Profit E-magazine Issue 27

WELCOME

FREEDOM OF THE BUSINESS PRESS t has been one full year of ‘Profit’. At the risk of sounding too full of ourselves, I think we can go ahead and say that Profit is Pakistan’s best business publication by far. But, truth be told, there wasn’t much of a competition to begin with in business journalism.

Even in this day and age almost all our newspapers borrow their business reportage mantra from the grand old days of Pakistan Times: if it’s anything vaguely “money-related,” just throw it to the business section.

Business reportage in Pakistan has primarily been PR placement. Other than State Owned Enterprises, no one asks commercial enterprises tough questions and when they do, they don’t expect them to be answered properly.

So the Pakistani business environment is a bit of a buffet table for serious business publications, then, you might ask? Not really. Having only interacted with such business journalism, Pakistani businesses have evolved into skittish, reticent beasts. Even the publicly listed companies.

I cannot express the amount of respect I have come to develop for the political class. Generally polite to a fault, the politicians are not only forthcoming but even try to make the best of unfavourable reports by journalists and pundits. They take scathing criticism, sometimes unfair, with a smile on their face and an appeal to hear them out. Corporates, on the other hand, view even reports otherwise full of gushing praise but not taking the company’s officially printed PR line, as unfavourable. That is how spoilt (yes, spolt) most of our corporates are.

Hence, the stark contrast between the bevy of quality business publications across the Radcliffe. But this better quality of Indian journalism doesn’t just make these publications better. They also make Indian businesses better. The business students who enter those corporates are generally better informed and have been raised on a steady diet of quality reportage on a whole range of businesses. Even the already serving executive themselves can know much more by their businesses.

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Consider an expansive, well-researched and readable report on the dairy industry. When this sector is covered thoroughly by a fresh set of eyes, the latter might see certain aspects that others who are too close to the picture might not.

Alas, the reticent CEOs, MDs, GMs, Chairpersons and good old seths decline to give interviews. And when they agree, they ask for the questions to be sent beforehand.

Withholding ads, stuck in the public’s imagination as one of the major tools with which the government can twist the arm of independent publications, is, in practice, done more by corporate concerns. To the extent that it doesn’t even raise eyebrows anymore. The businesses that show maturity and don’t withhold ads are the ones who stand out.

‘Profit’ has cost ‘Pakistan Today’ a lot of advertising business because of that. You might not believe how timid and staid the supposedly offensive stories actually were.

Remember the recent debacle involving the New York office of HBL? Profit gave the best coverage of that fiasco not just because we investigated it well but also by default: we were probably the only publication that actually covered it properly. The reason is not surprising. In an era where marketing departments don’t let editorial even take on momand-pop-store advertisers, how can they be allowed to even touch HBL Pakistan’s single largest advertiser after the government?

Since the New York episode, till this goes to press, HBL hasn’t come out with its next advertising campaign. ‘Pakistan Today’ may or may not be a part of the next campaign. Do we care? Yes. Would we do things differently? No. Here’s looking at the next year and the one after that.

Thank you for being a part of our journey.

Babar Nizami

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

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FROM THE MANAGING EDITOR

“Endeavours in (IT) will further improve Pakistan’s innovation drive in general” Minister of State for IT and Telecom Anusha Rahman

QUOTE

BRIEFING

“The Sindh government offers various attractive incentives to the investors in different sectors” Sindh Board of Investment Chairman Naheed Memon

benefit will be received by Punjab which is expected to be derived from China-Pakistan Economic Corridor (CPEC) according to a research conducted by a PhD Scholar Siraj Bashir. Bashir presented his findings at the ‘Diversity and Peace: Challenges for Social Discourse Conference’ that started on Tuesday at Karachi University. The paper shed light on the perception of the people of Balochistan with facts and figures about CPEC. According to Bashir’s study, Balochistan’s resources will stand at 60 per cent but the province would be receiving only 5 per cent of the benefits from the Chinese investments for the CPEC programmes. Meanwhile, KPK resource contribution would stand at 10 per cent and is expected to receive the same per cent of the total benefits. Same goes with Sindh, which is expected to receive 25 per cent of the benefits against 25 per cent of the contribution towards CPEC activities. However, Punjab would be contributing 10 per cent of its resources but would get lion’s share at a whopping 60 per cent of the benefits. However, Bashir did not make a comparison on the basis of ‘per-capita benefits of CPEC’ since Punjab’s population is more than half of the total population of the country.

60pc

$703m

were invested by mutual funds in Pakistan Stock Exchange (PSX) as a result of Security and Exchange Commission's decision to raise investment cap for mutual funds from 95pc to 100pc cash. Because of this change, equity funds injected an additional Rs15b in the stock exchange in 2nd week of November. In January this year, SECP had set rules of 5pc cash-holding for mutual funds, which would have allowed them to claim their units any time. The stock exchange has experienced extended periods of political turbulence and volatility that caused a significant fall on the benchmark KSE-100 index, since reaching a record high at end of May 2017. This follows on the heels of Bloomberg reporting that $54m Pakistani stocks were purchased by foreign investors since start of September. Foreign investors pulled out $402m from Pakistani stocks during the first nine months of 2017. In June, Pakistan was reinstated to emerging market (EM) status by index provider MSCI and re-entered S&P’s Emerging Broad Market Index from S&P Frontier BMI in mid-September.

short-term commercial loan agreements were signed by Pakistan during first quarter (JulySeptember) of current financial year 2017-18 with various foreign commercial banks. Till now, $458m have been released and government had budgeted $1b of foreign commercial loans for FY 2017-18, out of which 46pc has already been consumed, reported a local newspaper. According to information available, finance division is said to have procured a $100m loan from CitiBank on 28th July and these funds have already been released. $75m loan was obtained from Citibank again on 24th August and another of $78m on 29th August. To support dwindling foreign exchange reserves, the finance division also obtained a loan worth $450m from a Credit Suisse led consortium of banks on 26th September.

Allied Bank and United Bank Limited are part of this consortium. The disbursement for this loan agreement stands at $205m so far.

$17m

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BRIEFING

“Engagements in the fields of horticulture, agriculture should be increased with Australia to empower farmers in rural areas” Planning Commission Deputy Chairman Sartaj Aziz

QUOTE

$5m

grant will be provided by World Bank Multi-Sectoral Action for Nutrition (MSAN) Project for Sindh in Economic Affairs Division (EAD). The project development objectives are to increase the dietary diversity and improve sanitation and hygiene practices in targeted project areas in Sindh Province. MSAN is financed by a grant from the Pakistan Partnership for Improved Nutrition (PPIN) trust fund administered by the Bank in an amount of $ 5 million (with a total commitment of $ 17.56 million which will be disbursed in tranches)

was released by the government for Petroleum and Natural Resources Division under the Public Sector Development Programme (PSDP 2017-18) during first four months of the current fiscal year against the total allocation of Rs 4.778 billion. According to the official data, Rs 1.798 million, out of Rs 8.992 million allocations has been released for exploration and evaluation of metallic minerals in Bela and Uthal areas of district Lasbella, Balochistan. This year, the government has earmarked Rs 415.807 million for acquisition of four drilling rigs with accessories for the Geological Survey of Pakistan, Rs 37.977 million for appraisal of newly discovered coal resources in Badin and its adjoining areas of Southern Sindh, Rs 3.492 million for exploration of tertiary coal in Central Salt Range of Punjab, Rs 387.421 million for supply of gas to Baddhomali Town of district Narowal, Rs 238.786 million for supply of gas to various villages of NA-112 of district Sialkot, Rs 300.402 million for provision of gas to various villages of NA-129 of district Lahore.

Rs2.198b

stake being planned for purchase by Kot Addu Power Company (KAPCO) of Hub Power Company Limited (HUBCO) got shelved. Water and Power Development Authority (WAPDA), which holds 40pc majority shareholding in KAPCO, directed the company to shelve plans of proceeding with this proposed transaction and under its articles of association it would require a special resolution to go-ahead with this deal, the notification read. KAPCO owns and operates a multi-fuel fired power station of which the principle one is in Muzaffargarh, Kot Addu, Punjab having a capacity of 1,600MW. The company got listed on the Pakistan Stock Exchange (PSX) in April 2005. HUBCO got incorporated as a publicly listed company in 1991 and owns a 1,200MW oil-fired power plant in Balochistan and a 214MW one in Narowal, Punjab.

17.37pc

Rs48b

increase in exports of football was registered during first quarter of current financial year 2017-18. Pakistan earned US$37.808 million from the export of footballs during first quarter of current FY 2017-18. According to the data of Pakistan Bureau of Statistics, during last fiscal year, the country earned $34.837 million by exporting footballs. In terms of quantity, the footballs export increased by 19.91 percent during July-September (2017-18) as compared to the export of July-September (2016-17). As many as 771,000 footballs were exported from the country during first quarter of the current year as compared to export of 643,000 footballs in SPLY. Meanwhile, on year-on-year basis, footballs export from the country increased by 18.74 percent during September 2017 as compared to corresponding period of last year.

was the trade figure recorded between Azad Jammu Kashmir and Indian Occupied Kashmir during 2017. Speakers at a seminar underscored the need for an uninterrupted and hassle-free mechanism for trade on the Line of Control (LoC) between the two Kashmirs in a bid to push business and commercial activities in the region. The seminar titled “Nine years of cross-LoC trade: challenges and opportunities” was held in Islamabad to mark the ninth year of trade between the divided Jammu and Kashmir. Praising traders for trying to strengthen local trade and economy, Qadir said trade across the LoC was the only confidence-building measure between Pakistan and India on Kashmir which had local ownership and it was the main reason why it had been able to sustain itself.

8.53pc

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BRIEFING

“Pakistan has not used FDI as a vehicle for innovation, productivity and technology spillovers” World Bank Country Director for Pakistan Patchamuthu Illangovan

was the public debt figure of Pakistan by end of August.

In the period under review, domestic borrowing constituted majority borrowing, whilst external debt registered a slight rise too, reported a local newspaper. SBP data disclosed the government's reliance on heavy bank borrowing to sustain its funding requirements as domestic debt spiked to Rs15.707t compared at end of August against Rs14.147t in SPLY. Experts stated rising public debt levels were due to increasing budget deficit, increasing levels of spending, weaker non-tax and tax receipts and moribund foreign inflows. Short-term debt which includes shorter tenor instruments like market treasury bills (MTBs) increased to Rs7.914t in August against Rs6.465t a year ago. The short-term debt, including shorter tenor instruments, mainly market treasury bills, rose to Rs7.914 trillion in August (22.4pc year-on-year increase) from Rs6.465 trillion a year ago. Longer-term debt touched Rs7.792t, rising 1.445pc against Rs7.681t in SPLY.

Rs21.770t

QUOTE

$800m

penalty imposed by International Centre for Settlement of Investment Disputes (ICSID) for detaining power generation vessels owned by Turkish Karkey Karadeniz Elektrik Uretim has been challenged for annulment. Pakistan’s loss in the case against Karkey Karadeniz Elektrik Uretim had first come about in September of this year when the Attorney General of Pakistan (AGP), which coordinated the arbitration proceedings and the Power Division under the Ministry of Energy separately, confirmed that the arbitration by the ICSID of the World Bank had gone against Pakistan.

5pc

28pc

Rs4,669

cash condition on mutual funds was withdrawn by Securities and Exchange Commission of Pakistan (SECP). Earlier, all the Mutual Funds companies in Pakistan were bond to have 5 per cent liquidity in their hands to deal with cash problems.

SECP in exercise of power conferred under Section 282D of the companies ordinance, 1984, hereby withdraws the requirements of maintenance of 5 per cent cash and near cash instruments in equity funds and fund of funds (FOF) as earlier prescribed through direction no 2 of 2017, and subsequently amended through direction no 7 of 2017, with immediate effect.

The industry sources claimed the benefit of withdrawing the condition of 5 per cent cash will directly benefit the investors of mutual funds industry as the companies can now use the entire amount for the investment and earn a profit on it.

surge was recorded in remittances in the first four months (July to October) of 2017-18 to touch $6.444b compared with $6.301b received during same period last year (SPLY).

During October 2017, the inflow of worker’s remittances amounted to $ 1.654 billion, which is 27.87 per cent higher than September 2017 and 5.99 per cent higher than October 2016. Profit recently reported that the recent drop in remittances by almost a third has been attributed to the “HBL saga” as per a research report. It was earlier being speculated that the exorbitant month on month decline in September’s numbers was due to what is commonly known as the seasonal Eid affect. Remittance inflow for September was recorded at $ 1,294 million, lowest since February 2016. Country-wise examination revealed, the highest drop came from Saudi Arabia at a massive 40 per cent month-onmonth basis.

per ton petroleum levy has been imposed on locally produced liquefied petroleum gas (LPG) by the government. Sources in LPG market told that LPG consumer prices were expected to go up following the notification amid rising winter. They said the government has taken the decision to impose Rs 4,669/MT petroleum levy (PL) on locally-produced LPG ostensibly to facilitate the LPG imports and to benefit the importers too. More, the imposition of PL on LPG has far-reaching consequences on LPG consumers and LPG market while the government is expected to collect around Rs 2 to 3 billion from LPG users with the effect of this decision, said sources. It is pertinent to note here that the levy, which was earlier imposed twice, in 2011 and 2013, was struck down by various courts on different grounds.

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BRIEFING

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By: Farooq Baloch With additional input from Mohammad Farooq hen Government of Pakistan opened its telecoms market for private sector 13 years ago, the country saw a massive inflow of foreign investment. The new players spent heavily ($4 billion in fiscal year 2006-2007 alone) for buying licenses, building infrastructure, and acquiring customers and became the largest media advertisers – even forcing the big budget consumer goods companies to compete for a slot in the prime time transmission.

Fast forward to April 2014, the country embraced next-generation mobile broadband technologies 3G and 4G. A broadband explosion hit the country, and so did disruptive technologies, throwing the incumbent out of its comfort zone and stagnating its revenue growth – that, too, when all companies were well and truly engaged in a tooth and nail fight in a hypercompetitive market where taxes are high, tariffs low, and even pennies matter.

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DISRUPTION

telecom revenues stagnate n fiscal year 2017, the telecom sector’s revenues grew by a meager 1.5% to Rs464 billion compared to the preceding year’s Rs457 billion, but data revenue hit an all-time high – to Rs140 billion (approximately), up 40% from Rs99 billion of the corresponding year.

To look at it from a different angle, data now accounts for 30% of industry’s total revenues, up from 21% of the previous year. However, this growing usage of data is not translating to growth in overall revenues. Worse still, operators are forced to invest in infrastructure to cater to the growing demand for data – the industry has spent $1.3 billion in acquiring additional spectrum and upgrading of network in fiscal years 2016 and 2017.

Much like their counterparts in other countries, Pakistani telcos have been looking for new revenue streams for quite some time to deal with stagnation in revenues and dwindling profitability. But never before has the need to reinvent been greater than now when the juggernaut of over-the-top (OTT) services, the likes of WhatsApp, Viber, Facebook Messenger and Skype, have squeezed the margins of traditional players even further becoming an existential threat to them. Hence, in a rather radical move, Jazz has become the first operator in the country’s $4 billion plus industry to take the bull by the horns.

Jazz’s plan is in line with the global strategy of its Dutch parent Veon (formerly VimpelCom), one of the world’s top 10 telecom operators, which has decided to expand beyond telephony and data to compete with disruptive technologies eating into its market.

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“We are not going to be in the do-nothing category. if We didn’t become an ott, Whatsapp Would kill us. the risk of not taking this risk is much higher” Aamir Ibrahim, CEO Jazz In an attempt to reinvent itself as an internet platform, Pakistan’s largest telecom company just launched its OTT app, called Veon – fifth in the 12-market universe of Veon. The company says it is not a single app like WhatsApp but a personal internet platform to do almost everything using one’s mobile phone like news feeds and self-serving mobile topups and cellular bill payments. Going forward, it will also include peer-to-peer and business payments as a mobile wallet will be integrated into it, which will allow 3 million active JazzCash users to shop, pay utility bills and make various other payments from within the app. To be precise, the company aspires to be what WeChat is to China and it has already played the first ace up its sleeve by offering Veon ‘for free’.

“All a customer needs to do is be in the coverage area [close to a mobile tower] and he can use Veon, even if he has zero credit on his SIM,” Jazz’s CEO Aamir Ibrahim told Profit during his recent visit to Karachi while unveiling the strategy. Whether ‘free’ or paid for and on the path to its success what obsta-

cles lie in ambush, we will come to that later.

First, some background on why Jazz is venturing into the OTT space and its implications for the industry.

kill the a‫מּ‬acker or get killed porting a white shirt under his navy blue jacket, Veon’ logo placed on its lapel, Ibrahim, the Jazz supremo, told Profit “we are not going to be in the do-nothing category”, as he refers to the threat of OTTs. “Traditional telcos have made money mainly from voice but didn’t do any innovation except the SMS, but OTTs did that and surpassed us in that space,” the CEO said.

“It’s not about being bigger, it’s about being better,” he said referring to the need for introducing the personal internet platform play.

However, Jazz’s entry into the OTT space not only raised eyebrows but also resulted in fears in some quarters that it might have serious implications for the entire industry.

In a recent article, Profit has already reported how jazz, which has become a significant market player, accounting for nearly 40% of the telcos’ revenue, is using its economic muscle combined with an aggressive sales strategy to shakeup the market.

Veon has turned out to be its most aggressive move since Jazz customers don’t have to pay anything to use Veon, but those of Telenor, Zong and Ufone will have to pay for data packages to their respective service providers to avail free instant messaging, group chat, voice calls and other features

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the app is offering.

The company already boasts 52.6 million customers, which is 13 percent higher than the entire customer base of Zong and Ufone put together, and if Veon clicks, it may lure users from other networks to buy Jazz SIMs, resulting in a further squeeze on the margins of its competitors who still rely on voice and text as the bread and butter of their business. On the flip side, it may also dent Jazz’s own revenue because its users’ telephony needs are met with by Veon without spending a penny – voice and text still account for 75% of Jazz’s sales.

Though Jazz has taken the lead in OTT space, the industry seems to be divided over the threat this particular monster poses and on how it should be fought. Some argue Jazz’s latest move to offer free voice and instant messaging can be self-destructive for the entire industry.

For example, Zong, the Chinese telecom giant that sits atop huge cash reserves, has responded with an equally aggressive move. In an obvious answer to Veon, it has just announced to give its data subscribers free and unlimited access to all WhatsApp services on all networks anywhere in the world.

A rather spoilsport move which might be enough to ensure Veon’s doom but at the same time will accentuate the threat that OTT’s like Whatsapp pose to all telcos including Zong. In other words, the ‘race to the bottom’ price wars that brought telcos to their current situation are entering yet again a new, and potentially highly dangerous era.

“Telcos in Pakistan still have a breathing space because voice and text presently account for up to 70% of the sector’s revenues,” said a senior telco official from outside Jazz’s orbit requesting anonymity. The market is still far from ready for such an aggressive move, especially because there is a dearth of content to engage users, let alone monetize traffic, he said, adding, “The industry should collaborate on this subject rather than one company going it alone.”

“This is certainly a big threat for competition and they must be planning their

moves at the moment,” says Parvez Iftikhar, member of an Islamabad-based ICT think tank. He, also forecast that other telcos will also venture into the OTT space – though presently there aren’t any signs of that happening.

For example, Telenor, the second largest operator in the country, has floated many apps from payments, to lifestyle to create a digital ecosystem, but it hasn’t yet shown any signs of venturing into the OTT space. Ditto for Zong and Ufone.

“We are fully aware of the growing needs of our customers and constantly innovating to cater to those,” said Telenor Pakistan’s statement. The company says it is working closely with the government and other stakeholders towards digitalization, stressing it wants to not only serve the highend users but also empower a large chunk of the population through basic telecom and digital services and platforms.

‘MCKINSEY’S RESEARCH REPORT SAYS THAT TELCOS HAVE TO CHOOSE BETWEEN INVESTING TO BECOME DIGITAL PLAYERS OR MERELY SERVE AS “DUMB PIPES” FOR THESE DIGITAL PLAYERS’

Based on feedback we got from other stakeholders, it is evident the industry is not on the same page on whether OTTs are an immediate threat or one to watch out for.

However, one thing is clear: Jazz is not willing to wait. Ibrahim admits they might become less relevant as a telco but believes that for their customers, they will be more relevant as digital lifestyle partners of their customers. “If we didn’t become an OTT, WhatsApp would kill us. The risk of not taking this risk is much higher.”

To put Ibrahim’s statement in perspective, mobile virtual network operators also called OTTs – a mobile operator that doesn’t own spectrum or have its own network infrastructure – are disruptive technologies, which serve consumers of traditional networks bypassing controls.

They are unlicensed providers of services similar to those provided by the incumbent (text and voice) but pay no taxes, nor share revenues with the network operators. What rubs it the wrong way even further, traditional operators have to make significant investments in upgrading their networks to cater to the increasing volume of data (big data), consumers of these services end up generating through their network.

DISRUPTION

The OTT threat has become so evident that leading research firms, the likes of McKinsey and Citi have published reports calling for executional efficiencies to avoid being displaced by OTTs entering the core telco market with innovative business models and technologies. According to a research by McKinsey & Company, the OTTs share could be as high as 60% of messaging and 25% of voice revenues by just next year.

The global research giant says Telcos have to choose between investing to become digital players or merely serve as “dumb pipes” for these digital players.

These disruptive technologies are not going to stop at mere instant messaging and voice calls. As one pounds the keyboard to finish this report and meet the deadline, WhatsApp is in the process of a possible move into online payments in India, its biggest market with over 200 million monthly users or a fifth of its total user base.

What exactly is WeChat? n the other hand, WeChat, the Chinese home-grown OTT app, has become the largest app of its kind in the world valued at $40 billion. In addition to instant messaging, group chats, video calls and sharing of large files, its users can do almost anything -- play games, pay bills, transfer money, read news, order food online, pay bills at grocery stores, and buy movie tickets and foreign trips without leaving the app. The app, which also has a business-oriented chat service, is touted as Chinese version of Facebook, for it has become the hub of all internet activities in China and may eventually steer the country towards a cashless economy – presently, half of the internet sales in China are made through mobile phones.

Veon is aspiring to become Pakistan’s WeChat but that is easier said than done.

Assuming they are able to defy the odds that are stacked against them and achieve a WeChat like status and market penetration, industries other than Telco should be worried.

It can be argued that WeChat owes its success to the barriers to entry present in mainland China vis-a-vis ‘The Great Firewall’ that block most major western social

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Things going for

Things going against

VEON

VEON

Deep pockets and a Big marketing budget

Not localized (as of now), might struggle to engage users

Strong presence in mobile financial services through JazzCash Can exploit its Significant Market Player position by defying Net Neutrality No credit needed to use Veon Free calls, messages and file sharing etc New features (gaming, music, news) in the pipeline Large customer base, if converted to Veon, can be monetized through contextual advertisement Hosted abroad, may not be easily regulated by PTA or other agencies Little to no competition in OTT Strong team with local market understanding

media apps.

But Tencent, the holding company of WeChat has done much more than simply taking advantage of China’s strict internet firewall, it has created a mobile phone universe within one app for its users. Messaging and social media may be the core element of WeChat but its usability in terms of ecommerce and gaming is what really takes the cake.

Simply put WeChat is at every point of your daily contact with the world, from morning until night. Shopping, transferring money, playing games, interacting with other users is all done through a singular app and and increasing number of WeChat users have dropped the conventional way of handling their money - it is all done through the app.

Though no credit required, Veon will still consume data, thus require customers to buy more data for using services other than Veon Encountering bugs and glitches More local players like Tello Talk are likely to launch localized versions of OTTs and compete with Veon Data will be routed to servers abroad, may face restrictions by regulator Competition may respond by favoring WhatsApp just like Zong has done.

Unlike WeChat, Veon is late to the market. Whatsapp has already become a must-use app in Pakistan.

Reluctance of users to provide their financial information online

Veon has similar ambitions to emulate WeChat and if it is able to do so it can disrupt industries such and banking and retail in one stroke. Not only that, conventional advertising platforms like print and electronic media should be worried as well.

The targeted delivery of their marketing campaigns on cellular devices means a reach that cannot be duplicated by current advertisement outlets. Forget bulky billboards, flashy TV ads and print ads (already dwindling).

Imagine getting an ad on your Veon app news feed about the latest line of Nishat Linen, share it immediately with your friends, discuss the designs, choose an item, pay for it, get it delivered, wear it and post a picture of yourself on your timeline -

full circle all through one app. That’s multiple huge industries whose work will be done on a mobile phone in a matter of minutes without the user having to leave the comfort of their home or even on the go.

Most radical overhaul to date t was little surprising then, Veon announced last year it was weaning itself from shrinking revenues from traditional business (basic telephony and data) to focus on becoming a personal internet platform – this is the most radical overhaul to date in telecom history, according to a report by Reuters.

Being one of its top five markets, it was only natural for Jazz to follow footsteps of its parent company – about a fifth of Veon’s revenue comes from Pakistan operations. But, the question remains, can it become the WeChat of Pakistan and help Veon achieve its ambitious target of becoming an internet giant?

According to Ibrahim, Jazz initially aims to build a critical mass of customers and leverage its large user base for contextual marketing – that is marketing the right product to the right customer in the right context and in the right location.

For example, if a customer who previously searched for or visited McDonald’s is close to one of its outlets, he may get an alert from that outlet saying how about 20% discount on a meal. This is what analytics can do by tracing customer’s location and tracking his search history etc, similar to what Amazon does.

“We have a bigger chance of success because of a large customer base and that’s where Veon also comes into play,” the CEO said.

According to Ibrahim, it doesn’t make sense to spend Rs50 million for a billboard on Shahrea Faisal when one can reach the target audience with a more clinical ap-

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proach. When advertisers will see a large number of customers online on Veon, they will advertise with the company – this is precisely what they are targeting.

“I think it’s a good bet because data is the next oil,” said Iftikhar, the ICT expert.

“Big data analytics facilitate marketing ease of finding the right audience for your product, the likes of social media giant Facebook are doing it already.”

Iftikhar believes big data has a valuable proposition for Jazz. “Even if they use it for their own research, they will benefit a great deal from it while using it for advertising has immense business potential,” he said. Business to business (B2B) is another untapped market, which they can cash in on using their app, he said.

They are focussed on building an engagement platform, but the main idea is to build bigger community of Veon customers in Pakistan – the benchmark to measure success.

The internet hub of Pakistan? hile there is big data at play, Veon is not restricting it to contextual advertising alone.

The company has not publicly

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THE APP HAS SOME BUGS AND GLITCHES, AS EVIDENT FROM REVIEWS ON ITS FACEBOOK PAGE AND USERS WE SPOKE TO. HOWEVER, THE COMPANY IS AWARE OF IT AND WORKING TO IMPROVE IT. IN THE CEO’S WORDS, “IF YOU HAVE LAUNCHED A PERFECT APP, YOU ARE TOO LATE”

disclosed its plans other than use of big data analytics, but our sources say it is gearing up to become the hub of all internet activities in the country, just like what WeChat is to China. And In Ibrahim’s own words, the company is not worried about how much money goes into achieving that target.

Doesn't make sense to just get a share of the advertising market. Does it?

According to people familiar with the matter, the company has spent in excess of $100 million as part of the launch evident enough from a lucrative launch ceremony in Lahore, a nationwide ad campaign, and promotions like free nuggets pack from McDonald’s and Rs3000 worth of credit for shopping at ChenOne, a highend chain of fashion and home accessories, available to all those downloading the Veon app.

It has just partnered with Daraz.pk, the largest e-commerce store in the country, for title sponsorship of the week-long Black Friday event, starting today (Monday, November 20). Though investment figures are not known, there will be special promotions available for Veon – another attempt by the company to lure more users to its app.

Unlike WhatsApp taking eight years to plan entry into payments, Veon Pakistan is already working on its mobile financial services arm JazzCash to integrate its 3 million mobile wallet users for peer-to-peer and business payments – a $150 billion untapped market where 99% transactions are processed in cash.

Besides mobile payments, the company is also reported to be working on developing gaming and music studios for Veon. It is also working on developing a media property that will generate news content for Veon users.

Simply put, Jazz is trying to make Veon a

DISRUPTION

“THE MARKET IS STILL IN A NASCENT STAGE, WITH ROOM FOR GROWTH FOR EVERYONE. WE BELIEVE MANY MORE OTT PLAYERS WILL COME, SOME WILL CLOSE, OTHERS WILL THRIVE; ONLY EXPERIENCE BUILDING WILL DIFFERENTIATE PATH BECAUSE USER WILL DICTATE WHAT IT WANTS” Shahbaz Jamote, CEO Tello Talk personal internet platform for users who can do everything with a few taps without ever having to leave the app.

“I think Jazz is in a good position to invest because of recent divestment of their mobile towers which brings them a lot of spare money,” Information and Communications Technology expert Parvez Iftikhar said of the recent edotco deal that would fetch Jazz $940 million in proceeds.

One of the emerging markets on Morgan Stanley Capital International’s investment index, Pakistan is home to 135 million millennials, which means two-thirds of its 207.8 million population being under the age of 30. According to the latest Pakistan Telecommunication Authority report, there are 55 million smartphone users in the country where telcos cover 85% of the population.

These numbers indicate Veon’s bet is certainly not without a reason, for it could not afford to ignore the market, which contributes 20% to its global revenue. However, achieving the end goal may turn out to be an uphill task, for it is not the only player eying a slice of the OTT pie.

“As the overall digital market grows – an additional billion middle-tier customers for telcos, mainly in emerging markets, is expected by 2025 – the door for new OTT entrants is opening,” McKinsey & Company said in a report earlier this year.

We’ve got company o put this report in local perspective, WhatsApp may not be the only threat Veon has to deal with as Tello Talk, Pakistan’s first

T

home-grown OTT app that aspires to become the country’s national messenger, is another promising contender for the OTT segment.

Four months into the launch, the app is close to 100,000 installs already that going by the management’s claims have come without a single ad dollar spent.

Tello has a four plus (4.3) rating on Play Store, but has over 70% retention rate and its users log in to the app four to five times a day and have one-minute sessions on average – the app hasn’t even added the voice calling feature yet.

“These retention and engagement rates are quite impressive, especially because it is all organic,” said Shahbaz Jamote, CEO Tello Talk and Country Manager for Tilism Technologies, its parent company and a spin-off from M3 Technologies, the pioneers of mobile value-added services in the country.

Though it still remains an unknown entity in the industry, Jamote expresses his satisfaction since they have achieved these stats without any advertising dollars.

Though WhatsApp is the most popular OTT app in Pakistan with an estimated 12 million users in the country, the market is very much open for new players. Both Veon and Tello are still very new and it will be too early to comment which one will fare better. However, what Profit has learned from studying business models of both is that the two have different approaches towards the market.

If one studies the business model of Tello, it can’t be ruled out. The app is following a broader regional trend whereby

‘THE OTTS SHARE COULD REACH AS HIGH AS 60% OF MESSAGING AND 25% OF VOICE REVENUES BY JUST NEXT YEAR’ 18

locally-grown OTTs have done exceptionally well even against WhatsApp. For example, LINE, Kakao Talk, WeChat, and Hike are the national messengers of Japan, Korea, China and India respectively. All of them are home-grown and placed an early bet on OTT, that is even before WhatsApp established itself as a global giant.

Other than the early entry into the OTT market, in some cases, like China, they have benefited from regressive regulatory regime that restricted WhatsApp. But all said, one can’t deny these local OTTs have made it big because of their familiarity with their respective local markets.

Take for example, Hike, which is best known for its 15,000 stickers across a wide range of local dialect that allow users to share images including those of Indian festival greetings to Bollywood celebrities, cricketers and even Game of Thrones characters. Its users send each other over 300 million stickers a day, in addition to the 40 billion text messages shared on the platform.

If numbers from Hike are any indication, its consumers use the app mainly for instant messaging, often through sharing these stickers rather than typing tedious messages. That also explains why Tello is more focussed on messaging rather than introducing the voice calls. Some of the stickers on Tello include classics like Mustafa Qureshi’s famous dialogue ‘Nawaan Aya Ain Soneyaa…’ while others are inspired from famous social media memes like ‘Kaisa Diyaa? Hain?’, which is attributed to controversial show host Amir Liaquat Hussain.

“I think Tello or any other OTT app has a definite chance of eating into telcos market share,” Iftikhar, the expert, said adding, “It is happening all over the world as a lot of small players, especially mobile virtual network operators (MVNO) are doing well in their respective markets.”

By contrast, Veon is not a localized app and has much work to do if it has to strike a chord with public. Given Veon’s bet is on creating an engagement platform, it is also where it has its biggest risk. For example, Japan’s LINE also came to Pakistan, spent huge money and acquired 7 million users, but then they faded away because they tried to replicate a Japanese app in the Pakistani market.

China’s WeChat, on the other hand, didn’t take any chances so they bought stakes in Hike instead of entering Indian market directly.

Veon was trending at number one on top charts at Play Store in the third week of its launch and already had 1 million installs, which the company sees as an overwhelming response. Though it has since doubled users to 2 million, the app slipped to number 3 on November 16 with 26% of the total (12,023) customer reviews giving it a rating of 3 or below – the company refused to share details of engagement and retention rates.

The app also has some bugs and glitches, as evident from reviews on its Facebook page and users we spoke to.

However, the company is aware of it and working to improve it. In the CEO’s words, “if you have launched a perfect app, you are too late”.

The company is heavily marketing Veon as a free app, but it may cost them on other services. That is the app will consume data if a user is on a package and may not be able to use internet for

‘THESE DISRUPTIVE TECHNOLOGIES ARE NOT GOING TO STOP AT MERE INSTANT MESSAGING AND VOICE CALLS. WHATSAPP IS ALREADY IN THE PROCESS OF A POSSIBLE MOVE INTO ONLINE PAYMENTS IN INDIA, ITS BIGGEST MARKET WITH OVER 200 MILLION MONTHLY USERS OR A FIFTH OF ITS TOTAL USER BASE’ services other than Veon once he has consumed his data limit.

That said, it also has an edge over competition. For example, Jazz is the local partner of Veon, which means the network quality for Veon to Veon call on Jazz network could be made better than that of WhatsApp to WhatsApp call.

However, to ensure better network quality for Veon, specially as the country’s overall internet quality improves, the company may have to take a rather unethical approach by violating the concept of Net Neutrality – Net Neutrality is a basic principle that prohibits a significant market player like Jazz from speeding up or slowing down or blocking content, applications or websites their users may want to use.

Though a possibility, they may not exercise this option because Ibrahim doesn’t seem to be bothered about the dominance of WhatsApp in the market.

“When Blackberry messenger service was popular, who would have thought WhatsApp could click, but it did,” Ibrahim said. He, however, added Veon could become an alternate engagement platform as people might not necessarily link to a single app.

Responding to a question about a possible competition from Tello, the Jazz chief said there are many WhatsApp equivalent things in the market, but what’s important is whether they offer any value proposition to the customers.

ZONG HAS JUST ANNOUNCED TO GIVE ITS DATA SUBSCRIBERS FREE ACCESS TO ALL WHATSAPP SERVICES. A RATHER SPOILSPORT MOVE WHICH MIGHT BE ENOUGH TO ENSURE VEON’S DOOM BUT AT THE SAME TIME WILL ACCENTUATE THE THREAT THAT OTT’S LIKE WHATSAPP POSE TO ALL TELCOS INCLUDING ZONG

“The market is still in a nascent stage, with room for growth for everyone,” Jamote of Tello said referring to the 2015 U.S. Mobile App Report, which says smartphone owners use up to three OTT apps on their devices. “We believe many more OTT players will come, some will close, others will thrive; only experience building will differentiate path because user will dictate what it wants,” Jamote said.

Besides competition, Veon may also face regulatory challenges, if recent developments are any indication of that.

Currently, India’s Bharti Airtel is lobbying for ‘same service same rules’ to press their regulator to introduce same rules for OTTs and telcos. There are reports of China restricting WhatsApp – and PTA is also considering its options.

“PTA aims to continuously undertake initiatives such as revision of the licensing framework, spectrum refarming, regulating the OTT Services under the Telecommunication Policy 2015,” the regulator said in its latest annual report. “PTA is in the process of hiring an international consultant to assist PTA in devising the best possible licensing framework. The revised licensing framework will also consider the regulation of OTT and VoIP services that are increasingly replacing the traditional voice communication,” it said.

Earlier this month, the government also warned official circles to avoid using WhatsApp and other OTT services, which sends customers data to remote servers listed abroad – something Veon should watch out for because its customers data may also be sent abroad as per their consent form.

“Currently, there is no clarity on how to regulate OTTs and whether they should be regulated or not,” an official said referring to PTA’s stance on the subject. He, however, added the regulator would like to encourage local developers since there aren’t many in the country.

DISRUPTION

20

By: Aisha Arshad ne day at school in the early 2000s we were ushered to the library hall for ‘TV time’.

Most students assumed it was going to be another boring documentary on health, national day or road safety – mundane, monotonous stuff.

We were in for a surprise – the kind that stays with you for a long, long time.

After the 20-minute session, we came out delighted after our first introduction to the famous local superhero Commander Safeguard. It indeed was a wonderful TV time.

Previously we had only seen Cartoon Network and locally dubbed Sesame Street.

But to see a cartoon hero speaking in one’s own language, engaging in action on your own streets and other situations of the movie that students could relate to was simply overwhelming.

That first-ever series of Commander Safeguard, produced by Post Amazers, was an ad campaign for the P&G soap. It was only after the first episode getting such good notices in Pakistan that P&G dubbed the upcoming series and aired it in the Philippines and Mexico. With that short animated movie, the first important milestone had been reached for Pakistan. That said, we still had a very long way to go on the global animation industry level.

O

‘Teen Bahadur’ ome 10 years later in 2015, Sharmeen Obaid Chinoy produced Pakistan’s first-ever full length animated movie ‘Teen Bahadur’ and established its emblem on the global industry.

This same year it was projected that globally the animation industry was valued at $244 billion – with the US, the UK, Japan, Ger-

S

‘RETURN ON FILMS IN PAKISTAN, HE HOLDS FORTH, IS GENERALLY LOWER DUE TO A LACK OF TREND AS WELL AS THE LOW NUMBER OF CINEMA SCREENS. THIS BECOMES A MAJOR HURDLE IN THE PRODUCTION OF QUALITY CONTENT, AS BIGGER TEAMS AND LONGER PRODUCTION CYCLES, WHICH TRANSLATES INTO HIGHER COSTS, ARE A PREREQUISITE’ many and China controlling the major chunk of the market. Eyeing that league, Pakistan, of course, was just taking its own jittery steps in that direction.

So what happened in the animated industry of Pakistan between the launch of Commander Safeguard and Teen Bahadur’s release, and where is it headed? With the trailer of ‘Allahyar and the Legend of Makhror’ whetting our curiosity, Profit was intent on finding out.

The one minute six seconds trailer begins with an aerial shot of a lake where a bird is seen flying over a jungle, capturing the beauty of the scene painted in vibrant colors. As the teaser progresses, the quality of production and animation is unmistakably evident – making it hard to believe that the clip has been plucked from an indigenous animated movie – produced by 3RD World Studios, an Islamabad-based company specializing in the genre.

In recent years the use of native animated industry has grown manifold in advertising and short movie projects, . In the full-length animation movies, though, there is scant progress, with only ‘Teen Bahadur’ and its sequel making it to the big screen.

From the inception of Commander Safeguard to the projection of Chinoy’s feature film, Pakistan’s television screens have enjoyed ‘Mr Jeem’, ‘Baankey Mian’, ‘Milkateers’ and ‘Dettol Warriors’ – all short advertising campaigns or promos.

‘THIS SAME YEAR IT WAS PROJECTED THAT GLOBALLY THE ANIMATION INDUSTRY WAS VALUED AT $244 BILLION – WITH THE US, THE UK, JAPAN, GERMANY AND CHINA CONTROLLING THE MAJOR CHUNK OF THE MARKET. EYEING THAT LEAGUE, PAKISTAN, OF COURSE, WAS JUST TAKING ITS OWN JITTERY STEPS IN THAT DIRECTION’

But the 3RD World Studios, it seems, is bent on changing the landscape for cinegoers by creating homegrown animated movies.

“We established 3RD World Studios for the specific purpose of making animated feature films,” says Uzair Zaheer Khan, producer and director of the upcoming project.

“Our culture, our language, our values are unique and fascinating and haven’t been properly explored in this medium. We feel we want to tell stories with a purpose as opposed to making films that are only entertainment. ‘Allahyar and the Legend of Markhor’ is an adventure film with a wildlife conservation theme and it is meant for viewers of all ages,” said Khan.

Adults in the audience reviously animated movies targeted children below the age of nine, internationally. However, with the passage of time and with shows like ‘The Simpsons’ and ‘Family Guy’, there has been a shift in the viewership, bringing a large number of adults to the audience.

Now international movie makers are targeting all age groups with their productions whereas in Pakistan the trend has just started to kick in and Uzair along with his team hopes to catch the attention of a sizable number of viewers.

“We feel that animated content is a great tool for social reform. Our children need to be taught countless lessons that will enable them to grow and become architects of a better future,” said Production Head, Usman Iqbal of the purpose behind delving into the animated movie industry.

“Lessons like the value of hard work, equality, justice, truthfulness, tolerance etc.

What better way to teach them than to show them through the consequences of a character’s actions in an entertaining animated feature film,” added Iqbal.

P

MEDIA & MARKETING

Team 3RD WoRlD STuDioS

Azfar Jafri

Animated movie… the highest grossing nimated films are an important and a fast-growing part of the global film industry. They account for a major portion of the film industry revenue, internationally,” said Khan, of the market where in 2016 an animated movie ‘Finding Dory’ with $486 million was the highest grossing in the US and Canada, leaving behind action films from renowned houses like ‘Deadpool’, ‘Spiderman vs Superman: Dawn of Justice and Captain America’. For 2017, another animation, ‘Despicable Me 3’ is currently leading the global box office with 135 million tickets sold.

“Pakistan is just starting out in this medium and as better and better films get produced, like the live action ones, we hope that the following for such movies and the overall viewership numbers will grow in Pakistan,” said Khan. Since the international market is according to various assessments is growing by five percent annually, there is no reason that it should not reflect in our neck of the woods. Presumably to accommodate the growing trend 3D format screens – the most popular alike for animated and live-action movies – are now growing at a faster pace: 17 percent (against 15% two years ago). In

“A

Qasim Shuja

Usman Iqbal

cinemas globally, the 3D accounts for 56 percent of total screens. The same local movie industry was invaded by Oscar-winner Chinnoy’s ‘Teen Bahadur’ and its sequel ‘Teen Bahadur: The Revenge of Baba Balaam’ (2015 and 2016 respectively). Combine they grossed over $1 million, with the former having the highest-ever yield in local cinema – previously ‘Rio2’ had held the record with an estimated $427,000. Though in its infancy with only a handful of animated feature films produced indigenously, the trend is upwardly mobile for a long time and our producers have moved on globally too.

Asim Fida Khan, Meer Zafar Ali and Shehryar Hydari are some of the names that have made it big in the global animated industry with their creative contributions in projects like ‘Harry Potter and the Deathly Hallows’, ‘Snow White’ and ‘the Huntsman’, ‘X-Men First Class’, ‘Mummy’, ‘Frozen’, ‘Life of Pie’ and ‘Spiderman3’, along with advertisements of top corporates – Audi, Nike, Lexus, UPS, Mazda, Hyundai, Sega and Blackberry.

Oscars galore eer Zafar Ali went on to become the first Pakistani to grab an Oscar in 2007 for Golden Compass (co-director). His endeavors

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‘MEER ZAFAR ALI WENT ON TO BECOME THE FIRST PAKISTANI TO GRAB AN OSCAR IN 2007 FOR GOLDEN COMPASS (CO-DIRECTOR). HIS ENDEAVORS DID NOT STOP THERE AND HE GRABBED A SECOND AND THIRD OSCAR IN 2013 AND 2014 FOR HIS WORK IN ‘LIFE OF PIE’ AND ‘FROZEN’.’

22

Uzair Zaheer Khan did not stop there and he grabbed a second and third Oscar in 2013 and 2014 for his work in ‘Life of Pie’ and ‘Frozen’.

In its last stages of production, reflecting confidence ‘Allahyar and the Legend of Markhor’ has been locally produced in its entirety – without any outsourcing.

So, despite a number of globally acknowledged talents, why does the Pakistani industry lag behind?

“It is not that Pakistanis are incapable of matching internationally-produced quality, it just comes down to the fact that you invest only that which you can recover,” said Khan.

Return on films in Pakistan, he holds forth, is generally lower due to a lack of trend as well as the low number of cinema screens.

This becomes a major hurdle in the production of quality content, as bigger teams and longer production cycles, which translates into higher costs, are a prerequisite.

However, with the ongoing revival of Lollywood, the faith of the investors in Pakistani cinema stands revived too. Two cases in point are of Abraaj Group with their recent partnership with Cinepax Cinemas and successful expansion of Cinepax to second tier cities like Faisalabad, Gujranwala, Gujrat, Murree and Hyderabad. Against a population of one million, it is a grim scenario that only too small a ratio of 0.5 screens exists, but the trend seems to be growing with Cinepax’s plans including the opening of 80 new cinema screens in the next four years.

“We hope in time, earnings of filmmakers will grow and in turn encourage better films and production quality,” Khan concluded.

Profit: Introduce us to 3rd World Studios and the under-production movie?

Uzair Z Khan: We established 3RD World Studios for the specific purpose of making animated feature films. Pakistani culture, language, and values are unique and fascinating and haven’t been properly explored in this medium. We want to tell stories with a purpose as opposed to only entertainment.

‘Allahyar and the Legend of Markhor’ is an adventure film with a wildlife conservation theme and is meant for viewers of all ages.

Profit: Is this your first project or are there any other productions under the banner?

UZK: This is our first feature film project.

Previously, our core team members have mostly done international work. I’ve also had the experience of setting up, designing, directing and producing the animated series

Burka Avenger (Season 1) for another studio.

Profit: Given that only a small number of such films is produced locally, what made you adopt this less trodden path?

Usman Iqbal: We feel that animated content is a great tool for social reform. Our children need to be taught countless lessons that will enable them to grow and become architects of a better future. These lessons are being ignored in our current educational curriculum or are relatively ineffective. Such as value of hard work, equality, justice, truthfulness, tolerance etc. What better way to teach them than to show them through the consequences of a character’s actions in an entertaining animated feature film. Besides, we are doing what we do best, professionally.

Profit: What should we be expecting from ‘Allahyar and the Legend of Markhor’?

UI: This is the first step towards our goal of reaching excellence in this field. You can expect substantial progress in the overall quality as compared to previous Pakistani animated films. We’ve worked hard to make it entertaining with strong storytelling and acting, wrapped in visually engaging content.

Profit: When are you planning to release it?

UI: We are on the last leg of our production process. However, we haven’t finalized a release date as yet.

Profit: Tell us about animated movies industry internationally and what are you aiming for in Pakistan?

UZK: Animated films are an important and a fast growing part of the global film industry. Internationally, they account for a major

MEDIA & MARKETING

portion of the film industry revenue. Pakistan is just starting out in this medium and just like the live action film scene, we hope that the trend towards such films and the overall viewership numbers will grow in here, as better and better films get produced.

Profit: What do you think is the scope of animated movies in our local cinema?

UI: Children are a major influencer in any household, worldwide. Since quality content in the Urdu language is missing in Pakistan at the moment. We believe if we make meaningful and entertaining animated movies that touch core issues facing us today, more and more viewers will be inclined towards watching these films and parents will be happy exposing their children to it.

Profit: How much investment is required for a good quality animated movie?

UZK: Returns on films in Pakistan are generally lower due to a lack of trend as well as the low number of cinema screens. This becomes a major hurdle in production of quality content as quality requires bigger teams and longer production cycles, which translates into higher costs. It is not that Pakistanis are incapable of matching internationally produced quality, it just comes down to the fact that you invest only that which you can recover. We hope in time, earnings of filmmakers will grow and in turn encourage better films and production quality.

Profit: How much is your investment in this project?

UZK: This film is self-financed by 3rd World Studios and we’ve tried to keep the cost at par with live action films, even though animated films costs are usually higher compared to most live action films.

Profit: Are you hopeful to get a similar kind of business return in Pakistani cin-

‘SINCE QUALITY CONTENT IN THE URDU LANGUAGE IS MISSING IN PAKISTAN AT THE MOMENT. WE BELIEVE IF WE MAKE MEANINGFUL AND ENTERTAINING ANIMATED MOVIES THAT TOUCH CORE ISSUES FACING US TODAY, MORE AND MORE VIEWERS WILL BE INCLINED TOWARDS WATCHING THESE FILMS’ Usman Iqbal, Head of Production, 3rd World Studios ema?

UZK: We expect ‘Allahyar and the Legend of Markhor’ to be well received by audiences and will enable us to continue making even better films in the future.

Profit: What are the challenges of making such a movie for the local cinema?

UI: There are quite a few capable people wanting to take a plunge into new animated film projects but have had trouble getting funding – as not enough animated films have been made to raise the investor confidence. Moreover, animated feature films are still uncharted territory as not enough data is available to gauge Pakistani consumer be-

‘PAKISTAN IS JUST STARTING OUT IN THIS MEDIUM AND JUST LIKE THE LIVE ACTION FILM SCENE, WE HOPE THAT THE TREND TOWARDS SUCH FILMS AND THE OVERALL VIEWERSHIP NUMBERS WILL GROW IN HERE, AS BETTER AND BETTER FILMS GET PRODUCED’ Uzair Z Khan, Director/Producer, 3rd World Studios

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havior/preferences.

Profit: Given the extraordinary benchmark of international animated movies, what do you think we need to achieve locally to get recognition in international cinema?

UI: We have a lot of talent in this country.

However, the bar on the quality of these films cannot be raised to international standards overnight. This requires that we strive to better the quality of each consecutive film being produced, thus encouraging an industry in Pakistan, which in turn will raise the skillset of Pakistani artists. Better earnings will also have a big impact on the overall quality of such films.

Profit: Where do you see Pakistan in terms of animated movies in the next 5-10 years?

UZK: If there is an appetite for such content and people actually go watch these films in theatres instead of just praising or criticizing them online, then Pakistani animated films have a chance of competing at an international level in the near future.

MEDIA & MARKETING

By: Syeda Masooma rom 850 in 2000 to 1630 million tonnes per annum in 2016, the global steel production has nearly doubled since the turn of the century. Pakistan though has trailed well behind on the growth trajectory, its low per capita consumption of steel remaining pegged to 38-40 kgs per annum – about one-fifth of the global average of 198 kgs, as reported by Pak-China joint Chamber of Commerce and Industry Research and Development Cell. To keep things in perspective, the per capita consumption of steel in the US is around 394 kg,for an emerging country like China it is 338 kg, and across the border, in India, around 63 kg per capita.

There are four major steel manufacturing companies in Pakistan: Aisha Steel Mills, Ittefaq Group, Pakistan Steel Mills, and Tuwairqi Steel Mills. This quartet – along with a few other smaller companies – produces a total of 3.6 million tonnes of crude steel, making Pakistan the 37th largest in world steel production ranking.

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The CPEC spawns growth ith the advent of CPEC, the construction industry is booming, and with several infrastructural projects still in the pipeline, the steel industry is finding itself in a market transformed.

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Dost Steels CEO Jamal Iftikhar saw this surge coming, and tried to position himself as the market leader by establishing the largest and technologically most advanced steel manufacturing plant in the country.

To Jamal, the population growth and improved business milieu was bound to have a bearing on steel consumption. “The pressure of 200 million people is there. Since we are at the bottom of the pyramid, the only way to go is upwards,” said he, while speaking to Profit on his company’s state-of-the-art plant and the potential of growth in the steel industry.

Profit: Would Dost Steel be catering to the demand or just be there when it is there?

Jamal Iftikhar: We are positioning ourselves to be there when the demand rises, and it is already on a growth trajectory. Our capacity shall be 0.4 million tonnes per annum.

Pakistan has not seen any big steel mill as yet. Dost Steels is the first of its size, while others are one third capacity or even lesser. Among others, a year behind us, two new mills of our size are in the pipeline with similar capacity, identical suppliers, same raw material and comparable products – everything selfsame.

We are depending on a supplier for steel billet, but we produce

them into steel bars ourselves. The target is primarily construction industry. We are operating in B2B and B2C both.

Profit: Generally businesses start small but you are starting big?

JI: The size of this kind of mill is similar globally, irrespective of whether it comes up in Lahore or in Russia or in Italy.

Profit: Who are you targeting as your marketing audience – builders or homeowners or others?

JI: We shall be projecting ourselves only through social media and our mill shops.

Our marketing approach, since we have a particular sector to target, is not that of consumer products. Hence, no TV ads.

Profit: As paint industry recently has shifted its target focus from homeowners to the construction workers and painters,

how do you plan to address your B2C marketing?

JI: We have yet to develop a strategy, but we shall be looking at people with the power to sway clients, by establishing a fraternity with the structural engineers, the civil engineers, the construction fraternity, builders etc. – those who know the attributes of steel. Since you can't teach a homeowner on how to evaluate steel, there is no mileage there. Still we will enable a B2C interface on our website that will facilitate the consumers directly. Our intent is to bypass the local seller by facilitating the customer to buy directly from us.

Profit: How much investment have you ploughed into this mill, and how is it split between equity and borrowing?

JI: Around $50 million, with Rs930 million being the debt, financed by a syndicate of banks. We are already a public limited com-

‘SET UP OVER THREE DECADES AGO, THE EXISTING STEEL MANUFACTURING PLANTS ARE EITHER MANUAL OR SEMI-AUTOMATIC. NEITHER CALLED UPON BY THE CONSUMERS NOR THE GOVERNMENT, THE PRODUCERS ARE CARRYING ON WITH THE SUB-COMPLIANT QUALITY’

pany, with the shares showing mobility once the mill is commissioned.

Profit: What is your expected revenue per annum and how long do you think will it take you to recover the investment?

JI: We will be having a revenue of Rs26 million-plus per annum. As for recovering the investment is concerned, it is a market dynamics position. In the best case scenario, it may come back in three years but if it takes longer, up to five years.

Profit: The CPEC is expected to create an influx into the construction industry but what if the Chinese procure the inputs from home instead of taking it from the local producers?

JI: As far as I am aware, the current CPEC policies do not allow steel and cement to be imported. So, they have no option but to procure these from the local market.

Even though steel does not have the same issue as cement that it's difficult to transport but generally it is observed that it is prepared from the closest points to the user point. Since our plant is in the Punjab, we are in closer proximity because the growth is primarily taking place here. In Sindh and Balochistan too but primarily in

INDUSTRY

the Punjab.

Profit: How cost effective will it be for you if you intend to serve customers that are not in close proximity to the plant?

JI: Our command area will include 400-500 km radius. We are not looking at the south of the country. Our focus is middle and not brain areas. The plant location was decided with the intention that we should be closer to the user market.

Profit: Why is there a delay? Is it the usual one, the government permissions, holding you back?

JI: There are some site issues. Then we also need to take a connection from the grid. To go through the permissions, with various statutory agencies involved, is a tricky thing but we are in the process.

Profit: Did you go through this complex web the legal way or, as a real estate tycoon said, you had to grease palms for the files to move?

JI: We complied with all the legal requirements and procedures. The only things remaining now are the LESCO connection and NHA’s approval of physical infrastructure. I am a fourth generation industrialist, and was in textile spinning before exiting that. So I am familiar with these bureaucratic obstructions and delays and I know how to handle these.

The textile spinning we exited because our other businesses were more lucrative, and not because the industry is going down.

Textile is an important industry in Pakistan and it’s contributing a lot to the economy.

Steel is a good sector, which is likely to grow in the next 10 years, and we happened to be the first to start on this scale.

Profit: Why do you think that other steel mills have continued to operate below par to the global standards?

JI: In the market, quality awareness is conspicuous by its absence. Our government is indifferent. The watchdog, the PSQCA – supposed to be the model agency for main-

‘UNTIL QUALITY IS ENFORCED, NOT JUST IN STEEL INDUSTRY BUT OVERALL IN THE ECONOMY, THE END USERS AND THE CIVIL SOCIETY WILL HAVE TO LIVE WITH THE CONSEQUENCES’ Jamal Iftikhar, CEO, Dost Steels taining quality – is there, the law is there to empower it, the list of 38 products under their purview makes it crystal clear. Yet nothing is being done to protect the consumers except in oil and mineral water, with everything else on the list being produced and sold without any intervention on their part. This is how compromising we are when it comes to enforcing standards. If a natural disaster strikes, we are doomed.

For steel, there are only two standards and building codes in the world, the ASTM and the British – the first is from the US and the second from Europe. Since the yardstick is the same, the only difference is the label.

Our mission is to make grade compliant steel and make it available to every sector in the economy with convenience – including online buying. You can buy our product online and be assured that quality is our responsibility. And on the scale of production Dost Steel would be at the very top.

Profit: One practice you want to do away with in Pakistan’s industry?

JI: The biggest tragedy here is that the laws are passed, only to be consigned to the books. Our institutions either cannot or do not implement them. There is another element to it, our attitudes. We won’t spread litter in our houses but would do so in the streets without giving it a second thought. If that mindset is changed, everything will improve.

‘SINCE OUR PLANT IS IN THE PUNJAB, WE ARE IN CLOSER PROXIMITY BECAUSE THE GROWTH IS PRIMARILY TAKING PLACE HERE. IN SINDH AND BALOCHISTAN TOO BUT PRIMARILY IN THE PUNJAB’ 28

Profit: How do you think it can be improved?

JI: In Dubai the police has the authority and the capacity to check the quality of concrete and steel during transit. The movement of steel and concrete is allowed only after 10 pm. The PSQCA has the authority backed by the law to carry out similar checks – evaluating the chain from the producer to the stockist and to the end user – yet they don’t. And as a consequence incidents like collapse of the Margalla Tower and the Karachi flyover happen.

Until quality is enforced, not just in steel industry but overall in the economy, the end users and the civil society will have to live with the consequences. When accidents happen, responsibility is pinned on nobody, as there are so many factors that could have caused it. When everyone has already been paid, nobody bothers. This has to come from the public mindset too. If I stop trying to get out of a traffic challan by paying a bribe, the traffic would never improve.

Profit: Providing better quality means higher expenditure. How would you give premium quality and yet stay competitive?

JI: Not necessarily. Our plant shall produce better quality steel without the additional cost. In addition, operating at economies of scale with the consistency in quality is the most important thing.

Profit: How is this new technology different from the one prevalent in Pakistan?

JI: Set up over three decades ago, the existing steel manufacturing plants are either manual or semi-automatic. Neither called

upon by the consumers nor the government, the producers are carrying on with the subcompliant quality, with their products bereft of global standards.

As the economy grows, so is the steel’s demand, and as the difference between production and demand widens, newer companies like ours will come into play. And compared to smaller mills, it is easier for bigger plants to produce high quality steel.

If you visit a small mill and then a big mill, and see the production processes, you will find out yourself.

Profit: Were you guided into steel through market research?

JI: No, but we have data from different sources. Also market itself speaks: in the last two to four months, this market has moved considerably. Builders are having problems in procuring supplies. There has been an increase of Rs2,000-3,000, taking it over Rs78,000 per tonne. And it is purely because of supply shortage that prices are now higher by Rs18,000 per ton.

Profit: Since you are based in an industrial area, are there any environment-related issues?

JI: As I said earlier, we shall be completely compliant company, with standards similar to global steel mills, and this includes environment. Whether the plant is somewhere in Europe or as in our case in Kasur, the environmental features – the prescribed air quality, water quality and discharge level etc. – are built into it at no extra cost.

We are recycling all our water. We have our own internal closed loop system and all our water will be recycled and reused by the system.

Profit: How much experience do you and your team directly has in steel manufacturing?

JI: Collectively we have on average around 15 years experience, and it is better for senior management. Our employees are overwhelmingly Pakistani, though we have some Turkish technicians on board. In Turkey, green mills like this are all over the place.

whose market share would you want – the competition or meeting the excessive demand that now exists?

JI: We will be doing both. Effectively we would be taking the share of existing players but at the same time the pie is also growing.

Profit: Considering the volatility in Pakistani market, coming up with such a major investment, how satisfied are you at this being the right decision?

JI: We didn't arrive at this decision abruptly. We have been planning this while the market was changing at a steady rate. Now we are close to commissioning and surprisingly in the last 45 months the change has been quite apparent.

The steel industry has global standards. Even among the industries that are not at the global level, in this country steel was far behind. Sooner or later, these would be need to measure up to the global standards and when that happens we would have already set the benchmark.

Profit: Which company do you think is your competitor?

JI: I won’t name any one, because then it becomes personal. Anybody who needs to go to a consultant or an architect to get a design or a structural engineer, whether it's for a small house or a huge dam, is my customer. But no matter who he goes to, he would have shortlisted three to four suppliers. Our target is to be on that shortlist. Naturally we would be approaching the biggest consumer as our first priority and then smaller ones. So, if it's a highway or a big dam project, it would receive greater attention from us but someone building his own house is equally important if he wants to buy quality steel. Our responsibility is to educate the customer and the market.

Profit: While you were in planning stage, was the market even prepared for such a change?

JI: Back then our promise was that there was no such mill in Pakistan to begin with.

If you look at other industries – be it textile or any other – in one way or another, these are at par with the global standards.

Just because the government, or environment agencies, are not doing their job, mills operating for more than 30 years have not changed. But when new mills with better quality steel at the same or lower price get into the business, these old mills will have to shut shop. It is a process that has to take place.

Profit: When your mills start rolling,

‘UNTIL THE QUALITY IS ENFORCED, NOT JUST IN STEEL INDUSTRY BUT OVERALL IN THE ECONOMY, THE END USERS AND THE CIVIL SOCIETY WILL HAVE TO LIVE WITH THE CONSEQUENCES. WHEN ACCIDENTS HAPPEN, RESPONSIBILITY IS PINNED ON NOBODY, AS THERE ARE SO MANY FACTORS |THAT COULD HAVE CAUSED IT’

Profit: How many employees would you have?

JI: Around 300 – 150 or 200 for the plant, and other professionals including PLC engineers.

Our plant is automatic so we won’t be needing too many employees. But this is part of an economic cycle, retraining and restructuring keeps taking place for employment level to continue. There is a hierarchy in our business and it is very professional.

I bought the project from Siemens and they told me already how to achieve efficiency. Everything that is there to know about global standards and maximum productivity, I just have to ask them. They are from Italy and for us it is a learning process.

We are in touch with them and supported by them because they have installed hundreds of mills like this.

Profit: Since you would neither be exporting nor employing on a sizable scale, what would you be contributing to the economy?

JI: We would be producing steel at a very competitive price. It will benefit the public sector through guaranteed delivery of the product with ease and with information to make decisions based on quality.

INDUSTRY

THE GREAT

LAND THEFT

Pakistan’s civil servants use their control over the allocation and development of government land to curry favours, entrench their power, and build generational wealth for themselves, argues Nadeemul Haq in his new book

By: Farooq Tirmizi partment, which has produced or otherwise f there is a single place that can be been affiliated with 29 Nobel laureates in thought of as the foremost cathedral to economics – more than any other institution free-market capitalism, it is not the in the world.

New York Stock Exchange, nor any It is here that Nadeem ul Haque, forother place in Lower Manhattan, or the City of London; it is Saieh Hall at the University mer head of the Planning Commission and of Chicago in the historic Hyde Park neighauthor of Looking Back: How Pakistan Bebourhood on the south side of Chicago. Fitcame an Asian Tiger by 2050, got his training as an economist. It is not possible to ting, perhaps, then that the building was understand his work – arguably one of the originally built as a theological seminary very few forward-looking visions for and has a decidedly religious architecture. economic growth for PakIn this building is housed the Uniistan put out in recent versity of Chicago’s economyears by a trained ics “My gravestone economist – without deshould read he fought understanding where for end to perks, plot he

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protocol all his life”

comes from.

Say the name Nadeem ul Haque in front of any bureaucrat or journalist in Islamabad (or really anywhere else in Pakistan), and you will get the same look. That smirk, coupled with a rolling of the eyes. A knowing look of the cognoscenti. “Oh, that doddering fool. Yes, of course we know of him. He has no idea what he is talking about. All he has are theories from America.

We know how the real world works, especially in Pakistan.” And in some ways, they are right.

Haque is a man obsessed with ideas in a country where – by his own acknowledgement – there are very few readers even among the literate and educated segments of the population. And while he has documented the ways in which the civilian bureaucracy maintains its stranglehold on Pakistan’s economic resources perhaps better than anyone else, he never quite managed to find a way to thwart their control. To use an analogy from the 1980s British political satire Yes, Minister, it would be as though the minister Jim Hacker understood exactly what his top bureaucrat Sir Humphrey Appleby was about to do, but did not know how to stop him.

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PROFIT’S BEST

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What makes Chiniotis so special in the market? ushtaq Ahmad Yousufi, the greatest-ever Urdu language satirist, in one of his trademark quips said that Muslims of undivided India thrived only in one business – skins and leather, and that too of the unfortunate animals they had earlier consumed.

Witticism apart, there is more than a grain of truth in this adage. Being a top Pakistani banker himself, and knowing the commercial qualities of the Chinioti businessmen who had by then started making their presence felt among the country’s business fraternity, Yousufi might actually have been alluding to them.

The other principal mercantile community in India, the Hindus, detested dealing

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in leather owing to their religious beliefs. That creed provided not merely an opening for Muslims but the great break for a near monopoly in the tannery business.

Though they diversified in the post-partition era, during the Raj this was the main source of wealth of Pakistan’s now largest and perhaps the most influential and thriving business community, the hard-working and shrewd Chiniotis. They can, perhaps by stretching it a bit, be compared to the western businessmen of Calvinist views, such as the legendary John D. Rockefeller, who were noted for their almost obsessional money-making drive, and whose work ethic comprised worshipping six days in business and the seventh in church, living frugally and donating generously to phil-

anthropic and altruistic causes.

This raises another question: Having thrived in a monopoly situation by default, with some honourable exceptions aside, could this be the reason why it has become second nature for a considerable portion of the Pakistani business community, to always be drawn towards cartels, subsidies and government handouts? And to blame everyone else under the heavens, and especially the government of the day, for their abysmal incapacity to compete as equals in world markets?

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Are Shazad Dada and his team victims of unrealistic expectations?

More importantly is the largest foreign bank in Pakistan stumbling into becoming another Citibank: technically present in the market, but largely irrelevant?

By: Farooq Tirmizi & Farooq Baloch tand outside the branch of Standard Chartered Bank Pakistan on Karachi’s historic McLeod Road, and it is difficult to escape a sense of history. The weathered façade of the building – with its colonial architecture – practically screams out the fact that this bank has been doing business in this city since before the invention of the typewriter. But walk inside (or download their app on your smartphone) and you will find the most sophisticated banking technology available in the country, allowing a customer to complete virtually all routine transactions without the need for human interaction.

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

“Standard Chartered is optimistic and excited to actively participate in [Pakistan’s economic] turnaround,” said Bill Winters, in

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public remarks during his visit to Pakistan in March 2017.

“We are rooted in the real economy; so what is good for Pakistan is good for us,” said José Viñals, during his trip to the country in May 2017, shortly after being appointed the chairman of the bank’s board of directors. “Standard Chartered will do all things that are important for the economic and financial development of Pakistan,” he said. But, barring a swift and dramatic shift in strategy, the bank’s Pakistani subsidiary is more likely to suffer the same fate as Citibank Pakistan: another once-dominant institution that faltered in its growth strategy in the last 2000s and then shriveled away until it was forced to sell off its retail

presence entirely to Habib Bank in 2012, retaining only a rump of a corporate banking presence in the country.

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

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PROFIT’S BEST

What’s next for Khaadi? An IPO in the works? But does Shamoon Sultan founding CEO of Pakistan’s largest retail clothing brand have it in him to take his business to the next level and in turn become Pakistan's first fashion billionaire?

By Farooq Tirmizi he year 2017 is the first time the Pakistani clothing market hit Rs1 trillion in consumer spending (according to an analysis conducted

by Profit based on data from the Household Integrated Economic Surveys, published by the Pakistan Bureau of Statistics). It is also the year the biggest brand in the industry – Khaadi – learnt about both the benefits and the costs of being the market leader, with a very public labour dispute and a string of negative stories published about it in the print media.

In the nearly two decades it has existed, Khaadi has gone from being a small store on the corner of a narrow street in Karachi’s Zamzama commercial area to become the industry-defining brand in Pakistan’s retail fashion sector. On the way, it has created, expanded, and conquered market that was virtually nonexistent prior to Khaadi’s launch in December 1999. Yet even as it stands as the clear champion of a rapidly growing market, Khaadi’s future has never been more precarious. In the next year or two, the actions of Khaadi’s management, particularly founder and CEO Shamoon Sultan, will determine whether it becomes a true national (and possibly global) corporate icon, or whether it will wither and fade away into obscurity.

This article examines the journey Khaadi has taken so far, the market conditions and socio-economic context that al-

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lowed it to succeed as much as it has, and the opportunities and challenges the company faces in the years ahead. Our analysis is based on publicly available data, as well as published interviews of Shamoon Sultan, going as far back as 2003. The Khaadi management, in particular Mr Sultan, refused repeated requests by Profit, over several months, for an interview.

The wealth of family resources n successfully starting his business, one of Shamoon Sultan’s biggest assets was his family: his father is a wealthy businessman in Karachi and owns NutriCo Pak-

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istan (Pvt) Limited [formerly Unibrands (Pvt) Limited], the sole distributor and marketer of Morinaga, a Japanese infant milk formula manufacturer. Founded in 1917 and introduced in 1979 to the Pakistani consumers, Morinaga is one of the most popular infant milk brands in Pakistan today. Having enjoyed a presence in Pakistan for over 38 years, Morinaga Milk Industry Co. Limited and NutriCo Pakistan have recently announced a joint venture with ICI Pakistan Limited to manufacture Morinaga products in Pakistan subject to regulatory approvals.

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WHAT HAPPENED AT

HABIB BANK IN NEW YORK? …and what will happen next, now that HBL has become the first bank ever to be ousted from the United States

By: Farooq Baloch he Grand Central Terminal in New York is, by some measures, the largest train station in the world, covering 48 acres in the heart of midtown Manhattan, with 44 platforms serving 56 tracks – more than any other train station on the planet. Its main concourse is one of the most filmed locations in television and movies. Small wonder, then, that nearly 22 million tourists visit it each year. As you leave the station from its southwest exit, you will find yourself across the street from (by New York standards at least) a nondescript building called One Grand Central Place, a 53-storey structure located on East 42nd Street. It is in this building, on the fifth floor to be precise, where the New York branch of Habib Bank Ltd (HBL), the largest in Pakistan, is located.

It is in this anonymous office, on an unremarkable floor of an unremarkable building in Manhattan, almost 11,671 kilometers from Habib Bank Plaza in Karachi, that is located the branch office the shady financial dealings of which resulted in Habib Bank becoming the first bank in history to be ousted from the United States by the New York State Department of Financial Services (DFS). How did this happen? What did Habib Bank do wrong? What are the consequences of this punitive action on Habib Bank and Pakistani banks in general? And most importantly, will anyone be held accountable for this national embarrassment? Before we dig into the accountability debate, however, we would like to give a little background to those who missed the most significant business news development of the previous month. In an order dated August 25, DFS sought to impose a penalty of $630 million on HBL’s New York branch, saying the bank’s American operations failed to comply with its Anti-Money Laundering Laws and Bank Secrecy Act, and booked it in 53 violations of the state’s rules, regulations, orders, and agreements committed to by HBL itself since 2006.

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PROFIT’S BEST

Significant market power but still…

JAZZ GOING IN FOR THE KILL After having almost lost its leadership position to Telenor, Jazz has made a strong comeback, going well past the threshold for a significant market power (SMP), and is now looking to further shake up Pakistan’s hypercompetitive telecom sector. With the largest player on the offensive, analysts foresee further consolidation, layoffs, and another casualty.

By Farooq Baloch t is 6:30 on a Sunday (August 20) evening, a roadside vendor, using open cry method, lures half a dozen men to his shop – a small wooden table and chair under a patio umbrella branded as Jazz (formerly Mobilink). He then offers them mobile subscriber identity module (SIM) cards for free.

“700 minutes to Jazz and Warid networks, 700 text messages and 70 MBs of Internet [data] for a week,” the vendor says responding to one of the customers inquiring about the offer. “With this, you also get Rs30 credit balance,” he tells another and invites more people to his shop, which is located off Korangi Crossing bus stop, one of the busiest and most populated areas in the city – similar shops have been running this promotion all over the city.

About 1500 kilometers north, the company’s leadership in the federal capital has joined hands, among others, with Qmobile and Haier for selling entry level smartphones with a branding of Jazz, a fully-owned subsidiary of Global Telecom Holding S.A.E. (formerly Orascom Telecom), which is 57.7 percent owned by Netherlands’ Veon (formerly VimpelCom).

The company’s website is selling Xplore JS300 smartphone for Rs2,999 ($30) that

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equals one-week compensation of an unskilled, uneducated worker in Karachi – add to that a credit of Rs800 (to be utilized in four months) that comes with the device, making it cheaper still.

On top of tariff unification with Warid, which it acquired in 2015, and free on-net minutes, Jazz is also giving away free monthly data packages on purchase of its newly launched 3G and 4G devices. If one has missed all of this, it only takes a few minutes of primetime transmission to find out how aggressively Jazz is marketing its products in electronic media.

In the past, other brands have run similar, some even more attractive, promotional

schemes including cash awards and brand new cars to expand their customer base in the $4.5 billion hypercompetitive telecoms market of Pakistan, which has been going through an intense price war for several years – literally fighting in paisas (pennies) to prevent margins from squeezing further. Therefore, none of these aggressive promotions is new.

However, this time it comes from the largest cellular operator in the country, not known for such aggressive strategies.

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REASONS TO KEEP YOUR FAITH IN PAKISTAN

Projecting Optimism and Positivity

hough it is a moot point what our political, socio-economic conditions should ideally have been today, had the road not been uphill all the way thanks to needless debilitating detours, self-inflicted wounds and deeply-felt absence of political legerdemain, the country has still covered a vast distance in the face of myriad obstacles and overwhelming odds, and even a degree of achievement in some spheres, though a lot still remains to be done, especially in the social welfare and poverty elimination areas. Starting from scratch, lacking basic infrastructure and skilled human resources, we still have come

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a long way from the humble and ‘moth eaten’ beginnings into which we were suddenly thrust as a newborn nation.

On the nation’s landmark 70th Independence Day, Profit celebrates the occasion by devoting its entire 20th Edition a ‘Pakistan Day Special’. What is more, while we are beset with many worrying problems and stories of despondency abound, Profit has decided to project hope and positivity about today’s Pakistan by recounting our successes and celebrating our heroes – as many as 50 of them, for the seven decades of our existence, chosen from all spheres of life.

Each of the 50 stories in this enlarged

edition represents our peoples’ all-round ingenuity, genius for improvisation and innovation and successes in science and technology, art, culture, film and literature and sport – though the accent, this being Profit’s forte, shall remain on the economy.

We hope that the narrative shall make us Pakistanis feel taller, and inculcate a sense of pride and achievement in our nationhoo

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PROFIT’S BEST

The curious case of Bahria Town-Pakistan’s largest private-sector real estate company-- acquiring a bank that is virtually bankrupt

By Farooq Tirmizi n the surface, it is a transaction that makes absolutely no sense: why on earth is Bahria Town, Pakistan’s largest private sector real estate developer, buying the unfortunately named and even more unfortunately managed Escorts Investment Bank?

Buying a commercial bank to start offering financing to its buyers would make sense, but an investment bank? This acquisition cannot also be about mortgages, can it? Yes, ladies and gentlemen, it can. It absolutely can. Occam’s Razor: the simplest explanation is the one most likely to be correct.

To understand why this acquisition is taking place – and why any observer of Pakistan’s economy, and specifically its financial service sector should care about it – one first needs to understand Bahria Town’s history, its business model, and its place within the larger context of Pakistan’s real estate development sector.

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A brief history of Bahria Town Strictly speaking, Malik Riaz Hussain, the founder and largest shareholder of Bahria Town, does not have a rags-to-riches story in that he was born to a relatively well-off construction contractor in Sialkot. The family, however, fell on hard times when Riaz was relatively young, and the money trou-

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bles were stark enough that he had to stop his education after matriculation (10th grade) and start working several irregular blue collar jobs, including many involving manual labour, to help the family’s finances.

Lacking in a completed formal education though he may have been, Malik Riaz was a shrewd businessman, and concentrated his early business efforts in the old family business: residential real estate construction. Over the quarter century following his father’s bankruptcy, Riaz built up a small but thriving business. It was not until the 1990s, however, that his business really took off, when he started cultivating contacts with senior military officials to become a preferred contractor for many real estate projects owned by such officials (including some that were later subject to

criminal investigation).

He got his big break in the early 2000s, when a joint venture with the Pakistan Navy fell through, but through litigation, Malik Riaz was able to keep the rights to the name Bahria Town. (Under the 1984 Companies Ordinance, no non-militaryowned business in Pakistan is allowed to have the names Askari, Bahria, Fauji, Fazaiya, or Cadet, but since the Navy had previously owned a share in Bahria Town, the name was legal, and Malik Riaz was able to keep it even after they pulled out.)

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By: Farooq Baloch & Syeda Masooma akistan’s first Unicorn [a billion-dollar startup] will be a fintech, which will provide a platform play as opposed to a single app,” Planet N Group of Companies’ Founder and Coach Nadeem Hussain said at Digital Banking and Mobile Payments Summit 2017, a gathering of who is who in the country’s banks, fintechs and telcos. The financial clairvoyant didn’t stop there. “I see a major cyberattack in our digital world in the next three years. It’s at that time our [banking] industry will wake up to see the significance of what cyber security is,” he said. Considered to be a pioneer of mobile banking, Hussain also predicted that Pakistani commercial banks would not come up with anything of significance in the digital space and their customers would force them to open up their systems to APIs [application programing interface] of fintechs. He followed up with one more prediction: these banks will end up buying fintechs as opposed to creating them. When it comes to digital banking, Hussain has a knack for seeing the future well in advance.

But, are his predictions just plain obvious or alternatively more like a shot in the dark?

To find out the rationale behind his predictions, Profit caught up with him later and expanded the discussion further.

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Pakistan’s first Unicorn will be a fintech platform play? he highest possible chance Pakistan can create a Unicorn will be a fintech platform play, Hussain said.

“We don’t have that kind of power in any single app. We may have got an app valued at $100 million or $150 million, but a billion dollar is a big number,” he said explaining why he thinks the country’s first Unicorn will be a fintech company.

Explaining, Citibank’s former country head said that a fintech platform, which can develop multiple solutions like those offered by Chinese ecommerce giant Alibaba

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Group will have a real chance of potentially becoming a Unicorn. Alibaba Group is the holding company of Ant Financial, the world’s largest fintech company valued at $60 billion – that equals four Deutsche banks. Yes, you read that right. Fintechs are typically standalone Internet-based financial services companies that compete with traditional banks in a marketplace. Over the past decade, they have changed the way banking and financial transactions are done thus increasingly getting high valuations by investors.

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PROFIT’S BEST

By Farooq Tirmizi he final report of the Joint Investigation Team (JIT) into Prime Minister Nawaz Sharif and his family’s foreign assets (the “Panama Case”) is the ultimate Rorschach test of Pakistani politics. The PML-N supporters see a conspiracy to destroy their party.

The PTI supporters see a chance to clean up national politics. The PPP supporters are wary of the influence of the anti-democratic element of the establishment in the JIT hearings, even if they are not directly sympathetic to the PM. And we at Profit, financial news aficionados that we are, see a chance to answer a question that has burning in our minds: how rich is the Sharif family and how did they get there?

Most elements of the JIT report have been already picked apart from the legal and political angles. The economic angle, however, has largely remained unanalyzed. We believe this is a pity: the JIT report is fundamentally an examination of a family business’ assets and finances. It is also a unique opportunity for the people of Pakistan to understand how the wealthy but un-corporatized elite of Pakistan actually manages their businesses.

And much more interestingly, what is the

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exact mechanism through which political power or connections can be translated into financial wealth?

Our analysis digs into these and other relevant questions with respect to the nexus between power and money as it relates to the Sharif family. We would like to add the caveat that our analysis relies entirely on the data presented in the final JIT report. We have not independently examined financials from the Sharif family businesses or other related entities.

Specifically, our analysis examines the credibility (or lack thereof) of the Sharif family’s claims from a business perspective. We then try to understand the most likely scenario as far as the true

source of the Sharif family’s wealth, leaning on data provided in the JIT report, but also adding our own independent analysis of the same data. We then examine what those insights – both the disputed and undisputed accounts of the Sharif family business – mean insofar as how wealthy, powerful families operate their commercial enterprises. Finally, we make estimates on what we think is the net worth of the prime minister and his family, and what their future is likely to be from a business perspective Read More:

By Syeda Masooma,Babar Nizami,Farooq Baloch, Aisha Arshad tif Karamat’s Naafey employs about 15 people and they have several high-value clients. But this GIK-qualified engineer, who has an MSc from the US, hasn’t started just another management consultancy. He is servicing a small but ever growing niche of religious businessmen who need muftis to not only tell them which aspects of their outfits are un-Islamic but also to suggest (or even devise) Sharia-compliant alternatives as well.

With more and more businessmen seeking out business practices that are truly in line with their religious beliefs, demand for Naafey is only set to grow.

If I were to ask you to picture a Sharia-compliant business, chances are that you would immediately think of Islamic financial products that circumvent interest.

Actually, there is much more to Sharia-compliance than the proscription of interest.

Sure, you might say; that no one should be dealt with unfairly and that the company should be moral in its dealings? Well, yes, but those are considerations for good people everywhere, whether they are formally religious or not. Formal Sharia-compliance goes beyond the simple rubric of do-theright-thing. It ends up in areas that one hadn’t really thought of. For instance, for businesses involved in some form of arbitrage, the muftis have decreed that a company cannot sell products that it does not

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yet own.

The profile of the seven businesses in this issue make for some uncomfortable reading. For instance, when Mushrooms (a kids clothing brand) decided, at the behest of their mufti, to take out images of cartoons from its apparel for children, it was endangering its principal product. Still, they could hope against hope that parents would still buy their children their product, even without the cartoons. But when it decided, for its school uniforms division, to not make shirt-and-trouser uniforms for children ages 13 and above, it actually cut off a significant revenue source in one quick, painful decision. Ouch.

On the HR front, some of these businesses “encourage” a particular dress code

for its employees while others do make it mandatory. Does that make these stifling places to work? Maybe. But on the flipside, some of these companies have been advised not to impose penalties on tardiness. So employees are deducted their salaries only for the minutes (yes, minutes!) that they are late instead of some sort of arbitrary three-latesmean-one-day-off rule.

Furthermore, if the employees were actually religiously inclined themselves, morale at the office could be downright magical!

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PROFIT’S BEST

By Babar Nizami,Farooq Tirmizi, Farooq Baloch e would like to state at the outset that we do not condone the worst attributes of seth culture in companies. Treating employees like chattel. Ignoring human capital investment. Paying low salaries. Not paying salaries on time. There is a good reason working at a seth company is considered embarrassing: it is what a middleclass professional must do when they have no other choice. Seth companies are probably why a large proportion of Pakistani expatriates left the country in the first place. With that said, the questions of what exactly counts as seth culture, how it differs from a professional corporate culture, and whether it can have positive economic value, have gained salience in recent months as both Packages Ltd and Engro Corporation – long seen as bastions of professionalism in a sea of sethia companies – appear to be taking a U-turn. Literally translated, a seth company simply refers to a family business. But in the phrase’s use in the Pakistani business vernacular of a mix of Urdu and English, it can mean the very worst of what a family business can look like and is most frequently used as a pejorative But how justified is the pejorative? And why does it matter that Packages and Engro are drift-

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ing in that direction. The answer, as always, lies in history.

Packages: the enlightened self-interest of Syed Babar Ali yed Babar Ali comes from a family that is arguably the very definition of Pakistan’s urban elite. His father, Syed Muratib Ali was an industrialist who owned, among other properties, a

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Ford assembling plant in pre-Partition Pakistan. This is the kind of family that was able to afford sending their children to study in the United States long before anyone in Pakistan even dreamed of that possibility.

Indeed, young Babar was at the University of Michigan at Ann Arbor, studying engineering, when Partition happened in 1947.

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By: Yousaf Ni\ami his is the story of dodgy payments and shady business practices involving some of the largest, most powerful companies in Pakistan.

At stake is the prize of becoming the dominant brand of paint in a country on the verge of a boom in construction activity.

These companies will stop at nothing, pay whatever they have to, in order to win that prize.

The recipient of those dicey payments? A high-ranking government official?

An elected politician? A wealthy businessman? A high court judge? Nope. The recipient is the daily wage labourer, barely earning more than minimum wage, whom you might hire to come and paint your house. “Behind every great fortune lies a great crime.” These words, originally written by Honoré de Balzac, and quoted by Mario Puzo in The Godfather and Supreme Court Justice Asif Saeed Khosa in a dissenting opinion on the Panama Papers case, reflect a common perception that wealth generation requires financial malfeasance. It also creates the mistaken impression that only the wealthy are involved in questionable financial transactions.

This story will demonstrate, however, that corruption is not a matter of wealth and power, but incentives. Given a strong enough incentive to engage in unethical behaviour, a distressingly large number of people will do so, regardless of their level of wealth or power. And to be the recipient of an illicit payment, one need not be

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wealthy or powerful, but merely in a position to offer an undue advantage to an entity looking for it.

The case of the ‘token’

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onsider the simple act of getting your house painted. Given most middle-class Pakistanis’ aversion to a do-it-yourself attitude, the vast majority of painting of residential and commercial properties is done by profes-

sional painters who are often daily wage labourers who earn barely above the minimum wage. You would not think that bribery (or at least something that has the strong appearance of bribery) would be involved in a matter so simple as that. And yet, you would be wrong.

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PROFIT’S BEST

By Farooq Baloch

hen he took to the podium at the Management Association of Pakistan’s 18th Convention held in Karachi’s Mövenpick Hotel recently, Dr. Daniel Ritz, President and Chief Executive Officer of Pakistan Telecommunication Company Limited was clear about the mistakes PTCL made and the direction his company had to take. Drawing parallels between PTCL and Pakistan Cricket Team, the CEO said, “Both are number one, but not meeting the country’s expectations.”

There have been ‘good days and bad days’ as both the country’s cricket team and PTCL were ‘inconsistent’ in their performance, Dr. Ritz said as he swiped through slides, visuals of fans reacting to Pakistan’s wins and losses in international cricket contests.

Since his presentation, Pakistan’s cricket team has come back in the game, showing a great deal of consistency in its performance. However, PTCL may take longer to do the same.

“Let me be very clear, it [restructuring PTCL] is a long journey. There are no easy fixes, no shortcuts to revamping such a large organization,” Dr. Ritz told a packed audience in what was his first public talk on the topic since taking office in March, 2016 – he was referring to the company’s gigantic but decaying infrastructure, its large employee base, mostly untrained, and its ‘inconsistency’ in providing quality services resulting

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in a plethora of customer complaints.

Faulty equipment and poor customer service have been some of the main problems PTCL’s customers faced over the years. During three-year period ending June 30, 2016, Pakistan Telecommunication Authority – the telecom sector’s regulatory body – received a total of 1,15,278 complaints of which 44,115, or 38%, were against PTCL alone.

Until a few years ago, calling a PTCL lineman to fix faulty telephone equipment or poor Internet connection required quite an ef-

fort, little wonder unsatisfied clients remain one of the priorities for the company’s new chief: “Customer service is an attitude, not a department. Everyone in the organization needs to learn that.”

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By Farooq Baloch, Nida Jaffery lmost a decade ago a conman by the name of Sibtul Hasan Shah ran an infamous Ponzi scheme offering people to double their money, all in a matter of 70 days. Once a schoolteacher, Shah earned notoriety for his fraudulent scheme only to be jailed almost two years later leaving his investors in a complete state of emotional and financial distress. However, what if there was a way to actually double your investment and that too multiple times in a year without being scammed? Well, ever heard of cement stocks?. It so appears that cement stocks, in their entirety, remained the most robust among all investable sectors on the bourse during the past six years. Explained simply, had you invested Rs 10 lacs in the stocks of Kohat Cement only six years ago, by now you would have made Rs 4 crores, earning almost Rs 6 lacs every month during the period. That translates into an extraordinary return on investment (ROI) of 60% per month. Yes, you read that right: 60% per month! In other words, the original Rs 10 lacs would have purchased you 153,846 shares of Kohat Cement at Rs 6.5 per share, its price on 1st January, 2011, which has appreciated by a whopping 3,854% to Rs 257 per share at the end of September this year. On top of this staggering price appreciation, you would have earned another Rs 29 lacs as dividend income, taking the combined return for the period to over Rs 4 crores! Kohat, perhaps, is a good example from the cement sector, but it is certainly not the only one that ex-

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plains why Pakistan’s stock market has been outperforming its regional counterparts for the past few years. “Cement stocks are a telltale of why Pakistan is Asia’s top performer,” Pakistan Stock Exchange (PSX)’s Managing Director Nadeem Naqvi told Profit in a recent interview — and he had a reason to say this The 21 cement companies, including allied businesses, listed on the PSX staged a sector-wide gain of almost 1,000%, or 936% to be precise, since December 30, 2010, according to the data

compiled on September 19, 2016 by Insight Securities, our research partner for this report. Surprisingly, the cement stocks, for the period under review, offered a better yield than the real estate sector, which is usually the number one choice for investors.

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proFit’s Best

Will the introduction of QR codes and classified portals by Jang and Dawn be enough to cover for 10 years of complete hibernation?

By Abbas Naqvi lassified ads were providing a fairly substantial and a steadily growing revenue stream to Pakistan’s two leading newspapers, Jang and Dawn. Other newspaper groups, like Express and Nawai-i-Waqt, much to their dismay had miserably failed to make any dent in this lucrative market, which had essentially become a ‘Jang-Dawn’ exclusive territory.

More importantly due to the very nature of classified ads, this segment was also unthreatened by the otherwise burgeoning players in the satellite television industry. Jang in Urdu and Dawn in English, were so to speak, the undefeated, undisputed heavyweight champions of the Rs 300 crores classified ad market.

However,a change was underway with the launch of Pakwheels.com in 2003 – an automobile classified portal, followed by the entry of the classified job portal, Rozee.pk.

The two newspapers groups didn’t realize the potential threat posed by these tech-start ups so much so, that they even supported their own demise by sponsoring job fairs conducted

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by their soon to be competitor, Rozee.pk.

And even though print numbers had started to show early warning signs before 2010, it wasn’t until 2015 when classified portals like OLX, Pakwheels, Zameen and Rozee had launched massive ad campaigns on television, outdoor and print, that the two hotshot newspapers realised what had actually hit them. The increasing number of people familiarizing with the internet and subsequent emergence of the 3G and 4G spectrums in Pakistan gave way to a technological revolution in the smartphone industry. In turn, this has significantly impacted the classified ad industry making it profoundly different from its former ensemble.

Late to the party?

Giants admit e were like an ostrich with its head in the sand when the online portals sprung up in Pakistan,” says Sarmad Ali, Managing Director, Jang Media Group, who also happens to be the cur-

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rent President of the All Pakistan Newspaper Society. “We could say that we did this and that to counter the online portals, but that won’t be true – we were late to respond.”

A similar narrative comes from Dawn.

“If truth be told, we had our own reservations about the online classifieds industry, and we thought they would fail and not survive with such a business model,” says Kashif Saeed, Director Operations at Dawn Group – Pakistan’s first and oldest English-language newspaper which has been in circulation since before the country gained independence, and has thus maintained a strong grip on the market for English dailies. However, Saeed maintains that Dawn is still in the top slot when it comes to English classified ads. CEO of Dawn also agrees. “The future of print classifieds is very much there, as long as we handle the market properly, Dawn cannot be pushed out.

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By Farooq Tirmizi, Syeda Masooma uppose for a minute that you are a globally focused investment manager based in London or New York. If you have been paying attention to the signs, it is probably very hard for you not to get excited about Pakistan right now.

You get up in the morning and read an article in The Wall Street Journal touting declining poverty and the rise of Pakistan’s middle class. You switch to Barron’s and there is another piece raving about the stellar performance of the Pakistan Stock Exchange. Opinion writers in Bloomberg are talking about Pakistan as a “pleasant surprise”. Forbes is favourably comparing Pakistan to India, which may cause some discomfort to you, since you probably have far more investments in India than Pakistan, if you have any in Pakistan at all.

So you are intrigued but of course, you decide to do a little more research. After all, financial journalists are always looking for the next shiny object to draw the attention of their readers. You need to do your own diligence. That is why you make so much more money than they do.

You log on to your Bloomberg terminal and the very first thing you check for is where the country’s sovereign credit rating is at the moment. You see that both Standard & Poor’s and Fitch have rated the government of Pakistan’s international bonds at B with a stable outlook. Moody’s is one notch lower at B3, but also with a stable outlook. That is not great, but you have in-

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vested in worse and done just fine. So you look up the sovereign bond. The 10-year bond is trading at somewhat less than the issuing interest rate of 8.25%, but still much higher than what other bonds with similar maturities and credit ratings trade at. Could this be an undervalued market?

Now you’re really interested, and without realizing it, your whole morning is going to be about Pakistan today. A look at the GDP numbers tells you that the country has been growing at more than 4% for the

three years that the administration of Prime Minister Nawaz Sharif has been in office.

This is not, surprising, of course. All oil-importing countries have seen a boost to economic activity coming from cheaper fuel prices. That is why you are also not surprised to see inflation in mid-single digits.

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PROFIT’S BEST

hen we set out at making the first of Profit’s annual list of the most powerful businesswomen in Pakistan, we had assumed that shortlisting the list to a mere 25 would require a very strict criteria. Little did we know then that shortlisting will be the least of our concerns here. Half way through our research -on both the listed and the unlisted sector-, we had realized that coming up with even an initial list of 25 would be an arduous task. In fact in the end we had to lower our yardstick a bit to make a final list of only 18.

That ladies and gentlemen, is how bad the situation is when it comes to gender diversity at the top level of our corporate sector. We had to resist the temptation to include multiple names from the development and education sector where many a women are doing a fabulous job. Same goes for the fashion and hair/beauty industry.

Another obvious option was to relax our criteria further and include the many women heading HR and Marketing departments of companies and called them “powerful”. But then that would have been unfair to the word ‘power’. You see power is the ability to shape and change organisations, careers, markets, entire industries, sometimes, the lives of an entire nation. It is the deafening silence that

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falls upon a meeting when someone with enough of the commodity to spare raises his or her voice to make a point. It is the raw envy an individual’s achievements provoke in people around. It is, in equal parts admiration, respect, influence, and it is more.

Definitions are important, for they delineate who we are and what we do.

When we at Profit set out to identify the 25 most powerful women in Pakistani business, we started off by looking for a

largely-objective quantifiable methodology that could accomplish the task.

Power, unfortunately, confounds most available metrics. So, we decided to do the next best thing: define our universe and the criteria we would use to identify the most powerful women in business.

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With more and more people consuming their content via non-traditional media, the growth numbers for digital Ad spend have increased phenomenally. Despite a booming industry and its early mover advantage, Bramerz, arguably Pakistan's best digital agency is astonishingly losing some of its most satisfied customers

By Nida Jaffery, Farooq Baloch he digital ad spend of Pakistan is almost $15 to $20 million at present and it is expected to grow by at least 40 percent in 2018,” said Badar Khushnood, the Country Consultant for Twitter and one of the three Co-Founders of Bramerz, a top-notch digital marketing agency operating out of Lahore.

Bramerz has led the digital marketing scene in the country over much of the past decade. In fact, it won’t be wrong to say that growth of Bramerz is synonymous to the growth of digital media in the country.

Bramerz, which has to its credit projects like Pakistan Super League, and Uber, and served multinational giants like Nestle, Unilever, Levi’s, Samsung, and PepsiCo, in-

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spired a whole generation of digital marketing professionals and launch of many new players in the past few years.

However, times seem to have changed now and competition intensified.

With some of the large brands, especially multinational companies, willing to spend up to $3 million on digital campaigns, the relevant spend is expected to increase to 15 percent of the total media ad spend this year. Market estimates suggest it can reach up to 30 percent of the traditional ad spend by 2020.

With the industry growing at this unprecedented rate, digital marketing agencies, like Bramerz who had first movers advantage in the arena and were set to tap this growing market, are feeling the pinch as traditional advertising agencies and media buying houses eat into their market.

In other words, specialised digital marketing players are now faced with competition from traditional players, which are using their regional affiliations to steal away large multinational clients that were once catered by those who specialise in digital media — and Bramerz seems to be worst hit.

As the battle for a share in the rapidly growing digital space intensifies, Profit takes a look at how companies like Bramerz with their specialised knowledge of the field and early mover advantage consolidate themselves to prepare for the challenge ahead.

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