Profit E-Magazine Issue 42 by Profit (by PT)

10 Weekly Roundup 14 Will outsourcing help solve Pakistan’s tax problem?

20 20 Pakistan, the next outsourcing hub? 30 Fintechs: Goliaths of today, dinosaurs of tomorrow?

35 Padding up the cement tycoons’ coffers 40 Daehan: Korean or Vietnamese? Well, what’s in a nationality?

Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Reporters: Farooq Baloch l Kazim Alam l Aisha Arshad l Arshad Hussain l Muhammad Faran l Syeda Masooma l Ghulam Abbass l Ahmad Ahmadani l Shehzad Paracha l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulﬁqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani lPublishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: proﬁt@pakistantoday.com.pk

CONTENTS

welcome

OUTSOURCING: WHAT IS IT GOOD FOR? No matter what the compulsions of the moment might be, some functions of the government – such as tax collection – should never be outsourced If there is one theme that dominates this issue of Profit, it is unquestionably outsourcing. Our cover story explores Pakistan’s miniscule business process outsourcing (BPO) industry and whether it has the potential to gain market share against its larger rivals in India and the Philippines as they struggle with rising labour costs and increasing competition from lowercost geographies. And we have another feature that explores the proposal – put forward by the Pakistan Muslim League Nawaz (PML-N) – of outsourcing important functions of tax collection from the Federal Board of Revenue. The fundamental premise of outsourcing is similar to that of gains from trade: each individual, company, and country are better off specialising in the product or service in which they have a comparative advantage (relative to their own capabilities in other products or services) and simply trading for the remainder of what they need. The economic logic behind this is simple enough, albeit often greatly misunderstood, most prominently in the current era by United States President Donald John Trump. But the context in which outsourcing takes place can be important. In the case of the BPO industry, the view taken by most experts – and the editorial view of Profit – is that it is almost invariably good for the Pakistani companies that are seeking to compete in this industry as well as their US and European rivals who are looking

to outsource some of their non-core functions to BPO providers, whether they be located within their markets, or in other countries. When it comes to outsourcing government functions, however, there are several other important considerations beyond just the efficiency of the moment. Profit, like most business publications, believes in economic liberty and limited government. We believe that the government’s role is not to become a direct market participant but rather to create a facilitative environment, and establish clear and fair rules of the game. However, that does not mean that we blindly believe in reducing the footprint of the government, even from areas where its role is important, and which constitute a core function of government. Tax collection, in our view, is one such function. The government has the power to tax the income and businesses of its citizens, and it has the right to use force against those who do not comply with tax laws. In our view, such a function should never be outsourced, no matter what the compulsions of the moment might be.

Farooq Tirmizi Managing Editor

FROM THE MANAGING EDITOR

Federal Board of Revenue Chairman Tariq Mahmood Pasha

QUOTE

“The FBR will cooperate with the business community in availing the tax amnesty scheme”

“Foreign currency reserves will further shrink and budget deficit will be far higher than Rs2t this year” Caretaker Finance Minister Dr Shamshad Akhtar

21pc

increase was posted in total car sales for first eleven months (July-May) of financial year 2017-18. According to Pakistan Automotive Manufacturers Association (PAMA), total car sales clocked-in at 21,813 units, including LCVs and 4x4s, depicting a growth of 5 per cent YoY and down by 15 per cent MoM, respectively. This slowdown in car sales is due to higher car prices as automotive companies have raised car prices for the third time during this fiscal year, continuous Pak-rupee depreciation against the US dollar. Analysts believe that the major reason behind declining car sales is the restriction imposed by the government on non-filers for booking and registration of new cars, and resumption of import of used and new cars through personal transfer or baggage scheme. In the 1300cc and above category, sales displayed a meagre drop of 7 per cent MoM while they were up by 7 per cent YoY to 8,865 amid 11 per cent YoY uptick in sales of Toyota Corolla. In the 1,000cc category, Mehran sales registered an increase of 5 per cent YoY and decline of 23 per cent MoM to 3,557 units. On a monthly basis, Toyota Hilux remained the only car which managed to post a growth of 2 per cent MoM as demand for Hilux increases during elections which are scheduled for July 25, 2018. Tractors sales increased by 19 percent YoY but declined by 15 per cent MoM to 6,753 units. During the month, MTL and AGTL sales witnessed a growth of 22 per cent YoY and 13 per cent YoY to 4,165 units and 2,505 units, respectively.

$565m

worth of agreements in the energy and water sectors have been signed by the Economic Affairs Division (EAD) with the World Bank (WB). National Transmission Modernisation (Phase-I) Project of $425.0 million objective is to increase the capacity and reliability of selected segments of the national transmission system in Pakistan and modernize key business processes of the National Transmission and Despatch Company (NTDC). The total cost of the project is $536.33 million. The World Bank will finance $425.0 million and $111.33m will be borne by the NTDC. Sindh Barrages Improvement Project – Additional Financing of $140 million are to improve the reliability and safety of the Guddu barrage and strengthen the Sindh Irrigation Department’s capacity to operate and manage the barrage.

12.98pc

increase was recorded in local petroleum production during first ten months of financial year 2017-18. According to latest data of the Pakistan Bureau of Statistics (PBS), the petroleum products that contributed in positive growth included motor spirits, the output of which grew by 18.61 per cent during the period under review while the production of jet fuel oil increased by 0.57 per cent. The production of High-Speed Diesel by 14.06 per cent, Diesel oil by 33.25 per cent while the output of Furnace oil witnessed a growth of 7.76 per cent. Similarly, the production of Jute batching oil increased by 13.16 percent, Solvent Naptha by 6.51 percent while the production of LPG increased by 47.66 per cent. The petroleum products that witnessed negative growth in production included kerosene oil, the output of which decreased by 13.62 percent, while the production of lubricating oil declined by 12.82 per cent. Meanwhile, on a year-on-year basis, the production of petroleum products increased by 18.71 per cent during the month of April 2018 against the production of the same month of last year.

“PM package and devaluation have boosted exports. Current account deficit is a problem, but direction is now correct” Former Finance Minister Dr Miftah Ismail

QUOTE

Rs779b

was the figure of receivables in the power sector as a result of rising losses falling recoveries and unvaried electricity supply, demand and shortfall in last one year. The power division on Monday presented details regarding the steady rise in power sector receivables from Rs589 billion in 2015 to Rs779 billion till June 4th, 2018, increasing 32.25 percent. Mr Khokhar shared average power shortfall was recorded at 4,530MW in July 2017 and was largely remain unchanged in 1st week of June 2018 at 4,559MW. A power division while briefing the Senate committee shared the power shortfall had crossed 5,000MW a few days ago.

$1.282b

was the figure of exports to Afghanistan, clocking two-year highs according to data available from State Bank of Pakistan (SBP). The figure of Pakistan’s exports to Afghanistan was higher than the $959 million figure recorded in corresponding period of last year. In FY15, exports to Afghanistan were recorded at $1.699 billion which decreased to $1.230 billion in FY16 and reducing to $1.165 billion in FY17. Pakistan mostly exports food products like rice, meat, wheat flour to Afghanistan but up around 50 percent of flour mills closed down because of low exports. Historically Pakistani textile products held sway in Kabul, however, the recent perforation of Indian and Chinese products has seen the latter upending the former from its traditional market of unfinished and finished textile products. According to a Pakistan Bureau of Statistics (PBS) report, rampant smuggling to Afghanistan would mean the size of export could be twice more of what the official data reveals.

20pc

plunge was recorded in property tax collection during first ten months (July-April) of financial year 2017-18. The fall in property tax collection was attributed to the previous PML-N led government’s decision to take back the revised-up valuation tables for real estate in the final months of its tenure. Data from the finance ministry revealed provincial property tax collection in the same period of last financial year was recorded at Rs6.01 billion. Punjab’s property tax collection fell 31.62 percent, to touch Rs2.66 billion in first ten months of FY18, compared to Rs3.88 billion in the same period of FY17. Sindh’s property tax collection exhibited a fall of 3.85 percent, touching Rs1.45 billion. Due to lower volume of transactions, Khyber Pakhtunkhwa and Balochistan posted a rise in property tax collection of 15 percent and nine percent, respectively.

3.81m

tons of wheat procurement target was missEx-chief minister Punjab at the start of April approved official procurement plan of acquiring four million tons of wheat from the farmers. The wheat was to be acquired at a rate of Rs1,300 per maund (40 kilograms) and the Punjab government had said the direct provision of gunny bags to the farmers was a critical move since it would remove the middleman role. ed by the Punjab government as it only purchased 3.62 million tons. The recently finished procurement plan revealed the poor performance of the provincial food department which had made big claims of buying 4 million tons of wheat from farmers during the procurement time.

$11.6b

are expected in form of external financing during the next financial year 2018-19. Total inflows of external financing are expected to be around $11,653.9 million during 2018-19 with project loans at $4,835.2 million and programme loans at $1,818.6 million. According to figures, the country would receive financing of $3130.8 million from bilateral sources which may include Germany, China, Japan, America, Saudi Arabia and others. Another major chunk of inflows of $3523.1 million would come from the multilateral sources while the government is estimated to collect $3 billion from raising bonds and $2 billion from commercial banks, the sources added. On the other hand, the FBR will continue its tax reform programme for broadening the tax net and reforming the tax administration.

BRIEFING

“Businesses need to absorb the oil price hike as much as possible and if impossible they should pass some onto the consumers” Overseas Investors Chamber Secretary Abdul Aleem

QUOTE

$34b

was the trade deficit during the first eleven months (July-May) of financial year 2017-18. This poses a major challenge for the next government to rein in the widening current account deficit as trade deficit increased 13.3 percent for the first eleven months (July-May) of FY18. In May, the trade deficit increased to $3.76 billion posting an 8.6 percent year-on-year (YoY) increase. The last FY17 had witnessed trade deficit to a then-record high of $32.58 billion, surging 37 percent from the previous FY16. Imports clocked in at $55.3 billion, posting a 14 percent rise during July-May FY17 compared to $48.54 billion in the corresponding period of last year.

0.6m

individuals were added to the tax net during the five-year tenure of the previous PML-N government. Although the PML-N led government has failed to bring its much ‘promised’ reforms in the taxation system of the country during its tenure in the last five years. The government failed to enhance the efficiency of the tax machinery; simplify the tax procedures, rationalise tax rates and exemptions, encourage corporatisation, and document and eradicate maladministration and corruption in the FBR during the aforementioned period. The government, in its election manifesto had promised to increase the taxto-GDP ratio from 9 percent to 15 per cent till 2018 but the figures show that the FBR could only reach 12.4 per cent of the tax-to-GDP ratio, which is 2.6 percent lower than the promised ratio, and also lower than the 13 per cent ratio recorded under PML_N’s second tenure. Although the previous government took the tax revenue from Rs1,900 billion to Rs3,941 billion in five years, the tax department could not move towards the direct taxation system.

1,000

tax returns have been receive under the tax amnesty scheme unveiled by the previous PML-N government since April 2018. Pakistan Tax Bar Association (PTBA) President Abdul Qadir Memon shared very returns had been filed as the majority was awaiting the apex court decision regarding the tax amnesty scheme. The previous PML-N government in April unveiled a tax-amnesty scheme, which allowed residents one-off tax benefits for bringing back undeclared local assets to the country and paying a five percent penalty on it. For foreign liquid assets, the penalty was fixed at two percent (if brought back, or a five percent penalty if kept overseas or in foreign currencies) and undeclared fixed assets whether held domestically or overseas, with a three percent penalty. Memon said if the apex court decided against the tax amnesty scheme, it would be a blow for those who had already declared their assets.

$1.5b

of additional trade financing facility has been utilized available by the State Bank of Pakistan under the China-Pakistan currency swap arrangement. This was revealed by sources in the central bank and the Ministry of Finance. After failing to find alternative sources to fund and finance its current account deficit, Pakistan has had to turn to a Chinese trade financing facility to keep foreign currency reserves at current levels and prevent them from further depletion. Primarily obtained from foreign commercial banks, the state bank tapped the facility to repay over $1 billion in maturing foreign loans.

12pc

increase in global trade has been predicted by an ING report due to the Belt and Road Initiative (BRI) over the coming few years. A report prepared by ING Economic and Financial Analysis says BRI is growing transport connections between Asia and Europe. It said trade between the countries involved accounts for more than a quarter of world trade, so improved connectivity and lesser trade costs which come with it would have a significant global impact. ING’s report says countries in Central Asia and Eastern Europe would gain the most from BRI, however, benefits would be contingent upon where trade costs decrease. Belt and Road Initiative (BRI) could help in halving trade costs for countries involved in the project.

BRIEFING

WILL OUTSOURCING HELP SOLVE PAKISTAN’S TAX PROBLEM? PML-N’s Miftah Ismail suggests the government can raise a lot more revenue if it outsources many of the FBR’s functions. But is it the panacea or would it create more problems than it solves? By Farooq Tirmizi

ne million, four hundred and twenty-nine thousand, nine hundred and seventy-six (1,429,976). That is the number of taxpaying entities that the Federal Board of Revenues (FBR) says existed in Pakistan in 2017, a number that the government has spent the previous four years refining to get an accurate count of exactly who is a taxpayer in Pakistan. Except that the number is probably still not accurate. Any government that takes office after the elections in exactly a month’s time (July 25) needs to confront the fact that it will be relying on the FBR to raise the revenue it needs to pay for any policy agenda they may have, and the FBR is an organisation that cannot even accurately answer a question as basic as: how many taxpayers are there in Pakistan? To that end, Miftah Ismail, the former federal finance minister under the Nawaz Administration and likely future finance minister should the Pakistan Muslim League Nawaz (PML-N) win re-election, appears to have an idea that just might work: outsourcing a substantial portion of the work currently done by the FBR to private entities that are incentivised to increase revenue collection.

The PML-N plan to increase tax collection

smail laid out the proposal in an interview with Business Recorder, where he outlined what he saw as a public-private partnership that might help expand the country’s tax base, using a plan that has its origins under previous administrations. In a project that originally began under the Zardari Administration, then FBR Chairman Ali Arshad Hakeem was trying to compile a list of the 3 million or so Pakistanis who appear to have lifestyles that would justify them paying taxes, but for whom the gov-

‘INSTEAD OF TRYING TO TACKLE THAT CATCH-22 SITUATION, THE PML-N IS PROPOSING OUTSOURCING THE PARTS OF THE FBR’S JOB THAT ARE MOST PRONE TO CORRUPTION: ISSUING NOTICES, COLLECTING PAYMENTS, AND CONDUCTING AUDITS. IN OTHER WORDS, ANY TASK THAT INVOLVES AN FBR OFFICER INTERACTING DIRECTLY WITH A TAXPAYER’ ernment has no record of paying any taxes. The plan involves getting the help of an agency that, at least on the surface, appears to have nothing to do with taxation. The National Database and Registration Authority (NADRA) has access to a significant amount of data about individuals since it is the issuer of Computerised National Identity Cards (CNICs), which are needed for most transactions. Using that data, NADRA is able to compile profiles of suspected tax evaders. It knows where they live, where and how often they travel abroad, what cars they own, how many bank accounts they have (but not how much is in those bank accounts), and even whether they had more than one wife. NADRA also has significantly better capabilities in terms of being able to use Big Data analytics to not just identify these suspected tax evaders but also estimate how much they should pay in taxes. It is an audacious plan: using the power of Big Data to crack down on tax evasion, with the FBR being aided by the database and mathematical wunderkinds at NADRA. The Nawaz Administration appears to be going one step further, however: the government would not just deploy NADRA’s data capabilities in identifying the tax evaders, it would then also try to circumvent the rampant corruption problem at the FBR by outsourcing the process of issuing tax notices, collecting taxes, and auditing

‘ISMAIL LAID OUT THE PROPOSAL IN AN INTERVIEW... WHERE HE OUTLINED WHAT HE SAW AS A PUBLIC-PRIVATE PARTNERSHIP THAT MIGHT HELP EXPAND THE COUNTRY’S TAX BASE, USING A PLAN THAT HAS ITS ORIGINS UNDER PREVIOUS ADMINISTRATIONS’ 34

financial records of tax-payers to private contractors. The underlying assumption of this component of the plan is that tax evasion would simply not be possible without corruption at the FBR, and that the best way to get around that problem is to outsource all interactions between the government and taxpayers to a neutral third party that has an incentive structure more aligned with that of the government, and not the Civil Service of Pakistan, which dominates the ranks of the FBR. In effect, the government is assuming that the Civil Service cannot be trusted to favour the interests of the government and people of Pakistan.

How we got into this mess

eedless to say, that is a complicated plan and predicated on a series of assumptions that would be difficult to understand without first understanding just how Pakistan arrived at this mess. The fundamental problem began almost immediately after Partition when the government of Pakistan appeared to make a decision not to impose significant amounts of taxes on the wealthy elite of the country, through a variety of exemptions and loopholes. Income derived from agriculture, for instance, was either not taxed or taxed at absurdly low rates, despite the fact that at the time of independence in 1947, the overwhelming majority of Pakistan’s wealthy elite included large rural landowners. The industrial elite did pay more in taxes than the rural elite, but even they managed to ensure that the taxes – even the so-called direct taxes – would be structured in a way that they could simply pass on the burden of the tax to their customers: hence the importance of customs and the federal excise duty in the early years of the country’s existence.

TAX POLICY

As a result of these policies, Pakistan’s tax-to-GDP ratio was abysmally low for the first decade after Partition, hovering around the 6% mark, and dipping as low as 4.66% in fiscal years 1954 and 1955 (Pakistan’s fiscal year runs from July 1 of the previous year through June 30). Over time, the government has begun to rely on a variety of different taxes, though at a surprisingly slow pace. For instance, Pakistan was effectively using the tax regime originally introduced by the British Raj under the Income Tax Act of 1922 until the Musharraf Administration, which in 2002 introduced a new tax law that simplified the income tax systems. (Technically, the Zia Administration introduced an income tax ordinance in 1979, but independent analysts believe that the law made no substantive changes.) The most important innovation in Pakistan was the introduction of the domestic sales tax, which allowed the government to begin taxing domestic consumption rather than production capacity (which is what the federal excise tax is levied on). That innovation took place in fiscal year 1982. From that point on, the sales tax went from accounting for no more than 10% of total federal tax collection in the 1970s to consistently over 40% of total tax collection today. Another big change took place as a result of the 18th Amendment to the Constitution and the 7th National Finance Commission Award, both of which passed in fiscal 2010 and went into effect from fiscal year 2011. That law allowed the provinces to start collecting more of their own taxes, and provincial governments were given more autonomy to spend that money on their own. As a result, provincial governments have finally begun collecting more of the total taxes paid

‘NADRA ALSO HAS SIGNIFICANTLY BETTER CAPABILITIES IN TERMS OF BEING ABLE TO USE BIG DATA ANALYTICS TO NOT JUST IDENTIFY THESE SUSPECTED TAX EVADERS BUT ALSO ESTIMATE HOW MUCH THEY SHOULD PAY IN TAXES’ by Pakistanis, a phenomenon that has improved the ability of the government as a whole to pay its own bills. As of fiscal year 2018, the government expects the tax-to-GDP ratio to hit 13.7%. If it is successful in achieving that goal, that would be the highest tax-to-GDP ratio in Pakistan’s history, a

‘THE FUNDAMENTAL PROBLEM BEGAN ALMOST IMMEDIATELY AFTER PARTITION WHEN THE GOVERNMENT OF PAKISTAN APPEARED TO MAKE A DECISION NOT TO IMPOSE SIGNIFICANT AMOUNTS OF TAXES ON THE WEALTHY ELITE OF THE COUNTRY…’ fact that is both an achievement for the Nawaz Administration and a travesty for Pakistan as a whole.

The problem with the FBR’s taxpayer data

ince 2013, the FBR has undertaken an effort to increase the pain of not being a taxpayer, an effort the government has

aided by enacting laws that increase transaction costs and taxes for people who do not file their tax returns. As a result, the FBR has begun publishing a list of tax filers in the country, which allows them to be exempted from the measures being taken against people who do not file their tax returns. However, the list – and the FBR’s processes that produce it – are deeply flawed. The list published by the FBR includes hundreds of thousands of names of people who have evaded their taxes and excludes the names of hundreds of thousands of hardworking Pakistanis who pay their taxes. Indeed, the list is more useful in what it does not reveal than what it does. It says more about the FBR’s limited capabilities than it does about who pays taxes in Pakistan and who does not. Let’s start at the very beginning: the list covers only federal income taxes for entities that filed an income tax return in the most recent year (currently data is available for fiscal year 2017), or for whom their withholding agent filed income tax information. What it does not include are people whose income taxes were withheld by their employer, or other sources, and who did not file their tax returns. (It does include people whose employer filed their individual tax data.) And barring a few FBR and finance ministry officials who clearly had the sense to file their returns before the list was published, it does not include a large proportion of the over 700,000 gov-

ernment employees who all pay their taxes, but the vast majority of whom do not file their returns. This is why you cannot find the names of many generals or judges: the Accountant General of Pakistan Revenue simply gives the government a lump sum for all federal employees, including the military, but provides no breakdown. (The FBR has no clue as to whether the income tax withholding process is even being done properly.) This is an important distinction: there is a difference between paying your taxes and filing your tax returns. Both are legal requirements, but only failure to do the former gets you labelled a tax evader. In fact, it is possible to evade taxes and still be a tax-filer: by submitting falsified documents, something that the FBR’s electronic systems do not have the ability to catch. It is also possible to declare that you have paid one amount and actually pay a lower amount, and the FBR’s systems will not catch that either. Hence, the database that has been released includes hundreds of thousands of entities against whom there is a “tax paid” amount of zero. Not all of these entities are, of course, evading their taxes. Some are companies that had net losses and do not owe taxes. Others are companies in sectors that are exempted from paying income taxes (such as exporters). And some individuals earn less than the amount that is taxable, or can claim enough deductions and exemptions to minimise their liabilities to zero. The database also does not include any information about general sales taxes (GST), federal excise duties (FED), or customs duties paid by any company or individual business

‘AS OF FISCAL YEAR 2018, THE GOVERNMENT EXPECTS THE TAX-TO-GDP RATIO TO HIT 13.7%. IF IT IS SUCCESSFUL IN ACHIEVING THAT GOAL, THAT WOULD BE THE HIGHEST TAX-TO-GDP RATIO IN PAKISTAN’S HISTORY, A FACT THAT IS BOTH AN ACHIEVEMENT FOR THE NAWAZ ADMINISTRATION AND A TRAVESTY FOR PAKISTAN AS A WHOLE’ owner. That difference is important. On the basis of income taxes, the state-owned Oil & Gas Development Company is the biggest taxpayer in Pakistan, paying nearly Rs25 billion in 2017. If GST and FED are included,

probably not the highest in the country, since most of his wealth is tied in the shares he owns in some of the largest companies in Pakistan, shares he is unlikely to sell any time soon. Hence, while Mansha is among the highest taxpayers in the country, but he is not the biggest taxpayer. (Disclosure: Mr Mansha is a shareholder as the publisher of Profit.) Income taxes are levied on the actual cash flow one gets in a given year from non-exempt sources, not on the total asset base that delivers those cash flows. So how many taxpayers should there be in Pakistan? A lot smaller than you might think.

‘IT IS AN AUDACIOUS PLAN: USING THE POWER OF BIG DATA TO CRACK DOWN ON TAX EVASION, WITH THE FBR BEING AIDED BY THE DATABASE AND MATHEMATICAL How many taxpayers WUNDERKINDS should Pakistan have? et us start off with the fact that AT NADRA’ the total labour force as a perthe top spot goes to Pakistan Tobacco Company, which paid just under Rs71.6 billion in 2017. And taxes paid are not a reflection of a person’s wealth, or assets. Mian Muhammad Mansha, for instance, is the richest man in Pakistan, but that is by assets. His income is high, but

centage of the country’s population is only about 38.2%, according to the Pakistan Labour Force Survey. Compare that with numbers in Europe and North America that typically exceed 60% of the total population. Why is Pakistan’s labour force so small relative to its population? We have a lot of children. The median

TAX POLICY

Pakistani is 23 years old, which means that half of the population is less than or equal to that age. Given a population of 207 million in 2017, that leaves a total labour force that is approximately 79.4 million people. And within that labour force, a surprisingly small number of people earn an income large enough to be eligible to pay income taxes, which is generally the only type of tax that most individuals are eligible to file tax returns for. (We all pay sales taxes, but sales tax returns are filed by the companies that sell those goods to us, or to the retailers and other entities from whom we buy those goods and services.) Here is where the numbers get very interesting. Under the current law, which expires on June 30, any Pakistani individual who makes more than Rs400,000 a year (Rs33,333 per month) is eligible to pay their taxes. According to Profit’s analysis of income survey data from the Pakistan Bureau of Statistics, an estimated 14.6 million people in Pakistan make more than that amount in a given month. That comes to approximately 18.4% of the total labour force and just over 7% of the total population. This, by the way, assumes that none of the individuals in question derive their income from exempt sources, such as agriculture. Factoring that amount in takes the numbers down by approximately one-third, to about 12% of the total labour force and about 4.7% of the total population. However, with the new budget

‘THIS IS AN IMPORTANT DISTINCTION: THERE IS A DIFFERENCE BETWEEN PAYING YOUR TAXES AND FILING YOUR TAX RETURNS. BOTH ARE LEGAL REQUIREMENTS, BUT ONLY FAILURE TO DO THE FORMER GETS YOU LABELLED A TAX EVADER. IN FACT, IT IS POSSIBLE TO EVADE TAXES AND STILL BE A TAX-FILER: BY SUBMITTING FALSIFIED DOCUMENTS, SOMETHING THAT THE FBR’S ELECTRONIC SYSTEMS DO NOT HAVE THE ABILITY TO CATCH’ that passed Parliament in April, as of July 1 of this year, the minimum taxable income has gone up to Rs1,200,000 a year (Rs100,000 a month). The proportion of Pakistanis who earn that amount as individuals is miniscule: just 650,000 individuals or 0.8% of the labour force in 2017, or 0.3% of the total population. Of course, the dataset we rely on – the Household Integrated Economic Survey run – probably systematically undercounts the number of people who make more than Rs100,000 a year. Nonetheless, one could multiply that number by 5 and still arrive at a number that is less than 5% of the labour force and only around 3% of the total population. These numbers, by the way, is why the government relies so heavily on sales taxes rather than income taxes: at least 93% of the people in Pakistan simply do not make enough money to pay income taxes. But even if one were to take this

greatly reduced number of eligible taxpayers, the FBR database is effectively an admission that the government is only collecting taxes from about 10% of the potential taxpayer population.

Can outsourcing help?

he PML-N plan – as outlined by Miftah Ismail – is effectively an admission that the FBR is a congenitally corrupt organisation that is simply beyond repair. But the PML-N is not proposing undertaking the difficult task of implementing civil services reforms, which they assume would be stymied by the simple fact that any reform agenda would have to be implemented by the sclerotic and perennially corrupt civil service itself. Instead of trying to tackle that Catch-22 situation, the PML-N is proposing outsourcing the parts of the FBR’s job that are most prone to corruption: issuing notices, collecting payments, and conducting audits. In

other words, any task that involves an FBR officer interacting directly with a taxpayer. Of course, that would still leave the FBR with the task of administering the tax machinery as a whole, but with so many essential functions outsourced, the FBR would functionally turn into a near-redundant entity, and the task of tax collection in Pakistan will have effectively been privatised. Yet it is not immediately obvious as to why this essential government function needs to be privatised. Indeed, there is evidence from Pakistan itself to suggest that simply re-aligning the incentive structures of official within the government’s existing tax collection machinery can produce significantly improved results with respect to revenue collection. A landmark study was conducted by three academics in Punjab, who published a working paper in 2014 with the International Growth Center (IGC) outlining their results. The academics are Asim Khwaja, a professor of public policy at Harvard University’s Kennedy School of Government, Benjamin Olken, a professor of economics at the Massachusetts Institute of Technology (MIT), and Adnan Khan, a researcher at the London School of Economics. The International Growth Centre is a research centre based at the London School of Economics operated in partnership with the Blavatnik School of Government at the University of Oxford. These three academics were able

‘THIS IS AN IMPORTANT DISTINCTION: THERE IS A DIFFERENCE BETWEEN PAYING YOUR TAXES AND FILING YOUR TAX RETURNS. BOTH ARE LEGAL REQUIREMENTS, BUT ONLY FAILURE TO DO THE FORMER GETS YOU LABELLED A TAX EVADER. IN FACT, IT IS POSSIBLE TO EVADE TAXES AND STILL BE A TAX-FILER: BY SUBMITTING FALSIFIED DOCUMENTS, SOMETHING THAT THE FBR’S ELECTRONIC SYSTEMS DO NOT HAVE THE ABILITY TO CATCH’ to conduct an experiment in Punjab, where they introduced performance pay incentives for property taxes in the province. The new incentive scheme appears to have been quite successful, resulting in a 46% increase in revenue collections among those officials who were offered the performance incentives compared to a 28% increase in revenue collection in the comparison group who were not offered the incentives. In short, it appears to be possible to improve revenue collection in even some of the most corrupt and incompetent segments of the government’s tax collection machinery without the need to privatise the essential functions of government. It is still possible that the results of an experimental scheme in one area of tax collection will not necessarily translate into success in another area. After all, the sums of money that gov-

ernment officials handle at the Large Taxpayer Units in Karachi and Lahore are much higher than those handled by the property tax units across Punjab that were studied in the IGC paper. Nonetheless, it would appear that the government should at least be attempting to improve the performance of its own civil servants through a scheme that has at least provisionally shown results before abandoning all hope and rushing headlong into privatisation of an essential function of the state. After all, the historical experience of governments that dole out contracts for revenue collection to private entities – whether it be the Nawabs of Bengal outsourcing tax collection to the British East India Company or Louis XVI outsourcing tax collection in France to private individuals – tends to not end well for the outsourcers. Mr Ismail would do well to read up on his economic history.

TAX POLICY

With India and the Philippines ratcheting up the rates, will Pakistan be able to jump on the BPO bandwagon?

When other nations were making inroads into business process outsourcing, poor broadband infrastructure, inadequate human resource, and deteriorating security situation were wiping out the industry in Pakistan, resulting in two decades of lost opportunity. With most of these hurdles now removed and a business-friendly IT policy in place, can we grab a slice of the $180 billion BPO market?

COVER STORY

By Farooq Baloch

trategically located, just a 20-minute drive from the heart of Karachi’s business and banking district, Centre Point – the 29-storey office tower, making it one of the tallest amongst skyscrapers in the country – is a state-of-the-art corporate tower, offering prestige and comfort. In close vicinity of I.I Chundrigar Road, Saddar, Clifton, Defence, Shahra e Faisal and Korangi Industrial estate, the Rs650 million skyscraper boasts of every conceivable amenity a modern corporate office would demand to boot: high-end IT infrastructure with fibre-optic connectivity, rooftop swimming pool, gymnasium, restaurant, centralised security system and dedicated parking for executives and visitors. From the 18th floor operates The Resource Group (TRG), Pakistan’s largest business process outsourcing (BPO) services exporter to the world. It really doesn’t really matter who is the second or third largest, as IT-BPO companies with net revenue exceeding $10 million are few enough to count on the fingers of one hand. To put things in perspective, given that at a minuscule $45 million, even TRG’s revenue is nothing much to write home about – just a 0.1% blip in the $180 billion global market. Unlike similar setups in Bengaluru or Manila, TRG might look minuscule, even insignificant. But in the broader local context, it assumes a significance all its own. With the country’s IT-BPO industry having withered away almost in its entirety nearly a decade ago, TRG was in the vanguard of companies that ventured out in the absence of critical resources, with poor infrastructure, inadequate human resource, regressive tax regime and deteriorating security environment making the

‘FOR CALL CENTER JOBS, YOU DON’T NEED GRADUATES OF ‘TIER ONE’ UNIVERSITIES. WE HAVE A VAST POOL OF ENGLISH SPEAKING HUMAN RESOURCE TO FILL THESE JOBS… I THINK IT IS THE BEST TIME FOR IT SECTOR FOR INTERNATIONAL BUSINESS DEVELOPMENT’ Nadeem Elahi, Managing Director, TRG situation daunting.

India, the pioneer

he industry veterans say IT-BPO scene was pioneered by India about 25 to 30 years ago when the US and the British companies shifted businesses there. So, by the time Pakistan became an offshore destination for similar services, in the late 1990s, India was already riding the wave with top entities like the American Express and General Electric setting up outsourcing centers in the country. Over the years, India went on to develop its IT sector significantly, establishing its global standing as the powerhouse for outsourcing services like call centers, back-office services, finance and accounting, human resource and other vertical-specific processes. No wonder, it raked in more than

‘BESIDES TAKING RIGHT POLICY MEASURES, THE COUNTRY HAS ALSO INCREASED ITS BACKBONE BROADBAND CAPACITY. UNLIKE PRE-2005 PAKISTAN, WHICH HAD ONE SUBSEA CABLE, THE COUNTRY NOW HAS SIX GATEWAY LANDING POINTS AND, AT LEAST, TWO MORE ARE IN THE PIPELINE’ 22

$125 billion in IT-BPO exports last year. Meanwhile, what about Pakistan? It didn’t even touch a billion dollars! One might argue India had the first-mover advantage and a competitive edge over Pakistan, which is a much smaller economy, therefore, it is not a fair comparison, even though there is a wide array of similarities between the two South Asian nations. However, another country started its BPO journey simultaneously with Pakistan: the Philippines. Pakistan and the Philippines both being former colonies of an English-speaking nation thus possess a vast pool of English-speaking human resource – a key requirement in the call center business accounting for half of the global BPO services market. Both the economies were about the same size and started their BPO journey simultaneously, but now stand polls apart from the global IT-BPO services exports. When call center business was still an emerging phenomenon in Karachi, about 5,000 kilometres east, Manila had already welcomed Sykes Asia, the first multinational BPO company in the country. In the next two decades, the Philippines went on to become one of the world’s most sought-after offshore destinations for outsourcing – No 2 by some accounts (No prizes for guessing who the No 1 is!). Philippines’ BPO exports alone have surpassed $30 billion – surpassing by nearly one-fourth Pakistan’s entire exports. It is the Philippines their fastest growing industries, employs more than a million Filipinos and accounting for approximately one-tenth

of the country’s GDP growth. On the other hand, Pakistan has singularly failed to make any impact on the global BPO market. Pick any international BPO ranking and you would find Pakistan excluded. It is not listed even amongst the top 20. Pakistan’s entire IT and IT-enabled Services (ITeS) sector is $3 billion, with BPO barely 15% of it, employing just 20,000 to 30,000 people. Where did the Filipinos succeed and the Pakistanis failed? What policies of the western Pacific nation helped its IT-BPO sector emerge as a strong contender in the global BPO market and why Pakistan fell short despite having a much larger pool of young population than the Philippines? And most importantly, can we still pull it off, are some of the questions Profit is attempting to answer in this report.

The beginning

espite a late entry into the BPO segment, Pakistan got off to a decent start as IT and ITeS industry grossed $300 million in revenues by 2004. The exports were only 11% or $33 million of the sector’s revenue but the country was said to be catching up with its international counterparts. According to a 2005-report by BusinessWeek, the IT and ITeS sector employed 75,000 professionals that year. As many as 120 call centers had opened shop between 2003 and 2005, employing 3500 people. Companies like Arwen Tech (Karachi), Techlogix (Lahore), and Netsol (Lahore) were each looking at $10 million in revenues. Arwen was even aiming to expand its 600-seat call centre to a 1500-strong facility and had set sights on a $100 million revenue target for the next five years. Still, in its infancy, Pakistan’s

‘...FORTUNE 500 COMPANIES DO NOT CONSIDER PAKISTAN... THOUGH THEY ARE AWARE OF THE TOP QUALITY TALENT AVAILABLE HERE. ON A PERSONAL LEVEL, PEOPLE WOULD LIKE TO WORK WITH PAKISTAN BUT THEY STAY AWAY DUE TO THEIR CORPORATE POLICIES AND ADDITIONAL INSURANCE COST’ Shehryar Hyderi, General Secretary, Pakistan Software Houses Association (P@SHA) BPO industry was seen as an emerging source to boost employment and reduce the country’s dependence on textiles, which was then 65% of its exports and a major source of increasing forex reserves. However, just when things started to pick up, a major fault developed in Southeast Asia, Middle East and Western Europe-3 (SMW3), then the lone internet gateway point connecting the country with the cyber world.

The Titanic moment

“T

hat incident alone finished 50% of our BPO industry,” TRG’s Managing Director, Nadeem Elahi told Profit while referring to the sub-sea cable fault of 2005.

‘THE GOVERNMENT... OPTIMISM IS DRIVEN BY THE RECENT GROWTH IN IT REMITTANCES. PAKISTAN’S IT AND ITES EXPORTS GREW 71% BETWEEN 2013 AND 2016, THE HIGHEST RATE IN SOUTH ASIA... THE GOVERNMENT IS NOW TARGETING TO TAKE IT EXPORTS TO $10 BILLION BY 2025’

The-2005 internet blackout persisted for two weeks and turned into a catastrophe, causing massive financial damage to the call center industry after it cut Pakistan’s telecommunication links with the outside world. According to media reports, about 3,000 employees were laid off from 30 international call centers, which didn’t have any backup capacity and suffered financial losses as a direct result of the cable fault. “We had issues with our infrastructure, which was not the case in the Philippines,” Elahi said. Explaining, he said BPO business has two parts, voice-based services like call centers and non-voice services like email, chat or back office work. Voice-based services or call centers need reliable broadband connectivity, which is the lifeblood of this business. But Pakistan had only one internet cable at the gateway level and when that was cut off, there was no backup. Pakistan was barely making any investment on broadband infrastructure, even the rollout of 3G technology took 8 years since it was first discussed in 2006. The Universal Services Fund, a government fund meant for development of information and communications technology (ICT) infrastructure, remained untouched for years and later used to pay the power sector circular debt. The Philippines, on the other hand, was constantly developing its IT infrastructure and making policies that supported the BPO sector. When call centers were shutting down in Pakistan due to cable faults and lack of backup capacity, the

COVER STORY

Philippines had already gained 3% of the global BPO market, thanks to the farsightedness of their government, which saw this sector’s potential for exports, employment generation and GDP growth. Take the example of Mar Roxas, secretary of the Department of Trade and Industry (2000-2003), who reached out to important leaders in the country to promote foreign investment and helped shape the landscape of BPO in the Philippines to its present form. Roxas lobbied in the Congress to revise Republic Act 7916 so that buildings or floors in buildings could register as an ecozone and BPO startups, which require big spaces to operate could get exemption from national and local taxes, one of his key contributions and a major enabler for the industry during that time – the BPO companies only had to pay 5% tax on their gross income. “Pakistan never really had a BPO industry as there were only a handful of companies that offered these services,” says Afaque Ahmed, co-founder of Cloud BPO, a Karachi-based IT company. Catering to the telecom sector, his company moved from low-end outsourcing services to high-end software development because of the problems the sector was facing. “The internet backbone faults always hurt this sector. If you can’t do backend processing for three weeks, you can’t survive.” Ahmed, who also runs Karachi Institute of Technology and Entrepreneurship (KITE), says the challenges BPO sector faced in Pakistan were not limited to cable faults. “For the BPO industry, you need to be educated and low-cost human resource,” Ahmed says, adding, “Those who were educated and skilled either moved abroad or

The total IT sector is worth over $3bn of exports, and this does not include hardware. The rough breakdown is as follows

BPO is roughly

10-15%

Exports through SBP (a jump of over $200 mn from 2017)

of our industry

freelancers

$500

billion

in exports through SME’s that bring in money as personal remittances and do not go through the SBP, or do not fill in the right code while getting dollars through the bank.

domestic IT market

million

(Source: P@SHA)

picked up high-end software development jobs. So from a long-term perspective, BPO companies always faced choking on the HR front.” The main reasons for BPO’s failure in Pakistan were lack of low-cost human resource, internet faults that occurred frequently between 2005 and 2015, fewer internet landing points, and government taxes, especially those in Sindh, says the KITE president. “For BPO, you need solid regulatory framework, a stable tax structure, reliable quality of workforce and in sufficient quantity. We can never compete internationally unless we do these things,” he says. IT exports (both software and services) were long exempt from

‘OVER THE YEARS, INDIA WENT ON TO DEVELOP ITS IT SECTOR SIGNIFICANTLY, ESTABLISHING ITS GLOBAL STANDING AS THE POWERHOUSE FOR OUTSOURCING SERVICES LIKE CALL CENTERS, BACK-OFFICE SERVICES, FINANCE AND ACCOUNTING, HUMAN RESOURCE AND OTHER VERTICAL-SPECIFIC PROCESSES’ 24

million

$1.2

million

$500

$800

taxes, but the federal government, in Finance Act 2015, had imposed an 8% minimum tax liability on services sector on domestic sales regardless of whether a company makes profit or loss. This tax was a severe hindrance in the growth of the local IT-BPO sector, which operates on razor-thin margin but holds key importance for export-oriented services companies. It is also pertinent to mention that ITeS are also charged 14% to 16% services tax by provincial governments. In fact, Sindh has also levied a 3% tax on exports of IT services, which hurt Karachi-based BPO companies. Speaking to Profit on this subject, Chairman Sindh Revenue Board, Khalid Mahmood said they have reduced taxes on call center business from 15% as of fiscal year ending June 2015 to 13% now, which is the lowest rate charged by any province on call center services – the rate in Punjab and the federal territory is 19.5% and 18.5% respectively. Asked if they planned to abolish that 3% tax on exports of IT services, the chairman said, “The latest budget had no new tax measures, but this option can be considered in the future.”

The cost of terrorism

ervices tax on call centers hurt the local players but that was in recent years. There were a host of other issues that hampered the country’s journey as an outsourcing destination to the Western world, the largest market of IT-BPO services. Political turmoil, terrorism, and poor law and order halted movement of foreigners to Pakistan. “Foreigners like to come to the offshore locations for training people. When they don’t come, it is a big disadvantage,” says Elahi of TRG. According to South Asia Terrorism Portal (SAPT), 58,642 casualties were reported between 2005 and 2015 in terrorist violence in Pakistan, this translates to an average 444 people dying in terrorist violence every month. When it comes to IT-BPO, uptime, that is how long the service is available, is a major factor but problems like bomb blasts, strikes, violence and political turmoil disrupted availability of services, productivity and employee turnout, Elahi says. Shehryar Hyderi, General Secretary of Pakistan Software Houses Association (P@SHA), seems to agree. “The BPO market depends on the country’s image and that is the biggest hindrance to its growth, more so than the rest of the software and tech sector,” says GS P@SHA, the private sector’s representative body for IT and ITeS companies. Hyderi says, the large BPO companies could easily double or triple in size if the country risk and negative image around Pakistan would improve. “Due to this country risk, travel advisories etc, Fortune 500 companies do not consider Pakistan as a top outsourcing destination, even though they are aware of the top quality talent available here. On a personal level, people would like to work with Pakistan but they stay away due to their corporate policies and additional insurance cost.” TRG survived because of its business model, which was different than other companies. “We knew we could not compete with India or the Philippines based on conventional model amid all these challenges,” says the MD – this also explains why TRG had the highest

proportion of its employees based in the Philippines. “We decided to acquire American companies, which needed BPO services so we could get business from our own companies abroad.” Instead of chasing Fortune 100 firms, which require big commitments and large-size call centres, TRG started its voice-based BPO operations with 40 to 50 employees to cater to about five small companies it had acquired overseas. Today, TRG has 5,000 people working for Ibex, the company’s BPO business, not counting another 1,000 associated with its artificial intelligence and high-end software development arm: Afiniti. The company exports $50 million worth of services of which 90% comes from the BPO business. TRG can be considered an outlier in the sense that it defied all these challenges and excelled. But, it knows the importance of the so-called country image. This was evident from the fact that its founder Zia Chishti brought a group of international investors from over a dozen countries for a skiing tour to Karakoram mountains in northern Pakistan last year. His mission? To convince these high-valued investors the country was safe for business. The country’s security situation improved significantly in the last three years after the army carried out a combing operation in the northern areas following a deadly terrorist attack on an army-run school in December 2014. This was complemented by another operation in the port city where

paramilitary forces contained political and gang violence – the terrorist violence fatalities average has now come down to 48 per month for the first five months of 2018, according to SATP. As a result of an improved security situation, tourism to northern areas has increased manifold, and international cricket, which was banned in the country in 2009 following a terrorist attack on Sri Lankan cricket team, is back in the country. The rising Chinese investment in the country has also helped improve the country’s image, but to Ahmed of KITE, the country’s perception was not the main issue. “Country’s image is a tertiary issue, not even secondary or primary,” Ahmed says. “BPO contracts are won by connections as the outsourcing industry works this way, but problems like load-shedding, internet outages, security, regressive taxation and lack of incentives hurt the BPO sector.”

The reawakening

all center operations or IT-BPO companies are considered lowend jobs in the IT sector for it pays nearly half of what one can earn in software development, but they hold a lot of significance because they generate employment at large scale, increase forex reserves through exports, and contribute to GDP growth. “You need a strong domestic industry to support exports and international business development of local companies,” Elahi says backing his statement with the following

COVER STORY

example: when there was little to no foreign work, telecom sector provided 12,000 call centre jobs to absorb those people who would have otherwise become jobless. Many local companies moved to exports after they grew big, but regressive taxation of ITeS in the domestic market only hamper their growth towards becoming export-oriented companies, experts say. The IT and ITeS sector provides employment to 300,000 people including 200,000 freelancers and 30,000 call center employees and has a huge economic potential, but it received little to no attention from the government, which relies heavily on textile exports. As a result, Pakistan missed the BPO bus in last decade. However, there seems to be a reawakening on that front as the country has overcome nearly all the obstacles that hindered its growth in the first place and seems to be pursuing policies similar to those of the Philippines. Just before the end of his term, the prime minister announced to extend tax holiday on IT exports from 2019 till 2025. The federal areas are planning to reduce their GST on IT services down to 5% and this was announced in the recent IT policy, already approved, on May 23, by the cabinet. The IT policy, which has a heavy input from the private sector, is being hailed as a game changer for the IT and ITeS sector. “P@SHA has worked with IT ministry to ease the registration process of BPOs with Pakistan Software Export Board and extend their registration from one year to five years so that they can operate without unnecessary paperwork and hassle,” said Hyderi of P@SHA. Sharing details of the industry’s input in the upcoming IT policy, Hyderi said they have advised the government to incorporate the concept of Tech Special Economic Zones (SEZs), which are IT ready plug and play clusters where companies can operate under a one-window structure with the government. The BPO sector employs people on a large scale and needs big and cheap space, ranging between 20,000 to 50,000 square feet or even 100,000 square feet. The SEZs and IT Parks are the most critical support needed for the BPO sector. They pro-

‘THE SEZs AND IT PARKS ARE THE MOST CRITICAL SUPPORT NEEDED FOR THE BPO SECTOR. THEY PROVIDE AFFORDABLE PLUG AND PLAY OFFICE SPACE THAT CAN BE USED FOR EXISTING AND NEW COMPANIES TO SCALE UP THEIR OPERATIONS AS QUICKLY AND AS RELIABLY AS POSSIBLE’ vide affordable plug and play office space that can be used for existing and new companies to scale up their operations as quickly and as reliably as possible. “The best case study of this [SEZs] is the Philippines market, which has become the BPO hub of the world and taken a lot of the Indian business due to their positive policies and infrastructure,” Hyderi said, adding, “Pakistan’s current IT policy is inspired by success stories of the Philippines.” Currently, a lot of people don’t remit their earnings back to the country, they just transfer costs. This is a big problem because entire industry’s money is parked outside Pakistan, say industry sources. However, P@SHA has also demanded a 5% cash reward on exports similar to that given to other traditional sectors like textile and leather. This has been included in the IT policy as well and this will prove to be a major incentive for companies to think of the export markets and to bring in their earning through the SBP to earn this reward. Besides taking right policy measures, the country has also increased its backbone broadband capacity. Unlike pre-2005 Pakistan, which had one subsea cable, the country now has six gateway landing points and, at least, two more are in the pipeline. The government has just completed a nation-wide network of National Incubation Centers – one apiece in Karachi, Lahore, Peshawar, Quetta and Islamabad. This is in addition to the government of Punjab’s Plan 9 and P@SHA’s Nest i/o and at least 15 IT parks as of 2015. Ten years ago, there were barely three to four universities producing graduates that would fit BPO jobs, but dozens more have opened up, producing 20,000 IT graduates every year. Presently only 10% of these IT grads

go to the BPO market. Despite an ample supply, the quality still remains an issue. However, Elahi believes the situation on the human resource front is much better today. “For call center jobs, you don’t need graduates of ‘tier one’ universities. We have a vast pool of English speaking human resource to fill these jobs,” the MD says. “I think it is the best time for IT sector for international business development.” Can we catch the BPO bus this time and become the next outsourcing hub, we ask him. “I think the opportunity is here because like in India, the Philippines is also becoming an expensive BPO destination. Even if it is a small window, but the opportunity is there,” an optimistic Elahi said. And, perhaps, there are signs of it already. Last year, an American firm moved 125 BPO jobs to Pakistan after it shut down its operations in Noida, India, leading to talks of IT jobs shifting to Pakistan, which is experiencing a resurgence as startup culture develops in the country’s conducive environment. The government, too, is upbeat about prospects of IT exports, and the optimism is driven by the recent growth in IT remittances. Pakistan’s IT and ITeS exports grew 71% between 2013 and 2016, the highest rate in South Asia, claims Pakistan Software Export Board (PSEB). The government is now targeting to take IT exports to $10 billion by 2025. “With 3G and 4G service, over 85% of telecommunication infrastructure on fiber-optic cables and internet access in over 2,000 cities and towns across Pakistan, now is the right time for foreign and local investors to consider investing in the lucrative IT and ITeS-BPO sector of Pakistan to generate high ROIs,” reads a statement on the PSEB’s website.

COVER STORY

FINTECHS:

GOLIATHS OF TODAY, DINOSAURS OF TOMORROW?

Innovation is not the done thing in Pakistan’s commercial banking and soon Pakistan’s financial services industry is expected to witness a David-and-Goliath contest of sorts, with Fintechs with negligible capital taking on commercial banks with billions, even trillions, in assets – and beat them By Kazim Alam

CONSUMER RIGHTS

ank CEOs in Pakistan have at least one common quality: they are quite adept at dodging tough questions – seamlessly, with a poker face that would put a con man’s considerable skills to shame. Ask them about their conservative lending approach to the private sector, and they’ll blame the counterpart’s lack of ‘borrowing capacity’. Question their abiding love for riskless government securities, and they’ll point out their lack of alternative avenues to deploy liquidity. Quiz them about their fat salaries, and they’ll draw your attention to high remuneration that their global peers receive. They’re blame shifters. They’re question dodgers. They can’t be put on the spot – making it well nigh impossible for a journalist to pin them down. So, it took an insider, a former head of a commercial bank – a fellow golf-playing one to boot – to get a straight, honest answer from the heads of three large banks about their readiness to meet the challenges of digital banking. Moderating a panel discussion at the second Digital Banking and Mobile Payments Summit held in the last week of March in Karachi, Planet N Group of Companies Founder Nadeem Hussain asked the bank CEOs a blunt question: How do their respective boards of directors assess CEO performance on the digital banking front? Their unanimous answer was that the boards simply don’t. You read it right. The bank CEO’s compensation and bonuses are not in any way linked with his or her driving growth in the digital segment! And, why should they bother if they can make billions of rupees every quarter just by trading in government securities?

‘GETTING A CREDIT CARD TAKES 20 DAYS, BUT A DIGITAL PROVIDER CAN GIVE MONEY IN YOUR HANDS WITHIN 15 MINUTES. THAT’S DIGITAL BANKING. IT’S NOT ABOUT A SEXY APP IN THE FRONT AND OLD BANKING SYSTEM AT THE BACK THAT STILL MAKES YOU WAIT FOR A MONTH TO PROCESS A TRANSACTION’ Nadeem Hussain, Planet N Group of Companies Founder

In the same old mode

ccording to Bank Alfalah CEO Nauman Ansari, the only key performance indicators of an average bank CEO are returns on assets and equity, revenue, net profit, balance sheet growth etc. “If you don’t align incentives right from the top, if you’re not long-term oriented, if you’re looking at short-term profits and quarter-to-quarter performance, then the management and employees are going to behave that way,” said Ansari in a rare moment of intro-

‘PAKISTAN IS GOING TO HAVE 3G/4G COVERAGE OF 90 PER CENT WITH CLOSE TO 100 MILLION SMARTPHONES BY 2025. IT’S A FIELD WIDE OPEN. COMMERCIAL BANKS HAVE FAR MORE FINANCIAL MUSCLE THAN IS NEEDED TO CONNECT THE DOTS, USING THE EXISTING RAILROADS AND HARNESSING THE DATA WITH ARTIFICIAL INTELLIGENCE’ 30

spection. “Banks are structured in such a way… structures from 30-40 years ago are still prevalent in the banking sector. When you combine these two things, innovation is not something that you expect,” Ansari said. Banks are heavily dependent on the old way of doing business, which is mainly about catering to the fund-

ing needs of the government and big businesses by mobilising deposits from ordinary folks. Lending to low-income people based on their credit worthiness determined by, say, their mobile phone data does not interest commercial banks at all. However, segments like nano-payments – tiny credit that ordinary people require on a daily basis for trivial services, like buying groceries

or paying the plumber – have become an area of focus for fintechs, financial technology firms that are redefining the financial services industry.

Sea change in a decade

peaking on the occasion, Faysal Bank CEO Yousaf Hussain said resistance exists within commercial banks to adapt to the digital age. “Priorities become very different when you see easy revenues. Banking is going to change in five to 10 years. It’s no longer going to be traditional,” he said. He called it a challenge to convince boards to invest in the future i.e. digital banking. “To me, it’s a survival game. At this point in time, most of the boards are probably not allocating too much for this (digital) initiative. But they’ll have to do it,” he said. Meezan Bank Deputy CEO Ariful Islam called for teaming up with fintechs to create innovative banking solutions. “By partnering with fintechs, we can take the burden of innovation away from our organisation because it’s very, very difficult to foster a culture of innovation within commercial banks... There’s an inherent culture that banks grew up with where you don’t want to take risks,” he said. Hussain asked him how much time a bank CEO spends on average to devise and implement digital strategies. “We don’t measure it, okay? We should. There should be metrics,” said Islam. Within the next few years, Pakistan’s financial services industry is expected to witness a David-and-Goliath contest of sorts. Fintechs with negligible capital are going to take on commercial banks with billions, even trillions, in assets – and beat them, too. The process has already begun. The country recently witnessed the largest transaction taking place in

‘IF YOU DON’T ALIGN INCENTIVES RIGHT FROM THE TOP, IF YOU’RE NOT LONG-TERM ORIENTED, IF YOU’RE LOOKING AT SHORT-TERM PROFITS AND QUARTER-TO-QUARTER PERFORMANCE, THEN THE MANAGEMENT AND EMPLOYEES ARE GOING TO BEHAVE THAT WAY,” SAID ANSARI IN A RARE MOMENT OF INTROSPECTION’ Nauman Ansari, CEO, Bank Alfalah fintech. A small microfinance bank that Nadeem Hussain set up 13 years ago has recently been valued at $410 million. Ant Financial, which is the world’s largest financial services company in terms of the number of customers, has invested $185 million in Telenor Microfinance Bank, previously known as Tameer Microfinance Bank. The foreign company is owned by the famed Jack Ma of Alibaba Group. The fact that one of the most astute global investors has put in $185 million for a 45 per cent stake in a small Pakistani banking entity with a payment platform called Easypaisa should concern big commercial banks. These Goliaths are sitting on piles of liquidity and own a brick-and-mortar network across the country. Yet they seem completely oblivious to the demands of the emerging financial services industry in the new economy.

‘A SMART PHONE HAS 12,000 DATA POINTS – A MINEFIELD FOR INDEPENDENT FINTECHS THAT REMAIN TELCO-AGNOSTIC, I.E. THEY CAN WORK WITH ANY MOBILE NETWORK OPERATOR TO HELP THEM HARNESS PHONE DATA FOR AN ACCURATE ASSESSMENT OF THE CREDIT WORTHINESS OF CUSTOMERS’

“You have to figure out from where that valuation (of $410 million) is coming from, given that the pre-tax profitability of the bank is less than $10 million,” said Hussain who founded, built and sold the microfinance bank to Telenor Group in 2016. “My prediction is that there’ll be an another big transaction in the next 12 months (of) about $200 million in this arena by another investor,” he said, adding that this is the best time to invest in the digital banking and payments segment.

Major developments in the offing

ith Alibaba’s entry in Pakistan, Hussain expects three major developments to take place in the next six to seven years. The first one is about lending customers. There’re just seven million borrowers in Pakistan. It doesn’t mean people don’t borrow. They do. But mostly through informal sources, like family, employer or local grocery store. Hussain expects the number of lending customers to surge to 50 million by 2025. That’ll be possible on the back of data that’s going to be generated from existing railroads and will be a result of digital lending, not consumer lending. Consumer lending in Pakistan has traditionally revolved around factors like one’s monthly income and tangible assets. But digital lending in the future will be based on the use of mobile wallet and data that exists on one’s phone.

CONSUMER RIGHTS

“We’re talking about this explosion of digital lenders,” he said. Companies that are best-positioned to take advantage of the emerging trends in digital banking and online payments are mobile network operators. They have a customer base of more than 100 million people along with 27 million mobile wallets. Jazz and Telenor are entering the nano-credit segment: up to Rs10,000 lent for a month to low-income people on the basis of their phone use data, not any tangible collateral. A smart phone has 12,000 data points – a minefield for independent fintechs that remain telco-agnostic, i.e. they can work with any mobile network operator to help them harness phone data for an accurate assessment of the credit worthiness of customers. “Getting a credit card takes 20 days, but a digital provider can give money in your hands within 15 minutes. That’s digital banking. It’s not about a sexy app in the front and old banking system at the back that still makes you wait for a month to process a transaction,” Hussain said in a reference to the half-hearted efforts by commercial banks to come up with a customary app.

Drivers of the digital world

s opposed to the slow-moving animal that a commercial bank is, a fintech-run app looks at your payment history, makes a decision in just 90 seconds, sees whether you have an existing mobile account, connects to it in real time if you do, sends your money into it, and you can take it out through one of the

‘PRIORITIES BECOME VERY DIFFERENT WHEN YOU SEE EASY REVENUES. BANKING IS GOING TO CHANGE IN FIVE TO 10 YEARS. IT’S NO LONGER GOING TO BE TRADITIONAL’ Yousaf Hussain, CEO, Faysal Bank

‘BY PARTNERING WITH FINTECHS, WE CAN TAKE THE BURDEN OF INNOVATION AWAY FROM OUR ORGANISATION BECAUSE IT’S VERY, VERY DIFFICULT TO FOSTER A CULTURE OF INNOVATION WITHIN COMMERCIAL BANKS... THERE’S AN INHERENT CULTURE THAT BANKS GREW UP WITH – WHERE YOU DON’T WANT TO TAKE RISKS’ Ariful Islam, Deputy CEO, Meezan Bank 80,000 branchless banking agents across the country. “This is happening already. Branch network (of commercial banks) has become irrelevant. That’s because fintechs use railroads that are independent of the banking system,” he said. The second major development that Hussain anticipates is a rapid rise in the number of merchants – ones with point-of-sale (POS) machines, where cash-in, cash-out takes place for branchless banking or ecommerce merchants – from 80,000 to 10 million by 2025.

“You no longer need a POS machine because of the advent of QR code and proximity payments. Ecommerce is going to grow with the payment mechanism becoming faster. This has already happened in China successfully. This is what Ant Financial is going to do here. This is what other players need to look acct: use data to create a lending strategy,” he said. The third development that he foresees is that Pakistan is going to have half a million data scientists by 2025 from only 50 such professionals right now. “We have invested heavily in this… Deep learning, artificial intelligence, machine learning are going to drive the digital world,” he said. As an example, he cited a recent case where one of his companies worked with commercial banks to create a default prediction. If you are a consumer bank and you want to increase your business, his company can create an algorithm with 89-90 per cent accuracy whether your customer is going to default. Such intelligence already exists with us, he said. “The railroad that you need for digital banking to take place exists in Pakistan.” Pakistan is going to have 3G/4G coverage of 90 per cent with close to 100 million smartphones by 2025. It’s a field wide open. Commercial banks have far more financial muscle than is needed to connect the dots, using the existing railroads and harnessing the data with artificial intelligence. That said, given the milieu one would not be surprised, if the Goliaths of today’s banking industry end up as dinosaurs of tomorrow.

CONSUMER RIGHTS

With CCP timidly looking away, the APCMA is running a cartel, setting up production quotas and extracting rapacious rates from captive consumers

INDUSTRY

By Muhammad Faran

o the uninitiated, the CPEC-driven influx of massive investment in infrastructure holds great promise, among other major industries, for the cement sector as well. When one scratches below the surface, quite a different view emerges. The corridor highways, as pointed out by Saeed Saigol, Chief Executive Officer (CEO) at Maple Leaf Cement and president of All Pakistan Cement Manufacturers Association (APCMA), “would not be made of concrete, so not consuming too much cement.” To cap it, the project-related growth under the corridor in terms of infrastructure development is also spread out over the course of many years. Hence, not being a major turning point for the industry as such. What then explains the rising cement prices in the country? The answer stares one in the face: under the garb of false, simulated competition, players in the industry collude amongst themselves – to create a cartel

under the APCMA’s aegis, setting up production quotas to scalp rapacious rates. In 2008, an inquiry was initiated by the Competition Commission of Pakistan (CCP) on the unexplained increase in cement prices the previous year. Another inquiry more or less on similar lines was undertaken in 2012, with the Commission not ruling out the possibility of a cement cartel in both instances. However, the cartel is inconsistent, breaking whenever the industry enters an expansionary phase. “When companies increase capacity, more cement needs to be offloaded and decreases

their price. The competitors also try to increase or maintain their market share, putting the inevitable pressure on pricing – impacting profitability,” says Raza Jafri, Market Analyst at Intermarket Securities. Once these price wars start having a say on profitability, there is a push towards colluding again.

Similar, yet dissimilar to India

he similarity between the Indian and Pakistani cement industry is indeed striking – the only difference being the regulator in India

‘IN 2008, AN INQUIRY WAS INITIATED BY THE COMPETITION COMMISSION OF PAKISTAN (CCP) ON THE UNEXPLAINED INCREASE IN CEMENT PRICES THE PREVIOUS YEAR. ANOTHER INQUIRY MORE OR LESS ON SIMILAR LINES WAS UNDERTAKEN IN 2012, WITH THE COMMISSION NOT RULING OUT THE POSSIBILITY OF A CEMENT CARTEL IN BOTH INSTANCES’

clamping heavy fines to protect the consumers. Only recently, following a preliminary investigation, the Competition Commission of India (CCI) pointed out that six companies in India’s northeastern region were found to have formed a cartel. The scope of the investigation is likely to expand, with the possibility of more companies in other geographical sphere coming under the CCI scanner. The CCI is known to have shown its teeth previously, by imposing heavy fines on the industry on the other side of the Wagah border. In 2012, some cement companies were penalised to the tune of Indian Rs60 billion, while in 2016 another Indian Rs67 billion was extracted from 11 cement companies and the Cement Manufacturers’ Association (CMA), both accused of colluding

and using a common portal to manipulate cement prices. Over here what is dissimilar to India is that the government apparatus, as well as the conspicuous-by-their-absence consumer-interest watchdogs, have singularly failed in ensuring that the ordinary Pakistanis are not entirely left at the mercy of rapacious business interests.

Cement cartel and APCMA

ollusion amongst competitors demands great coordination and this is where APCMA comes in. The industry sources reveal that the APCMA acts as a coordinating body for the cartel, decides quotas for individual companies based on installed capacity. To ensure that no company

‘IN NEAR FUTURE, THE QUINTET – BESTWAY, MAPLE LEAF, PIONEER, AND CHERAT – IS ALL SET TO PUT UP NEW PLANTS. THE SURVIVAL OF THE CARTEL SHALL FOR A LARGE PART DEPEND ON HOW WELL THE DEMAND MATCHES THE ADDED CAPACITY’

produces more than its allocated quota, the association stations employees of competing companies at one another’s production facilities to keep tabs on production and sales. Predictably, the APCMA head rejects the cartel existence out of hand, contending instead that the industry capacity utilisation was almost 100 percent. With no excess capacity at hand, quotas do not make any sense. “The thing is that when you’re running at 95% flat out, why would anyone want [quotas].” He further dismisses allegations of employees from competing companies keeping a watch into one’s own factory amounts to exposing one’s competitive advantages – something no company would be willing to do. Moreover, margins over the last year have fallen, something he attributes to the rising coal prices and the inability of the industry as a whole to on-pass to the consumers the increase in taxes last year. “For the last three years, the cement industry has failed to even fully on-pass the tax [to the consumers]. Then take a look at the price differen-

INDUSTRY

tials within Punjab. The price in Lahore is Rs550 while in other areas in Punjab it is Rs480, Rs485, Rs487, and Rs490,” he says. Such differential, he contends, cannot be there in a cartel. “The person selling at Rs485 [in a cartel] would be mad.” Sounds logical? Yes, but this price differential is a consequence of tiered division, and not the absence of a cartel, with the top-tier granted the highest with the second and third tier companies selling at comparatively lower price points.

Adhering to the quotas

he APCMA also allegedly regulates prices, not allowing any company to sell at lower than the prescribed per bag price. So, the cartel’s survival depends on each of the companies adhering to the supply quotas and set prices. But such is the industry dynamic that the motive to cheat is ingrained in the companies. For instance, if one company quietly breaks away from the cartel and produces more than its allotted quota, it shall earn more and in the bargain capture a larger market share too. If, however, all or most of the companies decide to produce more than their quota their combined profitability decreases bringing the existence of the cartel under risk. According to industry sources, a few in the south – including Lucky Cement and Cherat Cement – having set up new plants, want their quotas enhanced. Since the quotas are decided based on the actual capacity, these companies need to get these inspected and verified by APCMA. However, some are reluctant to get capacities verified. As a case in point, Muhammad Ali Tabba, the owner of Lucky Cement, consents for only for a two-day inspection but is not amenable to these spread over a longer duration, of, say, one month. The catch here is that there are ways to temporarily show a higher

PREDICTING THAT THE INDUSTRY WOULD CONTINUE TO DO WELL: ‘UNLESS IT TAKES A NOSEDIVE... AND [AS A CONSEQUENCE] THERE’S A CONTRACTION OF THE ECONOMY, WHICH I CANNOT SEE HAPPENING IN THE NEXT 12 MONTHS’ Sayeed Saigol, Chairman, APCMA & CEO, Maple Leaf Cement capacity by using higher quality inputs for a compressed period to make it easier for Lucky Cement to get a higher quota than what it would have landed otherwise.

War of egos

p until recently, the cartel was in shambles due to the expansionary trajectory in the industry as well as the unwillingness of the bigwigs to devise a mechanism. A battle of egos, so to speak, between industry leaders like Lucky and DG Khan Cement and others was indeed good for the consumers. But having incurred huge losses due to excessive production, the industry hot shots, sources divulge, sat down in May in Lahore with the intent to sort out their differences. A consensus was thus obtained to choke supply by bringing production in line with the pre-decided quotas and to increase prices by Rs15 to Rs20 for a 50-kg bag. The new price structure entails that the top tier companies charge Rs545 per bag, and the ones down the strata Rs530-535 and Rs525 to Rs530. “The cost of building a house has significantly increased due to un-

‘THE CCI IS KNOWN TO HAVE SHOWN ITS TEETH PREVIOUSLY, BY IMPOSING HEAVY FINES ON THE INDUSTRY ON THE OTHER SIDE OF THE WAGAH BORDER. IN 2012, SOME CEMENT COMPANIES WERE PENALISED TO THE TUNE OF INDIAN RS60 BILLION, WHILE IN 2016 ANOTHER INDIAN RS67 BILLION WAS EXTRACTED FROM 11 CEMENT COMPANIES…’ 38

checked and significant rise in cement prices, ditto for steel – the two most important inputs in construction, making it hard for middle and lower middle class to buy or build their houses,” said Fayyaz Ilyas, senior vice-chairman of Association of Builders and Developers (ABAD). That be as it may, in an election year the demand for cement is expected to rise as in order to garner more votes the federal and provincial governments go all out to complete long overdue development projects. Despite the monsoons bringing cement sales to a trickle, it seems the cartel is not just back, it rules again.

The return of the cartel

n near future, the quintet – Bestway, Maple Leaf, Pioneer, and Cherat – is all set to put up new plants. The survival of the cartel shall for a large part depend on how well the demand matches the added capacity. According to industry experts, if the added capacity is more than the available demand, the cartel may break yet again. However, otherwise in denial over the existence of the cartel, asserts that the industry was not expanding on over-projected demand. “Even if the demand drops by 50 percent of what it is [right now], it’s still very good, as these plants can easily absorb 7-8 percent growth,” says he. Discounting the possibility of a future overcapacity in the industry, Saigol predicts, that the industry would continue to do well – albeit with a caveat. “Unless it takes a nosedive... and [as a consequence] there’s a contraction of the economy, which I cannot see happening in the next 12 months.” Whether Saigol’s supreme confidence sustains or not, for now, the cartel is in total control, making hay big time at the cost of the consumers.

INDUSTRY

DAEHAN KOREAN OR

VIETNAMESE? WELL, WHAT’S IN A NATIONALITY? Having split with Hyundai in 2008, Yousuf Dewan Companies, a prominent Pakistani business house, entered into a joint venture with the Kolao Group in April 2016 to produce a newer version of Shehzore truck in Pakistan By Arshad Hussain, Bilal Hussain

aehan Motors, which recently signed accord with the Yousaf Dewan Companies in Pakistan, in an effort to resurrect Dewan’s popular truck Shehzore, neither has its manufacturing units in Korea nor is it a South Korean brand – as has been claimed by the two companies. The biggest importer of automobile accessories in Vietnam and other Asian countries including Cambodia – with its head office based in Vietnam’s largest city, Ho Chi Minh City, according to Bloomberg and Reuters, since 2015. – Daehan Motors, however, is manufacturing a mini-truck for Vietnamese and Laotian markets. A part of Kolao holdings – importing, manufacturing, selling automobiles and motorcycles in Laos and Myanmar as well – it can be ascertained that Daehan Motor is the assemblers of mini-trucks in Vietnam and Laos and the biggest importer of Chinese and South Korean auto parts and other

accessories. At the launch ceremony of the Daehan-Shehzore in Karachi in February, Chairman Kolao Group Oh Sei Young said, the word Kolao was derived from the country of its origin ‘Lao’ from Laos and ‘Ko’ from Korea where it has prospered. Interior Minister Ahsan Iqbal was the chief guest during the launch and unveiling of Daehan-Shehzore. Laos is a small East Asian nation nestled between Vietnam, Thailand and Myanmar, its geography creating a market for its motorcycles and mini trucks in those countries. Having split up with Hyundai in 2008, Yousuf Dewan Companies, a prominent Pakistani business house, entered into a joint venture with the Kolao Group in April 2016 to revamp its Shehzore truck in Pakistan. In the Pakistan auto industry, the Korean brands generally have a good reputation, and considered only a notch or two below Japanese brands in performance and durability. Korean brands Hyundai and KIA are now making a comeback in the aftermath of Automotive Development Policy

‘THE KEEN INTEREST FROM SYMC IN PAKISTAN SHOWS THAT THE AUTOMOTIVE DEVELOPMENT POLICY (2016-21) HAS BEEN SUCCESSFUL IN ATTRACTING HEALTHY INVESTMENT FROM SOME OF THE LEADING INTERNATIONAL AUTOMOBILE MANUFACTURERS’ (2016-21). The DDMC believes that CPEClinked nationwide infrastructure development is set to send economic activity in Pakistan to new highs, as a consequence seeing immense increase in demand for commercial vehicles.

Kashif Hafeez, GM Corporate Communication Head of Daehan-Dewan Motor Co said, “Kolao group is a listed company of Korea, while Daehan is its subsidiary. It recently launched its automotive manufacturing in Laos, Vietnam, Myanmar and Pakistan.” Daehan is a brand name, just like Shehzore or other vehicles, and it is also listed in Korean Stock Exchange, he added. He further claimed that Kolao group also owns Hyosung Motorcycles with manufacturing facility in Korea. Daehan vehicles are being produced from the international spare parts from Korea, China and Italy. This is a normal practice around the world, claimed GM Corporate Communication. After signing with the Daehan Motor, Dewan Farooq Motors Limited (DFML) started production of Daehan-Shehzore truck in Sujawal, starting booking of the light commercial vehicles. According to the company’s information it can assemble around 50,000 units annually at its plants. The new vehicle continues the legacy of DFML’s immensely popular and trusted Shehzore brand meeting the rising demand of durable commercial vehicles in Pakistan, Shehzore pickup’s 2.6L reliable fuel-efficient diesel engine, dual rear-wheel pick-up features 10-feet cargo deck length, 1+2 seating capacity and newly added convenience and safety features.

The new segment

aehan Motor Company deals in new Completely Knocked Down (CKD) automobiles, motorcycles, wholesale, AS and others. The new automobile segment includes engagement in the dealer business by distributing imported passenger cars and commercial vehicles. The Kolao Group’s CKD segment sells and manufactures CKD and used cars under the name of Kolao, after assembling and processing automobiles imported from China and South Korea.

‘AT THE LAUNCH CEREMONY OF THE DAEHAN-SHEHZORE IN KARACHI IN FEBRUARY, CHAIRMAN KOLAO GROUP OH SEI YOUNG SAID, THE WORD KOLAO WAS DERIVED FROM THE COUNTRY OF ITS ORIGIN ‘LAO’ FROM LAOS AND ‘KO’ FROM KOREA WHERE IT HAS PROSPERED’ The motorcycle segment designs its own model and selling products under the name of Kolao after making orders, processing and assembling of major parts. The company’s wholesale segment sells accessories and other supplies designed for automobiles and motorcycles. The AS segment provides after-sales and repair service for automobiles and motorcycles. Others segment sells and buys used local automobiles in Laos and provides rental services. Shehzore is a brand of Dewan Farooque Motors Ltd (DFML) and nobody including Hyundai can challenge it. The company has its own manufacturing plant in Sujawal (Sindh) and

now it made agreement with Daehan Motors to provide a supply chain for Daehan-Shehzore truck. Daehan Dewan Motors has started booking for its popular Daehan-Shehzore all over Pakistan. The famous light commercial vehicle was again revealed by the company last month and now finally customers can book the vehicles for purchase. In order to book the vehicle, the customers can visit 3S Daehan dealerships anywhere in Pakistan – including major cities Islamabad, Rawalpindi, Chakwal, Mirpur AJK, Sargodha, Faisalabad, Lahore, Multan, Hyderabad, and Quetta.

Connecting with the ‘A FEW DAYS AGO, AN UNKNOWN OFFICIAL OF original o advertise their product, DDMC

HYUNDAI NISHAT’S FACEBOOK POST [LATER DELETED] PUBLICLY DENOUNCED DAEHAN’S SHEHZORE AS A FAKE BRAND, CLAIMING HYUNDAI TO BE THE ONLY ONE PRODUCING H-100 WITH NISHAT GROUP’

has used known newspapers in Pakistan to describe the features of Shehzore and its booking procedure. Other than this radio ad and TV commercial has also been created specifically to advertise their product. The tagline of the company in the print and TV ad is ‘Shehzore, the Legacy Contin-

AUTOMOBILES

ues’. The Shehzore pickup truck was earlier being assembled under Hyundai’s brand in Pakistan until 2004. It had proven to be popular due to its sturdy and reliable build. Daehan-Dewan Motors, in a bid to re-enter the vehicle business, resurrected the 2018 version of the Shehzore truck under their own brand-name. Its design was much similar to the current Hyundai Porter (also known as H-100), which was marketed in Pakistan as Shehzore before 2004. A few days ago, an unknown official of Hyundai Nishat’s Facebook post [later deleted] publicly denounced Daehan’s Shehzore as a fake brand, claiming Hyundai to be the only one producing H-100 with Nishat group. The classic Shehzore made its mark in the commercial vehicles segment and is well-reputed among buyers in Pakistan. Daehan made the sticker design look almost identical to the older Shehzore, with a similar color theme and font to indicate its connection to the original one initially sold by Hyundai, industry sources said. According to reports, Daehan’s Shehzore actually does use Hyundai-made engines – the same ones which will be used in Hyundai’s H-100 which Hyundai Nishat is expected to launch in Pakistan soon. Daehan Motor will help Dewan Motor to manufacture this vehicle in Pakistan again through the imports of accessories and other parts of the vehicles. “Since the product design is a replica of our Hyundai H-100, and the body was made in China without having any license agreement with Hyundai Motor South Korea, it is, by all

means, a counterfeit product of Hyundai,” the industry source said. Both vehicles have a somewhat similar design, he added. However, there are some visibly noticeable differences between the two trucks as well. Kolao Holdings reported consolidated earnings results for the third quarter and nine months ending September 30, 2017. For the quarter, the company reported revenue of $71,115,457 compared to $81,606,307 a year ago.

Foothold in Pakistan

ithin weeks of launching Daehan Shehzore, the senior management of SsangYong Motor Company (SYMC), a well-known premier SUV manufacturer from South Korea, visited Pakistan to deliberate and finalise plans with the top management of Daehan Dewan Motor Company (DDMC) for introducing SsangYong’s

‘DAEHAN-DEWAN MOTORS, IN A BID TO RE-ENTER THE VEHICLE BUSINESS, RESURRECTED THE 2018 VERSION OF THE SHEHZORE TRUCK UNDER THEIR OWN BRAND-NAME. ITS DESIGN WAS MUCH SIMILAR TO THE CURRENT HYUNDAI PORTER (ALSO KNOWN AS H-100), WHICH WAS MARKETED IN PAKISTAN AS SHEHZORE BEFORE 2004’ 42

premier sports utility vehicles (SUVs) early next year. The SsangYong team also visited Dewan Farooque Motors Limited (DFML) auto assembly plant located at Sujawal Sindh, an industry source claimed. The keen interest from SYMC in Pakistan shows that the Automotive Development Policy (2016-21) has been successful in attracting healthy investment from some of the leading international automobile manufacturers. Moreover, having DDMC (DFML) as business partner that has recently been awarded with the brownfield status from the government will enable SYMC to establish its foothold in Pakistan. SYMC is the fourth largest South Korean based premier automobile manufacturer. Since its inception in 1954, SYMC has developed itself as a premier manufacturer in Korea’s automotive industry, and is well-respected for its advanced styling and outstanding performance. Having a full line of SUVs and 4×4 double cabin pickups comprising Rexton, Korando, Rexton Sports, Tivoli and XLV, the company is considered an emerging contender in this segment. Moving into the passenger segment, in the start, DDMC plans to introduce the Tivoli and XLV SUVs that will be assembled at its Sujawal plant. n

AUTOMOBILES