spaces and 25-30 individual seats to freelancers and organisations including Neer Ghar Films, the producers of the movie ‘Laal Kabootar’, Acacus Consulting, a development consulting agency started by a Mckinsey partner, Omnicom Media Group and Propergaanda, an online digital media agency that creates content. Moreover, its events spaces and meeting and conference rooms have attracted clients including Facebook Developers Circle (F8), Google for Business Unit (GBG) and the Indus Entrepreneurs organization (TIE).

Moreover, the structure of the building has been created in a modular fashion that offers room for customisation based on demand. “The building is modular and has an open plan. We

will monitor the demand in the coming months and see what the customers prefer. We will see if people are preferring offices, courts, or meeting rooms and then offer more of what is in demand,” he says.

Colabs is also currently in talks with Microsoft International, Coca Cola International, UBER, British Council and Agha Khan Development Agency and hopes that these big names will also warm up to the idea.

“The advantage we have is that we have an in-house design and architectural team which can help us expand and scale. If a large corporate comes to us and wants the offices customised in a certain way, we can do it for them,” says Omar. But why would a large corporate want to go for a co-working space instead of having its own office?

“Some of the worlds biggest corporations such as Accenture, Microsoft, Amazon, Citi Bank have opted for coworking spaces because their employees are happier, more productive and innovate more in collaborative spaces. Also,

corporates love the convenience of not having to deal with administrative tasks and just focus on what they do best! Hence COLABS is ideal for their enterprise,” says Omar Shah.

Coworking vs. Incubators

H

owever, despite claiming to serve the full spectrum, there is one end of it that Omar Shah and his team are willing to ignore: the early stage startups. Omar makes it clear that unlike incubation centers and even other co-working spaces which work with such ventures, he and his team only want to work with startups that are already doing well. “We want start-ups that are successful and are already established compared to the ones that are in the market in the initial stages,” he says.

“We want to work alongside incubation centers as opposed to working as one. Our focus is on having startups who have graduated from for example the National Incubation Center (NIC) and are making capital.”

“I can incentivise them by giving them discounts on a space, but I don't want to start

“Omar makes it clear that unlike incubation centers and even other co-working spaces which work with such ventures, he and his team only want to work with startups that are already doing well” taking equity in startups. That I can do separately as an angel investor,” says Omar.

Estimates have shown that almost 85 to 90 percent of the start-ups that launch globally fail to succeed, which is what Omar thinks is wrong with the incubator business model.

“Every six months incubators choose around 10 to 15 start-ups. They give them free space and in exchange take equity in the ventures. However, the issue with that model is that out of the 30 start-ups coming in every year, maybe just 2 or 3 of them raise capital. More than 80 per cent of the start-ups will shut down.”.

“Fundamentally, incubation centers are required in the country, but the point I have is that everyone is doing incubation centers.

Every university is doing one. However, no one is connecting or bridging the gap between the enterprise and the startup. And that is what we

“Currently, the cost per seat at Colabs stands at Rs18,000 that includes facilities like access to wi-fi, access to lounging area, conference rooms and meeting rooms, mail-handling, video-conferencing and IT support. Cost of a small office for 4 people at Colabs starts at Rs60,000 and move upwards depending on the size. A large office at the facility that caters to 15 to 20 people costs around Rs280,000”

want to do with Colabs.”

Whats next?

R

ecently, Colabs has partnered with NIC and the Lahore University of Management Sciences (LUMS) to provide training sessions on entrepreneurship to its members. Moving forward, Omar Shah plans to launch an accelerator from the same platform.

“In six months we are planning to launch an accelerator that will be a sub part of Colabs.

We are partnering with TPL eVentures, NIC, Fatima Ventures and international companies that we can not disclose at this time.”

Currently, Colabs is backed and funded by a large Swedish beauty company called Bangerhead, and is operating its inaugural flagship branch at Lahore’s Gurumangat Road. But Omar has his eyes towards expansion, planning to open two more branches within the city in Defence and Johar Town by the end of the year, and to open large flagship branches in Islamabad and Karachi by 2020 and then to eventually move into tier two cities like Faisalabad, Sialkot and Multan by the year 2021.

“The idea is that if we have 10 branches across the country and let's say that we have partnered with a start-up or a large corporate, they will be able to use the same colabs membership card to use any colabs space. What we are trying to do is also revolutionise and change the way people work in this country.” n

OFFICE SPACE

OPINION

Dr Arif Rana

The strange tale of a Sindhi folk song and CPEC

time have seemed like certain disaster, the bridge somehow managed to settle at the 4.5 inch dip and Jamalo made his way across. It is said that Jamalo’s wife was so relieved at his safe return, it is said that Jamalo’s wife composed the ‘Ho Jamalo’ song in jubilation of his safe return.

The bridge in Sukkur has an interesting history, one filled with lessons.

The Lansdowne Bridge spans the Indus river at Sukkur. The mighty river was first bridged at Attock in 1887, allowing the railways in India to run from the western most post of the Khyber Pass to the eastern city of Calcutta. It would not be until 1979 that the Indus Valley State Railway would reach Sukkur. o Jamalo, Wa Wah Jamalo” are words that Despite this, since the Indus was not bridged in Sindh, there was no way to have been ringing in my ears for over three connect the breadbasket of Punjab to Europe through the shorter Karachi route. decades. But it was only last week that I Instead, at Sukkur, eight rail wagons had to be transported across the mighty discovered what the song actually says, its Indus on a steam ferry which was both expensive and time consuming. context, and most surprisingly, its peculiar When paid close enough attention, this entire colonial situation is eerily relationship with the China Pakistan Economic Corridor (CPEC). similar to current CPEC realities. As the British once sought to bridge the Indus, Last week I was invited as a plenary speaker at a conference the Chinese now build the rail and road infrastructure between Xinxiang and at IBA Sukkur. I was told by a colleague from LUMS (an ex-Dean) Shanghai. And much like the Sukker ferries, the Karakoram highway between that the event’s gala night featured a rendition of ‘Ho Jamalo’ and Pakistan and China is expensive and time consuming. Similarly, just as Karachi was a must attend. It was during this exchange that he told me was supposed to be a shorter route for the Punjab to Europe, CPEC is trying to the story of the song and its accompanying dance, which are an connect Western China with the rest of the world through the Gwadar port. excellent illustration of Sindhi culture, folklore and the province’s But the comparisons and lessons don’t end to similar geographical themes. rich history of indigenous resistance.

Although Sukkur provided a good spot for building a bridge, since the river Jamalo Khoso Baloch, also known as Jamalo Sheedi, was born flowed through a gap in a range of limestone rocks and got divided into two in Sukkur during the colonial rule of the British East India Comchannels, the job was still not easy because the river bed was heavily silted. A pany. At some point, he was sentenced to hanging by a company bride had to be built with no pillar, something that one can’t help but compare officer, and was held in a jail near what was then the newly conto the building of a highway and railroad across the wilderness of the Himalayas. structed Sukkur Bridge. When the East India Company announced When completed in 1889, the bridge was the largest cantilever bridge in a prize for anyone willing to test drive a train across the bridge, the world. It had two 310 feet each cantilevers, with a suspended span of 200 Jamalo was the only one to volunteer. His only condition was that ft in the middle. The girder work, weighing a massive 3,300 tons, was manuhe be completely pardoned when the job was done. As Jamalo took factured in London by the firm of Westwood, Baillie & Co, and erected by F.E. the train across the bridge, there is rumoured to have been some Robertson and Hecquet. By 1887, the steel work started to arrive at Sukkur and nervy scenes, with the bridge sinking by nearly 4.5 inches when the Rohri. The bridge construction was then started under the supervision of F.E. train was near the midpoint of its course. Despite what must at the Robertson and Hecquet. Their names are written to date on a plaque on each cantilever of the bridge.When both cantilevers were completed, work started on the center span. The bridge designer had intended that the 200 ft long span would be assembled on boats and then hoisted up.This plan proved impractical, however, as the Indus remains quite Dr. Arif Rana violent for around six months of the year.

In the end, Robertson built another temporary bridge to provide a platform is an academic on which the suspended span could be put together. Back in the 1880s, Robertson’s men did not have pneumatic tools or electric drills.The construction of Lansdowne bridge, so named after the viceroy, cost six lives and Rs 2,696,000. After all the similarities, one wonders at the cost of CPEC today.

It is the most basic social sector development lesson there is. For ‘real development’ of a community, one must aim for maximum participation. The minimum for community participation is to use their labour. The next step is to involve them in supervision and management. The next step is to involve them in planning. I guess this goes for CPEC too. Lansdowne Bride’s impact on Sindh over the next century was massive. Trillions of tons of grains, cotton and other goods were moved over the bridge on route to Britain and the rest of the world. While this definitely resulted in immense financial benefits for the British Empire, as CPEC undoubtedly does for China, it seems to have made little difference to Sindh and the lives of ordinary Sindhis other than Jamalo.

“H

24

26

By Abdullah Niazi

O

n the 20th of April, the students, faculty and administration of the Lahore University of Management Sciences (LUMS) woke to strange scenes.

Outside the university’s main dining hall, a large group of janitorial staff had gathered, sitting cross legged on the floor. They did not say anything, they had no banners and no plan - they simply sat there in silence, awaiting the attention they were so nervously trying to draw towards themselves. With the campus winding down from the regular semester and preparing to go into summer hibernation, one imagines it must have taken time before someone actually noticed there were enough of these workers gathered for it to mean something. The realisation that the janitorial staff of what is supposed to be an aggressively liberal university had collectivised and were staging a sit-in on campus in plain sight broke the lazy Saturday stupor of late April. Faculty from the law and

humanities department were soon on the scene, and student activists rushed to take stock of the situation.

The demand of the protest was simple enough, the next day was Easter, and the majority Christian workers had been promised an advance on their salaries so they could celebrate their festivals. With no advances in sight, the haggard, oft-hounded staff gathered in their desperation. As students and faculty joined the protestors, notice was brought to the university management, who graciously arrived on the spot, only to inform the workers they could do nothing. Why? Because the protestors were not employees of LUMS, but had instead been subcontracted from a place called MBM - a human capital management solution company that has been providing janitorial staff to LUMS and other huge employers for years.

The protest raged, the students rallied, the workers waited - apprehensive but now fully embroiled in this stand-off. What happened next was at first heartening, and in its aftermath depressingly regressive.The stories that Profit heard from the MBM workers were

often harrowing, the working conditions almost as appalling as the apathy of both MBM and LUMS. In this feature, we will see the full sordid tale of how this protest boiled over and what it came to. But this is not the story of a single workers’ sit-in taking place at a famous university. This is a much larger story. One that tells the tale of a company called MBM. How it operates by joining hands with large corporations and institutes, and in the name of sub-contracting, releasing them of their responsibilities towards their lower staff, and all the while making money by skimping off these rights. It will be a lesson in mismanagement and the perils of unchecked middle management. It will relate the unfortunate reality of how these companies use the ignorance, helplessness and desperation of lower staff workers to blatantly disregard the decisions of the Supreme Court on the issue of subcontracting. Our character list includes an evasive CEO, an ageing leftist lawyer that thought he had put an end to subcontracting, a corrupt company supervisor making his fortune on the back of a Faustian deal, a hard nosed Col-

HUMAN RESOURCE

“Industry-relation laws in civilised societies codified the relationship between employer and employee, established what the rights of the employee are, especially their right to unionise. To save themselves from these new found expectations of the law, corporations and large employers began subcontracting - meaning they would not directly higher workers” Abid Hassan Minto, Advocate Supreme Court onel, a student activist, and most importantly, the workers. With the cast and setting in place, let’s start.

An unholy alliance

“O

ur society is primarily either feudal or capitalist, so that is the framework in which the law operates. It is also the system under which labour laws work” says Abid Hassan Minto. Sitting in his quaint office with pastel walls and warm lighting, he is a wizened old figure. The ageing lawyer has spent a lifetime fighting the good fight, taking up workers’ cases and putting in a prolific lifetime in the field of labour law. Old as he is, Minto is still not a figure to be trifled with. His movements may be slower, but his mind is as sharp as a tack - sitting in his office laying out strategies for what his Awami Workers Party (AWP) should be doing to enter the mainstream of national politics. At an age where most men retire disillusioned, Minto still dreams of bringing a red revolution.

Even now, when he speaks to Profit on the issue of subcontracting, his deep voice finds the old strength of the lawyer still in him, as he explains to us the economic history of subcontracting. “Industry-relation laws in civilised societies codified the relationship between employer and employee, established what the rights of the employee are, especially their right to unionise. To save themselves from these new found expectations of the law, corporations and large employers began subcontracting - meaning they would not directly higher workers.”

The concept is simple enough. Instead of hiring your own workers, you pay a company to procure a certain amount of labour for you.

The labour, although doing your bidding on your premises for your company, is employed by someone else. So when they unionise or bring their complaints to you, you can simply direct them back to their original employer. “Large scale employers wanted to avoid the new responsibilities that were coming in” explains Minto.

“This gave birth to a group of people that made providing labour into a business. These contrac-

28

tors often beguile workers into this, and supply them to different commercial and industrial organizations that needed them without having to worry about the headache of responsibilities towards them.”

Subcontracting, as Abid Hassan Minto explains, is an unholy alliance. One that frees organisations from their duties to workers in exchange for a fee that the contracting party pockets themselves. The primary case in Pakistan that made changes to the issue of labour law is the Fauji Fertilizer Case that Mr Minto fought in the Supreme Court. The decision of this case came out in 2013 and held that despite whatever contract they may have with the contractor, the organisation is responsible if the workers there are contributing to their industry, and if the organisation is exerting control over them.

What is MBM?

M

BM is the archetypal company that Mr Minto described in his explanation of subcontracting. On their website, they define themselves as “a human capital management solution company.” The website also displays images of shining floors being rubbed clean by janitors in smart looking uniform with the letters ‘MBM’ emblazoned prominently on the back. It looks a clean, happy, efficient system with high tech cleaning buggies and foreign looking mops. Contact us and you don’t ever have to worry about janitorial services again, their website screams. On the list of companies that use their services, MBM lists such names as CocaCola, JC Penny, Honda Atlas, Packages, the World Food Programme, Akhuwat, the US Consulate General Lahore, Metro Cash & Carry, Toyota and Nestle. While MBM also provides household services, it is their janitorial department that is their crown jewel and their list of clients is an impressive one. The company clearly means business.

For all their spread over the city and the big clients under its belt, MBM is nestled away in the middle of a domesticated Model Town street, deep in B block. Inside what looks like

any other house, a handful of supervisors in crisp white shirts and tailored black pants walk around making calls and keeping things in order.

The CEO of MBM, Ishtiaq Bukhari, is not a man that likes to be seen. On our first meeting, he is standing at the gate, when we ask him we are here to see Mr Bukhari, he directs us towards the reception. By the time the reception tells us Mr Bukhari was the unassuming man at the gate, he has slipped into one of the cars parked in the garage and sped away down the quiet Model Town streets. It takes messages, phone calls and getting blocked on whatsapp before Ishtiaq Bukhari finally agrees to speak to Profit on the phone, begrudgingly giving us answers when confronted about the company’s troubles at LUMS. To hear him speak of it, it was a simple issue of student miscreants - nothing his company could be held liable for.

“Cleanliness is half our faith, we are proud to be providing these services, and good workers are our strength. Why would we sabotage ourselves this way?” he asks. He has a point, but this is the only time he says something that seems slightly fond of the workers in passing. About his company, however, he is mum, only acquising to answering questions about the situation in LUMS, and that too only flat out denials and counter accusations.

“Some of these workers just don’t want to work” he says. “They cry so much that there are no jobs in this country, but when you give them jobs, they have a hundred complaints about it.

This is not how the world works, and we owe our clients the best.”

From what Profit could glean from Bukhari’s words, he is a man serious about his business. But the extent to which MBM is willing to go in the pursuit of business is a worrisome one. For starters, their business model is interesting. At LUMS alone MBM has a dedicated staff of a 150 workers, 115 of whom belong to the same Christian community. The company refused to provide the exact number of their overall workforce, but it is definitely in the thousands. Again, while contracts differ

“We are back to square one. This supposedly high and mighty liberal institutions is denying workers their rights. MBM is a simple device to help them avoid having to worry about issues such as workers asking for benefits” Usama Khawar, labour rights lawyer from company to company and MBM has kept its cards close to its chest, their contract with LUMS stipulates that LUMS pays MBM Rs 23000 per worker, of which the worker gets a wage of Rs 15000. Some of the remaining Rs 8000 is meant for social security, EOBI benefits, health and benefits along with things such as maternity leave - all conditions that are included in the contract between MBM and whoever hires them. A small amount per worker is left behind as the company’s commission.

It sounds peachy, but what happens instead is the systematic implementation of certain mechanisms that ensure MBM makes the maximum profit that it can. LUMS was the prime example of this, where workers were overworked both by the university administration and MBM, not given their benefits, and had their guaranteed Rs 15000 arbitrarily cut without the slightest provocation. Despite making these cuts, MBM would get paid in full by the LUMS administration at the end of the month, pocketing all the cuts they made as profit. This, of course, also gave rise to a deadly empowered and corrupt middle management crop of supervisors. Of the

“MBM as a company has a reputation, we do our best to be honest with our clients. But thanks to this protests, the workers became arrogant and refused to show up to work.

When things like this happen, we have to treat them harshly.

Discipline is necessary with these people” Ishtiaq Bukhari, CEO MBM

few janitors Profit was able to contact at Packages before they were shooed away by deadly stares from their managers for interacting with customers at the mall, the same kind of stories emerged - arbitrary cuts and a hostile work environment where the contracting client and MBM joined hands to enforce vicious regimens on the workers and maximise their profits. For the organisations hiring MBM, the contracts they signed with them included such things as EOBI and health coverage, giving them sufficient legal cover, or so they claim. When contacted, Nestle said they would get back to Profit about their status with MBM but never ended up doing so, and the same was the case with Packages. Honda and other companies refused even to respond, either feigning ignorance or not responding at all.

The only interesting exception was the American Consulate General in Lahore, which despite being listed on the MBM website as a client, said they subcontracted no services and all their janitors were directly employed - throwing further question upon the credibility of MBM as a company. At the same time, these companies turn a blind eye to the indiscretions of MBM and often actively participate and even encourage such behaviour - or at least this was part of the reason that LUMS became such a breaking point.

What’s all this about LUMS?

T

he story of MBM at LUMS is nothing short of a saga. At the university, MBM stationed one of its oldest hands, Shehbaz, now a notorious figure on campus who some claim still controls the happenings at LUMS with an iron fist, despite having been moved out from there. His ally in chief was one Colonel (r) Amer Khan Durrani, the head of the General Administration and Security at LUMS. Together, the two men exercised a reign of terror over the 150 staff of the MBM. Shehbaz, as Ishtiaq Bukhari explained, was one of the workers. He was from the same Christian community that an overwhelming majority of the workers came from, and many of them were his kith and kin. To help him run the show, Shehbaz brought in his brothers and cousins as supervisors to consolidate his hold over the

MBM staff at LUMS. As his time at LUMS grew, so did his powers. Egged on by MBM’s policy of cutting wages and messing with attendances, Shehbaz began dismissing workers over vague reasons such as ‘disrespecting him’ or ‘not maintaining discipline’. On the other end was the colonel, trying to impose the benevolence of his military training on unsuspecting workers, often publicly and loudly berating them. The situation was bad enough that the faculty and students ended up taking notice. Videos of professors appealing for better treatment of the workers made the rounds on social media, and the MBM workers fell into the unfortunate habit of having to cover the slashes in their already minimum wages by asking the student body to help them out monetarily in situations such as births and hospital visits - things that were supposed to be covered under the contract between MBM and LUMS. As the situation worsened, so did Shehbaz’s corruption. Workers at LUMS still swear that tiles being used to rebuild the university’s dining hall were transported in the car of Colonel Amer’s number two and taken to a new house Shehbaz was constructing for himself - using money he skimmed off from MBM according to them. As the workers explained, Shehbaz would fire workers and continue drawing their salaries by asking random workers to go collect them from the MBM head office and would pocket them himself. His friendship with the university guards allowed him to fudge up the attendance records as he pleased, enabling him to knick extra cash, and rip off LUMS by having ghost workers. He would then make the already fearful remaining workers do overtime, for which MBM would not pay them. This was made all the easier since even though they are supposed to, MBM rarely provides employment contracts, company identity cards to their workers, and actively discourage them to open bank accounts so they can deal directly in cash and continue their arbitrary cuts. But this dual scam with LUMS and MBM did not seem to phase either, because despite his indiscretions, Shehbaz was vital to keeping workers in line and continuing the unholy alli-

HUMAN RESOURCE

ance between LUMS and MBM. “We had a meeting with the MBM ownership. They said they knew that Shehbaz was taking money from them, but that they didn’t care because he was performing a vital function for them” explains Yahya Aftab, one of the most prominent student activists involved in the struggle of the MBM workers at LUMS. While MBM might not have had much of an issue with Shehbaz and his ways, there was, however, enough uproar in LUMS for MBM to put Shehbaz on probation and conduct an independent inquiry. While he was still under this inquiry, the protest of April 20th took place. Students and workers came together, the Christian staff sang hymns as the protest dragged on into Easter Eve, and finally there was cheering and loud celebration when MBM finally released the Easter advances that the staff had been promised.

But the celebrations would not last long. Right after Easter, there were lay-offs as the troublemakers, some of whom had been in LUMS for years, were transferred or asked to leave.

According to Yahya, the day after the incident, 35 workers were sent away by the MBM supervisors themselves over vague charges so that they could then tell the LUMS admin that there was dissent among their ranks thanks to the protest, which had been egged on by the students. Ihstiaq Bukhari told a different story.

“MBM as a company has a reputation, we do our best to be honest with our clients. But thanks to this protests, the workers became arrogant and refused to show up to work. When things like this happen, we have to treat them harshly. Discipline is necessary with these people” he says. About the other accusations, he calls foul, saying that it is nothing but a slanderous social media campaign led by some over enthusiastic student activists.

“You know these activist types. I tried to talk to them with love and explain the situation, but they just don’t seem to understand how business works. There is a certain way to deal with the working classes, and the realities are often harsh.”

“We are fully and completely covered in every legal aspect, there is no question about it,” he said. Going on, he seemed even to tilt towards pinning the blame on LUMS. “You won’t see any such complaints from anywhere else, the problem is that these students and professors are riling up these workers and their egos are quickly inflated. When we try to discipline them, there is an uproar. We are trying to run a company here, and such problems from the client’s side are often bad for us.”

To his credit, Bukhari at least responded to our questions, even if it was after some serious evasion. LUMS, on the other hand, maintained at first a tactful ignorance that eventually turned into a deafening silence. Despite multiple emails

30

“The support is appreciated, but what we need is help and support for these workers. They are the ones organising, and they are the ones whose rights we are fighting for” Yahya Aftab, student activist and phone calls, nobody from LUMS could be found for comment. Colonel Amer Khan, the head of General Administration, who as per some accounts loves to play long rounds of tennis at the campus, did not seem to find enough time to respond to any of Profit’s multiple attempts to reach out for comment. The Vice Chancellor of the University, Dr Arshad Ahmed, also seemed uninterested, perhaps too busy playing tennis with the colonel, as he is often seen doing on campus when he isn’t taking leisurely strolls.

What does the law say?

“L

UMS is a perfect example of how subcontracting is used as a device to exploit workers” says Usama Khawar, a labour lawyer with a close history to the subcontracting issue.

Back when he was a law student at LUMS, he had been front and center in the then actions taken against LUMS’ former services provider, Brooms. Now, years later, the same issues have arisen with MBM. “We are back to square one. This supposedly high and mighty liberal institutions is denying workers their rights. MBM is a simple device to help them avoid having to worry about issues such as workers asking for benefits” he says. As a lawyer, Khawar had trained under the legendary Abid Hassan Minto. Mr Minto, who had won the earlier mentioned Fauji Fertilizer case, expressed shock at the situation in LUMS. “I didn’t think this was an issue anymore.

The Supreme Court verdict had laid down exactly what was and what wasn’t the definition of an employer. This is the fundamental rule of industrial relations law, in our country and it has been reached after a long struggle and years of drudgery in the courts” said Mr Minto.

Long story short, under the precedent set by the Fauji Fertilizers case, companies getting their services from contractors are still responsible for the workers if they are doing work necessary to the industry, and the contracting organisation is exerting control over them. This

is clearly the case for LUMS, in which case not only are they responsible for the well being of these workers, but also of ensuring that MBM is providing them with the contractual benefits settled between the two.

“There is no question about it,” says Usama Khawar. “Even if LUMS is not involved, it is illegal for them to hire a company like MBM when they know their practices and how they operate in what is not a strictly legal framework.

The lesson

“T

he situation has gotten worse,” Yahya Aftab confides to us. Since the protest, there have been stricter checks on the workers and more are being let go off. “Right now, the administration is threatening the workers by saying they will replace MBM with Brooms, their old contractor, which will mean that most of these workers will get the boot. Just the other day, six more people involved in the protest were laid off” he says.

For now, LUMS continues to do as it pleases with its janitorial workers. In other large organisations that employ MBM and other service providers, the dirty laundry of subcontracting is ever present. Despite the landmark Fauji Fertilizer company case, there seems to be no understanding that subcontracting has legally become a redundant practice. But for image conscious organisations, there needs to be a realisation that the costs are outweighing the benefits.

“We have gotten a lot of adulation and acclaim for this” Yahya says. “We were trending on twitter and there was media coverage and for a while we thought that we were getting something done. But other than saying nice things, there has been little help for us.”

“The support is appreciated, but what we need is help and support for these workers.

They are the ones organising, and they are the ones whose rights we are fighting for.”

One hopes that some of this enthusiasm would rub off on some of these organisations. n

HUMAN RESOURCE

T

By Bilal Hussain

he world is dying. We have been told this time and time again but without a care as to the future the planet we continue to poison the planet, pumping harmful gases into the air and pollution into the land and sea.

One of the areas identified as key in any chance we have to halt to the impending environmental armageddon hanging over our heads is the automobile industry. The no brainer solution to this problem, of course, is throwing out fuel based cars for the sleeker electric models. Actually implementing it, however, is a task larger than life. But car companies are already seeing the

32

need, both for business and for the future of the planet, and are coming forward with some solutions.

Many companies in developed countries around the world have been taken keen interest in electric vehicles.

German luxury car maker Daimler, the parent company of Mercedes-Benz, is all set to buy battery cells worth more than 20 billion euros ($22.75 billion) by 2030 as it gears up to mass produce hybrid and electric vehicles.

Toyota International has also planned to offer more than 10 purely electric vehicle models in its lineup by the early 2020s. At the moment, Toyota does not offer any purely electric vehicles. However, it leads in hybrid models, which switch between an electric motor and a gas engine.

Toyota’s electric vehicles will first be offered in

China, a nation that is on the forefront of encouraging electric vehicles with subsidies and other policies give its proximity to the climate catastrophe at hand. It will also later be offered in Japan, India, the United States and Europe.

The company says that by about 2025, every model it sells will have some kind of “electrified” version, such as hybrid, electric or fuel-cell.

Toyota has also announced other goals on green vehicles. By about 2030, it hopes to sell 5.5 million electrified vehicles a year. Toyota sells about 10 million vehicles globally a year. The company said it will invest $13 billion to realize its 2030 goal, more than half of it on making batteries.

Other automakers, including Nissan Motor Corporation, Volkswagen AG and Honda Motor Corporation and others are working on electric vehicles.

Across the globe, nine countries and a dozen cities or states have announced plans to phase out combustion engines in the last few years.

Copenhagen mayor Frank Jensen wants the city to end all new diesel cars. Paris, Madrid, Athens and Mexico City have all announced the end of diesel cars and vans in their domain by 2025.

Norway will phase out conventional cars by 2025, followed by France and the United Kingdom in 2040 and 2050, respectively. According to the World Economic Forum report, 70 cities have pledged to be carbon neutral by 2050.

One country that still doesn’t quite have a plan regarding electric vehicles is Pakistan, even though it is one of the most vulnerable countries in the world in terms of climate change and pollution. According to the Long-Term Climate Risk Index (CRI), of the 10 countries most affected from 1998 to 2017 (annual averages)’, Pakistan is ranked number 8, having lost 10,248 lives and $3.8 billion.

“Any businessperson can come to us and we can help them start business in making electric vehicles. There are only two things that a sponsor should have: money and vision.

Anyone with these two qualities can start a business” Shaukat Qureshi, EV Technologies Consultant According to Ministry of Climate Change, the transport sector is the leading factor in the deterioration of environmental conditions with a share of 43% in Pakistan’s current environmental woes. With the anticipated rise in Fossil Fuel Vehicles (FFV) based transportation sector, the problem of air pollution is only going to aggravate. For some NGOs, the solution is people taking steps on their own. The Chairperson of Subh-e-Nau, Shahida Kausar, told Profit that pollution produced by Fossil Fuel Vehicles is the major contributor to carbon emissions which is causing such destructive effects on the environment. But her solution is not just for the government to look into bringing in alternatives, but for people to take the initiative themselves.

“Nearly 80% of our people are struggling

from respiratory diseases. Low air quality and atmosphere also leads to depression, which in its own capacity leads to other social evils. If there’s some substitute to fossil fuel vehicles, which can reduce carbon emissions from cars, then everyone should be looking towards it” she said. “People who can afford them should opt for electric vehicles, even if they are more expensive than their FFV equivalents, because this is a duty incumbent upon all of us.”

But personal sacrifice can only take you so far, the problem in Pakistan is so far gone that it may just be beyond the scope even of government intervention. As DSP Saeed Ahmed Arian of the traffic police explained, the situation has gotten so bad that the traffic police personnel regulating traffic in the city have almost all been diagnosed with some form or the other of respiratory disease. With the quality of life in a tailspin, an individual can only do so much.

Luckily, Prime Minister Imran Khan has since coming into office at least shown interest in resolving the massive issues that FFV transportation is causing. His desire is simple enough, Imran Khan wants his party, the PTI, to be the one to lead Pakistan to a greener, more sustainable future. Because of this reason, he has clearly taken a keen interest in the auto industry of the country. Following a recent meeting between the premier and officials from the Ministry of Climate Change, it was decided that Pakistan’s roadmap is to upgrade around 30% of its road vehicles to electric vehicles by 2030.

The move to reduce carbon emissions will not only be helpful environmentally, but would also reduce import bills. The Prime Minister’s Adviser on Climate Change Malik Amin Aslam has claimed that the plan would help reduce the demand for oil, and could fetch up to as much as Rs2 billion in annual savings.

AUTO

However, it will not be an easy task for the industry to switch to clean fuel let alone for a country like Pakistan. The biggest hurdle is the cost an individual would incur if he or she opts for clean energy vehicles, at least at the point of initial investment. According to a well placed source in car manufacturing company OEM (Original Equipment Manufacturer), choosing the electric version of a car instead of the conventional model would effectively mean spending 80% more, since electric cars are so expensive at the moment.

People who are associated with the auto industry believe that electric cars won’t enter the mainstream of Pakistan’s auto market by just rhetoric and some measly reductions in customs duties. Multifold efforts from the government is required including things such as reduction in duties on electric cars, slowly banning or taxing fossil fuel vehicles in cities, rebates for the industry, and even tax incentives for people choosing to buy clean fuel vehicles.

Three OEMs were questioned about their plans regarding the electric vehicles, but none have responded since all of them are patiently waiting for the government’s upcoming policy on electric vehicles. According to sources, the policy has already been drafted and could be announced at any moment.

According to the Ministry of Climate Change’s (MOCC) Zero Draft on Electric Vehicles, the target has been set at 100,000 EVs to hit the roads in the next five years. After the auto market accustoms to EVs, the next target has been set to produce 30% EVs of the total cars produced in one year. Many believe that the biggest hurdle would be to have electric charging stations. However, it is not about infrastructure.

It is easier to have electric charging stations as compared to CNG or petrol pumps. The bigger problem is that charging is time consuming and

V9 Chinese Electric Car at the moment companies have been doing a lot of R&D to bring that charging time from 4 to 6 hours to something closer to 10 minutes. But this problem would be solved if people are able to charge EVs wherever they park their vehicles, especially when cars are parked overnight at one’s home or during the day at the office.

What the Pakistan government wants, or at least what it says, is that their arbitrary target to achieve 30% electrification of cars by 2030 in this country is a difficult ask. The auto industry, too, is scoffing at the government’s proposition and the efforts it is putting in to promote electric vehicles. This has been made worse since industry insiders have not been included in the process, being kept out of the loop while the climate change ministry taking the lead.

To its credit, the National Electric Vehicle Policy (Zero Draft) drafted by the Ministry of

V5 Chinese Electric Car comparable with new Suzuki Alto

34

Climate Change is an informative piece to read on the subject. But there are a few things amiss in the document. For starters, the document doesn’t mention Hybrid cars. Using hybrid cars brings down fossil fuel usage by roughly 30%.

There are also plug-in hybrid electric vehicles (PHEV). These vehicles, unlike Hybrid vehicles, can also be charged by outer source. These cars further reduce the use of fossil fuel. Hybrid vehicles also do not have the charging issue, since their electric motor is charged by the rotation of the car’s wheels and conservation of engine energy.

The countries aggressively working towards the use of clean energy, have all started their efforts with hybrid vehicles and plug-in hybrid vehicles and only now have a combination of all four types of vehicles - FFV, Hybrid, PHEV and EV. However, Shaukat Qureshi, an EV Technologies Consultant, says that there is immense resistance to Electric Vehicles in the country, and it is coming from none other than the auto industry itself. “These stakeholders representing Fuel Based Japanese products and principals are trying their best to delay and create hurdles in implementation of EV policy in Pakistan,” he said.

Qureshi is heading EV Auto Division S. Zia ul Haq & Sons (SZS) as its Chief Operating Officer, as well as holding the same post at the Rehmat Group. The two companies, who have hands in diverse businesses, are looking to kick start the EV market by initially importing EV in CBU (completely built units) form, and then starting production with a production capacity of 10,000 units each on single shift basis each.

Qureshi says the process of installing the plant has already started with finalization of land and all the paperwork done. If demand increases,

production can be doubled by embarking on double shift production. SZS already had 60 acre of land near Karachi Toll Plaza and has acquired another 60 acres only for its plan to start an EV plant. The Rahmat Group also has land in SITE area, where it wants to start its own EV production. But all eyes are peeled and waiting on the government to finally reveal it’s much awaited EV policy, so that they can see which game plan they are supposed to execute.

“Any businessperson can come to us and we can help them start business in making electric vehicles. There are only two things that a sponsor should have: money and vision. Anyone with these two qualities can start a business,” Qureshi tells Profit. And he seems a man on top of things, having already signed MoUs with 14 electric car, bus, scooter, e-vehicle battery and charger making companies in China. Qureshi has written several letters to Abdul Razzak Dawood, the Prime Minister’s Advisor on Commerce, Textile, Industry & Production and Investment and to Malik Amin Aslam Khan, the Prime Minister’s Advisor on Climate Change.

But there are still hurdles, he claims, such as his allegation that the government’s Engineering Development Board (EDB) has always colluded with established auto companies in the past and is back to its old tricks.

Last year, the government had dismantled the EDB after auto companies that entered for the first time or re-entered Pakistan’s auto industry under the Greenfield and Brownfield status in the aftermath of the Auto Development Policy (ADP 2016-21) accused EDB of stepmotherly behaviour towards them. Qureshi claims that if the government supports the electrification of vehicles in the country, prices of electric vehicles can come down to as low as Rs 1.3 million for a car that could be compared with

the Toyota Vitz.

“Why look at only big cars when 75% of the market in Pakistan consists of cars with an engine size of 500cc to 1000cc? EVs equivalent to these engine size vehicles are not very expensive. And when one incorporates savings that comes from not spending on petrol or diesel, these EVs becomes much cheaper” he said.

According to a US Department of Energy website fueleconomy.gov, EVs convert about 59%–62% of the electrical energy from the grid to power at the wheels. Conventional gasoline vehicles only convert about 17%–21% of the energy stored in gasoline to power at the wheels.

If the Pakistan government approves climate change ministry’s proposal on electric vehicles, where it has asked for zero customs duty and sales tax on CBUs for the first two years, EVs may even be selling for just a little over Rs1 million, according to a working Qureshi showed.

While Qureshi could not give details about the vehicles they were looking to import out of fear of competitors, the two cars ini-

tially being brought in are vaguely named as V5 and V9 which can be compared with the Suzuki Cultus and the Toyota Vitz respectively. The cars have already been test-drived in Pakistan.

“At the moment, it would cost around Rs 2.1 million. There’s nearly 43% different duties and taxes if an EV is imported. That increases the price. Moreover, after EVs are imported in CBU form initially, localization can easily start. Our spare parts manufacturer are already making 70% of what makes the price of an EV. The remaining 30% cost would be incurred for importing battery, motor and controller,” he explained.

Pakistan’s auto industry has always been criticized for its reluctance to innovate. Car companies in Pakistan don’t change models for decades, Suzuki’s Mehran being the classic example, only now having been discontinued.

Qureshi has been one of the main players aggressively advocating for electric vehicles in Pakistan. He may be 78-years-old, but he is more forward thinking than many in the industry, challenging anyone who says EVs are more expensive than FFVs to give him their best shot.

He thinks Japanese companies are behind this reluctance of Pakistan’s auto players to accept EVs because they cannot compete with China when it comes to EV technology. China has done a lot of R&D on the subject for over a decade now. 80% to 90% lithium batteries are made in China because the country has the largest Lithium deposits in the world. Japanese companies, who have led the FFV industry for decades, will be left behind by Chinese brands if Pakistan were to go full EV mode, especially since China has already been collaborating with American and European companies on the EV fronts.

Both for saving the world, and to have a viable, sustainable future for the auto industry, the government must, and looks like is, seriously trying to make electric cars a thing in Pakistan. But for all the promise, it is yet to be seen whether the electric car policy set to be unveiled any time will disappoint or delight. n

AUTO

WARREN BUFFETT HATES IT. AOC IS FOR IT. A BEGINNER’S GUIDE TO MODERN MONETARY THEORY An overview of a once-fringe school of economic thought that’s suddenly of the moment.

36

By Peter Coy, Katia Dmitrieva, and Matthew Boesler

T

here’s a lot of debate swirling around Modern Monetary Theory—some strident. Its critics call it a hot mess. “MMT has constructed such a bizarre, illogical, convoluted way of thinking about macro that it’s almost impervious to attack,” Bentley University economist Scott Sumner claimed recently on his blog. MMT’s proponents say it’s

the critics who are impervious to reason—“part of a degenerative paradigm that has lost credibility,” says Australian MMTer William Mitchell.

This state of confusion isn’t good because Modern Monetary Theory, once confined to blogs and a handful of colleges including the University of Missouri at Kansas City, suddenly matters. In the U.S., the left wing of the Democratic Party is citing MMT to make the case for massive federal government spending on a Green New Deal to wean the U.S. off fossil fuels and fund Medicare for All. It’s virtually certain that MMT will be

dragged into the debates of the 2020 presidential race. So the time is right for a semi-deep dive into Modern Monetary Theory—what it is, where it comes from, its pros and its cons.

Fortunately, the first academic textbook based on the theory was published in February.

The 573-page tome, titled simply Macroeconomics, is by Mitchell, an economist at the University of Newcastle in Australia; Randall Wray of Bard College in Annandale-on-Hudson, N.Y.; and Martin Watts, an emeritus professor at Newcastle. This article is based on the textbook as well as academic papers and blogs by MMTers and their critics.

A good place to start is with a simple description that you can carry in your pocket: MMT proposes that a country with its own currency, such as the U.S., doesn’t have to worry about accumulating too much debt because it can always print more money to pay interest.

So the only constraint on spending is inflation, which can break out if the public and private sectors spend too much at the same time. As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.

If you’ve absorbed that much, you’re already ahead of a lot of the critics. Because MMT is associated with the Left, some people assume it favors soaking the rich to pay for social programs. In fact, MMT breaks with liberal orthodoxy by saying that while taxes on the wealthy are good for lessening inequality, they aren’t essential to pay for government spending. Another misconception is that MMT says deficits never matter. On March 13 the University of Chicago Booth School of Business published a survey of prominent economiststhat misrepresented MMT that way, leaving out its understanding that too-big deficits can cause excessive inflation. The surveyed professors roundly disagreed with MMT as described.

MMTers cried foul.

Modern Monetary Theory says the world still hasn’t come to terms with the death of the gold standard in 1971, when President Richard Nixon declared that the dollar was no longer convertible into gold. In the modern era of “fiat” currency, MMT says, the U.S. and other big economies no longer need to worry about having enough gold to back their paper money, so they’re free to print however much they need.

MMT claims to be the legitimate heir to the theories of Britain’s John Maynard Keynes, who created the field of macroeconomics during the Great Depression. Keynes coined the term “paradox of thrift.” His insight was that while any single household can dig itself out of a hole by cutting spending when its income falls, the economy as a whole cannot. One household’s

spending is another’s income, so if everybody cuts back, no one gets paid. What you get then is a depression—a situation only government can fix because, unlike the private sector, it can afford to spend freely, putting money in people’s pockets and thus getting the economy back on track.

In MMT’s reckoning, Keynesianism was gutted in the following decades by successors such as Paul Samuelson, who unrealistically tried to make economics like physics, playing down the role of fundamental uncertainty.

MMTers haven’t endeared themselves to the mainstream by referring to that school of thought as “bastard Keynesianism,” a coinage of the late British economist Joan Robinson.

MMT also draws on the “functional finance” work of the Russian-born British economist Abba Lerner, who wrote in the 1940s that government should spend what’s required to achieve its goals, deficits be damned. Later, Britain’s Wynne Godley developed the concept of sectoral balances, which focuses on the accounting truth that when the government runs a deficit, the nongovernment sector must run a surplus, and vice versa.

Starting in the 1990s, the budding movement coalesced with the financial and intellectual support of Warren Mosler, a hedge fund manager who lives in the U.S. Virgin Islands and has interests ranging from politics to catamaran design. It ran into skepticism. When Mitchell presented the ideas at an economic conference, he recalls, the first comment was from a man who said, “I think we are being visited by a presence from Mars today.”

MMT rejects the modern consensus that economies should be steered primarily by the raising and lowering of interest rates. MMTers believe that the natural rate of interest in a world of fiat money is zero and that pegging it higher is a giveaway to the investor class.

They say tweaking interest rates is ineffectual because businesses make investment decisions based on prospects for growth, not the cost of money. MMTers argue that economies should be guided by fiscal policy—government spending and taxation. They want a nation’s central bank to do the bidding of its treasury. So when the treasury needs money, the central bank accommodates it with a keystroke—creating base money from thin air by crediting the treasury’s checking account. The new textbook says that today, governments “tend to run unduly restrictive fiscal policy stances so as not to contradict the monetary policy stance.”

MMT says that, contrary to appearances, banks don’t make loans out of deposits. Rather, they make loans based on the demand for borrowing, then the borrowers stash the proceeds in the bank. Anyone they write a check to simply makes a deposit in another bank.

The bottom line is that loans create deposits rather than deposits creating loans. This is one aspect of MMT that even some conservative central bankers—including those at Germany’s Bundesbank—agree with.

To stabilize employment, MMT would add a federally funded, locally administered job guarantee. Government would employ more people in slumps than in booms. Pavlina Tcherneva of Bard College’s Levy Economics Institute is refining the plan. Representative Alexandria Ocasio-Cortez, the Democratic Socialist from the Bronx who’s in her first term in Congress, supports the job guarantee and says MMT should be “a larger part of our conversation.”

MMT challenges a core principle of conventional economics, which is that an increase in budget deficits will tend to raise interest rates, all else equal. Just the opposite, it says, sounding a bit like the White Queen from Alice in Wonderland. When the government spends more, the private sector gets the money and puts it in the banking system. With more money in the system and no increase in demand for it, interest rates will tend to fall, not rise, MMT says. That is, unless the government chooses to soak up reserves by selling bonds, which it doesn’t have to do.

The reason the government doesn’t need to sell treasury securities, or levy taxes, to spend money is that the central bank, under the control of the treasury, can pay for everything by conjuring up electronic money. In MMT’s ideal world there would still be taxes, but their main purpose, aside from lessening inequality, would be as “offsets” to keep inflation under control.

Taxes would drain just enough money from consumers and businesses so total spending in the economy won’t be excessive.

It’s tempting to view MMT’s conception of fiscal policy as essentially similar to that of the mainstream—“Hey, they believe in taxes, too!”—but that’s not quite right. MMTers hold that inflation isn’t primarily the result of excessively strong growth. They blame much of it on businesses’ excessive pricing power. So before trying to choke off growth to kill inflation, they would try to break up monopolies and stop banks from making too many loans. “The more actively we regulate big business for public purpose, the tighter the full employment we can achieve,” three MMTers wrote in a letterto the Financial Times’ Alphaville column that was published on March 1.

With that formula, it’s no wonder that MMT has loud critics on Wall Street, where it’s sometimes derided as Magic Money Tree.

What’s more surprising is how much flak the school of thought is taking from liberal economists who’d appear to be natural allies, such as Larry Summers, the former Treasury secretary and former Harvard president. Summers has

ECONOMICS

been making the case that wealthy nations are suffering from “secular stagnation” and require permanently high levels of stimulative deficit spending by governments to keep them out of recession, which is similar to what MMT argues.

Yet in a recent Washington Post op-ed, Summers called MMT “fallacious at multiple levels.”

Summers and others may be worried that MMT will give a bad name to their more conventionally dovish views on deficits. “As long as they’re out there claiming that standard macroeconomics is all wrong, I guess we need to respond,” Paul Krugman, the Nobel laureate who is a professor at City University of New York Graduate Center, wrote on his New York Times blog.

MMT’s critics argue that trying to use fiscal policy to steer the economy is a proven failure because Congress and the president rarely act quickly enough to respond to a downturn.

And they say politicians can’t be relied upon to impose pain on the public through higher taxes or lower spending to squelch rising inflation. MMTers respond that they also oppose fine-tuning and instead want to use automatic stabilizers—including the jobs guarantee—to keep the economy on track.

MMT’s detractors are skeptical of the idea that the treasury and central bank should work in concert. The Federal Reserve did the Treasury Department’s bidding during World War

38

II, but that “overdraft” privilege was used spottily thereafter and permanently ended in 1981— precisely because economists warned that a subservient central bank would allow inflation to race out of control. They’re also dubious of the jobs guarantee, arguing that if the government’s wage for guaranteed jobs is too low it won’t do much to help unemployed workers or the economy, while if it’s too high it will undermine private employment. Tcherneva’s plan calls for $15 an hour. MMT envisions that government-employed workers would move back into the private sector when the economy strengthened, but that means some government functions would no longer be performed. In an email, Wray said the cyclical fluctuations in government employment are manageable.

Critics of MMT reject its reassurance that a country with its own currency doesn’t need to worry about deficits. After all, it’s been proven that a nation that loses the confidence of the world’s investors will see its currency plummet. As recently as 1976, the U.K. was forced to appeal to the International Monetary Fund to stabilize the value of sterling. Wray said the U.K.’s mistake was trying to peg its currency to the dollar and the crisis eased when it allowed the pound to float.

Other disagreements are harder for laypeople to parse. There are complicated

arguments over how interest rates are determined and whether the government and private sectors compete for savings, for example.

Mainstream economists argue that the correct parts of MMT aren’t new and the new parts aren’t correct. But MMTers point out that the establishment hasn’t covered itself in glory in recent years—largely failing to foresee the global financial crisis a decade ago, for instance. Paul McCulley, the former chief economist of bond giant Pacific Investment Management Co., says that though he’s “not a card-carrying MMTer,” he believes it offers a “robust architecture for a fiat currency world.”

In any case, the new textbook gives MMT a good slingshot. Samuelson, in the preface to the 1990 edition of his best-selling principles book, wrote, “I don’t care who writes a nation’s laws—or crafts its advanced treaties—if I can write its economics textbooks.” Stephanie Kelton, an MMTer who was the economic adviser on Vermont Independent Senator Bernie Sanders’s presidential campaign in 2016 and is a Bloomberg Opinion columnist, sees the tide turning. In presentations, the Stony Brook University economist likes to flash up a quote that says, essentially: First they ignore you, then they laugh at you, then they fight you.

Then you win. n Courtesy Bloomberg

ECONOMICS

“BOYCOTTING IMPORTED PRODUCTS WILL ELEVATE RUPEE AND MAKE PAKISTAN BETTER OFF,” BS OR NOT? Online campaigns urge Pakistanis to stop using imported products to stop the dollar’s scary rise against rupee. Profit tests the tenacity of this claim on its BS meter

I

By Taimoor Hassan

n response to the relentless hike in US dollar against Pakistani rupee, various campaigns online have urged Pakistani consumers to cut-off their purchase of imported products to help elevate local currency against the dollar. The logic behind this is that a decrease in the demand for imported products will decrease demand for dollars, since import payments are made in dollars, decreasing the value of the dollar against rupee: a simple supply and demand model. Profit tests on its BS meter if a boycott of imported products by consumers will actually help elevate local currency and whether Pakistan would be better off if its citizens adopt such a measure.

Methodology

P

rofit analyzed Pakistan’s imports data available online and contacted three experts on Pakistani economy: Dr S Akbar Zaidi, Dr Kaiser Bengali and Dr Asad Zaman, to know if boycotting imported products makes economic sense or not. Profit also consulted former chief executive of Unilever and the present CEO of Pakistan Business Council (PBC), Ehsan Malik. Moreover, questions were asked to consumers belonging to middle and upper-middle income groups, the income groups most likely to buy imported goods over Pakistani products, to understand their preferences of such products and how their preference would change in this scenario.

Findings

A

ll the experts dismissed the notion that boycotting imported products would have a substantial impact on elevating local currency because items that the consumers have the power to boycott are daily use items available at super-

40

markets such as food and related products such as cheese, juices, chocolates, or mobiles or automobiles. But these products do not form a large part of the overall imports and those which form a significant part of imports (such as POL products and machinery items) are beyond the power of consumers to boycott and would require government’s intervention. Even in the case of imported products which consumers can actually boycott since it is a voluntary measure, experts say that people would have to drastically change their lifestyle to make it happen, giving their preferences a back seat even if they are better off using imported products.

Their arguments are presented below:

1. No reason to boycott in first place

T

he approach to elevate rupee against dollar is flawed in the first place because a higher rate of dollar will automatically bring down the de-

mand for imported products, leaving no real need to boycott imported products.

A consumer spoke of his preference for an imported cheese brand that changed after the per unit price of that cheese increased from Rs250 to Rs400 due to an increase in dollar’s value. He said that he had to stop buying that item altogether because it was not affordable now. A similar account was narrated by another consumer who said that at constant income levels and increasing value of dollar, it is not possible to buy imported products anyway so there can not be a boycott of something a person is already unable to buy.

Dr S Akbar Zaidi agreed with the above assessment and added that a majority of the people fall in the lower-income groups in Pakistan who don’t have the buying power for imported products.

2. Unavailability of local substitutes

D

r Kaiser Bengali says that certain consumer products are available imported only because Pakistan-made substitutes of those products are not available. This argument was supported by Dr Zaidi who said that Pakistan’s manufacturing industry is very small and we don’t really make much. The consumer, therefore, is not left with much of a choice to boycott.

3. The raw material conundrum

A

nd in cases where local substitutes are available, the raw material to make them would be imported.

Ehsan Malik gives example of soap for which palm oil serves as a raw material. He said that most of the local soap brands sold in Pakistan are made from palm oil, which comes mostly from Indonesia or Malaysia, because there is no local oil industry in Pakistan. Therefore, Pakistan imported palm oil to the tune of over $1 billion for the current year till April 2019. So even though a consumer might want to use a local product, it might be made of imported raw material, which can not be boycotted because of absence of a local substitute.

Ehsan Malik, however, stressed that even in instances where raw material is imported to make a product in Pakistan, preference should be given to the local product instead of one that is totally made abroad because it contributes to the local economy in the forms such as jobs.

4. Loss of revenue for the government

B

oth Dr S Akbar Zaidi and Ehsan Malik agree that boycotting imported goods, such as imported automobiles which are a source of revenue for the government owing to the high amount of duties the government earns on these imports, would lead to a loss of revenue for the government especially if consumers boycott buying high-end imported vehicles. Malik says that this is going to have a multiplier effect as well since the government will be denied other taxes, sales and car registration etc., earned on automobiles.

Dr Asad Zaman and Dr Bengali, however, say that government revenue is not a consider-

ation in the case in point and can be ignored.

5. Availability of inexpensive imported products

D

r S Akbar Zaidi argued that certain imported products, such as Malaysian or Sri Lankan made items, might even be cheaper than Pakistani products of the same category because of their efficiency in making those goods. In that case, he said, a consumer might be worse off if he chooses a local product over imported one.

Will Pakistan be better off?

D B

r Asad Zaman, Dr Kaiser Bengali and Ehsan Malik agreed that Pakistan might be slightly better off due to some positive aspects of this measure.

Profit’s Verdict:

ased on the above arguments, Profit believes that only a little can be achieved if Pakistani consumers boycott imported products. Therefore, Profit gives it High BS on its Bullshit Meter.

BS METER