Profit E-Magazine Issue 69

welcome

The most worrying chart There is one chart that gives us a heart attack every time we look at it: one that shows Pakistan’s average income – measured by gross domestic product (GDP) per capita – relative to our neighbours in South Asia. The data shows Pakistan falling behind, and in the case of India, far behind, after having been on par or ahead for most of our history. Whatever we have been doing for the past three decades has not been enough: we as a people are becoming poorer relative to our neighbours, and that should alarm us a great deal.

What makes this more disturbing still is the context in which we are publishing this chart. As of this writing, Pakistani media outlets have been very actively censored for daring to so much as air a press conference or an interview with a leader of an opposition political party. Cabinet ministers are being appointed and their portfolios changed without the knowledge of the prime minister.

Let us at least stop deluding ourselves: we have not lived in a democracy since at least 2018, and quite possibly even earlier. For almost half of its 72 years in existence, Pakistan has been under martial law and for the remaining half there have been- to one degree or another- ‘elected’ governments forced into power through fixed elections.

In a new paper published in the Journal of Political Economy in January 2019, noted economists Daron Acemoglu, James Robinson, Suresh Naidu, and Pascal Restrepo find that countries that are functional democracies have GDP per capita that is 20% higher

than similar countries that are not democratic. This result is not entirely surprising: both democracy and economic growth require the common ingredient of the rule of law, which, by definition, is absent in a dictatorship.

Like most of Pakistan, we are deeply dissatisfied with the current state of affairs. We want Pakistan to be more functional, richer, more prosperous than it is today. The difference between us and those who appear to be ruling us is that we do not believe in silly conspiracy theories about why this is not the case, and – more importantly – we believe that our nation’s economic fate is firmly within our own control, not those of any foreign powers.

We would say what needs to be done next, but that line would likely get censored, so we will leave it unsaid.

Farooq Tirmizi Managing Editor

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

FROM THE MANAGING EDITOR

9

10

In US dollars, Pakistan’s nominal GDP has grown at a rate of 7.3% per year since 1958, the earliest year for which data is available, according to Profit’s analysis of data from the Pakistan Bureau of Statistics and the State Bank of Pakistan. The most recent year, fiscal year 2019, according to the government’s initial estimates, is on track to have been the second worst year in terms of growth, as measured in nominal current US dollars, since 1958. It is beaten only by FY1973, the first full year immediately following the 1971 war.

The decline is largely due to the fact that the value of the rupee collapsed spectacularly against the US dollar, but inflation has remained relatively tame, resulting in low nominal GDP growth in rupee terms being pushed into negative territory by the decline in the exchange rate. Of course, the nominal value of the economy in US dollars is of limited use to most people inside the country, but it matters a great deal in terms of how foreign investors perceive the country.

News IN NUMBERS

11

This chart should cause a panic attack in every single Pakistani policy maker: the fact that Pakistan’s per capita income has now fallen behind both India and Bangladesh, and has been falling behind for quite some time. According to data from the World Bank, Pakistan first fell behind India in terms of GDP per capita in 2007 and has never caught up since then. The gap between the two countries has continued to grow wider and wider every year. The average Indian is now 36.8% richer than the average Pakistani. Perhaps less well understood in Pakistan is the fact that, since 2016, Bangladesh has also overtaken Pakistan in terms of the average income of its citizens. The average Bangladeshi is now 15.3% richer than the average Pakistani. This is especially concerning since this is a reversal of what the state of affairs has historically been: Pakistan has historically been better off than its neighbours in South Asia.

News IN NUMBERS

12

By Abdullah Niazi

D

eep into the winding, messy streets of a Lahore township, on one end of a broken road stands a building five stories high.

The hustle and bustle of Punjab’s capital is reflected in the shiny, blue-tinted glass that covers its front from top to bottom.

It is a massive structure, ugly on its own because of its bulk, but in the middle of the decrepit area it stands in, it looks sleek almost, as if its silver arches and vast expanses of glass were picked up and air-dropped straight from some science fiction novel.

Housed in these five stories is a Lahori media empire. This is the headquarters of the City Media Group, where local journalism and business come together in a melting pot of innovation, risk, and novelty. Under the City Media Group umbrella fall five television channels and an Urdu tabloid-sized newspaper. Key to the group’s success has been its willingness to do what no one else had thought possible.

At the center of this innovative zeal has been one man: Mohsin Naqvi. Standing outside his simple glasswalled office in a corner of the media group’s headquarters, he does not look like the shrewd media tycoon he has grown into over the years. He listens patiently as an exasperated starlet explains some problem or the other in hosting a Ramzan transmission running on his channels.

Hands folded behind his back, his neck is craned downwards almost in deference, as he nods along to everything, whispering gentle reassurances. But the amiable manners and speech is not a gimmick; he seems like a genuinely humble man.

He does not see guests often, preferring to work behind the scenes. When he does, he proves to be an attentive host and is easy to converse with. But he shys away from interviews, abhorring direct quotation and the limelight like the plague. His white hair and impish smile give him the appearance of a sweet old uncle that lives in your neighbourhood. Everything about Mohsin Naqvi makes you want to relax, and convince yourself to let down your guard.

But clearly there is much more to him than the friendly, happy-go-lucky persona that greets you upon meeting him for the first time. Despite the meticulously tamed puff of more-salt-less-pepper on his head, Mohsin Naqvi is barely 40 years old, and has already clocked a decade in the news channel business. Today, the man has undeniable reach in Lahore, what with City42 (C42), his breakout project, making him one of the most sought after men in the city. His relationship with the country’s political elite is also tight-knit. The fact that he is married into the Chauhdhrys of Gujrat has not stopped him from enjoying a long-lasting association with their political rivals such as Nawaz Sharif. His ties run so deep, that it is also known that if you want to get through to former President Asif Ali Zardari, Mohsin Naqvi is the man to meet.

Since the formation of the C42, a Lahore-focused local news channel, he has gone on to open City41 (C41) in Faisalabad, UK44 based in England, Rohi TV catering to the Seraiki belt, and Channel 24, the group’s national-level current affairs television channel currently in

MEDIA

the doldrums along with the rest of the media industry. The City Media Group also publishes an Urdu-language local newspaper that accompanies C42.

City Media Group has, by no stretch of the imagination, been a pioneer in the news media business. But what Mohsin Naqvi has very successfully been able to do is to adapt existing concepts, such as local television channels and newspapers, and make them a reality in Pakistan.

But where did Mohsin Naqvi come from, and how has he been able to become a mover and shaker in Pakistan’s news media industry in the past decade? More importantly, can his bringing together of the journalistic and the entrepreneurial help him survive the current crunch in the news media industry.

He has been an innovator throughout his career, taking routes and making inroads in uncharted territories, but how is he dealing with the rapid decay of the industry?

His launch of C42 in 2009 was his magnum opus, but will Channel 24 be the swan song in his career thus far as a media mogul? Disliking interviews and keeping completely out of the news himself, Profit held informal meetings with Mohsin Naqvi and some of his closest associates, to try and get a measure of both his personal story, and the state of the news media industry in the country.

City 42 and the birth of an empire

I

t was 2009, and a little known channel by the name of City 42 had just started appearing on Lahore’s cable networks. The name was not exactly revolutionary, having simply used Lahore’s landline telephone dialing code (042), but the concept was: a channel dedicated exclusively to local news about Lahore, which quickly became one of the most powerful forces in the entire city.

As with any good local media outlets, the plan was simple, it operated like any regular television channel, with an hourly bulletin, morning shows and the works. If something really big happened in any corner of the country, they would go ahead and run it in the bulletins and news tickers, but what made them special was a host of reporters all concentrated in Lahore.

Today, despite a national channel and three others as well as a newspaper, C42 remains the City group’s most important asset. Imitation is the greatest form of flattery, and Mohsin Naqvi’s idea got that two-fold, with the Dunya group and Neo news both coming out with local channels soon after C42 had really established itself. ‘Lahore news’ by Dunya, as they admit themselves, couldn’t come close to touching the heights C42 reached, despite having a much larger media machine backing it.

14

Mohsin Naqvi, CEO, City Media Group, addressing his channel’s annual awards ceremony in 2015.

But becoming a trendsetter was not easy.

After all, it was 2009 and the media industry was booming, especially the electronic media, though the good times had not come after their fair share of struggles. The industry had faced censorship and had been bloodied particularly towards the end of the Musharraf era. The year 2007 had taken a toll on journalists, what with the dictatorship at its ends and the lawyers movement.

But by 2009, the Pakistan Peoples Party-led administration of President Asif Ali Zardari had just come in. In a country starved of democracy, the ascendance of a liberal democratic party meant that the media was suddenly free, and the PPP-led government, in their excitement at having returned to office for the first time since 1996, seemed more than receptive, answering questions and providing information.

In this environment, television channels were popping up left, right and center. Not only was the business one that made you powerful, it was, back then at least, also profitable. So when Mohsin Naqvi went about making arrangements for a Lahore-focused channel, he was met with raised eyebrows. Why not just make a regular news channel? Sure, the costs would be more, but so would the pay-off. Besides, the risk of a local news channel failing was much greater.

But Mohsin Naqvi had a vision, and he was adamant it be brought to life. From the start he made sure that the entire set-up of his channel would have digital equipment, something the rest of the industry has only recently caught up to. Even the state-owned Pakistan Television (PTV) – the largest television network in the country by revenue and audience size – has not even done that, as was seen in the recent debacle of Prime Minister Imran Khan’s speech which was recorded on a digital camera and faced technical issues while running on PTV’s outdated broadcasting system. He was also clear on the style of channel he wanted, and the premise on

which it would run.

Getting a channel like C42 to click with the audience was going to take a certain kind of reporting. And as one senior journalist who has worked with Mohsin Naqvi explains, he has above all else an excellent understanding of the media itself – if not journalism – but the industry.

To achieve the desired viewership, C42 employed the use of ‘reporter-man’ – the brash and the badtameez (ill-mannered) – the self professed superheroes out to expose small time crimes in those ridiculous ‘exposé’ news reports.

The scene is familiar enough. The reporter (if you want to call them that) armed with a microphone and a cameraman is on the prowl. He barges into milk shops, clinics, eateries and any number of places with all the bluster of a state organisation and goes about trying to ‘reveal’ all the evils surrounding that place. It is an art form perfected in Pakistan by the likes of Iqrarul Hassan Syed, ARY’s squint eyed, slick haired, perpetually enraged blue-eyed-boy, and practiced by countless television reporters trying to push and shove their way into the mainstream.

It takes a dash of brazenness, a little bit more rudeness, and a whole lot of loudness, but it is a doable bit. It is of course morally questionable, but more importantly from the perspective of C42, it is watched. With its fleet of reporters, C42 not just pulled this method of reporting off, they made it their style, and in doing so became an organisation not to be trifled with. As far as Lahore was concerned, everybody had to think twice before pulling something fishy, considering that at any moment a van from the channel could pull up and shove a microphone in your face.

But it wasn’t just these milk-shop exposes that gave C42 its dynamism. The channel was keeping an eye on literally everything going on in the city. If there is a wedding in Lahore with even a little socio-political clout, they would be there.

If a street was in disrepair and left unattend-

ed, a reporter from C42 would quickly make a scathing rebuke of the provincial government’s governance. They would be the first to reach literary festivals, and their vans would be parked outside flower exhibitions well before time.

And if a patient’s family is protesting the death of their family member outside a clinic? You bet C42 was going to be there too. Big or small, if anything happened in Lahore, C42 would be there to cover it.

But how in the world did Mohsin Naqvi manage to pull it off? Sure, he has a great understanding of the media, but where did that come from? He was not exactly a seasoned journalist before he made the dive into C42. And even if he just had a natural knack for it, television channels still require money. Where did the money for C42 come from? And how did he manage to turn a single local city channel into the media mammoth it is today.

The Mohsin Naqvi story

A

Lahori by birth, Mohsin Naqvi was raised by his maternal uncle after he lost his parents at a young age. Today, his uncle also serves as the chairman of the City Media Group for Mohsin. He followed a pretty traditional path for boys from good families in Lahore. He was a sharp student at the City’s famous Crescent school, displaying early signs of leadership even back then. He followed that up by going to Government College, immersing himself in the Ravian experience. Even as a young student with an easy smile and a deferent handshake always at his disposal, his networking was legendary even then. Famously, even as a young undergrad at GCU he somehow established a relationship with the chief minister. He eventually found himself in the United States for his higher education.

Despite being based in Miami, famous for its party schools, Mohsin found himself making his way into an internship at CNN, where he got his first taste of journalism. Perhaps it was here in America, where the media industry is has hundreds of local media outlets, that Mohsin got the idea for local media networks in Pakistan. But it would be CNN that sent him back to Pakistan.

When no journalist wanted to step into the country considering it slim pickings, the young intern raised his hand and made his way back home proudly wearing the CNN tag on his sleeve.

It was at this point that he used the weight that came with the name of CNN along with his exceptional talent at networking to start making a place for himself in the news media business.

At CNN he was a producer, the cheap local labour that foreign journalists use to do their grunt work for them.. As CNN’s man in Pakistan, he played a number of roles, one of which was being the fixer. If a journalist from CNN wanted to come to Pakistan and interview the Chief Min-

ister, Mohsin Naqvi would be the man that made all the arrangements.

He worked the phones, made connections and did his job well. He was never the man in front of the camera, but the field producer working behind the scenes - much as he prefers to run his organisation now. And all the while that he continued to make connections with people – rubbing shoulders with politicians, journalists, and the country’s elite. His affable nature and easy smile only helped him along the way as he continued to rise and make his way into the good books of people that mattered. He was quick to reach out for comment and always restrained, polite and constantly on his best behaviour.

In this time he grew close to a number of people, including Asif Ali Zardari, with whom he formed a much talked-about relationship. But perhaps the true testament to his networking skills was that he married into the Chaudhrys of Gujrat, one of the country’s most prominent political families.

For many speculating about the rise of C42, this seems to be the key link. The money must have come from his in-laws. How else could he have managed to pull this off and take such a huge risk?

But as people close to Mohsin reveal, C42 was completely his own doing. He came from a well-off family and had received a handsome inheritance. Using this, along with the haul of dollars he is assumed to have made during his time with CNN, at the age of 30 Mohsin Naqvi set out to launch his new channel. Despite all this, he still had to check himself with a certain level of austerity to make C42 happen. Ask him about how much it took to get the channel on its feet, Mohsin laughs and jokes people would break his head and call him a liar if he revealed how much he invested into C42.

But frugality has been a benchmark of his entrepreneurial ventures. For example, he claims that his City 42 Urdu newspaper was set up in just Rs 300,000, that too only because he had to buy furniture and printers. The newspaper also has the same innovative streak as the rest of his work. Not only does it have a unique size, he has also stopped selling it.

Back when the paper was first being launched, Mohsin had insisted that it be distributed for free. It was others on his team that had protested the move. Now they have finally adopted the original free distribution method he had originally wanted. To distribute the paper, he sends it to small locations where he knows it will be read. Normal targets such as the [Punjab] Secretariat and government offices have been ignored, instead Daily C42 is dispatched to small businesses and central hubs of the city.

His pay-off has been that he is getting small ads worth a lot of money from local, private advertisers. This makes him immune to being too

MEDIA

dependent on government advertising, and also means the paper can bear its own expenses - a miracle in the current climate of Pakistan’s news industry.

His other projects have been similarly unique. UK44 is a channel for overseas Pakistanis in Britain which has seen some success. C41 has been a sister channel to C42 in Faisalabad, and Rohi TV is a channel focusing on the Seriki belt that Mohsin bought from Jehangir Tareen, though his first love remains the first channel he started.

But despite C42 being his personal favourite, perhaps his most ambitious undertaking was 24 News HD – better known as Channel 24. This was his dive into the national mainstream – but Channel 24 also had a very different concept.

It would not have reporters stretched thin and jump into the already overcrowded news channel scene without an age. Channel 24 was going to be a current affairs channel, with news bulletins at odd hours and a greater focus on analysis and talk shows.

For this he hired some of the best anchors in the country, taking on board the most senior journalists to make a formidable team. It should have worked. After all, nobody really watches the bulletin from anywhere other than Geo or ARY unless they happen to be scrolling by a channel.

It is the talk shows that people tune in for at a specific time.

But this was one concept that did not work out for Mohsin Naqvi. Advertisers did not take the channel seriously, giving it a B or C rating.

The pressure for tickers and bulletins persisted as the ratings did not reflect the hopes of the team, and eventually Mohsin caved, converting the channel into a regular, run-of-the-mill 24 hour news coverage channel which is now scraping by as all other channels are currently doing.

To his credit, Mohsin saw when the time had come to pull the plug on his ambitions. He could have in the moment doubled down and persisted with his original model, which on paper should have been giving him returns. But the right thing to do at the time was to toe the line, and he did not let his ego get in the way of business. Another factor in the failure of the current-affairs model, of course, is that 24 News HD came out in 2015. While the news media industry had not started its final plumet, in which it is currently embroiled, the cracks had started to appear – and perhaps the time was just not right for an idea that otherwise seemed to work on paper.

But perhaps the biggest reason why Channel 24 did not work out as planned: it went against the rest of City Media Group’s business model, which has relied on highly localised that in turn appeals to a diverse, wide network of local businesses that have no other avenues to advertise their products and services. Channel 24, on the other hand, is reliant on the same government

16

At the center of this innovative zeal has been one man: Mohsin Naqvi. Standing outside his simple glass-walled office in a corner of the media group’s headquarters, he does not look like the shrewd media tycoon he has grown into over the years. But clearly there is much more to him than the friendly, happy-go-lucky persona that greets you upon meeting him for the first time.

Despite the meticulously tamed puff of more-salt-lesspepper on his head, Mohsin Naqvi is barely 40 years old, and has already clocked a decade in the news channel business. Today, the man has undeniable reach in Lahore and large national and multinational corporate advertisers as the rest of the industry.

The state of the industry

I

t is a fascinating parallel. In 2009, Mohsin Naqvi had just launched C42 in very little money and naysayers laughing at him left right and center. The channel turned out to be a resounding success. Over the next decade, he would go on to launch three new channels, acquire another, and also release a newspaper. It is a meteoric rise to say the least.

But in 2019, much like the rest of the industry, he too stands on a ledge desperately trying to avoid falling into the abyss. This is despite the vast array of resources, new connections, and lessons at his disposal. There have been massive lay-offs in the news media world. During our informal discussion, he sighed and told us about how he was going to have to chop a third of his 1,800 employees. Soon enough after, Channel 24’s Peshawar bureau was axed and 600 people lost their jobs. In our conversation, when asked about whether opening a news channel in the current climate would be a viable option, Mohsin Naqvi laughed, saying the person with the itch should prepare to throw a billion rupees down the drain.

“At this point no channel is making any money. We consider ourselves lucky if we can even break even,” he says. “Back when we started C42, it did so well that we got two people competing with us and opening Lahore-only channels a few years later. But by then, the situation was bad and they really haven’t been able to challenge us at all.”

Many have said that the media itself is to blame for the current situation. Much of the industry's revenue was coming from the government, which was the largest advertiser in the country. For all intents and purposes, the media was being subsidised by the government, and this had allowed media tycoons to grow lax and let their media machinery become inefficient and

clunky.

Overstaffed and underworked, newspapers and television channels allowed themselves to fall into a stupor which the government had to break them out of – a legitimate concern since ad expenditures by the government were ridiculously high.

But Mohsin is of a different persuasion. The news media industry is dominated by industrialists looking that founded channels so they could have a power tool. Today, a lot of them are regretting their decisions, lashing out at their workers and inefficient systems. Mohsin Naqvi is one of the few media owners who have worked as journalists, and as such, he understands the toll cuts and lay-offs take. “The work will suffer,” he says.

No matter how bulky the news media machine may have been, it was still pushing out some good work. And with all the necessary cutbacks, the quality of the content is bound to fall.

“Back in the day I made money, serious money. Even from 24 I made a killing. Sometimes, City 42 would be doing better than all of the national channels.I won’t lie, the industry has been good to me. But currently? The situation is dire,” he says.

News channels are desperately trying to break even, crippled as they are by the lack of government ads, and especially with the ever looming threat of censorship breathing down their necks. Even as this piece was being written, on July 8, Channel 24 was reportedly taken off the air for covering the press conference and public gathering held by opposition politician Maryam Nawaz Sharif. Two other channels were also taken off the air.

With censorship on the rise and financial woes abound, one wonders what will become of news media in Pakistan, and whether even the entrepreneurial spirit and innovation will not be able to save it. And the business of it aside, that is a cause for concern in what is supposed to be the fourth pillar of the state. n

MEDIA

I

By Farooq Tirmizi

t was among the biggest bankruptcies in Pakistan’s financial services sector: KASB Bank, the retail bank owned by the KASB Group had been dying a slow death since the financial crisis of 2008 but was finally euthanized by the State Bank of Pakistan in November 2014.

An unexpected casualty of that bankruptcy was KASB Securities, one of the most venerated names on McLeod Road and the oldest functioning capital markets firm in Pakistan until that point.

KASB Securities did not quite die off. When BankIslami Pakistan (PSX: BIPL) acquired KASB Bank in May 2015, they received 77% of the shares in KASB Securities as part of the package. But BIPL is hardly known as a capital markets powerhouse, and KASB Securities – renamed BIPL Securities in November 2016 – began losing clients almost immediately and currently does only about half the business that it used to under the old KASB name and ownership.

Between 2016 and 2018, it seemed that the KASB

18

name was lost, buried in the long line of erstwhile venerated brokerage houses and investment banks that have since passed into history: the likes of Barings, Saloman Brothers, Bear Stearns, Lehman Brothers, Merrill Lynch, etc.

But then came the news in April 2018 that all may not be lost just yet for the KASB brand.

A new brokerage firm – named Khadim Ali Shah Bukhari Securities, and using the old KASB logo – was launched that month. Its managing director was a 37-year-old finance professional named Ali Farid Khwaja.

This then begs the question: who is Ali Farid Khwaja and is KASB Securities really back? More importantly, why does KASB matter to Pakistan’s capital markets?

Why KASB is a valuable name in Pakistan’s markets

Q

uite simply: because they were among the very first in Pakistani history, and one of the very few to have survived nearly all of the booms and crashes to have hit the market throughout Pakistani history.

The company was founded in 1952 by Khadim Ali Shah Bukhari, then a neophyte to the nascent securities industry in South Asia.

Back then, the idea of corporate brokerage houses was practically nonexistent, and so Bukhari operated effectively as an individual, offering stock trading to clients – both individual and institutional.

In the 1970s, in the ethnically divided world of the Karachi Stock Exchange, where it was the Memons (Gujarati Muslims) versus everyone else, KASB & Company – the ethnic Punjabis with a long history in Karachi – were able to grow big enough on their own. The Memons never trusted them as part of their circle, but the Bokharis were given a begrudging respect that Jahangir Siddiqui, the ethnic Sindhi insurgent, never got.

KASB relied on the Punjabi connection to build up a significant book of business for itself and indeed made it easier for other Punjabis after him to form a small Punjabi bloc of brokers at the exchange.

The real modernization wave, however, did not start at KASB until Khadim’s son joined the business in 1977. Then just 20 years old, Nasir showed an acumen for the business and a clear head for strategy that his father had the good sense to allow him to implement. Core to Nasir’s strategy: build out a large retail book of business by going out and establishing branches all over Pakistan.

This strategy, however, would need the market more modern than it was, a task that Khadim and Nasir would not be able to achieve

“There was a space in the market, and the goodwill that the KASB name still inspires. We have been the fastest growing broker in Pakistan. We have gained a 2% market share even though we have just been setting up our infrastructure” Ali Farid Khwaja, Managing Director at KASB Securities

on their own.

In the late 1980s, Nasir formally took over the business and he and Jahangir Siddiqui, that other innovating buccaneer of the Karachi Stock Exchange, became close friends, united by their relatively better education which spurred their desire to drag the Pakistani capital markets out of the nineteenth century and into the late twentieth.

Both Nasir and Jahangir decided to take the plunge themselves first, incorporating their brokerages from sole proprietorships to public limited companies. Nine years younger, Nasir was a key ally for Jahangir when he sought – and won – the chairmanship of the Karachi Stock Exchange in the 1990s.

Throughout the 1990s, both JS and KASB had very similar trajectories. Both brokerages sought relationships with American investment banks, JS with Bear Stearns and KASB with Merrill Lynch (in 1994). Both incorporated in 1991 and listed their companies on the exchange by 1993. And both consistently pushed the exchange towards modernisation, backing ideas like electronic trading, which would be necessary for Nasir’s idea of a nationwide retail brokerage operation.

They ultimately got their way with the introduction of electronic trading on the exchange beginning in the early 1990s. That, in turn, allowed Nasir to build out offices throughout the country, and he opened up KASB Securities’ branches in 11 cities across the country and began offering electronic trading platforms.

KASB was also among the very first brokerage firms in Pakistan to embrace the internet, allowing retail clients to trade, first through their website and desktop software, and then through mobile apps.

That retail, individual investor-friendly business model made KASB the largest retail brokerage in the country, and the largest of any kind by trading volume. At its peak, shortly before its sale to BIPL in 2014, the company boasted 22,000 clients and a 15% share of all trading on the Pakistan Stock Exchange.

And the high quality of research through its partnership with Merrill Lynch – as well as trading execution – meant that KASB was widely regarded as the best brokerage firm in the country, a status epitomized by the fact that AsiaMoney, the London-based publication, rated KASB Securities the “Best Equities House in Pakistan” for 24 consecutive years, from 1990 through 2013.

Simply put, if you were a retail investor in Pakistan in the 1990s or 2000s, you could not do better than being a client of KASB Securities.

The company also had a culture that attracted high quality talent. KASB alumni include Naz Khan, former CFO of Engro Corporation, who was the first money market trader in Pakistan and began her career at KASB in 1992.

Imtiaz Gadar, rated best analyst in Pakistan by AsiaMoney and the CFA Society for five years and currently serving as head of capital markets at Bank Alfalah, started his career at KASB. If you were serious about a career in capital markets in Pakistan, KASB was a stellar place to start.

How it all went wrong for KASB

F

or most of the 1990s, Nasir stuck to expanding his brokerage business but slowly became convinced of the idea that he needed to acquire the ability to lend in order to retain clients who wanted margin financing.

In 2002, a small Pakistani named Platinum Commercial Bank ran afoul of the State Bank of Pakistan’s minimum capital require-

CAPITAL MARKETS

ments. The SBP had set the requirement then at Rs1 billion and Platinum was only at Rs600 million. Pak-Libya Holding Company, a development finance institution funded by the Libyan government, initially offered to buy the company but that transaction fell through.

At that time, the newly empowered Securities and Exchanges Commission of Pakistan was cracking down on the informal margin financing system known as “badla”, which was hurting the business of several brokers, KASB included. Nasir smelled an opportunity in Platinum’s distress. He began buying shares in Platinum, eventually purchasing the majority stake.

Nasir saw Platinum as a source of formal margin financing for his brokerage firm. At least initially, he was not thinking of it as a means to expand his capital markets business into the banking industry. But he was keen to get his family name onto a licensed bank and

so, in February 2003, he merged his brokerage holding company with the bank, and renamed it KASB Bank.

As may be obvious from the way KASB managed to acquire the bank, KASB Bank initially had no real strategy. Unlike JS Bank and BankIslami, which were at least deliberate forays into the banking market by previously capital markets focused companies, KASB Bank’s initial purpose was to provide KASB’s brokerage and fledgling investment banking business with a balance sheet.

Nonetheless, having acquired the bank, KASB at least tried to give its bank some semblance of a strategy. In 2005, the bank embarked on an ambitious branch expansion, opening 14 branches to take the total number up to 35. That sudden burst of expansion, naturally, led to an increase in the bank’s operating costs, which in turn caused the bank to have a net loss of Rs205 million in 2005.

The company also had a culture that attracted high quality talent. KASB alumni include Naz Khan, former CFO of Engro Corporation, who was the first money market trader in Pakistan and began her career at KASB in 1992. Imtiaz Gadar, rated best analyst in Pakistan by AsiaMoney and the CFA Society for five years and currently serving as head of capital markets at Bank Alfalah, started his career at KASB. If you were serious about a career in capital markets in Pakistan, KASB was a stellar place to start.

20

Perhaps it was the loss that scared the management, or perhaps they decided to consolidate before further expansion, but KASB ended up not opening any new branches for two years after that.

On the asset side, meanwhile, by most accounts, KASB Bank does not appear to have quite mastered the art of lending money.

While the loan portfolio’s infection rate was in the 4% range up until the beginning of 2008, that appears to have been a mirage. KASB Bank’s clients were small businesses who appear to have borrowed from the bank a lot more than they should have and when trouble hit – as it did in a big way in late 2008 – they were simply unable to pay.

Yet even without those losses, by 2007, it was clear to KASB that its asset base was not big enough to support the kind of salaries and other expenses that Nasir liked tagging onto the bank’s operating costs to support his lifestyle. And so, the bank started on what can only be described as a poorly timed expansion spree.

In 2008, right when the world was collapsing on banks and the entire interbank lending market completely froze up, KASB Bank more than doubled its branch network from 35 to 73, adding 38 branches that year. Of those, 28 branches came online in the fourth quarter of 2008, the worst possible time to have your operating expenses grow.

As expected, around that time, KASB Bank’s loan book simply blew up. This is not hyperbole on our part. The infection rate on their loan portfolio jumped from 4.0% in the third quarter of 2008 to 17.8% the very next

quarter and it pretty much never looked back since, jumping to 21.6% the following year and 27.1% the year after that.

KASB had the worst luck imaginable.

Just as they were kicking off their big expansion plan, their loan book blew up, taking down with it any chance the bank had of surviving as an independent entity.

Yet, astonishingly, Nasir does not seem to have gotten the hint. He stubbornly stayed the course and – worse from the perspective of his investors and creditors – kept up his lavish lifestyle of expensive cars and frequent foreign travel, according to sources familiar with the matter.

KASB Bank was bleeding money at this point, with a net loss of Rs1.4 billion in 2008 and Rs4.3 billion in 2009. In a single year, the bank’s losses had wiped out almost half its equity. For much of this time, the bank had to rely on extremely expensive deposits that effectively rendered its net interest margin negative. But Nasir kept going with his expansion plan, opening 31 new branches in the second half of 2009.

By that time, KASB Bank was completely done for. Between the third quarter of 2008 and the time the State Bank of Pakistan officially euthanised it in the fourth quarter of 2014, the bank lost an astonishing Rs13.4 billion. In the last six years of its life, KASB Bank had only four quarters of positive net income.

The rest were all brutal losses.

But Nasir appears to have refused to give in till the bitter end. As a desperate ploy, despite explicit State Bank instructions not to violate US sanctions, sources say KASB Bank began to lend to companies trading with Iran.

Needless to say, such bottom-feeding did not exactly help the bank’s bad loan problem.

Both the SECP and the State Bank had been repeatedly telling KASB to get its act together and shore up its capital reserves. All other banks with MCR violations were at least making the effort to raise capital. Nasir, unfortunately, seems to have been either unable or unwilling to do so. The problem had gotten so bad that the International Monetary Fund repeatedly warned that KASB Bank constituted a threat to Pakistan’s financial stability.

Unfortunately, while the KASB group was moving away from their core strength of equities trading and brokerage, in 2010, they also made the mistake of making KASB Bank the holding company for their shares in KASB Securities. That meant that when they lost control of the bank, they also had to surrender control over KASB Securities to BankIslami

By November 2014, the State Bank had heard enough excuses. They moved in and put KASB Bank into receivership, effectively declaring it bankrupt. (It was also the first time Pakistanis realised that there was such a thing as deposit insurance in the country, that covered all bank accounts up to Rs300,000.)

In December, Nasir tried to get some Chinese investors to pump in money, but the investors did not pass the State Bank’s sniff test. They were not able to specify their beneficial ownership, nor even explain how they planned on pumping $100 million into the bank. And so KASB was put on the auction block.

In February 2015, Nasir sued the SBP, trying to get them to at least let him participate in the auction as the selling party, but the State Bank was not interested and, sensing that he would lose the case, he dropped it.

Four banks began the initial due diligence process: BankIslami, JS Bank, Sindh Bank, and Askari Bank. On closer examination of KASB’s books, the latter three dropped out.

Deloitte, which was brought in to conduct a full audit of the bank and assign an accurate book value to the bank came back with a number that was so deeply in the negative that the State Bank refused to make it public and instead sold it to BankIslami for a token amount of Rs1,000 for the whole thing. The merger was completed on May 7, 2015.

Unfortunately, while the KASB group was moving away from their core strength of equities trading and brokerage, in 2010, they also made the mistake of making KASB Bank the holding company for their shares in KASB

CAPITAL MARKETS

BROAD CLIENT BASE

STRONG MARKET SHARE

The total number of retail clients at KASB Securities at the peak of its operations in 2014, the highest of any brokerage firm in Pakistan

The share of all trades on the Pakistan Stock Exchange executed that were handled by KASB Securities, the highest market share of any brokerage firm in the country, larger than the next 3 firms combined

22,000 Securities. That meant that when they lost control of the bank, they also had to surrender control over KASB Securities to BankIslami.

The KASB Securities comeback

B

ut while the foray into banking damaged the Bukhari family’s finances, it did not sully their reputation for being the best equities house in Pakistan.

Indeed, KASB Securities’ clients have continued to move away from BIPL Securities in droves, with 8,000 of the 22,000 clients having already left the company, and the remainder reducing their trading volumes with the firm.

Needless to say, that left opportunity ripe for the plucking. And in stepped Ali Farid Khwaja to capitalize on it, in collaboration with the younger generation of the Bukhari family.

“There was a space in the market, and the goodwill that the KASB name still inspires,” said Khwaja, in an interview with Profit.

Khwaja grew up in Rawalpindi, attending St. Mary’s Academy before pursuing his bachelors degree at the Lahore University of Management Science (LUMS), graduating in 2003 with a degree in economics and computer science.

He worked in Karachi for a year as a research analyst at AKD Securities and Alfalah Securities before going to Oxford University to study on a Rhodes Scholarship.

After Oxford, Khwaja went on to work as a securities research analyst in London for about a decade, also leaving to become CFO of a

22

15%

European technology company before creating Oxford Frontier Capital, an investment vehicle that he used as the platform for his investment in the newly reincarnated Khadim Ali Shah Bukhari Securities.

The new KASB is owned in part by Khwaja and his co-investors who have brought in approximately $2 million into the company. At least 60% of the company remains owned by the Bukhari family. Khwaja himself is not a stranger to the family, however, since he is Nasir’s sonin-law. Khwaja serves as a managing director at the company. The CEO is Mahmood Ali Shah Bukhari, Nasir’s son.

Khwaja’s vision for the new KASB involves the company having two separate business lines, though both harken back to the original strengths of the KASB franchise. The two business lines would serve two different types of clients: domestic Pakistani retail investors, and foreign institutional investors.

For the domestic Pakistani retail investors, Khwaja envisions building a platform akin to the biggest names in global fintech. “Our desire is for KASB to move into the fintech space.

So that is the play for us. We want it to be a dominant platform for digital wealth management in Pakistan,” he said.

“So far, we have relaunched K-Trade [the name for KASB’s old mobile and desktop trading software]. And we want to grow to have a more sophisticated investor base,” he said.

On the retail front at least, the company appears to be gaining some early traction.

In just over a year since it launched, KASB

Securities has 130 clients and manages just over $2 million in assets. “We have been the fastest growing broker in Pakistan. We have gained a 2% market share even though we have just been setting up our infrastructure,” he said.

For the foreign institutional investor base, Khwaja has decided to remain based in London in order to continue building out that book of business. “The clients are international, so I am based abroad to stay close to investors. I live in London, but I am in Pakistan every couple of months,” he said.

And he has recruited Madiha Alam, a high-flying trader with experience at several bulge bracket investment banks in London, to help with the effort of attracting more foreign investors to consider Pakistan’s equity market as a destination for their investments, and to use KASB Securities as their platform for doing so.

But Khwaja and his team are not done yet.

They are seeking additional capital to build out the company’s technology infrastructure in addition to building additional capabilities to help it serve both of its end markets. Khwaja has been flying around the world, seeking investors in both KASB Securities as well as the Pakistani capital markets.

If brand pedigree is anything to go by, KASB Securities has much to build upon, and in Khwaja, they appear to have found a capable executive dedicated to reviving that residual goodwill. It is too early to say if KASB will ever become the capital markets powerhouse it once was, but it certainly appears off to a strong start on its road to a comeback. n

MEDIA

OPINION

Asif Saad

Is the modern professional too busy to exercise?

eases in Pakistan has increased from 22.5% in 2000 to approximately 30% in 2015. While there are many reasons for these alarming trends, medical practitioners will tell us that we eat too many wrong foods and do not get enough exercise.

Thanks to advances in medical science, we know that exercise has tremendous benefits for our health. Not only does exercise help prevent cardiovascular disease but also protects against a number of forms of cancer as well as diabetes and many other life endangering illnesses. In addition, regular exercise has been shown to improve cognitive abilities.

But this is all common knowledge and I do not need to write these words The benefits of being physically to inform the readers about the benefits of exercise. active can be a boon to society However, what I am more interested in is why people do not and to individuals; so why do exercise when they are well-aware of the benefits or the risks of not exercising. Daily life used to be full of activity in hunter gatherer societies we not make more time for it? and so people then did not have to worry about burning calories. But it is a different life now and the abundance of food needs to be countered by friend of mine, who is several years younger, went physical activity. for a regular medical check-up recently. He was With all this knowledge, the majority of our population still does told that he had blockages in two of his arteries not engage in physical activity and this is what baffles me! If we accept and was immediately operated upon. He is fine that most people are intelligent enough to know what is good for them, now but lives with two stents in his heart. This is then how can we explain not doing what is good? Given the huge benefits, becoming a routine these days as one hears of many how can we get more people to exercise? similar episodes. Diabetes and high blood pressure are on the rise.

It is difficult to find reasons other than the fact that people are lazy Strokes, heart attacks and cancer are increasingly common. and would like to avoid discomfort of any sort. We do not wish to move According to data from the World Health Organisation much and would like someone else to do manual labour for us. If there was (WHO), the proportion of deaths attributed to cardiovascular disa way to pay someone to exercise and acquire the benefits, I am quite sure there will be many takers!

Of course, exercise is difficult to do. It takes hard work and discipline to establish a routine and you need to be consistent. In the age of the automobile, gone are the days when people used to walk enough as they Asif Saad went about their daily chores. My grandfather (nana), in his 70s, used to walk from Jamshed Road in Karais a strategy consultant chi to Saddar and back, easily a 8-10 km roundtrip without much of an issue. He lived into his 90s despite who has previously worked being a smoker most of his life. at various C-level positions Do not get me wrong, I am not suggesting that everyone should start smoking and walking! But for national and families and parents especially have an important role to play. Research has shown that physically active multinational children are likely to have one or both parents encouraging them to be that way through childhood and teen corporations years.

One of the most common excuses that I hear from people is that they don’t have the time to exercise.

In the same breath they also express their wish to be healthier. This does not make sense. If someone really wants to be healthy they will find the time to exercise just like they would do for anything important to them.

Juggling different priorities is part of life and deciding how much time to allocate to which activity is

A 24

a decision which needs to be taken. For people who work full time in offices, early morning is always the best time to get their exercise.

Anywhere between 6 and 8 am can be your own time which you could have totally undisturbed in a park or a gym.

Speaking of parks, governments and town planners need to keep in mind that open spaces are required not just for their physical beauty but to provide the general public a space to exercise, walk, and jog, to stretch, or do yoga. Think of the savings governments can generate for themselves as well as for citizens by encouraging healthier activities.

Knowledge and awareness play a big part in people willing to allocate time for exercise.

Perhaps our medical professionals need to be more rigorous in their advice. It is not enough to softly suggest a patient should walk regularly. Instead, they should be able to advise exactly what exercise will be beneficial for which ailment.

It is also the responsibility of companies and employers to create opportunities for their employees to take up exercise. Some companies have started building gyms in their offices and hiring trainers but more needs to be done in this area. For companies it is also a good investment

since the benefits of exercise can be savings in medical and insurance related costs in addition to having more motivated and productive employees.

Speaking of knowledge, where does one go to get good advice? Sure, you will benefit from starting a walk or jog routine on your own, but you also need to understand what sort of exercise is good for you. What should your goal be?

Should you do more cardio or resistance training?

What are the correct postures for a particular exercise? How do you combine various routines?

What injuries should you watch out for?

Thanks to the internet, a lot of this information is available on these subjects, but you have to know what and where to look.

Instead of getting confused with the plethora of information on the internet, I would recommend finding a good physical trainer or a gym. There is a positive trend of boot camps, gyms and fitness centres opening in cities across Pakistan. These facilities are mostly run by health and fitness enthusiasts who learn on their own and are able to guide people towards establishing an exercise routine.

For people who can afford them, personal trainers are useful since they not only supervise

your training but also provide motivation and discipline for you to be consistent. If you cannot afford one, there are options of boot camps and classes where individual costs are less and if that does not suit you there is plenty of learning which happens with just a basic membership of a gym.

In the face of all the obstacles and discouragement around, clearly most people will not be active unless they choose to be. Exercise needs to be a deliberate practice chosen for the many benefits it offers. I am fond of telling my doctor friends that I will try to stay out of their clinics as much as possible. It is a conscious effort to live simply and stay healthy for as long as possible.

The best way to think about it is as a long-term investment with payback expected as you grow older.

As you continue to make that investment daily, your body becomes used to it and in fact begins to demand it on a regular basis. It begins to enjoy the experience of stepping into a gym or going for a jog in the park. I have found exercise to be transformational in many aspects not just physical. As someone wise once said “If you don’t take care of your body, where are you going to live?�

COMMENT

By Muhammad Faran Bukhari

26

I

t is an audacious plan to say the least.

Foolhardy if we’re being real, and straight up nuts if you’re a complete realist. In all of its near 72 years of existence since August 1947, the total number of new homes constructed in Pakistan has been 4.9 million, according to data from the State Bank of Pakistan (SBP). Imran Khan wants to top that – he wants 5 million houses, and in five years no less.

Did we say straight up nuts, because even that is sounding a little kind to the ruling party.

The Naya Pakistan Housing Scheme is a pipe dream written off by most, and perhaps wisely – so gargantuan is just the thought of the undertaking. And yet the affordable housing scheme is one of the PTI government’s original plans. Could there possibly be some wild sliver of hope regarding the project?

Ten months into the first year of its tenure, the ruling party looks set to initiate reforms seeking to create more low-cost housing in the country. On the face of it, the federal task force for housing has been created with a similar task force working in Punjab on the provincial level.

The Naya Pakistan Housing Authority is up and running and the process of creating a framework for building 5 million affordable houses is under way.

According to a report published by the State Bank, the annual demand for new homes in Pakistan stands at around an approximate 700,000 units a year, whereas, only about half of this demand is met. The overall housing deficit, according to the report, is estimated at 10 million units.

Needless to say, if the government is to have even a prayer of a hope of fulfilling its electoral promises, it is going to need nothing short of a revolution in virtually every aspect of home

construction and other regulatory and commercial processes related to it and the kind of radical, out-of-the-box thinking that is more common in the world of technology startups than it is in real estate or government-sponsored infrastructure projects.

Luckily for the government, there are several entrepreneurs, including three particularly promising companies that Profit spoke to, that claim they have exactly what the government needs. But will the government listen to them?

Profit takes a look.

5 million houses: Is this the real life, is this just fantasy?

I

n 2006, Jawad Aslam moved to Pakistan from the US, where he had been working on high end real estate. In Pakistan, he met Tasneem Siddiqui, the chairman of Saiban, the only organisation in Pakistan at the time working on low-income housing, who invited Jawad to work on a project along with him aimed at people earning $100 to $200 month in the peri-urban areas of Punjab.

“What really motivated me was the idea of giving access to affordable houses to people who before this never would have dreamed of owning their own house even after a lifetime of saving, and who have probably been paying rent for the last 20 years at exorbitant rates. And on top of that, this model was economically viable,” he says while talking to Profit.

Three years down the road, Jawad launched Ansar Management Company (AMC) working on a similar model. His company builds affordable houses costing from Rs700,000 to Rs1.8 million depending on the location, size of the plot and the covered area. The Rs1.8 million

house is built on 800-square-foot plots with a covered area of around 650 square feet.

However, Jawad feels that the PTI’s government goal of building 5 million houses in five years was a faulty premise to begin with. “The thesis that the current government should have had is to give access to housing to all people.

What that means is that if you want to build a house, you should be able to find a development that is equal to your socio-economic status and should be able to have financing available to buy a house there. It's not limited to low income, it is general, and that is the sales pitch that they should have had. If you are talking about building 5 million homes, you are just dumping units regardless of their quality,” he says.

“But unfortunately that does not look that attractive to people. For politicians numbers like 5 million attract more people. And that is ultimately the wrong perspective.”

Jawad suggests that there are some essential system corrections that the government has to work on in order to solve the housing crisis.

“The Prime Minister has said numerous times that the government plans to enable the private sector to build affordable houses.. But how do you do it? What is the main thing that matters to the private sector? They are looking for a specific return on investment (ROI). You have to figure out what that ROI is and once you have figured that out then you need to work backwards to figure out a viable financial model,” he says.

Estimated ROIs for builders working in the conventional real estate sector are as high as 200% to 300%, where as the ROI in the affordable housing amounts to a miniscule 10% to 15%. So why will the private sector invest in affordable housing when it can get a much higher return otherwise? “If the ROI in conventional housing is 200% over the life of the project that

CONSTRUCTION AND REAL ESTATE

“The (brick) kilns aren’t regulated. They are supposed to burn coal to bake bricks but sometimes they use tyres and plastics which causes pollution. The. availability of the kiln bricks will fall as they are expensive and have a bigger environmental impact compared to compressed interlocking bricks” Usman GIllani, Managing Director Al-Jazari Constructions

means that they are earning an ROI of 50-60% per cent annualised. At AMC we get hardly around 10-15%.”

“There is only one way to rationalise this and that is if the private sector is able to turn its money faster by reducing the life of their projects from let’s say 5 years to 2 years. If they can do that then they will have the ability to match that return. If they can take the same amount of

28

investment that they were doing over five years and instead do it three times over five years then they have tripled their ROI,” he says.

But reducing the time needed to complete projects means reducing time needed for regulatory approvals, time needed for building and the time needed for selling the units. “Currently, the time taken for obtaining an NOC [no-objection certificate] is around 24 months, if the govern-

ment can ensure the provision of NOC’s in 3 months, then the time needed for the project will automatically reduce by 21 months.”

“Secondly, the time taken for building one unit takes somewhere between 7 to 9 months.

Now you can increase efficiency and maybe build it in 6 months, but it still takes time. There is innovation that is required on the construction side to reduce the construction time. The concept of prefabricated houses is gaining ground and in other parts of the world 3D printers are being used to build houses which in some cases take less than 2 days,” he says.

“Thirdly, the government can play a role in aggregating demand. If I want to build 1,000 homes at a certain location and I get the NOC, the Naya Pakistan Housing Authority should have a pool of lets say 10,000 applicants who want to buy a house around that location and devise a system that can pick the best suited 1,000 applicants from that pool.”

That is how you are able to reduce the time taken to complete a project from five years to one year. If the total project return is 60% and my project is only taking me one year, then my annualised return is 60%. That is the direction we are trying to steer the Punjab housing task force towards.”

However, as things stand currently, progress pertaining to housing in PTI’s first 10

“The units can be joined together to make a large house or a building which can then even be used as a clinic or as a school. Hence it has various applications. The basic concept was to develop a kind of housing which is cheap and can be set up quickly and at the same time does not compromise on quality” Nabeel Siddiqui, CEO and co-founder at ModulusTech months in power has been slow. According to sources, a meeting of the federal task force on housing took place last week after a gap of almost four months. Moreover, Profit also learned that the first few months of the government saw a standoff between the bureaucracy and the political leadership, and only recently things seem to be normalising due to which progress has been slow. “Normalisation is now taking place. In the last two months or so that the right bureaucrats have come in to align with the politicians,” says a member of the federal task force, commenting on the condition of anonymity.

Compressed interlocking bricks vs kiln bricks

E

lon Musk, founder of Tesla and SpaceX and the Boring Company, is known for radically rethinking existing industries.

His Boring Company uses dirt that is dug up in tunnel projects to make compressed interlocking bricks that are cheaper than traditional bricks and therefore more suited for building affordable housing. Luckily for the government of Pakistan, they need not wait for Musk to set up shop in Pakistan.

Usman GIllani, the managing director of Al-Jazari Constructions, is doing the same thing within the country, and seems convinced that his product will help solve the nation’s chronic housing crisis, which has reached a total shortfall of 10 million housing units, according to estimates compiled by the State Bank.

Al-Jazari Construction currently produces

compressed interlocking bricks for affordable housing and high-rise buildings with two more products specific to boundary wall construction and the luxury home market in the development phase.

“Compressed interlocking bricks are almost 30-40% cheaper compared to kiln bricks.

Secondly, the bricks don't need extensive plastering which is another cost saver, and thirdly since the bricks are interlocking they can be laid with ease with less labour. We do not have to put mortar while laying each and every brick, it can be poured later on as well. Hence the brick laying process is faster which is very important when it comes to building large housing societies,” Usman Gillani tells Profit.

On average, the per square foot construction cost of an 817-square-foot (3-marla) house using compressed interlocking bricks is Rs1,250 compared to Rs1,600 using normal kiln bricks.

According to Gillani, the cost of plaster and paint used during construction is also 70-80% less while constructing with interlocking bricks compared to kiln bricks.

And then building 5 million houses in five years would mean rapid urbanisation which is bound to have its environmental impact. Brick kilns, which are currently the biggest competitors of Al-Jazari construction often operate unregulated in the country and are a major source of air pollution in the areas around which they operate.

“The (brick) kilns aren't regulated. They are supposed to burn coal to bake bricks but sometimes they use tyres and plastics which

“His company builds affordable houses costing from Rs700,000 to Rs1.8 million depending on the location, size of the plot and the covered area. The Rs1.8 million house is built on 800 square feet plots with a covered area of around 650 square feet. However, Jawad feels that the PTI’s government goal of building 5 million houses in 5 years was a faulty premise to begin with”

causes pollution,” he says. In October last year, the Punjab government shut down brick kilns due to obsolete methods of brick production and substandard fuel burning which were allegedly creating smog in the region. Brick kilns in neighbouring India, have also been shut down for the same reasons in recent years.

“The availability of the kiln bricks will fall as they are expensive and have a bigger environmental impact compared to compressed interlocking bricks. Agricultural quality top soil is used for producing kiln bricks. Kilns will eventually have to move away from cities, which means that other technologies will be needed to meet the demand for construction material in the cities,” says Gillani.

By comparison, compressed interlocking bricks are environmentally friendly as they do not involve any burning process. “We compress the interlocking bricks through hydraulic machines and achieve the required strength which matches up to a concrete structure,” Gillani explains. According to UNESCO (United Nations Educational, Scientific and Cultural Organization), every meter cube of wall made out of kiln bricks emits 240 to 540 kg of carbon dioxide whereas compressed interlocking bricks emit a minimal 50 to 55 kgs of carbon dioxide.

Building made out of interlocking bricks also come with an added advantage of being earthquake resistant. According to the Pakistan Engineering Council (PEC) regulations, the strength of the bricks should be at least 1,800 pound-force per square inch (psi). Gillani claims that the compressed interlocking bricks produced by his company start from 2,000 psi, and depending on the customers need, can be customized to withstand pressures up to 7,000 psi. “The strength doesn’t only come from the brick but it also depends on how the structure is made. We put both vertical and horizontal reinforcements around the structure, making it stronger and resistant to earthquakes compared to conventional structures,” he says.

CONSTRUCTION AND REAL ESTATE

Al-Jazari’s road to market

T

he road to market for Al-Jazari has been far from smooth, and like many other new concepts, the idea of interlocking bricks has not been received with open arms in the domestic market. “Interlocking bricks are a new thing in the country. If one in 100 houses is made through this technology, consumers will naturally be reluctant to try it out. Even the architects and engineers become hesitant. Rather than enquiring about the product, most of them flatly reject it.”

However, with investment coming in from Thal Industries Corporation, Al-Jazari now has the financial muscle to penetrate further into the domestic real estate market.

“In the beginning we only had Al-Jazari Constructions which used to produce bricks and build houses. Now we also have Al-Jazari Engineering, a separate entity that produces metal fabrication, steel structures and the machines used in brick manufacturing. With Al-Jazari Engineering behind us, we now understand the manufacturing process better which will help us increase the availability of the bricks across Pakistan.”

The company has built affordable homes, commercial shops and housing for Safina Sugar Mills and Thal Industries. “We built houses in Sargodha for Thal Industries which created a lot of demand for our product in the area. We are currently building 817-square-foot houses for an affordable housing colony in Lahore to showcase our technology to the people of Lahore and generate demand for it in the city.”

“The market seems more responsive as well because there is a demand for housing and a shortage of building materials which has driven cost of construction insanely high,” he says.

Hence, Gillani plans to capitalise on the cost saving features of his interlocking bricks and position them as an alternative to kiln bricks in the domestic market. His construction company projects a 25% return on investment (ROI) on a 3-marla (675-square-foot) house constructed with interlocking bricks compared to a 13% ROI using normal kiln bricks.

“The breakthrough we see in the market is that builders, contractors, and developers who work for profit are attracted to the cost savings that our interlocking bricks offer. We feel we can break into the market through them and then gradually market acceptability will reach the individual buyer as well.”

Gillani is currently looking growth capital to expand Al-Jazari’s geographical reach in the country. “We can use additional investment to set up production units in different areas,” he says.

With the government's promise of building 5 million houses, Gillani hopes that Al-Jazari might be better able to break into the domestic

30

“RoIs in the conventional real estate sector are as high as 200 to 300 per cent, whereas the RoI in the affordable housing are 10 to 15 per cent. So why will the private sector invest in affordable housing?”

Jawad Aslam, CEO Ansar Management Company market. However, due to the slow pace of the Naya Pakistan Housing Project, he is yet to see any positive demand side and supply side impacts.

Industrialising the real estate

T

raditionally in Pakistan, construction companies first choose a site and then proceed to construct a building on it.

However, ModulusTech, a company producing low cost modular housing solutions wants to reverse this process. “Instead of constructing houses, we manufacture houses. We want to industrialise the market for housing in the country,” says Nabeel Siddiqui, the CEO and co-founder at ModulusTech, in an interview with Profit.

Siddiqui was in university when the Syrian refugee crisis broke out, prompting him and his co-founders to start a company that would provide affordable housing for such people. ModulusTech currently offers prefabricated housing solutions starting at $3,000 (Rs418,680) for a one-bedroom house covering approximately 256 square feet, primarily targeted at people living in remote areas or slums.

The houses can be assembled in as little as three hours, with the help of three people without the need of any heavy machinery. Their modular design means that the houses are highly customizable and can be flat packed to ease transportation. “The units can be joined together to make a large house or a building which can then even be used as a clinic or as a school. Hence it has various applications.”

“The basic concept was to develop a kind of housing which is cheap and can be set up quickly and at the same time does not compromise on quality.”

Siddiqui claims that the houses made

by ModulusTech have a lifespan of at least 30

years and are earthquake resistant. In terms of environmental sustainability, he claims that the carbon footprint of ModulusTech houses is almost 50 times less compared to house built with concrete.

Remote areas and slum settlements, which are ModulusTech’s primary target markets, often lack access to electricity and clean drinking water. Hence the prefabricated houses provided by the company include not just plumbing and electrical utilities but also offer solutions like solar panels and a water purification system.

“We are providing a one-window solution and with an additional Rs20-30,000 we provide our customers with electricity and clean water,” says Siddiqui.

Siddiqui feels that his company can play a major part in helping the government achieve its target of five million houses. Currently, ModulusTech can produce 7 to 30 prefabricated modular houses in a month. However, according to Siddiqui this number can increase if additional resources and investment are made available to the company. “The five million houses target is achievable, but for that the government will have to move towards industrialised solutions,” he says.

“We can involve contractors to help us, the microfinance banks can provide leasing facilities for our houses to the customers and the government can give us free land in off market areas which is low in cost. Once we start producing in mass, the $3,000 price per house will also naturally decrease.”

On the other hand, the government signed a MoU with a Chinese company for the construction of 20,000 low cost prefabricated houses in Lahore and Sialkot. The normal process of granting such contracts takes around a year at least. However, sources in the industry and even members of the federal task force on housing that Profit spoke to seem to be unaware of any such process having taken place.

While foreign companies look set to benefit from the government plans, entrepreneurs like Nabeel Siddiqui and Usman Gillani await for the government to fulfil its promise of facilitating the domestic private constructors and developers. n

CONSTRUCTION AND REAL ESTATE

By Ahmed Jamil

A

sk any primary or lower secondary school student about the most difficult subject they have to study and, more often than not, the answer you will get is mathematics. Perhaps the earliest encounter most students have with the need for analytical thinking skills is our mathematics classes. Indeed, the foundation of most of pre-college education can be said to be mathematics for numeracy skills and English and/or other languages for literacy skills.

And so when Maheen Adamjee and Lina Ahmed decided to enter the edtech (education technology) space with their startup Dot & Line, they started with elementary level mathematics.

Dot & Line is a company that offers after-school mathematics lessons to students from grades two through seven, generally children who are between the ages of seven and 12. D&L’s business model relies on developing a proprietary

32

“Mathematics, across schools, is taught in big chunks. So, what happens in schools is that you keep passing [your tests] even if you haven’t mastered it. And the learning gaps keep widening.

And when you get into sixth or seventh grade, you realise that those gaps are so wide that now you’re seeking remedial attention and sometimes it’s very difficult to really bridge that big foundational understanding in mathematics” Maheen B Adamjee, Cofounder of Dot & Line curriculum for mathematics and training local teachers – primarily women – to teach mathematics using the company’s pedagogical techniques to small groups of students.

“There are half a million women in Pakistan who are highly educated, highly intelligent and highly capable,” explained Maheen, in an interview with Profit. “They apply to us through our digital recruitment portal and, if selected, go through training and get a certification. The selected teachers get a starter pack of course content which they can use to set up their home-based centers and cater to students within a one-mile radius.”

Both Maheen and Lina are highly educated young women who share a lot in common.

Both have degrees from the London School of Economics (LSE), and both worked in other corporate and family business environments before making the pivot to education, something that was inspired by a big milestone in their personal lives: motherhood. “Around the birth of my daughter was when I seriously started considering a change in career to education.

And this came about also as a shared experience with my co-founder,” says Maheen.

Maheen worked at her family business in real estate development after graduating from college before moving on to a career in journalism, working for Dawn and Newsline before taking a break in her career around the time of her daughter’s birth. It was during that career interregnum that she began exploring ideas in education.

Lina worked for two years at the Acumen Fund as a consultant before moving to an education-focused nonprofit called the Reading Lab, which aims to improve literacy skills in children between the ages of four and nine. She felt that working at the Reading Lab was a more effective use of her time and skills than the higher-level consulting work she had done at her previous job, leading her to explore ideas about how else she could put her talents to use.

Both of them came together in March 2015 to create Dot & Line, seeking to create improvements in what they estimate is the $4 billion market for after-school tutoring in Pakistan. Both felt that there is tremendous innovation happening globally in education, but that most smart, talented people in Pakistan tend to stay away from the sector, which in turn means that the country as a whole misses out on the advances forward being undertaken in other countries.

“There is a ton of innovation in education,” says Maheen. “Things are fast-paced and people are seriously looking at the concept of personalised learning, systemic failures in the formal education market and how innovation is working towards bridging that gap and sparking curiosity and sharpening, logical thinking skills. They [people in other countries] are light years ahead of what is happening in Pakistan.”

It was that experience of comparing the educational opportunities in Pakistan for their own children to those available in other countries that came the idea of a program that focuses on curriculum, content, multi-sensory learning.

We begin with 1, 2, 3…

“W

e started off with mathematics because we felt it was the most misunderstood subject.

A lot of children had math anxiety and a lot of them viewed it as a dry and boring subject,” says Maheen.

Dot & Line started off as an after-school program, but was originally meant to evolve into a formal schooling project, though that plan has since been abandoned.

D&L’s math program was originally a premium-priced service targeting the children of relatively affluent families who attend elite (and usually expensive) private schools in Karachi.

However, as word about the efficacy of the program got around, the program started receiving queries from more middle class neighbourhoods in Pakistan’s financial capital: people who were interested in the results of the program but would find it difficult to afford the high prices.

It was in response to those queries that Maheen and Lina decided to take a step back and rethink their strategy, eventually revamping the program to make it more affordable to a larger segment of the population.

That was when the program expanded its scale a little and started marketing and pulling in teachers and students from all over Karachi.

But even as they were opening up the program and making it more affordable, Maheen says they did not want to compromise on the quality of the learning experience.

For that to be the case, they would need to ensure that they were able to develop the most effective curriculum with the right set of pedagogical techniques. Dot & Line was able to get the help they needed through a London-based start-up accelerator called Spring, dedicated to investing in businesses that improve the lives of girls around the world, with a particular focus on Africa and South Asia.

That accelerator significantly helped Dot & Line with the resources they needed for curriculum development. “We’ve developed – through the help of PhDs, experienced teachers in mathematics, subject specialists, and educationalists – a mathematics program that is a combination of worksheets and technology, our application.”

Part of what makes Dot & Line’s methodology different – and in their view, better – is that it breaks down complex mathematic concepts into simpler components, allowing students to master each constituent concept more easily before moving on to the next one.

It is this differentiated approach that Dot & Line believes is what makes them unique, and more effective compared to other after-school

STARTUPS

tutoring in mathematics.

“Mathematics, across schools, is taught in big chunks. So, what happens in schools is that you keep passing [your tests] even if you haven’t mastered it. And the learning gaps keep widening. And when you get into sixth or seventh grade, you realise that those gaps are so wide that now you’re seeking remedial attention and sometimes it’s very difficult to really bridge that big foundational understanding in mathematics,” explains Maheen.

And even if a student or their parents are cognisant of that gap, it is difficult to find the help one needs to fill them. Nearly all after-school tutoring in Pakistan is focused on either helping students with homework or, much more commonly, helping students master how to take tests and examinations. There is little emphasis, if any, on solidifying the students’ grasp of fundamental concepts in any subject, not just mathematics.

One of the two biggest ways Dot & Line seeks to distinguish itself from its competitors is by focusing on teaching concepts rather than to particular tests or homework. “What we do is we follow the micro-step approach which is actually a very fancy way of saying that we break up big concepts into smaller incremental levels of difficulty. So, let’s say a topic at school is taught in three parts. We taught it in seven or eight very small topics, but we start from a base understanding and then build up the difficulty.”

This way, Maheen says, a student is mastering as they go along and not trying to catch up later.

The second distinguishing feature of Dot & Line is to help students apply concepts once they are done mastering them by posing questions, in plain language, that would require them to apply those concepts instead of just rote memorising techniques to apply to mathematics exercises and tests. In common parlance, this technique is called “word problems”, and it is the bane of existence of many, if not most, primary school students.

“It’s a literacy problem and it’s also a function of not understanding concepts properly so students can solve the numerical problem, but if you ask them to apply the concept, they struggle,” says Maheen.

Rs 4,000 34

$4 billion Scaling the business

M

MARKET SIZE Estimated size of the after-school tutoring market in Pakistan, according to the founders of Dot & Line

aheen and Lina began working on Dot & Line in 2015, and were able to start their first centers in August 2018. The program currently operates 73 centers in Karachi and Lahore, catering to over 300 students. Within the next month or so, the cofounders expect Dot & Line to grow to operating 100 centers.

Each center has at least one teacher, and each teacher can opt to teach up to four after-school sessions with an average of six to seven students per session. Each session is 90 minutes long, and students attend three sessions per week. The cost for the program is Rs4,000 per month. It is unclear how much of that revenue is kept by the teacher and how much by Dot & Line.

At a maximum of seven students per session and four sessions per teacher, each teacher has the capacity to take on a maximum of 28 students. That suggests that Dot & Line has the capacity to significantly increase the number of students it serves even with its existing infrastructure.

But as the business expands, it is becoming clear that Dot & Line’s bootstrapping days are over, even though both Maheen and Lina are grateful to have started off with their own capital.

“My firm belief is to delay investment as much as possible. I think bootstrapping and launching a pilot project really helps in bringing operational efficiency and approve a product-market fit before you raise investment. I think with the investment, there come the KPIs [key performance indicators] and the push to

PRICE TAG Cost of one month of Dot & Line’s mathematics program, which consists of 90-minute sessions of 6-7 students each, three sessions a week

scale, and I think it’s important to ideate properly, find product-market fit and figure out your vertices before you raise investment.”

Having said that, Dot & Line has recently raised an undisclosed amount in a seed funding round from Sarmayacar and is planning to use that to scale the program.

“Lina and I don’t look at investment at just cheques, but from the outset we made the commitment to ourselves to raise a partner and smart capital rather than just raise money which is why it took us some time to find the right partner,” says Maheen.

“I don’t think two people can build a company. So as important as our fantastic team is to us and hiring right, it was also important to find the right partner who believed in our vision and mission and our strategy and to be able to work with them and for them to add value into the company.” Bernhard Klemen, partner at Sarmayacar, will join the board of Dot & Line.

“Dot & Line offers a high-quality curriculum in the attractive and sizeable education space; we at Sarmayacar are convinced that the team headed by two exceptional female founders and supported by us will scale across Pakistan for supporting and fostering the young talent of the country,” says Klemen.

There are three core areas where Lina and Maheen plan to use the investment. One is to hire critical resources to add experience to the team which the founders are missing. The second area is to hire a high-level tech resources to scale the mobile application that is used by the teacher partners. And the third is to spend on marketing and expand the scale of the company.

The company also wants to expand its service line from mathematics to English literacy as well, a program which will also be focused on the needs on younger children.

And while Dot & Line does have a mission to improve education for as many students as possible, neither cofounder wants to portray the image of the company as one delivering a mass-market product. “Our prices are not low enough to target the lower income part of the economy. It’s very much a middle and upper-middle income play. It’s definitely not a mass-market product nor is it aimed as such,” said Maheen. n

STARTUPS

NATIVE CONTENT

35

The newly built Hameed Latif Hospital in Lahore with Kale’s Sinterflex Tiles

By Eleazar Bhatti

B

uilding a house is an opportunity that, for most people, only comes once in a lifetime. Keeping that in mind everyone wants to get the best of everything but then there is the question of price, quality, availability, style and overall affordability. Yet, interestingly enough, more often than they should, despite keeping these questions in mind, homeowners are forcefully and even skillfully sold sub-standard products at high prices.

It is a dilemma that many of us are aware of but to our great misfortune, in Pakistan, we do not have proper standards and checks in place to ensure that consumers end up with what they actually paid for, instead of tall claims made by shady retailers. However, one tile company is on a mission to change this by introducing official flagship stores, similar to the one we see for brands like Apple, etc., in Pakistan for tiles and ceramic fittings.

Kale is a Turkish tile and ceramic giant that operates in Pakistan through a similar model to franchising. While Hassan Shah, CEO of Kale Pakistan, and his team manage the day to day operations of the business locally, Kale Turkey is in full control of the product, the marketing and the overall outlook of the company. Hassan works as their local partner for the local region.

Kale works on a flagship store model often followed by multinational firms that want to keep quality, price and availability in check along with a global brand identity. Through these stores, Kale showcases the complete range of products and each showroom is exclusively designed by Kale Turkey’s design team.

Unlike other brands that only provide

LOW PRICE

Rs1,500 36

Packages Mall in Lahore boasts Kale’s Sinterflex tiles throughout the mall either tiles or fixtures, Kale manufactures complete sanitary solutions, floor tiles, bathroom tiles, kitchen tiles, and state-of-the-art bathroom furniture, giving it a serious competitive advantage over its competition.

Ibrahim Bodur laid the foundations of Kale Turkey or the Kale Group in 1957 with Canakkale Ceramic Factories Corporation and Kale soon pioneered the formation of the ceramics industry in Turkey. Since then, it has become an industry giant locally and internationally with its investments. It has become Europe’s 3rd and the world’s 12th largest ceramics manufacturer, and in the construction chemical sector, it is ranked first in Turkey and the region and 5th in Europe in terms of production and sales volume.

The company has grown so much since that it has investments in machinery and equipment manufacturing, defense, chemistry, electrical appliances, energy, information technology, transportation, tourism, and food industries, compromising 17 companies across these sectors.

It is regarded as one of the most important industrial enterprises of Turkey with over 5,000 employees, spanning over a geography across Canakkale to several locations in Turkey, Italy, and Russia. Moreover, as a 100% private Turkish company, it is taking on a leading and influential role in defense and aviation sectors. Kale Group provides its products to consumers in over 100 countries via more than 400 sales points.

Kale’s strategic geographical position allows faster transfer of technology from Italy since the design and innovation within the tile industry mostly originates from Italy. Meanwhile, affordable Turkish labour allows Kale to produce over 27 ranges of tiles and ceramic fixtures and fittings while ensuring great quality for its products.

Price, per square metre, of tiles manufactured in China, considered the low end of quality for imported tiles for construction use in Pakistan

Kale Turkey produces 72 million square metres every year, making it the largest tile manufacturer in Turkey, while the second largest firm produces only 30 million square metres, a huge gap of 42 million square metres. Kale’s single location plant is also the largest manufacturing plant in the world.

Embarking on a journey to evolving Pakistan’s tile industry

I

nterestingly, there are official statistics that record the overall production and consumption of tiles around the world and sadly enough it does not look impressive for Pakistan. Currently, Pakistan stands at 0.53 square meters per capita. In Asia alone, China and Iran use and manufacture most of the tiles at 3.55 and 3.49 square metres per capita, followed

by Malaysia at 3.17, Turkey at 2.70 and Indonesia at 1.56.

But Kale and the man in charge in Pakistan think that this number can very soon change for the better.

Meet Hassan Shah, CEO of Kale Pakistan, a man with a simple mission to revolutionise the tile industry in Pakistan by introducing Kale, a Turkish ceramic company, which not only manufactures tiles but provides complete sanitary solutions.

Hassan’s entrepreneurial journey began when he completed his Masters in Marketing from Lahore School of Economics (LSE) and joined his family’s business which was established back in 1937 by his grandfather. From there, he says, he learned all there is to learn about running a business and finally in 2014 he decided that he wanted to leave a lasting impact on the Pakistani economy and industry through his own venture, Kale, and job creation for the society.

He says that he always wanted to be in the B2C (business to consumer) segment rather than B2B (business to business) and at the time the construction industry seemed like the perfect choice. Business was booming and there was no

Penta Sqaure project is being completed using Kale Tiles, marking it as a landmark project for Kale. foreign company with physical presence in Pakistan on which projects could rely for consistent supplies and quality. So, in 2013, Hassan successfully inked an agreement to bring Kale Tiles, the Turkish tile giant to Pakistan.

Becoming the market leaders in Pakistan.

Challenges and opportunities?

B

ack in 2009, Hassan had researched the top manufacturers for tiles around the globe and Spain, Italy, and China ranked among the topmost slots, but surprisingly enough Turkey also ranked among the top 5 global ceramic producers in the world.

And that was on the back of one company, Kale, which held 60% of the total Turkish tile exports, making Kale the market leader in Turkey and a tough competitor around the globe.

Nonetheless, despite such huge exports and strong diplomatic and trade ties between Turkey and Pakistan, Turkish tiles had next to no share in the Pakistani tile market.

Realising the potential of his discovery, in 2013 Hassan went to the biggest tile exhibition of tiles in the world in Bolonga, Spain, where he met Emrah, Exports Manager for Kale Tiles and successfully negotiated the launch of Kale in Pakistan.

By the end of 2013, Kale signed the contract. In 2014, it established its offices in Lahore and in 2016 with its first shipment Kale went into business with just one store in Lahore. Since then the company has opened multiple stores in Lahore, Faisalabad, Multan, Islamabad and Karachi, and plan on opening up more show-

HIGH END

RS3,000

Kitchen counter tops and tables made out of Kale’s revolutionary Sinterflex tile, which has multiple uses

rooms in Peshawar, Gujranwala and other cities in Pakistan.

Hassan says that at the time Chinese tiles were being sold at around Rs1,500 per square metre and Spanish tiles were being sold at around Rs3,000, so there was a market gap between Rs1,500 to Rs3,000 per square metre which served as the perfect starting point for Kale Pakistan. More so, in 2015 and 2016, the tile industry of Pakistan grew by a whopping 53%.

And, according to Hassan, this is just the start. As the population of Pakistan grows and with that their standards of living grow, tile consumption is going to grow accordingly. He says that there is a huge market gap within the tile industry and that is where Kale comes in.

Kale only sells first choice tiles, unlike other importers who sell second choice tiles which are acquired at just 20% of the total cost and then are sold at full price to the consumer.

Ultimately these importers and/or manufacturers scam the consumer.

Moreover, other tile retailers import from various companies and can only provide a limited amount of stock, which can be a big hurdle for consumers since they then have to either choose different designs altogether or have to adapt with whatever they get. Unlike these suppliers, Kale has full authority over the stock and the designs because they are the manufacturers and have full control over supply.

Beginning with only one store in Lahore in 2016, over a span of just 4 years, Kale has become a market leader within the imported tile segment in Pakistan. Hassan credits his success to the various projects they have undertaken since launch which include Packages Mall, Hameed Latif Hospital, Crescent Bay by Emaar in Karachi, Miniso Stores, and current projects that include

Price, per square metre, of tiles manufactured in Spain, considered the high end of quality for imported tiles for construction use in Pakistan

Penta Square, DHA Business Hub, Malam Jabba Ski Resort, and Nishat Apartments among many other projects.

He also says that Kale was very well received by the local consumer. Mostly in Pakistan, consumers were being cheated on second choice tiles and stock lots, which resulted in delays and huge losses for the customer. However, with Kale, customers can rest assured that the tile they purchase is first choice tile and will not go out of stock because Kale produces the tiles itself.

Hassan also credits his team for their tremendous success, he says. “My team that started with just 3 people has now grown to over 300 people across Pakistan and each and every member of my team is enthusiastic about the brand. We live and breathe customer support and service. Even if our client ends up calling us in the middle of the night, our staff will be there to assist them and go out of their way to handle their requests.”

But Hassan argues that the tile industry in Pakistan currently lags behind because of the lack of quality raw material, designs, and R&D (research and development). Hassan says that it is a famous saying within the tile industry that you might finish all your production during the day and by the end of the day you might come to know that all of your tiles are defective and it is nothing more than a graveyard of defective tiles.

The tile industry is Pakistan does not have ensured and quality inputs, Hassan reiterates.

There are no labs to test the raw material and even the slightest change can be disastrous for tile manufacturers. “So, as a first step, we need to set up proper material testing facilities near mines and companies that ensure quality raw material, because not every manufacturer can afford to directly source from the mine, and even if they do, they still cannot control the quality.”

Hassan further laments that a tile in Pakistan will sell for a higher price only if the design is good and will be sold extremely cheap if the design is old or not according to the customer’s demand, even if the tiles are of exactly the same quality. That is the importance of design in this sector

NATIVE CONTENT

“When you travel abroad you see all these beautiful buildings that use state of the art materials but most importantly the exterior of these buildings is just magnificent. We need to do the same for Pakistan.

If we want Pakistan to become a tourist country, we need to beautify our cities” Hassan Shah, CEO of Kale Pakistan Meanwhile, Kale itself uses 2% of its entire global sales on research and development and employs a team of 70 people within the R&D department along with a state-of-the-art design house in Italy that only works to constantly improve designs. Secondly, all of the raw material inputs used by Kale are tested against international quality standards to ensure that each batch of production is exactly the same quality as the batch before with zero defects.

Due to this commitment, Kale currently holds the world record for the world’s thinnest tile, Kale Sinterflex Tile, which is ultra-durable and is just 3mm (millimetre) thick. The tile is so thin that it can virtually be turned into anything and has multiple purposes. The tile can be used for facades, doors, floors, so much so that it can be turned into furniture as well. It’s also one of the very few tiles that come in a 1 metre by 3 metre length, with virtually no seams, grooves and joints allowing more beautiful and minimalistic designs.

Interestingly enough, the tile is scratch and chemical resistant, anti-bacterial, fireproof and with a life of over 20 years right out of the box.

According to Hassan the beautification of a building and ultimately cities is very crucial.

He says that, “when you travel abroad you see all these beautiful buildings that use state of the art materials but most importantly the exterior of these buildings is just magnificent. We need to do the same for Pakistan. If we want Pakistan to become a tourist country, we need to beautify our cities.”

“The future of the tile industry belongs to thin tiles, large slabs, washable tiles and most importantly environmentally friendly tiles such as Sinterflex, which uses less water and less material due to its thin design,” he added.

Discussing challenges within the tile industry, Hassan said that apart from the obvious reasons highlighted earlier, there are serious policy issues and exchange rate problems. With improving standards of living and purchasing power of the Pakistani people, Hassan seems optimistic that the industry would grow in the coming years and Kale would maintain its position as the industry leader.

But he also fears that people will not

38

continue spending under the current government and increased scrutiny. Hassan says that if you talk about money, people in Pakistan have loads of it. Just look at the boom in the real estate sector and the huge houses and big cars all around us.

Hassan claims that the problem is not that people do not have money. The problem is with the undocumented economy, and it is not the one that the government keeps talking about. On paper, people do not have money but, in reality, they do and that is what the undocumented economy of Pakistan is made up off.

Yes, there are people who have amassed wealth due to bribes and illegal means but that is a very small portion compared to the overall size of the Pakistani economy. The majority of the undocumented economy, Hassan states, is because of tax evasion and that too has been created by the government itself.

Hassan believes that our people have now become accustomed to evading taxes, but it is of utmost importance that illegal money and undeclared assets come into the regulated economy for the betterment of the country, and the current amnesty scheme might actually do the job. He joked that who knows better than he about the kind of money people have to spend on their houses.

Moreover, Hassan argues that the government’s policies are not stable which create uncertainty and uncertainty is the worst for investors and businesses.

“Currently in Pakistan we have both financial and political uncertainty and I fear that I might lose Kale, something I have built from scratch here in Pakistan, to these uncertain times,” says Hassan, adding, “We are now booking projects in dollars because of the jumping dollar rates and for retail clients the exchange rate has already eaten our profits and we are barely breaking even”.

So, what’s next?

T

he current demand of the structured segment of the tile industry in Pakistan is somewhere between 115 million square metres to 120 mil-

lion square metres. Meanwhile, the installed capacity in Pakistan is only 70 million square metres in Pakistan. So, the remaining amount is fulfilled by imported tiles and Kale is very strategically placed within that imported portion of the tile industry. But that is not enough.

As a nationalist, Hassan believes he can do much more for Pakistan with Kale. He says that Kale plans to set up a manufacturing facility here in Pakistan very soon. This facility will not only allow them to regulate their prices and not be entirely dependent on free floating exchange rates but will also allow them to create jobs and revolutionise the industry with latest and state of the art technology through transfers of skills and technology. It will also ease the burden of imports on Pakistan, helping bring balance to the balance of payments.

Hassan also believes that there is great potential for tiles exports. He says that if Pakistan can cover its demand and create a surplus, it can follow India’s model and export tiles and sanitary products all around the world.

Talking about the Indian tile market, Hassan said, “The Indian tile industry was virtually non-existent in the international market but favourable policies and government support has resulted in surplus production which is now being exported worldwide and at cheaper rates compared to the rest of the world.” Kale may very well be a new brand for the Pakistani consumer, but Hassan believes that it can definitely take over the entire tile industry by introducing the model of flagship stores, manufacturing facilities and ultimately exports.

“We at Kale are on a mission to move beyond from just being the market leaders in the imported tile segment. Kale wants to become a local manufacturers while being a multinational company, to create jobs and then become the backbone of tile exports in Pakistan.” n This content was produced in association with Kale Pakistan.

NATIVE CONTENT

IN COMMITTING TO EXCHANGE RATE PEG,

PTI IS REPEATING ISHAQ DAR’S FOLLY

The Senate and government appear in favour of artificially inflating the value of the rupee; the central bank is somewhat more circumspect

By Syeda Masooma and Farooq Tirmizi

T

he nature of Pakistan’s system of parliamentary governance is such that, while the budget is one of the most important pieces of legislation every year (the only bill explicitly mentioned by name in the Constitution), it is also among the least debated bills in the legislature. The only place in Parliament, ironically, where there is any debate of any kind is the Senate finance committee (ironic, because the Senate as a whole is not even allowed a vote on the budget bill, the only bill excluded from their powers.)

So it is somewhat discouraging to see how the Senate Finance Committee operates in the era of the Imran Khan Administration. Consider the following scene.

Senator Talha Mahmood of Khyber-Pakhtunkhwa (JUI-F) proposes that the State Bank of Pakistan be required to maintain a peg for the exchange rate of Rs150 to the US dollar, and the committee approves the motion unanimously and without debate. Did we mention that while they asked a lawyer, an accountant, a mathematician, and several civil servants to weigh in on the matter, not a single economist was invited to deliver their testimony or recommendations on matters of … you know… economic policy?

Of the two chambers, the Senate is supposed to be the more deliberative body, its members elected not in a general election, but by members of provincial assemblies, and thus allowing more cerebral politicians who may be ill-suited to electoral politics, to enter Parliament. And the Senate Finance Committee, seeing as how it is the only part of the Senate that is meant to have any kind of oversight over the budget at all, is meant to have the most capable of senators on it.

That is decidedly not the case at the

MACROECONOMIC POLICY

moment.

Far from being engaged in offering substantive oversight over the government’s actions and policies, the senators on the committee appeared to be so lethargic and perfunctory in performing their duties that they did not even bother reading a three-page document presented to them on taxation and trade policy, and insisted that the civil servant at hand “read to them out loud the ‘crux’ of the proposed policy amendments.”

This may not be corruption, but it is gross incompetence and dereliction of duty on the part of elected members of Parliament.

Small wonder, then, that they pushed through a policy that is likely to have disastrous consequences for the country and likely mean that Prime Minister Imran Khan’s pledge that this International Monetary Fund (IMF) bailout be the last will become a joke.

Repeating past mistakes

H

ere is a shocking statistic: in US dollar terms, Pakistan’s gross domestic product (GDP – the total size of our economy – has shrunk by 10.3% in the fiscal year ending June 30, 2019. Here is an even bigger shock: the last time the economy shrank by this much was in the immediate aftermath of the 1971 war, in fiscal 1973, the first full year after that calamitous conflict.

The cause of this stunning collapse is by now well-established, if not entirely well understood. Former Finance Minister Ishaq Dar held the exchange rate at an artificially high level and drained scarce Pakistan’s foreign exchange reserves in order to do so. The exchange rate, like most macroeconomic levers, is a bit like a rubber band: the longer you stretch it beyond its normal shape, the greater the force with which it will hit you when are you ultimately forced to let go.

Dar held the rupee in an unnatural position for far too long, and that is why the

exchange rate collapsed like a ton of bricks when he – and the government of Pakistan – could no longer hold on. In rupee terms, the economy is not actually doing too badly. It has slowed down, but economic activity, even adjusting for higher rupee-denominated inflation, is still growing. It is only in US dollar terms that the economy has seen a severe contraction, the likes of which has not been seen since 1973.

Nonetheless, Pakistan does not compete against other economies in rupees and, more importantly, it does not buy what it needs from other economies in rupees, meaning the shrinking of the size of our economy relative to others matters, and will hurt the economic wellbeing of its citizens unless something is done to fix the problem.

Unfortunately, while the Pakistan Tehrik-e-Insaf (PTI) led government loves to – correctly – pin the blame for the shambles the economy currently finds itself in on the preceding Pakistan Muslim League Nawaz (PML-N) led government, it appears that the Imran Khan Administration is committing itself to the same macroeconomic folly as the Nawaz Administration, indeed folly that can be traced as having roots in Pakistan’s economic establishment as far back as the Liaquat Ali Khan Administration.

(Oh, you thought Pakistan’s founding generation was better? No, they were just as grossly incompetent as the current lot, sorry to disappoint you.)

At Profit, we have previously discussed a detailed history of this insane policy – including an explanation as to why it is insane – and will not repeat ourselves here. However, it is important to recognise that there are some in the Senate, including some who voted for this resolution, who realise just how asinine this policy is and how damaging it will be to the country’s economy.

Senator Farooq Hamed Naek of Sindh (Pakistan Peoples Party) acknowledged, when asked by Profit, that the proposal to peg the

39

“Neither a fixed exchange rate regime nor a free float is healthy for Pakistan’s economy. We are currently using market determined rate to restore competitiveness and to rebuild external buffer. More than 50 emerging market countries have followed the same criterion. The volatility in the foreign exchange market is not new to Pakistan, and it will eventually come down” Reza Baqir, Governor of the State Bank of Pakistan rupee to a specific value of the dollar was absurd.

But he had nothing to say during or after the discussion in the committee meeting itself.

Other members of the committee simply said that allowing currency devaluation causes inflation, but failed to answer questions about how sustainable it is to have the currency crash every few years and cause massive spikes in inflation, followed by recession, which is what happens under the current policy. A floating exchange rate, on the other hand, would allow for a slightly elevated level of inflation, but within a narrower, more predictable band, and cause far fewer crashes and recessions.

Meanwhile, even as the Senate has asked the central bank to control the exchange rate, the State Bank of Pakistan (SBP) itself appears to be trying to create a little more wiggle room for itself, not committing to a market-determined exchange rate, but trying to stay away from a peg as well.

In a briefing held at the SBP headquarters in Karachi this month, State Bank Governor Reza Baqir said that: “Neither a fixed exchange rate regime nor a free float is healthy for Pakistan’s economy. We are currently using market determined rate to restore competitiveness and to rebuild external buffer. More than 50 emerging market countries have followed the same criterion. The volatility in the foreign exchange market is not new to Pakistan, and it will eventually come down.”

Yet the governor also appeared to slightly contradict himself by stating that the market-determined exchange rate also needs occasional intervention from the central bank. But can Pakistan afford to expend further resources on these “occasional interventions”?

The inflation threat

H

ere is the threat everyone always cites when saying that the exchange rate needs to be kept stable: that it impacts inflation, which in

40

turn affects the poor the most. This is partially true, but does not reflect a broader context: the poor are particularly badly hit by the periodic crashes far more than slightly elevated inflation.

And here is the part nobody seems to be talking about: yes, inflation is higher this year than last year, but since when does 13% inflation sound calamitous in the Pakistani context? How is it that the currency collapsed by over 25% last year, but inflation only went up by 12-13%? Simple: because inflation, amongst other factors, depends a lot more on global oil prices than it does on the value of the rupee.

And since global oil prices are stable – and low – a collapse in the value of the rupee has not resulted in skyrocketing inflation.

Shooting long-term growth in the foot

T

he problem, of course, is that the government knows that normal economic activity would not justify an exchange rate that stays at one level for very long, which is why they are beginning to crack down on economic activity, which is a bit like trying to stop bleeding in one’s arm by stopping the heart: technically, it will work, but now you have a bigger problem to deal with.

Among the measures being considered: reducing the amount of cash people are allowed to carry outside the country on foreign travel from the current limit of $10,000 per person to $3,000 per person. Other provisions already affecting commercial transactions: hidden limits on repatriation of profits by investors or sale of shares by foreign investors if it means cash leaving the country.

The problem with all of these measures is that they trade short-term stabilisation for long-term stability and growth. Consider the following fact: if you do not know that you will be able to take your money out of

a place, no matter how safe or lucrative the investments there, why would you ever put your money in there? Why would any foreign investor take the government’s promises about facilitation on their investments seriously if they can see previous foreign investors’ cash trapped inside the country?

The purpose of any investment, after all, is to create a cash flow that one can use.

Foreign investors, by definition, live outside the country and therefore, at some point, will want the cash to leave the country, even if they are very long-term investors.

Even more absurd is the government’s crackdown on foreign assets and criminalisation of moving money outside the country by citizens of Pakistan. Why on earth is this illegal to have money outside the country? Why does the government believe that the best way to get wealthy Pakistanis to move their money back to Pakistan is to force them to do so and to make it illegal to move it out?

Last we checked, the rich manage to find a way to move money out of Pakistan anyway and every crackdown means that they are less and less inclined to ever move it back. Did you know, for instance, that banks in Pakistan held nearly $10 billion in foreign currency deposits in May 1998, shortly before the Nawaz Administration froze their accounts and forbade them from accessing their own money?

That number dropped to $0.2 billion by 2004, as people kept withdrawing as much money as they could over time until there was almost none left. Do you know how much there is in foreign currency deposits at Pakistani banks now? $7 billion. More than 20 years later, the level of foreign currency deposits has still not recovered.

This is despite the fact that the government eventually lifted that policy and never tried anything like that since. Once you lose the trust of the people, it takes decades to earn it back. And in the meantime, Pakistan continues to keep falling behind its neighbours. n

MACROECONOMIC POLICY

OPINION

Nadeemul Haque

Where are the opportunities for the poor?

More than handouts, the most economically disadvantaged citizens need a ladder to improve their condition

P

rime Minister Imran Khan has announced the Ehsas program for poverty alleviation — an admirable step. But more than government aid the poor need to be included in cities of opportunity. Handouts and credit and online opportunities are not a substitute for opportunity.

Think about it: many of our poor have climbed into the middle class thanks to the opportunity of migration which they grasped eagerly even at huge cost to themselves.

Contrary to what Pakistani analysts put out, poverty is always caused by exclusion from opportunity. Give the poor a chance and they will lift themselves out of poverty.

A starting point could be an attempt to look into the apartheid social regime we have created. Could the extreme degree of exclusion of the poor (basically the non-elite) be at the heart of our troubles? Ask yourself the following questions and see if you agree

Nadeemul Haque is an economist and the former Deputy Chairman of the Planning Commission of Pakistan, and the former Vice Chancellor of the Pakistan Institute of Development Economics. He previously worked for decades at the International Monetary Fund.

COMMENT

with the answers and you will see for yourself how the poor are excluded.

1. Where do the poor live?

The poor are totally excluded from elite space. They are seen only as servants and the only place allocated to them in the cities are servant quarters, or slums.

Most of the population needs small — one- to two-room — flats. But where can they be put? Zoning laws in our cities do not allow this except on the outer reaches. Council houses in London exist side by side with expensive housing. Not so in Pakistan. The rich and the poor cannot mix. We cannot have high rises looking into the residences of the rich.

The rich want conveniently located polo grounds and golf courses, giant parks to jog in and, of course, nice big lawns for their parties. They want sleek, low-rise cities where their cars can move easily from their estates to their leisure activities — golf and polo. The rich want zoning laws so that there is no high-rise construction or congestion in their park-like setting.

2. What do the poor do?

The elite policymaker, who is often an industrialist, looks to industrial parks and subsidies for employment of the non-elite; no matter that factory employment lags way behind employment in the services sector.

With technological advancement, no longer are giant factories employing millions of workers. Large numbers are now employed in construction, shopping malls, hotels, and the leisure industry. But that is anathema to planners and zoners, who are from the elite civil service. All retail, warehousing, leisure and community enterprises, and the non-elite, are regarded as non-essential. These then expand informally on residential property. Limited development of these activities means less employment for the non-elite.

3. How do the poor work their way out of poverty?

Traditionally education has been an equalizer. However, in the Pakistani apartheid system, this is not happening. The rich educate their kids overseas to leave the local education system in a permanent state of disrepair. Many years ago, a driver named Majeed declared quite openly his intention not to educate his son because Urdu-medium public schools do not offer children upward mobility even after years of education. Only a few months ago, I was talking to a 26-year-old driver in Dubai, who cursed his over twelve years of Urdu-medium education from Pakistan that only qualifies him for menial jobs — a waste.

4. So, what about entrepreneurship by the poor?

The poor have traditionally helped themselves by running street hawking businesses and khokhas (kiosks). They used to be around a few years ago. But administrations have become vigilant and do not allow these in rich areas. And, of course, there can be no zoning for them.

Where is the space for poor entrepreneurship? We need wide avenues for the Porsches and the BMWs! We also need large urban tracts for golf courses, polo grounds and giant parks (lungs of the city).

41

So, let these people go to shantytowns in the outskirts of our cities.

5. Does the state not help the poor?

Every now and then, politicians set aside a large amount and give it a donor-inspired name like Income Support Fund or Social Protection.

Much bureaucracy, Land Cruisers, consultants and plush offices later, the poor get some minor rationing subsidy. Most often, it is some form of food coupons, cash transfers, a yellow cab scheme, or micro-credit. How strange: give them food and capital but no place for entrepreneurship.

Interestingly enough, the state subsidy to industry is way more than the state has ever spent on the poor. And the subsidy to the industry goes directly into the pockets of the rich.

6. What about enlightened self-interest and noblesse oblige?

In history, enlightened self-interest has

42

led the rich to invest in some social mobility.

Philanthropy has set up universities and community infrastructure to level the playing field for the poor. Royalty always patronized intellect.

Unfortunately, in Pakistan, philanthropy means building for the rich — country clubs, polo grounds, LUMS and Aitchison College: places for elite use that, for the most part, do nothing for the excluded.

As a footnote, the rich do not even visit the poor campuses to mentor and interact with the underprivileged. They have no time for these trivialities.

7. What about leisure and community for the poor?

Leisure and community are only for the rich. City zoning provides fully subsidized space for the elite to play golf, tennis and polo, even for rich schools, but there is not an inch of space for community and leisure for the poor. No public libraries, no community centers, no publicly provided football fields or even a basketball court for the poor. Even competitive sport as a vehicle for social mobility is completely ruled out as a result.

8. Who offers the poor hope?

Certainly not the government! Certainly not the donors with their minor employees! The liberal elite made big promises and delivered nothing. The promise of globalization and liberalization has rightly lost its luster in the minds of the poor.

Theatre, cinema, or any form of intellectual activity that will offer an alternative vision has been zoned out. Where should the poor look for a vision; who offers them hope; who offers them community; who gives them some opportunity; who gives them the vision of a just society?

But there is hope for them! Think about it. It is the mosque and the maulvi. Mosques remain totally unregulated, need no zoning permission and have been actively encouraged by the state. Not surprisingly, the mosque is the only community center for the excluded poor; the unregulated maulvi the only visionary. This is the unintended consequence of the greedy, unenlightened behavior of our elite.

More than handouts, the poor need space in cities. Include them. n

COMMENT